Things to keep mind while evaluating special situation:
- No matter how attractive opportunity , management track record and past practices should be thoroughly checked.
Plz others also provide their input on basis of failures experienced from special situations.
This might be a stupid query but still want to ask , Is it better to wait for demerger to happen and let the demerged Co listed and then invest or evaluate your position to invest just after demerger announcement ? Case of Borosil Renew , Jubilant ingrevia – both would turn out to be good investment when they were re-listed after demerger , point is to save opportunity time , ofcourse there could be better bargain just after demerger announcement , but till re-listing happens things might get more clearer ? Also this query is when someone is mainly interested in demerged business only. Also on re-listing as i understand mainly if its a small cap Co , then institutions/MFs wouldn’t enter or rather exit due to their allocation restrictions.
(pls flag if doesnt add value to thread or happy to delete)
Eureka Forbes demerger latest status - reserved for orders. The final approval should be coming soon.
Personally have a good stake in motherson sumi and want to know is there any new value opportunity in there latest demerger and will it help the investor or not.
My personal thesis was to have a diversified auto component bet and mother-son sumi just fit rightly into it as i personally know auto industry and investing in diversified buisness was my objective.
So will it create any value unlocking and is there any swap ratio in play as till now I am only seeing 1:1 ratio only.
Aniesh Ji, Thank you very much for the information. Do you think Tata Consumer will be demerging?
Sir it’s already Demerged from tata chemicals - start of 2020
This is really very subjective. Take Meghmani Finechem for example. Post demerger the stock raced to 600/700 after listing at around 400. If the value of demerged co is known, the market usually is quick to lap it up. But if the demerged co doesn’t offer serious value, the stock could remain subdued.
It depends on a lot of factors. One needs to calculate value of the demerged business as well as remaining business and see the margin of safety. For example, when Eureka Forbes demerger was announced, Forbes and company was trading at 1x sales. Also, SP group agreed to sell Eureka Forbes as a part of debt restructuring. Another important thing to consider is the management. If the management has been good in the past, there is a good chance that demerger will unlock values for the shareholders.
That I know. A further demerger is there or not?
Value can be unlocked if Tata starbucks goes for IPO/Demerger in the future. Tata starbucks is a joint venture between Tata consumer and Starbucks. For now, they do not have any plan for that.
Most recent conf call of Motherson Sumi after the demerger.
Audio Recording: https://www.motherson.com/storage/analyst-call-transcripts/2021_22/Unedited-recording-of-conference-call-held-on-07th-January-2022.mp3
It sounds to me that the management is not providing much clarity on the demerged entity (Please keep in mind I’m a complete novice regarding demergers).
When I look at FY21, here: https://www.motherson.com/storage/annual-report/MSSL-Annual-Reports-2020-21/subsidiary-companies-20-21/MSSL/Motherson%20Sumi%20Wiring%20India%20Limited_Financials.pdf, Motherson Sumi Wiring India Ltd made losses (₹40L loss). But the most recent presentation mentions (page 39) that demerged MSWIL made EBIT of ₹382 crores in FY21.
This is confusing. I wonder if this means MSWIL demerger involves more than wiring business in India, in spite of its name (There was a profitable SMR Automotive Systems India Ltd in FY21). I also wonder if the way transactions are interpreted is so different now that MSWIL looks profitable. I don’t know if similar profitability can be noticed from now on.
It would be great if experienced members give a clarity on this demerger. Thank you.
I think that the demerged entity when lists , will be under selling pressure and return ratio are good for the demerged entity…
As in case of selling pressure in case of demerged entity , the opportunity can be there .
Icici research report has given vakue of 70 rs for demerged entity.
Awaiting for other people’s input
I have some questions on demergers if someone can please answer:
- Should one buy pre-demerger or post-demerger?
- Should one buy the parent or the demerged entity?
- Why is there forced selling when market cap of demerged entity is small? I know by the regulatory constraints the large cap MFs are not allowed to hold it. But why can’t they transfer the shares from the same MF house’s large cap fund to small cap fund eg from HDFC large cap to HDFC small cap fund? Why do they sell forcefully at low prices and not simply do an off market transfer?
Ans. to 1 & 2.
it varies from case to case basis. If parent is demerging a loss making or unattractive biz then u can buy pre-demerger also. And sell the resulting entity on listing date since this will see a huge selling if FII/DII are there in resulting company. But there is a risk in buying pre-demerger which happens when demerger cancels due to some reason. in many cases buying a good company after demerger gives a good capital appreciation.
3. No idea about this
valuation sheet for MSWIL.xlsx (10.8 KB)
A rough valuation sheet for the wiring harness biz of the motherson sumi Ltd.
since FII/DII together will be holding around 30% in the resulting company. So here we can expect a correction. Market cap would be going to be around 5000 cr.( i may be wrong), do ur own calculation also.
Counter views are happily invited:)
standard disclaimer applied.
It is very simple they can not tranfer the stake as it is eminent that either small cap or that mid cap fund should have that money to have the cash on there hand to buy that stake from there large cap counter and also as a note if they sell in open market and then buy at lower price this will make both of there fund do great then just transfer as if after fall or rise atleast one party will see it as wrong as they will see that they are getting a worse deal.
For example if they can sell stake at 50 per share and tranfer at 55 then it would be cheating as this make there large cap fund owners loss and opposite can also happen so tranfer at fare value could be hard.
Most funds don’t have same fund manager so both can have different views like hdfc large cap is quite value heavy and into psu while there small cap don’t focus on that so this issues can also come into play.
Mostly in demerger weaker subsidiary losses as selling may be there as if you want one buisness then you will sell the other shares and buy the other that you like so it is gain for new more stronger company as old will buy more to have position of same size to add new buyiers who will now be interested and were not buying due to the other business.
Such example could happen in itc as many don’t want cigrate buisness but want FMCG buisness.
Side note:-(I don’t know are you talking about motherson sumi or not so can ignore).
I personally will say both buisness that are demerged are good to hold as wire buisness is not getting fare value and they can get better value in open market and also to add they want aquisition and also there plan to work that might be very hard to achieve if they were having wire buisness and can have over dependency on India in future as this buisness is high growth as minda industry is also there and atleast they are very bullish about this segment.
Any reason why you are expecting a correction? Do you think FII/DII will sell it?
As per my theoritical knowledge gained from Joel Greenblatt, I am expecting this…lets see how market reacts?
Fii/did have to sell after it gets demerged, it’s a largecap they can’t hold smallcap in largecap fund. Like it happened in Jublient ingrevia.