- Saint like charity made by the promoters by waiving off outstanding dividend on preference shares
Most investors seem to be mesmerized by the act of the promoters to waive off the accumulated outstanding dividend on the preference shares held by them. Why don’t we do some number crunching.
a) DMCC Preference shares:
a. 6 lakhs pref shares at 8%: Accumulated overdue dividend outstanding as on March 31, 2016 is Rs 6.24 cr. Add another Rs 0.36 cr till Dec 2016. Total is Rs 6.6 cr (waived by promoters)
b. 2.8 lakh pref shares at 2.5%: Accumulated overdue dividend outstanding of Rs 0.57 cr as on March 31, 2016; dividend cannot be waived as they are owned by employee trust (not waived)
b) BM Preference shares
a. 90 lakh pref shares at 8%: Accumulated overdue dividend outstanding as on March 31, 2016 is Rs 1.27 cr. Add another 0.72 cr till March 31, 2017. Total is Rs 2 cr (waived by promoters)
So the promoters are waiving off around Rs 8.6 cr of accumulated dividend on outstanding preference shares held by them. Wow. Such generosity. Only a true saint can perform such an act.
- How do they react when a seller comes to them to sell his company
The owners of BM come to meet the owners of DMCC and offer their company which has the following fundamentals:
a) Sales of Rs 42 cr
b) Making ebitda loss for last 4 ½ years
c) Commodity business
d) Outstanding debt of Rs 24 cr (bank debt at around 15% interest)
e) Outstanding supplier payments of Rs 26 cr
f) Net worth of Rs 2.55 cr
This is clearly a struggling business which is not generating any cash and with no ability to meet its outstanding liabilities. The business is on the verge of closing down until some help comes their way. No problems. DMCC will value this lousy business at Rs 62 cr. They ignore that another borax business with sales of Rs 73, ebitda of Rs 12 cr, pat of Rs 9 cr, nil debt, outstanding supplier payments of only Rs 4 cr is quoted on the stock market at a valuation of Rs 88.
Sorry, I just forgot to tell you that owners of DMCC are also the owners of BM. Apart from DMCC taking on the huge liabilities, owners of BM are also being given shares of DMCC worth Rs 22 cr (of this, Rs 14 cr will go to the existing owners of DMCC since they own 63.5% of BM).
The picture now becomes clear. The sacrifice of Rs 8.6 cr was worth every crore. The promoter clearly spells out on page 13 (last para) in the recent investor con call, ‘nobody does this for charity’ when he talks of waiver of pref share dividend. Of course, he meant it in terms of the long term outlook of the combined business but I see a hard-nosed businessman who has got more by sacrificing a bit. And mesmerized the investor community who seem to be going ga-ga over his sacrifice.
Oh, and just to complete the story, post-merger, the promoter holding will increase from 50.22% to 53%. It did make sense to value the lousy business at such lofty valuation since promoters own 50% of DMCC and 63.5% of BM.