I found the article, thanks - http://www.fairchem.in/investor-relations/SEBI/Order-CP-CAA-925-2020-30-06-2020-Web-copy.pdf - sorry for the bother.
Kumar
Also, any numbers on the market shares that Fairchem commands, in India? Given that 33% of its revenues are from India, 19% from North America and 19% from Europe, it would be useful to know how much of the pie it can eat, in each of these regions. The market does have quite a few players, just trying to understand the opportunity size.
I believe they’re talking about Soya as a raw material and its lack of availability, etc., it is detailed briefly in the “Risk management” section a little after this note.
Kumar
Results for Q1Fy21 declared - as expected, COVID impact felt on the profits.
The COVID-19 pandemic has disrupted many business operations globally due to lockdown and other directives imposed by the governments. The sole manufacturing plant of the Company closed its operations from March 25, 2020. The Company has resumed production with effect from May 21, 2020 and has achieved normal business operations from June, 2020.
Also, regarding the demerger, approved on June 30 by the NCLT:
The Board of Directors of the Company, in its meeting held on May 22, 2019, had approved a Composite Scheme of arrangement and amalgamation (‘the Scheme’) amongst Fairchem Speciality Limited (FSL), Fairchem Organics Limited (FOL) and Privi Organics India Limited (POIL), two wholly owned subsidiaries of the Company and their respective shareholders for Demerger of FSL’s undertaking carrying on speciality oleo chemicals and nutraceuticals business and vesting the same into FOL and Amalgamation of POIL, manufacturers of aroma chemicals, into and with FSL, under Sections 230 to 232 read with Section 66 and other applicable provisions of the Companies Act, 2013. The Honorable National Company Law Tribunal (NCLT), Special Bench, Mumbai vide its order dated June 30, 2020, has approved the Scheme. However, certified copy is yet to be received by the Company. As defined in the Scheme, ‘Effective Date’ would be the date on which last of the conditions as mentioned in the scheme is fulfilled, one of which requires a certified copy of the NCLT Order to be filed with the Registrar of Companies. As the satisfaction of this condition is currently pending, and basis legal opinion taken by the Company, the ‘Effective Date’ in terms of the Scheme has not yet been achieved. Hence no effect of the Scheme is given in the financial results for the quarter ended June 30, 2020.
Record Date for demerger fixed as 24 August 2020…
Residual Aroma chemical business (Privi Specialty Chemicals Ltd) price discovered on 21st August 2020 @570. The business has a TTM revenue of INR 1324 cr., with EBITDA of INR 217 cr. At INR 570, the multiples commanded are 1.97x TTM EV/Sales, 12.05x TTM EV/EBITDA and 20.74 TTM P/E.
Rgds.
Discl. - Invested
4 Likes
Thanks for your updates Mahesh. How do you see the other Co. Fairchem Organics listing? I believe that three shares of the earlier Fairchem Speciality would entitle one share of Fairchem Organics - right? Considering its future growth potential would 600 be a reasonable assumption?
Would appreciate your feedback. Thanks.
What is the source of your information? I mean, how and who made the price discovery? Was it done by NSE or BSE? It will be great if you can give some details.
Thanks.
From 21st August 2020, company is trading on bourses ex-oleochemical business ; price discovery is done by market forces – demand and supply.
I won’t put a price to any company as what I see and how I analyse a company is different than what other person sees or analyses that same company - - for me what is expensive might be cheap valuation for others and vice versa…also, it all depends on business visibility, management future business actions and strategies as also general market sentiments …
if you are going by just plain price discovery of company’s shares post demerger – if we put it at 550 for listed entity – Privi Specialty, then based on last closing price of 685 pre-demerger, the resultant price for to be listed Fairchem Organics works out to be INR 405…
However, management is very cautious in its commentary for Fairchem Organics business as far as FY21 goes so we need to see subsequent results then take a call.
3 Likes
I agree, but since Fairchem Organics firm is not yet listed (or traded) for the market forces to show their action, I was wondering how would you derive the price?
Any idea when will be the shares of Finechem Organics be allotted to investors? Thanks for your reply.
1 Like
Unfortunately, I do not have an idea. But on similar experience with Aarti Industries and Aarti Surfacants, the entire process of allocation and listing can take 6 months.
1 Like
The breakup of cost of shares between Fairchem Organics Ltd. (Resulting Company) & Fairchem Speciality Chemicals Ltd., now known as Privi Speciality Chemicals Ltd (Demerged Company) was released by the Co. today.
Can somebody clarify.
Fairchem Speciality, the currently listed entity, which was valued at about 80% of the pre split Co. has been apportioned cost of only .02% of the original cost of the pre split Co. Should it not be the other war round?
As per my understanding, we need to understand the pre-demerger structure for this.
In 2015 FIH acq stake in ADI FINECHEM & in 2016 they acq. stake in Privi Organic.
In 2016, Board of Adi & Privi approved acquisition of “Aroma Chemical Business” of Privi Organics Ltd through demerger into a wholly-owned subsidiary of ADI Finechem – ADI Aromatics Ltd.
And later on name of Adi Aromatics was changed to PRIVI ORGANICS LTD.
So,basically PRIVI was wholly owned subsidiary of ADI FINECHEM & later ADI was renamed to FAIRCHEM SPECIALITY LTD.
Since in this demeger two transactions are happening consecutively.
1.FSL will demerge its speciality oleo chemical and nutraceuticals business into FOL.This co. has been newly incorporated for the purpose of executing this transaction.
2.POIL will get merge with its holding company. As a result of the merger, FSL will house the Aroma Business.
As a result of above transactins FSL became nothing more than a holding Co. till Privi got merged into it.
As per the circular also the entire equity share capital of PRIVI held by FSL stand cancelled.
This is all i could interpret after going through whole structure n circular.
2 Likes
Hi, I am new to investing and totally pexplexed by this whole demerger process. Previously I had studied the demerger process in Suven and it was quite easy compared to this.
- Can anyone help me understand on what basis the share price got reduced on 21st August from 685 to 550. (Is it because the equity share capital of privy organics got cancelled)
- The newly formed entity FSL is given 0.02% of total value, does that mean only 0.02% worth of assets will be transferred to FSL, which will own Privy ? or is it because it is just a holding company which is yet to receive any assets worth of value. (as the entire equity share capital of Privi Organics lndia Limited, being held by FSL, shall stand automatically cancelled)
3 Likes
I have received the shares of Fairchem Organics in my DP. I have a few queries
-
Of the two businesses which one has higher growth/valuation potential? It was my understanding that Privi had a higher margin business and its this business that could get a higher multiple. However, in the existing structure, there was an issue of hold discount
-
Post demerger the hold co. discount has been eliminated. which means A&B on the listing should technically be more than A+B. This is unless the multiple of Privi (aroma) has a positive effect on the oleochemicals and nutraceuticals business. In this event, Fairchem Organics post listing could underperform.
Trying to get a better handle on whether one should be sticking to both the listed companies post listing or should one exit Fairchem Organics.
Disclosure: Own a small quantity of the stock.
1 Like
Hi,
When was FOL shares credited to your account ? I have been holding FSL shares since May, but yet to get shares. I was more hopeful on their Oleochemical and nutracetical business and was planning to stick to FOL.
It will be in your demat, if not, please check with your broker. It is yet to get listed.
@JD222 - you are right about point (1) - Fairchem Organics has been historically relatively higher growth business.
Which one to keep etc. is your personal choice. However, value unlocking has already happened as demerger is done. A is known, A+B will be known once B gets listed 
Disclosure: Invested; Only for educational purpose
3 Likes
The computation is along the lines of the proposed / approved scheme. The reason the net worth of FSL has dropped for purposes of arriving at the cost of acquisition is that as per the scheme, the “Oleo Chemical and Nutraceutical Business” is first demerged; and then Privi Organics India Limited is merged with the remaining FSL. (Appointed date 1 and Appointed date 2 respectively, which is nothing but close of business on March 31, 2019 and opening of business April 1, 2019)**
Consequently, the cost of acquisition of the resultant FSL will be what remains after the “Oleo Chemical and Nutraceutical Business” is moved out, and before anything else. This is practically all the business of standalone FSL, which is 99.8%.
** Source: http://www.fairchem.in/investor-relations/Material-Contracts/9-Composite-Scheme.pdf
Of course the consequence of this is that practically the entire price of FSL is capital gains for the shareholder.
Name of the listed entity has been changed from Fairchem Speciality Ltd to Privi Speciality Chemicals Ltd. But I am surprised that name change has neither been intimated to the SE nor changed in their listing. Don’t know if I am missing something.