Special Situation Play
Situation: Voluntary Delisting.
Offer Price: Rs 285/- share.
Floor Price: Rs 264/- share.
CMP: 321/- share.
52week High/Low: 455.70/201.70
|Category||% of total voting rights|
|Public and others||5.98|
HOW MANY SHARES COMPANY NEED TO ACQUIRE TO REACH 90% THRESHOLD:- 6,60,69,754.
Acquirer History :
Baring PE through its subsidiary, HT Global IT, acquired the stake from Atul Nishar Followed by open public offer at Rs 135/- share in Year 2013. Further stake was acquired in year 2014 at Rs. 195/- share
Reason behind De-listing : HT global IT (promoter) has outstanding Bonds to repay in July 2021, without privatizing it won’t be possible. Financing for privatization will be done through equity infusion by promoter (Baring PE India) in subsidiary HT Gobal IT. Since Hexaware generates free cash it will help promoter to reduce leverage at promoter level.
Risk is that if privatization doesn’t get through the HT Global won’t be able to repay its Bonds in 2021 which HT global won’t like to do. So possibility of delisting is High. The only question is final delisting price.
PS: This is the reason derived from Moody’s and Fitch’s credit reports of HT Global IT and is different from what they disclosed in offer letter.
Recent deals : The promoters sold 7.8% stake of the company at Rs 447.50 in August 2018. The price is 40% above the current market price.
Is Risk reward favorable if delisting get through:
Potential loss if the delisting get through: 10%
Potential gain : looking at the history of successful delisting in India successful bids have generally been higher by 40% to 50% of offer price.
What if the delisting becomes unsuccessful:
- The Company is growing sales and profit @ 17-20% since last 10 years consistently.
- Net Debt free company.
- Generating free cash flows every year since last ten years consistently.
- Dividend payout @ 3.5%.
The company is ninth largest IT Company in India. However there is Client and geographical concentration risk. 45 % of the revenue come from top 10 clients. Major Partner includes Microsoft.
The Demand for IT and automation and clouding is at inflection point after COVID-19
Time limit for Investment:
Other things remaining same it takes 3-4 months to get delisting completed.
The deal is a win win situation for Investors irrespective of Delisting proposal. At least deserve some allocation.