Hi Everyone, I went through the whole thread and it has been quite a patience testing journey. There have been some recent positive developments which have been briefly summarised over here so thought of sharing - Special Situation With a 3X Potential - YouTube.
The fact that Longsheng is refusing to honour SICC judgement is a massive red flag.
They know Dystar will be put up for auction in a weak global market.
Who will buy these assets? What price will auction fetch?
Not very comfortable with this situation. Too opaque.
What does Longsheng know that we donât?
The market has definitely spoken.
And you called it ! This news is further confirmation that Senda cannot find a banker who can fund a USD 600-plus million deal needed for the acquisition of Kiriâs shares in the absence of a guarantee from Longsheng. The current macro situation in China will only make it doubly more difficult to secure that kind of money. Net Net, it is going to bring down the high valuation for Kiriâs stake, meaning Dystar will be re-valued and most likely way lesser than the original valuation of USD 1.6 billion. Even after this, it will take forever for this deal to fructify given the involvement of Chinese regulators.
https://twitter.com/thewire_in/status/1663493214010241026
Kindly read the above tweet - Apms Investment Fund Ltd is one of the FIIs. Mavi Investment Fund Ltd (now APMS Investment Fund Ltd) and Lotus Global Investment Limited â found mention in Hindenburg Researchâs report on Adani Group. Approx 47% share holding with FIIs? are any of these funds indirectly owned/managed by the promoters?
DISC: Not invested in Kiri. Fellow Valuepickr members - would love ur views, I am tracking the stock.
These firms invested in kiri via fccb bonds,which kiri needed to fight the case.It is all in the thread.Plus one can also see that these Fii have holding in other companies as well as nifty 50 company like jsw steel at 1 point and had 1.7% holding in it.
Concall update
Oral judgement may come in a week. Written judgement may take time
Minimum 100 million dollar(820 crore) will be received by March 24, rest will come through auction
Subsidiary for receiving money for investment in Singapore
Kiri has signed MoU for green hydrogen with a German company , that is one sector kiri is looking forward to invest once the money is received
Can we source the latest financial statements of DyStar? Couldnât find it on thier website.
Any update on the fair value of Kiriâs stake in DyStar would be helpful to ascertain the final settlement amount.
SICC had already finalized the Dystar stake close to $603 M. That is final and there wonât be any change even if Dystar is sold for more than its value of 37% holding in 2023 verdict. Kiri is entitled for that amount only. Dystar would be valued close to US $2B conservatively.
This is not for sure, this is what each party agreed, but still the final decision would be of court
Management expect decision in 1-4 month so not necessarily it would happen by March
With regards to the DyStar case, Kiri has recently received a significant judgment on May 20th, 2024 from Singapore International Commercial Court regarding legal proceedings related to the enforcement of a buyout order, issued earlier by SICC. According to the order Kiri is entitled to receive Rs.603.8 million as the priority from the en block sale of entire shareholding of DyStar. The remaining balance from the proceeds of sale of DyStar with go to Senda.
Moreover, the court has ruled that en block sale of DyStar will proceed without any reserve price, and the long-stop date is set for December 31st, 2025. This judgment makes a significant milestone for Kiri to secure Rs.603.8 million after a long journey of litigation against its joint venture partner. Signaling that the end of the tunnel is finally in sight.
Thought it was USD 603.8 million. Isnât this really careless on the part of the company?
Anyways this sums up the latest status as per the litigation.
Now am hunting for promoter credibility and growth triggers to ascertain what could happen of the inflow.
Have recently started studying this business. Sharing my analysis here, comments welcome:
Why? - Special Situation investing
Company has been involved in a legal tussle with Longshen group over one of their JV subsidiaries for ~10 years
This has led to lack of focus on existing business and material legal costs over the years
Finally in 2024, the case looks to be headed towards resolution as per Singapore Commercial court by Dec-25
Pros:
Singapore court case vs Senda (Longsheng group china with 35k Cr Mcap)
The company has won the case and is entitled to receive the $603 mn by Dec-25. Even with 10% cap gains tax, this is 2.25x the current market cap.
On 29-Aug, they have also been awarded the legal fee (~2.5 Cr) which is quite low. I am sure they have spent more and are expected to spend 15-20 Cr more till resolution
Company can get additional ~500 Cr if they win their appeal for interest rate (which wasnât awarded) on 603 mn (@5.33% per annum for 2 years)
Dystar valuation:
Cash on books: $570 mn !!
Debt: ~0
Revenue CY23: $735 mn and PAT CY23: $72 mn
Valuation: Even at a low 9 PE, the valuation should be around $1,220 mn (650+570 mn) or ~10k Cr. A good deal for most PE investors.
Promoter increasing their stake from 27% to 42% with an infusion of 492 Cr via preferential warrants (can be converted over next 18 months) at 369 (measly 6% discount to CMP) is a sign of their trust in the issue finally being resolved soon. However, few key considerations:
It doesnât seem like the promoters have made any initial commitment while obtaining warrants so they might choose to walk away if things donât materialize as per their expectations. Edit: This is incorrect as per below comment. They have to commit 25% upfront
They had increased their stake previously in FY18 by 5% (stock went up by 50%) and another 2% in FY19 (stock went up by only 18%) then the stake got reduced to 27% due to FCCB conversion to shares at very low prices
Guidance: 1200 Cr with 3% EBITDA (highly unlikely)
Valuation of a languishing business at 0.5x sales multiple = ~350 Cr.
MDâs remuneration in FY23 was just 1.56 Cr which is not high for a company with 1500 Cr+ mcap and 0 dividends
Cons or Risks:
Primary FII investor (Lotus Global Investments Limited) is the same ones as in Hindenburgâs report on Adani. Mysteriously it sold all its stake on 21st Aug at 374. I wonder why when the court case looks likely to be resolved.
No plan to award existing shareholders with cash from the proceeds
Company is planning to venture into unrelated business with new cash. They have ventured into manufacturing of Copper rods, cathodes, copper coils and Fertilizers. Had previously indicated their interest in EV, Renewables, etc
These numbers look a little high to me looking at Hindalco which has ~6% EBITDA margins in their copper vertical. But someone else can guide me here.
Using Hindalcoâs numbers, the profit comes to ~1.5-2k Cr to me. But this is too soon. A lot of execution is left.
Expected ROCE : They had previously guided for 25% IRR (internal target is 30%). Looking at other players this seems unlikely. Also, EV slowdown.
Company
ROCE
Hindustan copper
18%
Hindalco
11%
Bhagyanagar
21%
Standalone business going down the drain and company giving unrealistic guidance of 2x sales and 3% EBITDA margins in Q4FY24 concall, EBITDA was ~0% in Q1FY25.
They have another JV with Longsheng, Lonsen Kiri, which entails a possibility of another legal tussle in the future. Lonsen Kiri is in fluorine dyes, indigo
Triggers:
Nov-23: Interest rate and priority settlement appeal
Apr-25: Sale of Dystar
Exercise of warrants by promoters
Entry of big investors. As per management, no big investor has invested because theyâre waiting to see if Kiri will receive the money
Revival of margins and sales in existing standalone business. Some sales has come back in last 2 quarters but nothing to write home about
I have swing traded in this counter a couple of times but this time i have held onto the stock since 290 rs.I plan to hold the stock till the markets prices in the cash they are going to get .the lotus group selling may be due to reasons the promoter not rewarding shareholders but the recent pref issue has made it clrear of the promoters integrity who i think in may concall told the same that they would want to invest in the company in the near future.
I wont mind adding more if i get the prices i have gotten the share for.
This is simply not possible according to SEBI ICDR(screenshot attached)
Warrant subscriber has to pay 25% upfront which will be forfeited if they donât convert. Thatâs a 125cr donation by the promoter family to the co if they donât convert
