I do not disagree with the general NAV assumptions posted in the thread - a general range of Rs. 300-400 cr seems reasonable. Given the current price, the share could still potentially 2x (its a bull market, after all).
However, I just wanted to highlight certain developments wrt corporate governance that aren’t positive. Majestic - SEBI Interim Order (11.6.21).pdf (742.9 KB)
The recent EGM was hastily concluded at the behest of the CMD after his attempts to stuff the BOD with his cronies failed - it all started when the independent directors stopped the CMD and his son from seemingly diversifying into securities trading.
" Since November 2020, the CMD i.e., Mr. Mahesh Munjal and Mr. Aayush Munjal of the Company have been trying to get Board approval for commencing business activity of trading in securities including equity, derivatives, debt & other products, which the exiting IDs of the Company have been objecting to inter alia on the grounds that the said proposal is without any attendant limitations, conditions and other checks and balances. Further, the said business proposal singly authorized Mr. Mahesh Munjal and/or his son Mr. Aayush Munjal to exclusively sell, purchase, transfer, endorse, negotiate or otherwise deal with the proposed depository accounts without any limitation or condition."
The consequent attempt to bring yes men on board failed when the Nomination and Remuneration Committee rejected the proposed slate of independent directors “since, it was felt that the Board of the Company already had sufficient number of directors and expertise.”
At his point, there seems to be a war between 3 independent directors - Vikas Nanda, Naveen Jain and Sham Lal Mohan (all of whom have banking and finance backgrounds) and the promoter group.
SEBI cancelled the results of the EGM where the new independent directors were appointed but given the 75% promoter holding, it is only a matter of time before these dissenting directors are shown the door and the yes men are brought in to rubber stamp the promoter’s wishes.
If a diversification into “securities trading” comes about, it is a large unknown as to what the future will potentially look like - what will happen to any cash proceeds, assuming any further real estate sales are affected.
More over, since MAL’s recent foray into leasing industrial space, it potentially means that the existing land may not be sold outright - I’ve no idea how large the Noida and Ludhiana land parcels are, but if they are going to pivot into leasing them out rather than selling them, then the deleveraging process would potentially get stalled.
Mumbai Property Deal:
They’ve won the bidding process for the resolution process of Sharan Hospitality Pvt. Ltd. - the Rs. 82 cr bid will be paid via Rs. 5 cr equity + Rs. 77 cr debt. Sharan Hospitality owns and manages a commercial building “GYS Infinity” in Vile Parle East, Mumbai, with a total leasable area of 0.8 lac sf. The tenants include Aditya Birla Finance Ltd, Founding year learning solutions, Sheth Developers Pvt Ltd., Viacom Media 18 Pvt. Ltd. and Romell Real Estate Pvt. Ltd. Interestingly, Romell Real Estate was the other bidder in the corporate insolvency resolution process of Sharan Hospitality.
I believe annual rents are ~ Rs.15 cr. More than half of this will be consumed in servicing the Rs. 77 cr loan being used to fund the purchase. MAL’s banker HDFC has furnished a Rs. 10 cr bank guarantee to complete the purchase - I’m guessing this increased funding is being financed out of the Hero group shares that have been pledged to HDFC. As the Hero share price has doubled recently, it would have led to more borrowing capacity - this is just a guess at this point.
The acquisition under the Resolution Plan is dependent on vacation/modification of the stay orders dated 13 November 2018 and 27 Sep '19 passed by the Delhi High Court in the Daiichi Sankyo v. Malvinder Singh case. Sharan Hospitality was made a garnishee in the Daiichi proceedings. Subsequently, under the Stay Orders, interim injunctions were passed against it wrt to its assets.
Basically, Daichii paid Malvinder, who funneled it to Religare/Gurinder Singh Dhillon - the head of the Radha Soami Satsang Beas - his family and assocites of RSSB. You can read about it here: Recover money from RSSB chief Dhillon & family to pay Singh brothers' dues to Daiichi: Delhi HC - BusinessToday
What I’ve found interesting is why would a Delhi/Punjab/North India based business group be interested in some commercial property in Mumbai - I’m not saying it’s a bad deal or anything, since the details aren’t fully known, but i’m wondering if there might some other angle wrt the Munjal’s being involved with the Radha Soami Satsang Beas - this is a purely speculative angle, and maybe someone else could chime in whether or not the Munjal’s are devotees of Gurinder Singh Dhillon. An investment case could be made that the company could alternatively invest Rs. 82 cr in developing and leasing/ selling its excess land parcels in Noida and Ludhiana - they know those micro markets and could exercise greater management control since they’re based in the same location. Why bother with a potentially attached property of a front page high-profile case, wherein the company that owns the property is itself undergoing a corporate insolvency process, rather than working with clean titles in your home city?
To summarize, at the CMP, we’re looking at a potential 2 bagger, but with attached issues of corporate governance, potential diworseification, potential lack of value unlocking catalysts, and little organic EPS growth.
If this stock hadn’t already tripled from last year, it might’ve made been somewhat interesting - but at CMP, the risk/reward don’t seem worth the potential troubles.
