Analysed this co., Marathwada Refractories in detail as also dwelt on my sources, and after a long time since Axis IT&T - the last takeover candidate I invested into - this co. seems promising one.
The 10 cr. cash on books of Marathwada seems to have attracted Sushil Mantri of Mantri Developers to this co. but the thing which made me dwell deeply into this co. is the fact that post 50.11 % acquisition via SPA, Mr. Mantri continued to purchase the shares from the open market via negotiated deals and increased his stake to 67.9 % before the specified date for open offer. No one will pay 16.5 cr. (the amount paid by Mr. Mantri for acquiring 67.9 % stake) for a 10 cr. cash unless there is huge benefit derived out of it. Thats why I checked up with mysources and got info on following :
Mr. mantri has acquired 67.9 % stake in the co. while another 8.5 % stake is acquired by his associate Hara Housing of bangalore. Hence, Mantri group has almost cornered 77 % equity of Marathwada and has made open offer for remaining 20 % stake.
Now to look at co. irrespective of source based info, 10.5 cr. cash on books provides a great margin of safety towards possible downsides. An entry of group like Mantri Developers which has carved its name in south and has a very clean image provides a trigger for possible future upsides. Cornering of almost 77-80 % stake before open offer and willing to purchase another 20 % stake at Rs. 397 indicates the commitment of new promoters towards the co. Even if we deduct 10 cr. cash on the books of Marathwada then also paying a 6.5 cr. cash by Mr. Mantri in his personal capacity as also paying of around 1.8 cr. cash by his associate Hara Housing is not a small amount by any standards. 10.5 cr. cash on books of a public limited co. is hard to divert by foregoing minority shareholders’ interest and Mr. Mantri will not risk such thing as it will spoil his clean image.
Hence, this effectively means that Mr. Mantri has spent a whooping 16.5 cr. and if we add here the amount spent by his associate of 1.8 cr. then it comes to 18.3 cr. for a company which has no operations and no assets except 10.5 cr. cash on books. This implies the bright future ahead for this co.
One Cautionary thing - investing in takeover candidates is like playing blind game and if plans don’t work out the investment made could become zero. Specifically in case of Marathwada the biggest risk is the diversion of cash towards Mantri group companies and investor in this co. must be aware of this risk.
Disclaimer - I hold Marathwada shares