Folks, a little long notel to see how a special situation is developed . it took one year for the finale. i entered last june to aug period @122.
next on radar is sundaram finance for a similar demerger…
https://investmentgyaan.wordpress.com/2016/02/05/potential-risk-free-investment/comment-page-1/#comment-94
Also, reposting an old conversation of some v learned boarders like Lincoln sir, Valan ji on PTL demerger story**. please read it from bottom.**
LN : Fantastic analysis. BoAML would easily recruit you on campus (read MMB) for the post of Sr. Analyst. In sum, the value of the 2 company`s shares 2 months from today would be around Rs.180, which gives a decent return of 50% from the CMP around Rs.120. If it falls to 160, the return would be 33% which is still not bad for a 2 month stint. Safe grounds so far. Further, it is a Raunak Singh (Apollo Tyres) group company. The group has a lot of muscle in and around Gurugram to ensure high occupancy rates through Corporate schemes, etc. Also, they are both Super-Speciality hospitals, which would command a premium. Two months of patience required. LINCOLN
lpc, valan, aditya:
i have done some more digging on ptl enterprises and based on what munna told me, valuation of hospitals. my comments as follow:
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in aug 2014 when ptl tried to sell off the hospitals for 200 crore, this proxy advisory firm called iias analyzed the company to see what the right valuation could be for the hospital business.
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as per their comparisons, hospitals are valued between 1.5-2.5 crore per bed. on this basis, they valued the 347 beds of artemis hospitals at approximately 820 crore.
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artemis hospital in gurgaon has the provision to expand up to 500 beds. from informal sources (fellow investor community), i have been told that the 300 bed hospital already has 380 beds. this takes total beds to 427 (380 plus 47).
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on a reasonable valuation of 1.5 crore per bed, this works out to approximately 640 crores for the entire hospital enterprise. if the bed count goes up to 547 (500 plus 47), then the valuation could be 820 crores.
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do note that the entire market cap of ptl at the moment is 800 odd crores. if one were to assign a higher valuation per bed, which is possible since there have been recent investments into hospitals at 3cr plus per bed, it essentially means the hospital business right now could be worth almost as much or more than the current market cap of the combined entity.
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for the hospital to be valued conservatively at 540 crore, the share price of the demerged entity would be rs 83.
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the land bank worth 547 crores under ptl is worth approximately 90 rupees per share. add in the cash flows and you could get a possible enterprise valuation of inr 100 per share. however, there will be a discount in this regard as there is no visibility as to when this land will be sold.
overall, i think there is significant scope for value unlocking after my above analysis. the hospital enterprise, as lpc said, deserves to be held for a year or two, especially since hospitals are a long gestation business and artemis has been profitable since 2011.
- based on land bank and possible valuation of the hospital
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Aditya : Xchanging and PTL are short term projects. Xchanging is a done deal @ 109 and PTL would, in all probability, declare the Record Date for the demerger by end Sep. The momentum in this stock will start building up around that time and will go all the way till the actual date of the RD. As rightly pointed out by our Valan, a return of 20 to 25 % in 2 months might be reasonable. On my part, I will hold on to the new shares (Healthcare) for 4 quarters, at least, to take advantage of LTCG benefits.
The 2016 AR of Morepen Labs is not yet on the BSE website. Shortly, I will give the link to the same on this board. It makes interesting reading. After 5 years of losses, the past 5 quarters have shown increasing profits, USFDA approvals, and other positives. I expect it to double in 2 years. Not a counter for daily excitement like XSL. Buy right, sit tight. Contra-opinions and critique welcome. Helps improve my personal stock-picking capabilities.
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LN : I have replied to all your observations covered over 2 messages, save the strategy. I will neither sell before the demerger or after. On the one hand, I am getting a Healthcare Services “for free” and it is a fast growing sector. Plus, my cost price being NIL, I would have to pay stiff STCG tax on the full sale proceeds if I sell within a year of allotment. In 4 quarters, the new company will be able to prove if we should still stay on or quit.
Reg. the old boy (PTL), his earnings and profit have the potential to grow for reasons discussed earlier viz. increase in lease rent, monetizing the land bank, etc. I`m not sure if the Revaluation Reserves of over 550 crs. could be transfered to General Reserves. Any Accountant on the board may confirm the provision in law.
To sum up, if my 120 becomes 160 at the time of demerger, I am happy. By nature, I do not sell shares in a hurry unless there is a Special Situation like Xchanging where, even Valan, after his “old dog new tricks” adage, walked away with a cool 20% before the demerger and is now looking forward to another drink on the 9th !!! Congratulations to the old boy. Any board is dead w/o his inputs.
LINCOLN
lpc - now that the excitement on xchanging solutions is just about done, i want to thank you for walking us through the process. i truly hope this is just the first of many such ventures together.
in that spirit, i crunched some numbers of ptl enterprises last night. one thing i am not certain about the demerger is that whether both the entities will have the exact same number of shares as ptl enterprises has now? this would be 6.5 crore shares of 2 rupees each. if this is so, the following are my calculations:
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artemis hospital has a topline of 400 crores and bottomline of 21 crores. the bottomline is improving as some debt has been retired and i believe more debt will be retired as cash flows improve.
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with a bottomline of 21 crore, the eps on 6.5 crore shares would be approximately 3. what multiple do you think we can give to this entity? most hospital companies i looked up (the big ones at least) are loss making or are not valued based on pe alone.
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i take indraprastha medical as a comparison - it is trading at a pe of 19 with no bottomline growth for the last 6 years. top line has grown well, but the profitability has taken a hit. on the other hand, apollo hospitals trades at a pe of 49 with flat bottomline for last 3-4 years.
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if we take a pe at the lower end at 15-17 for artemis, we get a share price of around rs 45-50.
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now coming to valuing ptl itself as a standalone entity, the rent for the facilities was recently revised and is likely to remain the same for a while. debt has been repaid, so the bottomline of 25-27 crores should remain constant. this gives us an eps of 4.
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a stable non-growing entity like standalone ptl is unlikely to be valued higher than a multiple of 15. this gives us 60 rupees a share for the enterprise.
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accordingly, artemis and ptl taken together may have a value of around 50 and 60 respectively, which is a slight depreciation on the current price.
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i have not factored in other aspects which are commonly a part of valuations, like the revaluation of the land bank that was undertaken for the tire facility. this could change the final numbers a fair bit.
please note lpc that the above are back-of-the-hand calculations and i would be glad if you were to point out assumptions or factors that i have missed out.
i seek your inputs therefore, on what i have missed out. i do now you expect a price of 140 odd for ptl when the announcements comes through. are we looking at buying and selling pre demerger or after the demerger?
i know strategy is personal to each, but maybe we could learn from your manner of thinking and tutelage. don`t want to be focusing on the wrong things in special situations 
LN : As always, great analysis. My take :
- Demerger Ratio is 1 : 1. Therefore, the paid-up capital of Artemis will also be Rs.6.50 crs.(FV Rs.2)
- Artemis Hospitals (there are 2 of them) are super-speciality hospitals. The waiting time for admission is 2 to 4 weeks ! Margins would be much higher. Large no. of Corporate clients with numerous health scheme packages (like most other hospitals). Both based in and around Gurgaon - big money area. Health Services (Dr. Lal`s Pathlabs, Thyrocare, etc.) are the flavour of the season. 75% Promoter (Apollo Tyres) holding. Unlike other hospitals, has a sound bottom line. Could give a multiple of 30 taking the price to Rs.100.
- The residual company (PTL) will continue its existing single line activity viz. leasing its plant to Apollo. The Lease Agreement was signed @ Rs.40 crs. p.a. Within 12 months, it was increased to Rs.50 crs. in Aug 2015. After the excitement / formalities of the demerger are over, we might see another enhancement, considering 75% of PTL is also held by the Apollo Tyres Group - one pocket to another !
- PTL has a large land bank in the heart of Kochi, one third of which contains the Tyre Plant. The rest could be monetized. Six months back, the assets were re-valued prior to demerger and now stand around 550 crs. A slice of land has gone to Kochi Metro but payment not received due to a fight about the rate (some conflict of interest story) Google might throw some light. I would give it a multiple of 20 for aprice of Rs.80.
- Therefore, the aggregate could be between Rs.160 and 180, giving an yield of 33% to 50% in 2 months. With each passing quarter, Artemis MP would rise with its improved bottom line. In Jan 2016, Alkem Labs (a pharma company) had an IPO @ Rs.1,050. Last week, it had crossed Rs.1,600.
- Safe bet. Old PTL has a minimum EPS of 4 (which could always rise but not fall) and Artemis could only get better as it becomes debt-free.
