We should also see what are the possible future scenarios for this company after demerger.
on balance sheet
Land Value – 568 Cr ( evaluated in 2016)
Building & Road --16.5 Cr
Plant – 0.1 Cr
Lease rental - 60 Cr/ yr
Apollo group promoter acquired PTL in 1995, I am assuming since then plant is fully depreciated in PTL’ books (not sure how it was then), except some residual value of building and roads. No new expenditure required on building and plant (?), as I believe all new expenditure on plant are in Apollo Tyre’ book (not validated). or plant asset/investment will be insignificant compared to land value and annual lease rent.
Also as I understand it is just an associate to Apollo Tyre, not the subsidiary.
Last year they have distributed 20% profit as dividend and rest invested in the Apollo Tyres shares.
31(b) The Company has leased out its plant to Apollo Tyres Ltd. The lease is extended for a further period of 8 years up to March 31,2030 vide agreement dated August 1,2017. The lease rent, which is renewable annually as per the lease agreement at a rate to be mutually agreed, amounting to Rs 6,000 Lacs for the year, has been credited to statement of Profit & Loss.
Apollo Tyres’ Installed capacity @ Kochi is ~5% of total
Keep distributing 20% of lease rental , and rest invested in
1a) Apollo Tyres and other associate companies or
1b) Also invest in other attractive opportunities outside associates
Is there any possibility of Apollo Tyres acquiring it, as of now this company does not have any other business. Are there any advantage or disadvantage to the group doing that?
Any other possibilities?
3a) plant can no longer be operated inside the city limits(?) so PTL re-propose this land for real state development?
We can evaluate this company based on these future scenarios
- land asset + retained earning as investment.
Lease rental will remain at around 9% of land value - tax = 6%, revised every years on average by 6%? + Land value appreciation at around same range 6-8% per year, in total 12-16% of long term appreciation. Any appreciation beyond 12-14% range on retained earning, land value appreciation beyond 8% will be bonus.
Current value of Land + Investment = 700Cr+ (including land value appreciation in last two year)
Liquidation value 700 Cr - income tax* - dividend distribution tax = 350Cr ( though it will be least effective way of disposing the business.)
*(how proceeds from land sale evaluated for tax? Long term Capital Gain or normal income)?
Most likely on market value of the land + investment, but probably structured as merger. Value 700Cr
Company becomes a real-state company.
Which ever way you evaluate it today, company’ value will increase @rate 12-16% per year. In the event of 2) you may unlock further 100% value from your investment.
They still own labor and operations atleast on paper. Can these be transferred to Apollo in case of scenario 2) and 3)?
Lack of retail Investor focus