Rama Pulp and Nath Pulp Merger

Rama Pulp is a company in paper segment and currently under Nath Group (Nath Bio Genes {earlier Nath Seeds}, Agri-Tech India and couple of other small companies.

Yesterday, the board approved merger of three companies, Rama Pulp, Nath Pulp and Nath Chemicals (private company). Both companies are in paper sector and it will be good if they merge and even the Chemicals company has some synergies with them.

The merger seems fine but I am little confused about merger ratios and how it could impact value for existing shareholders of Rama Pulp.

They have taken Net worth as below (on 31 March 2017).
Rama Pulp - 41.2 Crore
Nath Pulp - (-16.9 Crore) Negative net worth
Nath Chemicals (12.2 Crore) (this company is private)

Now, the merger ratio

After merger gets approved, Rama Pulp will be the only company existing.

For every two shares of Nath Pulp, shareholder will get 1 Share of Rama Pulp
For every 1 share of Nath Chemicals, shareholder will get 1.8 shares of Rama Pulp.

I think this deal overvalues Nath Chemicals ?
It undervalues Nath Pulp (based on market valuation) but they are considering that company as one with negative net worth.

ALSO, I am surprised that the Promoters will hold 70.43% in final company after merger. This sounds quite strange to me considering the fact that they have quite low holding at the moment in both public listed companies. They have 100% holding in private company (which seems to get overvalued in this case).

This is quite confusing for me and I am not able to understand how the company has arrived at these valuations.

Members on this forum are experts in such topics and I am looking for viewpoints from ValuePickr forum about this merger.

I invested in this stock 4 years back considering it a good option for value investing. It has given good returns.

This is my first topic here so I am not sure if I have correctly followed all the rules. If some changes are required, I will make them or moderators can edit this topic.

BSE Link to Merger Decision


After the merger was announced, the stock has started declining. This could be just speculating going on but I think there are some other investors who are feeling bad about the ratios in this merger.

The Unlisted Chemicals entity, which had networth of nearly 12 crore has been evaluated at nearly Rs 36 crore.

And, promoters are getting a big pie of the final company.

Without knowing anything much on the company, Prima facie looks like a case of a C grade company run by D grade promoters trying to rip-off the minority shareholders by getting a valuation certificate from a Z grade CA firm to paint a pig like private company with lipstick and jack up its valuation several times the actual (and hence pay a lip service to SEBI’s requirement) and then increase their shareholding in the valuable entity by back-door. This type of fraud is very common.

Now we are living in a liquidty driven hyper investing environment where the BSE small cap index itself is up 5+ times in less than as many years, so you having made money in this stock should feel lucky and should sell immediately if my apprehensions above are found true by your analysis, coz there is no limit to what such C grade companies stock can fall - all your gains made over so many years can evaporate in days.

Just calculated the approx valuations and seems to be a clear case of fraud

  1. Rama pulp - Listed Paper business - Promoter holding 24% - Valuation 44 cr - Price to book of just 1x
  2. Nath pulp - Listed Paper business - Promoter holding 68% - Valuation 18 cr - Price to book of negative 1 times as networth is negative 17 cr - ideally this business should have been valued at zero
  3. nath industrial chemicals - Unlisted industrial chemical business - Valuation 36 cr - Price to book of 3x

So the valuation ratios of the company are inversely proportional to promoter shareholding in this case. Looks like complete AVOID.

1 Like

I agree to analysis made by you here.
And, on top of all that, they are reducing equity. Which means that current shareholders in Rama Pulp will get 1 equity share for 2 held right now, once the deal is finalized in March 2018.

This is how, they end up with 70% equity in the final company. I am simply not able to understand the way they have calculated the ratios.