Reverse Merger- Sangam Advisors

Hi,
I am new to this forum .
request senior boarders to give their Views

Scrip name : Sangam Advisors
MKT CAP : 38 CR

Promoters: WAAREE Energy
Waaree energy is leading integrated solar power manufacturer with capacity of 500 MW . The top line of the company is 1200 cr as per MCA filings for march 2015. ( Latest not yet filed )
As per mkt sources the current revenue is close to 3000 crores for march 2017.
The owners Mr. Hitesh Doshi and other family members had picked up 44.44% stake in this shell company Sangam Advisors.
Various formalities like changes in MOA and line of business has been changed into solar business . Secondly in fact they( Sangam Adviosrs) have announced their maiden solar order from MAHARASTRA SEAMLESS
What can be the reason for the same for them to buy stake in shell company i guess they want to go for backdoor listing for raising funds .
In the month of march 2017 there was news in MINT regarding WAAREE looking to raise funds.
(http://www.livemint.com/Companies/m7ofctx7cvEXKOYMQte34J/Solar-module-maker-Waaree-Energies-looks-to-raise-100-milli.html)

Block deals:
Latest block deals suggest few smart investors have got an idea of the same :slight_smile:

Investors

  1. Mr. Porinju Veliyath (not sure - VIA PAC- LITTY Thomas- can be Checked via his disclosure for Inv. in sarda plywood )
  2. Mr. AMIT Arora ( not sure the same ace small cap stock picker -Amit arora )

& Others like Mr. Kapadia , Mr. Chugh , Mr. Lohia

DATE Client Name QTY Rate
09 May 2017 AMIT ARORA P 94498 37.14
04 May 2017 SANDEEP KAPADIA P 85000 34.70
02 May 2017 OM PRAKASH CHUGH P 100000 31.49
02 May 2017 DHEERAJ KUMAR LOHIA P 100000 31.50
02 May 2017 LITTY THOMAS P 92500 31.50

I think chances of back door listing is very likely …considering they are looking actively for raising funds .

request people to share their views .

I feel its stock worth taking a Bet.

CMP : INR. 38

Disclaimer : Do have tracking position in the stock . The above opinion are completely personal opinion not recommendation to buy /sell . Please consult you Financial Advisor before taking any decision .

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I had attended the last AGM of Sangam Advisors and I had asked about future plans & at that time the company representative had said that they had not firmed up any plans yet. The Doshi’s did not attend in person.

Subsequently they have announced one initial order in the solar space.

PS : One curious thing is that a firm Thar Commercial accumulated 15% stake post the Waree group taking over. I felt they must be insiders to take such a large stake. However they started selling at 30 bucks & totally exited.

Yes even i noticed the same stuff ( THAR commercial selling). I think they would have realized the same as the holding was very high ( 15% approx).
But what i understand some informed buyer has managed to buy . The blocks sold had pre - arranged buyer as i could check in the TICK chart except for some blocks.
Secondly i think last AGM there was not much clarity, now the management has changed and WAAREE group mgmt has come , so this year AGM we might get some visibility regarding their plans.
The promoter pedigree is very good and Waaree group has grown exponentially over the last 4 years.

Hi - Thanks for the post. Few concerns/questions -

  • Why Hitesh Doshi (Chairman & Managing Director of WAAREE Group) is not even part of the Sangam Advisors board?
  • Why 27 year old Pujan Pankaj Doshi (with no other directorship and who is not even part of board or top management of WAAREE Group) is the MD of Sangam Advisors?
  • Why none of the WAAREE Group board or top management is in the board or management of Sangam Advisors?
  • Why Proinju or Ashish Chugh themselves directly did not but the shares?
  • All the smart investors just own less than 40 lakhs worth of shares - it is probably 0.1% or less of their portfolio! Looks like they are themselves not sure and considers it to be a punt!
  • Why Sangam took so many months to get one contract
  • Why the maiden contract is just of 1 MW? It is just too small a contract - almost negligible?
  • Why Doshi’s choose shell company route? Save time or money - Right. But if it was to save time then why almost a year of inaction? In q1 2016 Doshi bought the promoter stake. And not much happened since!
  • I dont thing this move was to save cost. As now if Doshi’s want to raise stake in the company - it may come very costly - already share is trading at 4x BV and 4x their initial purchase price. Why would they like to do that? And the book value is essentially cash?
  • If WAAREE Group gets a solar contract - why will it pass it to Sangam Advisors where it just have 44%. Why will it just not give it to its 100% owned private entity?
  • It cannot be the main entity of WAAREE Group as in for reverse merger or raising funds - This entity is just too small. And if they had to do that - then Doshi’s by now would have injected enough cash in the company to raise stake to 75% and adequately capitalize the company. They haven’t done any of that and just gave a 1 MW contract. Even Sangam’s board and management is weak. Story doesn’t tie well!

I know of other management change companies like Uniply and Safari - In both the cases the existing business had a great turnaround potential plus the new owners were dedicated to the company day one. In this case I find it difficult to understand the rationale.

Not invested.

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  1. Please find the below my views

The reason for Hitesh Doshi not being part of Sangam is very simple ,before the complete amalgamation he does not want to publicize regarding this backdoor listing ,these are always done silently.

  1. Pujan Doshi is part of management team of Waaree group in two of their` subsidiaries ,itec, and vedvyag.

  2. If people from top mgmt have to take control then they had to take approval from the board including some lenders which they would not like to have disclose formally at early stage

  3. They have not bought it - reason is simple they would not have got the required exposure as the fan following is high.

  4. The free float if the shares is close to 55 lacs …and it should be available for them to buy.

  5. The 1st contract was just made public so that ,the existing company does not classify as shell company ,as recently there was lot of inquiries raised on these shell companies in public arena. So it was just to show it does have some operating business currently.

  6. The reason is clear - they would have expected some large solar orders but were not sure requirement of capital is necessary .

  7. lastly if the current stake is 44.44% it can easily be increased to 75 just by merging the existing Waaree group with this company by share exchange ratio . Its a common practice . he does not need to buy .

9 The mergers of companies you are referring to is completely different from this .

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Dear Gaurav - Are your views based on guess / hunch / possibilities or do you have some sound basis for them? - thanks

No investment

My friend i am just trying to connect some dots based on basic logical reasoning . Money is always made when you are able to gauge things before it actually unfolds . Risk is always there…:wink:

Two more questions -

  1. Why did Thar not sell their stake to promoter rather than in the open market to these smart investors. It was good 15% which promoter could have mopped?
  2. How exactly will this company make money for current minority investors? If this company is used for backdoor listing than WAAREE will bring their assets at market price (and issue to themselves equivalent shares of Sangam at say CMP of 42 bucks) and will say raised 100 mn USD from market or some large institutions by issuing them Sangam’s shares (again at say 45 bucks). All this will mean massive dilution for current minority shareholders. But current minority will gain value only if WAAREE puts its assets in this company at below market. Then only value unlocking will happen for current minority. Else it is akin to buying at the IPO esp. of module producing company which will continue to face challenges from Chinese imports in one way or the other.

The fifteen Percent stake buyers will be known only after quarterly shareholding disclosure.( because as i earlier stated they had PRE- arranged buyers except for few blocks- you may get tick data on bloomberg )

Equity dilution will be there to the extent promoter holding reaches 75% ( so 44.44% to 75 %).
Current book value of WAAREE should be close to 150 Cr. ( 120 cr was the reported figure march 2015). Latest balance sheet not yet filed.
Obviously the money raising will be done as per the industry multiples. It can be multiple ways - preference shares /warrants.

Secondly even if its a kind of IPO i am not sure we have any listed direct solar player company with 2500 crores sales ( they are an integrated player - not module manf. only) . The ones which are there are very small and are module manf. only .

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@Gaurav2000k This one looks similar to APL pipes (PVC/CPVC) reverse merged with Amulya leasing. But for that to happen first Sangam Advisors has to acquire stake in Waaree Energy and then reverse merge the same under Sangam Advisors.

Amulya leasing started acquiring APL pipes from 2004 (which they did in tranches) and the entire process of listing APL pipes is yet to be done. So, it would take roughly 3 years.

In case the same timelines be assumed for Waaree Energy reverse merger too, it would be 2019-2020 by which the actual stated benefit of raising funds be realized. Similar observation was made above by @rdhoot too.

Am I missing something here? Would appreciate if you could clarify. Thanks.

Disc : No position

@vijay : sorry i have not tracked the above merger of Amulya leasing . But its not compulsory for Sangam to buy out Waaree…they do not have that balance sheet strength /it has negligible assets.They might just merge both the entities . Yes it should take minimum 1 year time for the same to complete if it happens (2018-2019)
Classic case of Westlife development can be read for understanding …

Hi -

Just to highlight -

It is not prudent to compare Westlife with Sangam. -
1 - Westlife Development Limited was set up by the eminent Mumbai- based B.L. Jatia family.
2 - Jatia company had majority stake in Westlife - with associate companies. Jatia owned more than 70% in Westlife.
FYI - Jati family is the owner of Mc Donalds.
Jatia finally reverse merged Mc Donald in Westlife and Jatia were clear winner as they owned more than 70% in westlife.

So in this case Jatia family was always the owner and majority shareholder of Westlife and Mc Donalds. So they just merged their own two companies together.

And Jatia merged the two companies rather than list Mc Donalds as this would help them gain time.

And in exact contrast - Is Sangam - Please see below

In Snagam’s case, WAAREE energy just owns 44%. WAAREE could have bought Thar’s 15% shares but they let go those shares. As most of them were purchased by new investors like Lohia and Kapadia. Why would WAAREE/insider let go these 15% block of shares if WAAREE is trying to create great value for the company - it is exactly similar to insider selling - In my view! This is exp. because if you check bulk deals, THAR has been selling shares consistently at all prices - from 33 onwards almost every second day to get rid of them. Why? And if we assume WAAREE bought most of them, why did WAAREE not do a buld deal with THAR. So WAAREE buying is nothing buy a wishful thinking in my view.

If WAAREE had similar intention as Jatia - WAAREE would buy 1) all the THAR shares to raise their stake and 2) would not have delayed action in Sangam. Sangam shares were bought by WAAREE in early 2016 and since then the company is practically dormant.

Two clear concerns - Why WAAREE did not took action till now? and why WAAREE let those THAR shares go to above mentioned investors like Lokia and Kapadia and not buy them from THAR in a bulk deal? These two are main pointa are against hopes of Sangam being main vehicle of WAAREE.

Not invested. Studying it for academic purpose.

Same concern on Thar Commercial selling in open market caused me to reduce my holding & make current holdings free/negative cost. I felt that possibly the story might take much longer to pan out than i initially estimated … or that maybe a reverse merger may be on the anvil at unfavourable ratio to the listed firm … or something like that

Nevertheless, people don’t take over companies on a whim & fancy, so i feel cautiously optimistic that they will do some decent business through Sangam Advisors sooner or later.

Also possibly the smart set know more than us ordinary mortals … lets see.

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Latest board meeting has considered Appointment of Whole time director Mr. Kuldeep Jain.
I think he is MD of Cleanmax solar. They claim 27% marketshare in Roof top solar.

http://cleanmaxsolar.com/about-solar-companies/

SAL wants to be in Roof Top Solar segment which is growing at 150% CAGR… This is opex led business model where firms like SAL setup the project with their own investment, and in return a long term power purchase agreement is signed by the client.

My friend i doubt he is the same Mr. Kuldeep Jain ( DIN mentioned in the board resolution) . As per the MCA website he has applied for the DIN on 27/04/2017 very recently. Secondly he is the managing director Clean max energy LTD for 6 years…He should have got DIN at least 5 - 6 years back.

You may contact the CS Mrs. Gayatri Borkar and ask for the details .

hi,
I think in totality everybody is confused regarding the 15% block sale by Thar commercial which to certain extent has mellowed down our conviction . I agree to this as well .
why will they buy the block in their own name ( let the disclosure come out even the smart investors in total have managed to get more than 3 -4 % shares out of 14.5 % block , why will they do that because they already own 99. 5% stake in Waaree energy they cant increase the shareholding more than 75%.
secondly if you check the price chart post the solar project announcement stock moved from 25 to 42 levels , they could have easily delayed the announcement after garnering maximum shares from the public . So i think we should keep aside the 15 % block deal of THAR and rather think independently about the management and the business
In totality we have a company mgmt who has been growing the business exponentially from 4 crs to 2500 crs ( est.) of revenues in 4 years.
I managed to get the financials of Waaree they have been able to generate ROE of 21% for the F.Y 2015.

I have the same view Cautiously optimistic …

He is not the same kuldeep Jain of clean max . pls find t link profile of the kuldeep Jain who has joined sangam
https://www.linkedin.com/in/kkjain1965 .he used to be with Vikram solar.

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Hi Gaurav,
I think they can still do the backdoor listing by issuing new shares to Waaree and still hold 75% in the controlled entity. I agree, it will take at least 1-2 years.

Disc: Tracking position

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I recently asked Amit Arora about him buying the stake, he did not deny so am assuming he is the one. Also, reverse mergers in shell companies have all kinds of questions and confusions that is why they are highly risky.

You are in no way an ordinary mortal.