I had invested in Samman Capital (then Indiabulls Housing Finance) as a turn around story.There were lots of ifs and buts , but over last 3-6 months most of the things had started to fall in place. Even with IHC ’s entry I was aware that lot of works was to be done as far as legacy book is concerned. IHC entry at approximately 139/- was a good indicator of fair value of the book taking into consideration legacy loan issues and other problems which had to be sorted. During my research I had found that PIL in High court had been dismissed and it was a big relief for company- legal overhang gone I had ticked in checklist. Now with this new PIL ( a bit of known unknown as per NNT :-) ) in Supreme Court sentiment has again reversed and there is real risk of opportunity cost here as we don’t know how much time will it take for this legal overhang to get cleared.I did some background check :
- Went through the High court judgement and found that PIL is comprehensive and number of transactions which are flagged is quite significant
- Although court has dismissed the petition sheer number of transactions which are flagged makes one believe it will be easy for agencies to prove that Samman did not follow guidelines while issuing the loans.
- Although money is recovered in most of the accounts there are lot of grey areas where there is no clarity .
- Last PIL took almost 5 years to get dismissed- 2019 to 2024.
I did some digging and found that Cyril Amarchand Mangaldas, AZB & partners and CMS Induslaw worked on this proposal . CMS Induslaw did vendor due diligence and prepared the disclosure letter. CMS Induslaw is a very reputed firm and it is unlikely that the present scenario was not thought of in the process of due diligence. I think the entry of IHC at the said price point was after discounting for all these anticipated problems. So I don’t think there is high probability of IHC backing off from the deal. What remains is the time this will drag in Supreme court leading to significant loss of time . As business of Samman improves over next 2-3 years this legal overhang may act as gravity keeping stock down leading to disruption of timeline for thesis to work. Experts can please comment
PS: Invested and biased