Right. Market may price each separate entity differently than their listing or fair price. For the time being, I’m trying to understand the math of listing price of each of these entities post demerger.
So considering , as I understand, sintex ind. (textiles) got listed at 17.9 post demerger as per above BS article, the fair price of combined pre-demerger entity should work out at 49 (approx.) and sintex plastics should be listed at 31?
I have been following Sintex for many years now.
Serious investors should do their due diligence before investing in Sintex as the management at Sintex loves to dilute equity and keep raising capital. There might be an opportunity for money to be made during this demerger time but it is not a stock for serious long term investment.
I have seen people compare the new plastic division with Supreme Industries. But I don’t think they can be compared as their fundamentals are totally different.
Just Sharing from Moneycontrol App…
Jitendra Kumar Gupta
Moneycontrol Research
For shareholders of Sintex Industries the wait is finally over. With demerger of its plastics business complete, the Gujarat-based company will shift focus to creating wealth for its investors.
Under the terms of the demerger, Sintex hives off Sintex Plastics Technology, which will be listed separately over the next 40-50 says. Sintex Industries will continue to hold the textile business.
After the consummation of the demerger the existing investors of Sintex Industries will be issued shares of the plastic business in the ratio of 1:1, which effectively means for every 100 shares held in the original company, investors will be entitled to another 100 shares of the plastic business.
The textile business is typically a capital-intensive business which explains a debt of Rs 6423 crore in Sintex books as on FY16. In FY16 the textile business was giving a 3 percent return on capital as against 15.2 percent return on capital enjoyed by the plastic business.
The idea behind the demerger is simple: if the high margins and high return plastic business is separated it will command a higher valuation, putting it in the same league as Supreme Industries and Nilakkal Trading with price to earnings in the rage of 25-30 times its earnings.
Even at 12-15 times the Sintex plastic business will be valued at around Rs 122-155 a share. Thus, the combined value of listed Sintex Industries (current market price of Rs 30) and Sintex Plastics, which is yet to get listed, will be in the region of Rs 152-180 a share. Investors who had bought the shares at the time of the announcement of the demerger last year at around Rs 80 a share well be sitting on 50-90 percent gain after the demerger.
The other side of the argument is that if there was value, why was it not getting reflected in the original company?
Sintex Plastics is less capital-intensive and has been making good profits. It has an established leadership in this business with a product basket made up of industrial products. It explains why investors preferred the plastics business to the textile one which battling debt which was crimping its ability to turn profitable.
The textile business consumes close to 45 percent of the combined capital of the entity but contributes merely 12 percent to its earnings before interest indicating that the textile was a huge drag on its performance.
So, investors can look forward to some value creation thanks to the demerger.
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I hold pre-merger sintex shares. If I sell the Sintex Industries tomorrow, will I still get the Sintex Plastics Technology shares? Thanks
Definitely yes. on the day of book closure which was few days back, who ever were holders will get both stocks in their demat account. this has got no relation with what you do with existing stock post book closure date.
Thanks @us121. I feel the Sintex shares currently trades are high valuations(CMP 30 Rs) despite the fact that textile contributes only 12-15% to profits. It is laden with deb So decided to sell the Sintex Industries and buy more of Sintex plastics after listing.
Results of Sintex plastic Technology limited http://www.sintex.in/wp-content/uploads/2017/05/Annual-Audited-Financial-Results-2016-17-Sintex-Plastics-Technology-L._.pdf
Is there going to be a concal around results?
I held Sintex for more than a year and wanted to know how are such demergers taxed. Once plastics is listed is it treated as STCG till a year from listing date or previous years I held it count?
Found an old article http://www.thehindubusinessline.com/todays-paper/tp-investmentworld/capital-gains-on-sale-of-demerged-company-shares/article2205279.ece explaining tax implications. As I held it for 1+ year no tax needs to be paid on de-merged company and could be sold on listing day itself.
Yes, that is correct. holding period is counted from the day of acquiring parent company stock.
hi, does any one have any idea on the Costing methodology for Sintex de-merger? i.e. What percentage of initial investment value is to be ascertained to Sintex Industries Ltd and Sintex Plastics respectively?
Scroll earlier posts please, it is already posted by 1 boarder.
According to the above document the costing will work out as follows:
Sintex Industried Ltd: 36.38%
Sintex Plastics Technology Ltd: 63.62%
Sintex Pastic Tech got credited to demat account today.
Yes for all accounting purpose this figure is required to be used. for market operation, this will be like a guide line (u may relate with IPO price kind of thing).
Hi @rknshah,
When do you expect listing of Sintex Plastic…shares already credited.
Yes shares credited, results released. I guess they would have applied for BSE/NSE listing. Your guess is as good as mine. Hoping for listing in July.
I’m not sure of the SEBI rules and regulations around this - but I find it extremely peculiar that a demerger can be completed without all companies involved in the demerger process being listed on the exchange. Is there a timeline by when the demerged company must be listed on an exchange?
Bringing this up because in this case - Sintex Industries traded at 104 before the demerger and now trades at Rs. 25 - so >75% of the capital of an investor has been immediately locked up till the demerged entity gets listed.
Surely there has to be a timeline by when that capital is again available to the investor. If there is no timeline - then SEBI should draft rules around the same and possibly include penalties for not getting listed on time (Ex: Interest @ 12% p.a.)
Also - having gone through some of the press release communication from Sintex Industries on the exchanges, I doubt there are any SEBI rules around deadline for listing of the demerged entity because I don’t remember reading anything like that in their disclosures.
PS: Not that I have any high capital allocation to Sintex but just think that this is an area SEBI can look to improve the process in the interests of shareholders
Dear @admins @Administrator,
Would propose that this post is split into 2 (textile & plastics) so that relevant enthusiasts can do their value addition on appropriate threads.
