Special Situation: Triveni Engineering Demerger

I have put up a detailed analysis on my blog -http://kiraninvestsandlearns.wordpress.com/2011/05/11/special-situation-triveni-engineering-demerger/

Here is a summary of my analysis. Views are invited.

Triveni Engineering had announced a demerger of its turbine business more than a year ago. The record date was finally fixed as May 3rd2011. Triveni Engineering will be split into Triveni Engineering and Industries Ltd. (TEIL) and Triveni Turbine Limited (TTL). Both stocks will be listed on the bourses.

Triveni Engineering and Industries Ltd. (TEIL) is one of Indiaâs leaders in the manufacture of sugar (Sugar, Distillery and Sugar co-generation of electricity) and engineered-to-order mechanical equipment, such as steam turbines, high speed gears and water and waste water treatment equipment.

The Board of Directors of TEIL approved the demerger between Triveni Engineering and Industries Limited and Triveni Turbine Limited (TTL) (formerly known as Triveni Retail Ventures Ltd.), and their respective shareholders and creditors for the demerger of the steam turbine business of Triveni to TTL. TTL is a wholly owned subsidiary of the company with Triveni having beneficial interest over all the 100,000,000 equity shares of FV Re.1/-.

All shareholders of TEIL as of Record date would get one share of TTL which will list separately.

So, what is theMarket Capof TEIL, after TTL has been spun off?

Market Cap of TEIL = (Sum of all EVs within TEIL â Debt â Preferred share (CRPS) + Cash)

Market Cap Value (in cr)
EV of Gears (+) 99.2
EV of Water Business (+) 51
EV of Sugar co-generation (+) 112.4
EV of Distilleries (+) 45.46
EV of Sugar business (+) 1568
EV of 22% of TTL business (+) 193.116
Debt (-) 934
Cash (+) 25
CRPS (-) 2.8
Market Cap 1157.376

Intrinsic value of TEIL = 1157.376/25.8 = Rs. 44.85/-

The intrinsic value of TEIL, inspite of conservative estimates all around is Rs. 44.85/-.

Current price is Rs. 40/-.

If you look at the revenue composition, 55% of revenue will still come from the Sugar business, so maybe we need to assign it as a Sugar industry stock and value it with similar multiples. Still it looks attractive mainly due to large scale FII selling.

Or maybe I am dreaming. Views are invited.

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