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Tainwala Chemicals - ~10% of Samsonite South Asia available at 25 Crores

Here is a small cap which is worth a small bet. The potential upside is huge and downside - well your money could get locked in forever without much return .

Tainwala chemicals is a listed stock which owns 8.9 to 10% ( not sure of exact) of Samsonite South Asia Pvt. Ltd.

Market cap of Tainwala Chemicals is Rs.25 Crores. Their main business now is plastic sheets and investments (??)

Sales of Samsonite South Asia - 2016 Expected - Rs.1000 Crores+ , 2015. If anyone can locate - kindly share. I had read some interview that it would be near 1000 Crores in 2015.

My estimate is that Samsonite South Asia is worth at least 4000 Crores (EBIT of Rs.100 Crores) , growing at a healthy 20% + for last few years and likely to grow at a faster rate in the future - taking share from VIP and growing the luggage category.

10% of that should be worth ~ Rs.250 Crores with a holding company discount.

Value unlocking in Tainwala can happen if Samsonite South Asia starts paying dividends (once they get out of the fast growth stage) and much larger value unlocking can happen if there is an IPO of Samsonite South Asia.

Other useful information - Ramesh Tainwala founder of Tainwala chemicals is the global CEO of Samsonite worldwide, so he has a reputation at stake.

Check out an old interview with the management.

Tried speaking to the investor relations - but they just say no plan for IPO at the moment. I wonder why?

Invite fellow boarders to get more information on this topic.

Disclosure - built a small position with money that I can forget I ever had

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The stake in Samsonite appears to be strategic and is not meant to be liquidated (even if there is a IPO). Lets assume they cash out after a IPO, then again the question that pops up is whether they are willing to distribute that to shareholders or invest in related/unrelated business? If they invest it then is it going to create value? Overall too many if’s and but’s in a holding company like this. I would recommend you watch Basant Maheshwari’s interview on holding companies, gives you a good perspective.

@madhug
Hi Madhu, Can you share link of basanth maheswari interview?

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Rohan, Please provide the key risks to balance the discussion.

Also came across their investment in Periwinkle Fashions Pvt. Ltd in their AR.
This company has started their operations in india with Wacoal brand of innerwears.
http://articles.economictimes.indiatimes.com/2015-04-26/news/61542692_1_departmental-stores-american-tourister-samsonite

Needs further analysis.
But as mentioned before in the thread risk will be that holding company just sitting investments is not wealth creator for minority shareholders

I agree with some of the views shared here. I was looking for a strong play in the travel sector when I came across the company. However, I found this interesting as the discount is not merely 30 or 40% as in the cases mentioned. The discount is much much larger. Even a good dividend from Samsonite South Asia , could be a boost for the earnings of this company.

Risks that remain

  1. The money received is not distributed to shareholders as @madhug has pointed out
  2. There is no unlocking and it remains a “strategic” investment. But to present the other side, even a strategic investor would be tempted at some valuation to unlock some of his value (imagine this getting valued like Page in a bull market).

Given the risks that this remains a cold holding company, I have not recommended or thought of it as a core holding - but the downside is limited.

Ramesh Tainwala (RMT) is CEO, Samsonite. He is likely the brother of Rakesh Tainwala (RKT), CEO of Tainwala Chemicals and Plastics (TCP). Annual Report of Samsonite provides details of ownership structure and inter-party transactions. I list some of these below:
Some useful information:

  1. Shares outstanding of Samsonite South Asia Private Limited (SSAPL) = 35.5 million. Through various holding companies, RMT and family own 12.83% of SSAPL, or 4.55 million shares. Additionally, TCP owns 3.1 million shares or 8.65% of SSAPL (The Tainwalas own two-thirds of TCP).
  2. Abhishri Packaging Private Limited (APPL): Company is controlled by Tainwalas. Since 2009, APPL is the contract manufacturer for SSAPL buying RM from SSAPL and selling finished goods back to them. Annual Report suggests that APPL offers better margins than non-controlled entities.
  3. Bagzone Lifestyle Private Limited (BLPL): Company is controlled by Tainwalas, SSAPL sells finished goods to BLPL. Sales in 2014 have been in excess of USD 11 million.
  4. Other companies controlled by Tainwala Group include Planet Retail and Periwinkle Fashions on which I could not gather information that could add value here.
  5. SSAPL is a very profitable company: Sales = USD 126 million. Asset turn is 12x, net margins are ~11%. Margins have more than doubled in 2014 versus 2013. Dividend paid out in 2014 seems to be USD 0.10/share held, implying TCP should receive USD 0.3 million dividend. Note that no dividend was paid out in 2013. This amount of approximately ~INR 2 crore reflects in increase in FY15 ‘Other Income’ of TCP. Tax-free.
  6. TCP, on fleeting glance, seems a poor operation with consistent losses in the core plastic sheets business being somewhat covered through ‘securities trading’. The company has no paid dividends thus far. It remains to be seen if this changes going forward.

If it does not change: sub-par returns on capital employed will result in destruction of dividend income every year. INR 25 crore would seem rather rich, perhaps.
If it does change and the company pays out dividends equivalent to that received from SSAPL, then valuing the company at 15x Dividends of INR 2 crore, means that upsides may be limited.

On a brighter note, the much improved performance of Samsonite in India is encouraging for Safari Industries (Disclosure: holding the stock) and VIP Industries (Disclosure: not holding).

Disclosure: No holdings in TCP.

The promoter quality seems to be poor.
There is hardly anything to talk about their core business of plastic sheets and the company doesn’t seem interested to grow the business.
The company has never paid dividend, shows that company doesn’t care about minority shareholders.
For a company of this size - about 10 cr of money is given as inter corporate deposits ( Long term loans and advances )
The triggers are already mentioned in above posts but there is no certainty as to when and if it will happen.

Have taken small position in the company. Plan to attend AGM subject to availability of my schedule to get better understanding of business. In case any member in Mumbai, would be more than happy to join him.

Sure would like to join.

Stock price has moved up sharply on good volumes forcing the management to give a response to SEBI regarding the price movement. Response - Nothing unusual as usual :stuck_out_tongue:

@Dheeraj
when is the date for AGM

@vijay18

Last year it was in September 2014. The company has yet to announce date and release annual report for FY15 as per my knowledge.

@dd1474
thanks for the info… will be in touch with you on this .

Did @dd1474 or anyone else manage to attend the AGM? Kindly share if anything interesting.

Could not attend AGM

Any further update on Tainwala Chemicals?

"The company started out by manufacturing household consumer utility products like ‘wet wipes’ and ‘mosquito repellants’. These products were launched under foreign technical collaborations with world leaders in their field like Storalene AB, Sweden and Sumitomo Corporation, Japan .
The company diversified into the plastics sheet extrusion in 1990. The company entered into a technical collaboration with Cincinnati Milacron, Austria for the manufacture of PVC Sheets .
In 1993 the company joined hands with another company Amut Spa, Italy for the expansion of its plastic sheet extrusion business.
The company’s business of consumer products was subsidiarised into a new company, Tainwala Personal Care Products Limited in the year 1994, in order that better focus could be provided to the marketing of the products.
Company’s primary activity today is plastic sheet and profile extrusion.

SAMSONITE SOUTH ASIA"S expected 2016 topline around 1000 cr and bottom line around 100 cr, it comes around value of 280 cr for Tainwala chemicals ( presently holding good 3069873 shares of SAMSONITE SOUTH ASIA ). Also Tainwala chemical holds " PERIWINKLE FASHIONS" shares.
(Tokyo-listed global lingerie brand Wacoal is entering India through a joint venture with Periwinkle Fashions. The new venture will be named Wacoal India, with Wacoal International Hong Kong).

Tainwala chemical is receiving around 20 cr of dividends from their investments in mutual funds and other unlisted entity. Promoter holding 67 % of the company, Book value of the company around 47 with EPS of 4.4. Debit free company with 35 cr free reserve and 280 cr value in investments ,stock trading just 50 cr market cap."

An update from Valueable Gems Blog.

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Much higher dividend income is flowing in now. This quarter itself EPS is > Rs.3 . Dividend from Samsonite South Asia - seems to be increasing every year

http://www.bseindia.com/xml-data/corpfiling/AttachLive/d2b965c2-5329-4faf-ad89-8f2d1e82bae5.pdf

Linking here the comment about resignation of Ramesh Tainwala as CEO of Samsonite and Blue Orca report of Samsonite