We keep saying that besides long term investment, one should also look at Special situation opportunities like de-mergers, buy-backs, de-listings, etc because in a lot of such cases the correlation with the markets is much lower and therefore such opportunities add stability to the portfolio and deliver additional gains.
While long term investment results in wealth creation; the benefits of special situations should not be ignored.
In line with the same philosophy, we recently shared DB Corp’s buy-back Special situation opportunity with our Alpha + members and would like to you share with you details on the same.
DB Corp buy-back opportunity was shared with our Alpha + members on 13th Jun’18 around 259-260 odd levels and we closed the same on 14th Jul’18 around 283-285 odd levels with a gain of ~9.5% in a month or so.
While 9.5% gain may seem low to some; however compare it to 5-7% drop in small and mid cap indices and 10-20% correction in stocks in general and you will realize the importance of such opportunities. By participating in carefully selected several such opportunities you reduce the probability of loss substantially.
Below, we have produced the detailed initiation note on DB Corp.
Now, don’t miss on more such opportunities and you can also make the most of deep correction in small and mid cap stocks by making purchases in staggered manner:
Currently, we have 2 active Special situation opportunities and around 10-12 long/medium investment recommendations worthy of investment (positively rated) around current prices.
So, for someone willing to build a portfolio or looking for good stock ideas for investment, you will have plenty to look forward to in our Alpha (for investment recommendations) and Alpha + (for both Investment and Special situation recommendations) subscriptions.
DB Corp – Jun’18 Special situation
(13th Jun’18 note on the stock)
We have released 13th Jun’18: Special situation opportunity on the proposed buy-back of shares of DB Corp Ltd (NSE Code – DBCORP). The same has also been produced below. For details and other updates, please log into the website at the following link – http://katalystwealth.com/
Note: For any queries, mail us at email@example.com
Date: 13th Jun’18
CMP – 260.00 (BSE); 259.00 (NSE)
Rating – Positive – 5% weightage; this is not an investment advice (refer rating interpretation)
DB Corp (NSE Code – DBCORP)
DB Corp Ltd is a leading media conglomerate with strong focus on the fast growing tier II and III cities. It publishes 7 newspapers with Dainik Bhaskar 40 editions, Divya Bhaskar 7 editions, & Dainik Divya Marathi 7 editions, ~208 sub editions in 4 languages (Hindi, Gujarati, Marathi and English), 3 magazines, 30 radio stations and 4 online properties.
Apart from print segment, the company is also present in radio and digital segments. In radio, it operates through its brand ‘MY FM 94.3’. DBCL also has presence in the online news portal ‐ dainikbhaskar.com, divyabhaskar.com and dailybhaskar.com.The stock is currently trading around 14.7 times trailing twelve months earnings. The brokerages have revised their target price of the stock in the range of 280-360.
DB Corp’s proposed buy-back offer
The Board of Directors of the Company at their meeting held on 26th May’18 approved the proposal of buyback for an aggregate amount not exceeding Rs. 312.80 crore at maximum price of Rs.340 per equity share from all existing shareholders of the Company on the record date to be determined by Board, on a proportionate basis through “Tender Offer” route.
At the maximum Buyback Price of Rs. 340/- per equity share and for the Buyback Size not exceeding Rs. 312.80 crore, the indicative number of Equity Shares that can be bought back would be 92,00,000 shares representing 5% of the total issued and paid up equity capital of the Company.
The above proposed buy-back is subject to approval of the shareholders of the company.
Rationale behind this opportunity
It is important to note here that Buy-Back through tender offer route is similar to Open Offer in many respects as against Buy-back through open market purchases.
In buy-back through tender offer route all the shareholders can participate (including the promoters) and the buy-back is on proportionate basis from all the shareholders of the company.
So, in the above case, theoretically only 5 shares out of 100 shares shall be accepted at 340/- per share if all the shareholders participate in the tender offer and 95 shares will be returned back.
However, there are a few important regulations regarding buy-back through tender offer route which increases the acceptance ratio to ~50% + in the case of DB Corp. They are:
- 15% of the number of Equity Shares which the Company proposes to buyback or number of Equity Shares entitled as per the shareholding of small shareholders, whichever is higher, shall be reserved for the small shareholders as part of this Buyback.
- Small Shareholder is a shareholder who holds equity shares having market value, on the basis of closing price on recognized exchanges as on Record Date of buy-back, of not more than Rs 200,000 (2 lakhs).
Applying above regulations in the case of DB Corp
As the company has proposed to buy-back 92 lakh shares, 15% of the same will be reserved for small shareholders i.e. 13.8 lakh shares
In case of DB Corp, shareholders with less than 5000 shares held about ~12.83 lakh shares in the company (based on 31st Mar’17 figure of Annual Report), so theoretically the acceptance in small shareholder category should be ~100% as the small shareholder will be the one with less than ~800 shares (based on CMP).
However, between Mar’16 and Mar’17, the total number of shares below 5000 almost doubled and assuming that something similar happened between Mar’17 and Mar’18, even then the acceptance ration will be more than 50%.
Some conservative estimates
As mentioned above, technically there should be 100% acceptance (assuming no major change in shareholding pattern since 31st Mar’17) in small shareholders category; however let’s work with some conservative estimates:Cost of 700 shares – 260 * 700 = 182,000
Cost of remaining 420 shares on 40% acceptance @ 340 – Rs 207
Cost of remaining 350 shares on 50% acceptance @ 340 – Rs 180
Cost of remaining 280 shares on 60% acceptance @ 340 – Rs 140
So, as we can see above, even assuming conservative acceptance ratio of 40-50%, the cost for remaining shares will be in the range of Rs 180-210 which is 20-30% lower than CMP.
Thus, the downside seems limited at conservative 50% acceptance while there’s high probability of acceptance being greater than 50%.
The actual ratio will be known only once the entire process is over and in case of lower acceptance ratio our returns will diminish.In case of deterioration in performance of DB Corp, the exit price for unaccepted/remaining shares can get impacted.
The time line for this opportunity is around 3-4 months and therefore in the interim if the market corrects in major way the exit price for unaccepted shares will get impacted.
The closure update as shared on 14th Jul’18 can be accessed at the following LINK
Disclaimer: I and my family members hold investment in DB Corp.
Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: firstname.lastname@example.org
Analyst ownership of the stock: Yes
Details of Associates: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision
A graph of daily closing prices of securities is available at www.bseindia.com (Choose a company from the list on the browser and select the “three years” period in the price chart
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.
Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – Yes, in DB Corp
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No