Dear Sir,

In Feb’14, Piramal Glass (NSE Code – PIRGLASS), part of Ajay Piramal Group, came up with a de-listing offer with an indicative offer price of 100.

Sensing an opportunity with good probable returns and seemingly low downside, we shared Piramal Glass de-listing opportunity with Alpha + members in Feb’14 around the levels of 104-107.

Few days back, on 28th May’14, we finally asked our members to exit completely from the stock around Rs 132 and thus closed the opportunity with a gain of 24% in around 3 months.

Going by the number of shares tendered in the reverse book building and the prices at which they have been tendered, Piramal Glass is likely to get de-listed at Rs 140, however since the promoters are yet to declare the exit offer price, we felt that at Rs 132 the risk reward ratio wasn’t favorable and thus exited completely without getting greedy for extra 2-4% gains.

We keep recommending such Special situation opportunities to our Alpha + members as these are to a certain extent immune from regular market risks and volatility. Also, they act as temporary parking places for cash waiting to be invested in high-quality companies.

For those interested in participating in similar Special situation opportunities, we have produced below the detailed note on Piramal Glass opportunity shared with Alpha + members in Feb’14.

Alpha Plus – Piramal Glass de-listing opportunity

Dear Sir,

We would like to bring to your notice a Special situation opportunity on the proposed de-listing of Piramal Glass Ltd (NSE Code: PIRGLASS; BSE Code: 532949) 

Note: Please read the entire note, especially Risks/concerns for an independent assessment of the risk reward ratio in this opportunity.

Investment strategy: Start with 4% portfolio allocation in the price range of 75-120 (CMP – 77.00)

We believe, tomorrow the stock may open at upper circuit (NSE – 92.40; BSE 92.80) and the upper circuits may last for 2-3 trading sessions (as was the case in RICOH and other de-listing cases) and therefore many of you may not be able to buy the stock in the above mentioned price range, unless attempted in the opening trading session.

If you are unable to buy the stock in the above range, we will consider buying once the stock is out of upper circuits, as we did in the case of RICOH India and DIC India.

Exit strategy: Since we will know the purchase price in next 1-3 days, we will update you on the exit strategy accordingly.

Piramal Glass (NSE Code: PIRGLASS) and Piramal Group – Basic details

Piramal Glass is a part of well known Piramal Group and 2nd largest manufacturer of flacconage glass for the cosmetic and perfumery (C&P) businesses and pharmaceutical businesses.

Mr. Ajay Piramal and related entities hold 74.16% stake in the company.

As far as Piramal Group is concerned, it’s a diversified conglomerate with operations in over 30 countries and brand-presence across 100 markets around the world. One of the group companies, Piramal Enterprises has delivered more than 35% CAGR in market cap since it got listed and has been huge wealth creator for the shareholders.

De-listing offer from the Promoters

On 7th Feb’14, post market hours, Piramal Glass informed exchanges that it has received a letter from promoters with a proposal to voluntarily de-list the equity shares of the company from the exchanges. The Board of Directors of the company shall consider this de-listing proposal in their meeting on 10th Feb’14.

As per our estimates the floor price (it’s the minimum price at which de-listing can take place) for the above de-listing offer is 90. Further, the promoters have indicated that they are willing to acquire the shares at a price of Rs 100/- per share (CMP – 77).

It’s important to note here that 100 is just an indicative offer price and the shareholders are free to tender their shares at a price in excess of 100. Also, in the past, the promoters have acquired shares at substantial premium to their indicative offer price.

Important points about this de-listing offer and the company

  1. It’s a voluntary de-listing offer as promoter shareholding is 74.16% i.e. less than maximum permissible 75% for listed companies.
  2. Piramal Glass is a good company and fundamentally much better than some of our previous de-listing opportunities such as RBN, RICOH, Denso, etc
  3. The public shareholding in the company is fairly consolidated with few large shareholders holding a sizable chunk.
  4. From the point of view of de-listing, the valuations of the company are reasonable at EV/EBITDA multiple of 5.52

Though successful de-listing and de-listing price is dependent on several factors, we believe an EV/EBITDA multiple of 8 would be a fair de-listing valuation for the company.

With debt of 1,050 crores and EBITDA of 300 crores, the stock price at EV/EBITDA of 8 works out as 169.

This is not to say that requisite quantity of shares will get tendered around 160-180 and promoters will necessarily accept the discovered price, however 160-180 is what we believe is a fair price range for de-listing.

Rationale behind this opportunity

The rationale behind recommending Piramal Glass is based on gains from the probable run up that may emerge on the announcement of de-listing offer with much lower risk at an indicative offer price of 100.

Also, as discussed above, Piramal Glass is a much more fundamentally good company with the de-listing premium being absent in the current price range of Rs 75-120.

Lastly, we believe 160-180 is the fair price range for de-listing.

Risks/concerns

The de-listing offer has not yet been approved by the Board of Directors. They shall discuss the same on 10th Feb’14. If one is able to buy the stock at Rs 90 on 10th Feb’14 and if the board of directors disapprove the offer (very low probability), the stock will plummet to 75 odd levels.

We are still some steps away from reverse book building, if the promoters backtrack on the de-listing proposal there would be a rush to exit from the stock and one may not be able to exit before the stock has corrected by 20-30% (assuming purchase price of 110) to current levels of 75-80.

Last but not the least, if public shareholders do not approve the de-listing proposal with requisite majority the above mentioned scenario of 20-30% correction will pan out.

In case of any queries, feel free to drop a mail or call us.

 

Best Regards,
Ekansh Mittal
http://www.katalystwealth.com/
Ph.: 0512-6050062, Mob: +91-9818866676
Email: info@katalystwealth.com