This is w.r.t. the Arman Financial Services Ltd (BSE Code 531179) investment cum arbitrage opportunity shared with you on 11th Nov’11
Note: The proposed Rights issue of company stands cancelled and therefore the arbitrage opportunity. However, we would still suggest you to continue holding with 3-4% portfolio allocation, as recommended earlier.
The company had its board meeting yesterday. In the same they have authorized the board to:
- Issue, offer and allot up to 13, 58,130 equity shares at a price not exceeding Rs 56.95/- per equity share.
- Issue, offer and allot up to 12, 75,760 (10%) Compulsorily convertible debentures of face value of Rs 56.95 per CCD. (CCDs are interest bearing bond instruments till the time they are converted into equity shares. In the above case, the 12, 75,760 CCDs will be converted into 1 equity share at a price of Rs 56.95/- per share with 18 months from the date of allotment of the CCD.
- Issue, offer and allot up to 4, 28,329 warrants to the promoters of the company with a right to subscribe for one equity share per warrant within 18 months from the date of allotment of the warrants. (The warrant conversion price has not been decided by the company, although it should probably be Rs 56.95/- per share.)
Assuming that all the above shares, warrants and CCDs are allotted and are converted into equity shares at Rs 56.95/- per share, then Arman Financial will get ~ Rs 17.43 crore from the issue of 30.62 lakh shares.
In contrast, if the company had progressed with Rights issue in the ratio of 6:5 at Rs 15/- per share, then they would have been able to raise just Rs 7.33 crore with the issue of 48.91 lakh shares.
Pre issue @ CMP i.e. 30
Total equity shares 40, 76,600
FY 12 (E) Book Value Rs 13-13.50 crore
Current Market cap Rs 12 crore
FY 12 (E) PAT Rs 4-4.50 crore
Post Issue @ CMP i.e. 30
Total equity shares 71, 38,819
Book Value Rs 30-30.50 crore
Post dilution market cap @ Rs 30 Rs 21.41 crore
Therefore, post dilution, if the stock still trades at Rs 30, the P/BV ratio would be 0.71, thus leaving enough room for capital appreciation considering the robust performance of the company.
We believe that company has worked out a good plan for raising funds without much equity dilution and therefore suggest you to continue holding the stock.