When markets go through a tumultuous period, it’s important to have some stocks whose movements are not so much correlated to the overall movement of the market and sometimes we find such stocks in Special situation opportunities (SSOs).
SSOs constitute opportunities arising out of corporate actions like de-merger, buy-back, de-listing, merger, rights issue, etc. The purpose of SSOs is to park the surplus funds (normally deployed in liquid/short term debt funds) at much better rate of return with seemingly low risk.
If carefully chosen, SSOs offer decent margin of safety with relatively shorter holding period of 3-6 months. Of course, our major focus remains on investment opportunities for long-term.
So, recently we released our New Special situation opportunity for all our Alpha +/Alpha + & Model portfolio members and would like to share with you details on the same.
Based on our estimates we see the downside risk as low and decent probability of gains over the next 3-4 months. Last time we participated in such an opportunity resulted in 30% gain in 2 months.
Some salient points about the opportunity are as below:
The company under consideration is a part of a very large multi-national company. The Parent company is more than 20 times the size of the listed Indian company and we therefore believe that even if the buy-out price is slightly on the higher side, it won’t matter much for the parent company.
What is another good point about this buy-out is that it is voluntary and if the promoters wanted they could have avoided it; however, they have still gone ahead with the buy-out, which indicates that their intent is very strong and they don’t want to engage in the hassle of remaining listed and incur time, energy and money on the compliance cost.
As the stock prices have corrected substantially from their peaks, the promoters have chosen a very good period for buy-out.
Based on the details shared by the management and the trading price for the last few days, the base price is only around 19% lower than our initiation price which again limits the downside risk.
In the past, in similar such opportunities promoters have bought out shares at substantial premium to the base price (in some cases, even at 100% premium to the base price).
Overall, at around current price we believe the risk-reward ratio is in favour of the shareholders and have therefore initiated the opportunity for Alpha + and Alpha + & Model portfolio members.
SEBI Registration No. INH100001690
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: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: No
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.
Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to retail clients on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690
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
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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 – No
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
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