Nah ! or Wah ! for Nakoda Ltd at Rs 10.50!? ~ This is for you Dinesh Sampat :-)

Nah ! or Wah ! for Nakoda Ltd at Rs 10.50!? ~ This is for you Dinesh Sampat 😀  ~ Replied to your query but thought of posting my View as a seperate Blogpost for wider viewership and reading

Nakoda Ltd is promoted by B G Jain & D B Jain and their Entities and it’s Textiles and POY Plants are in Karaj and Hathuran while the Windmills are in Tamil Nadu and Madhya Pradesh

SAT has upheld SEBI’s contention that Nakoda Promoters jumped up their shareholding from 26% to 44% on 19/11/2011 and violated the 5% creeping acquisition limit allowed and thus they have to make an open offer to shareholders who held Nakoda shares during that time at 10% interest from March 31,2012

This is the SEBI Order http://www.sebi.gov.in/cms/sebi_data/attachdocs/1373288066832.pdf

This is the SEBI Takeover Act 2011 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1316778211380.pdf

The warrant conversions were done at Rs 15 =>that’s at Rs 10 Premium and on the sub divided Rs 5 FV ….Share Price too at the time in 2011 was Rs 8 to Rs 9 and in the six months from July to December 2011 the highest the Share Price has been on BSE was Rs 12.80…the Face Value subdivision was made from Rs 10 to Rs 5 on 4/1/2010….The company also declared and paid dividend of 6% (30 Paise/share) to shareholders and 5 % (25 paise/share) to Promoters for December Year end 2012

The Open Offer has to be made to all Non Promoter Shareholders at should be at Rs 15….however only those who held the Shares and yet do when the Violation took place will be entitled to the 10% Interest pa from March 31,2012 over and above the Offer Price on the shares accepted

Promoters may contest now in Supreme Court or offer to buy out their obligated minimum shares to do so from Non Promoter shareholders

• At Rs 15 + Interest as stipulated above less dividend adjustment of Rs 0.30 (6%) declared and paid in September this year for those Shareholders who held the shares at the time of Violation between December 2011 and March 2012 and yet do
• At Rs 15 less dividend adjustment of Rs 0.30 (6%) declared and paid in September this year for other Shareholders

Other Warrants were converted in 2012 and 2013 at Rs 10,including Premium of Rs 5.

The current price is Rs 10.50…Offer Price should be @  Rs 14.70 to New Shareholders and Rs 17 to those Non Promoter Shareholders who held the share between December 2011 and March 2012 ….and less than half their shares will constitute the minimum Obligation to be picked up by the Promoters

As of September 30,2013 the Equity was 30 crs shres of FV Rs 5 each => Rs 150 crs…..Promoters held 53.98% stake or 16.19 cr shares and Non Promoters held 46.02% or 13.81 cr shares

The Offer has to be for at least 26% of the Equity Capital.However this would take the Promoters holding to over the maximum permissible 75%…thus they will absorb only 21.02 % of the Capital=> @ 6.31 cr shares of the 13.81 crs held by the Public.This is @ 47% of the Public Holding

Assuming you pick up 1000 Shares at Rs 10.50,your Initial Investment  will be Rs 10500…470 shares will be the obligation to be picked up at Rs 14.70 by the Promoters…this returns Rs 6909 to you and you are left with 530 shares at a net cost now of Rs 3591 or Rs 6.77 per share

Key question to address is that can one take advantage of this Price Differential? any Interest in Nakoda Ltd must be based on what would be the quoted Price of Nakoda post Offer……This would require Current Assessment of Financials and Operations Now and Going Forward ….You stand to gain only if the post offer quote is above Rs 6.77

As stated above the Share Price in 2011 hovered around Rs 8 and Rs 9

Here I am not considering any Time Value of Money or full dilution of capital to Rs 296 crs when the third issue of Warrants to Promoters and Strategic Investors at Rs 10 total get converted 

This Third issue of Warrants was as below with 2.92 cr warrants of Rs 100 each issued for conversion into 10 shares at Rs 10 each.Of these 1.92 cr warrants were issued to Promoters and One Crore Warrants to Non Promoters

http://www.bseindia.com/xml-data/corpfiling/AttachHis/Nakoda_Ltd_180113.pdf

Equity at September 30,2013 shows Rs 150 crs after Promoters converted more warrants on 28/9/2013….Some Warrants yet remain outstanding …..Of the 30 cr shares they hold now a 54% stake of @ 16.2 cr shares of which 3 cr + shares are pledged

On full conversion the Equity goes up to Rs 296 crs with Promoter stake going up to 59.78% with them holding 35.39 cr shares of the Final diluted Equity of  59.2 cr shares….If this is considered they can absorb only upto 15.22% of the shares currently to keep their final stake down to maximum limit of 75%…..This would mean a lesser obligation on minium numbers of shares to be lifted in the Open Offer and would thus mean a higher  post offer  net holding cost than Rs 6.77

Not going too much into the Valuation Merit of this Surat based Company as I see Clear Corporate Governance Issues but will provide you with some key financials below

In 2012 the Trading Turnover was Rs 750 crs ,that’s 29% of total 2012 Sales of Rs 2578 crs…Profitability is not proportionately strong…Long Term Debt was Rs 528 crs and Short term Borrowings were Rs 1049 crs….. High Imports of Raw Material and largely all domestic sales exposes the company to a weak rupee….windmills and subsidiaries….and outstanding GDRs…..pays only 30 paise dividend to shareholders when showing that earnings are Rs 3 per share…cares two hoots for SEBI Laws and guidelines….keeps issuing warrants to Promoters for conversion at Rs 10

Networth was Rs 443 crs at 31/1/2/2012 with Equity at Rs 99.20 crs and Reserves at Rs 343.83 crs….. on fully diluted basis assuming full conversion of outstanding warrants the Networth will move to Rs 936 crs + 2013 PAT of @ Rs 70 crs will bring the Networth to @ Rs 1000 crs …….with fully Diluted Equity at Rs 296 crs (currently Rs 150 crs as at 30/9/2013) and Reserves at Rs 640 crs + @ Rs 70 crs 2013 PAT….Thus Book Value of Rs 22.33 at 31/12/2012 will get diluted to Rs 17

At Current Price of Rs 10.50 and Forward PE at month end December 31,2013 on a fully diluted basis would stand at 9 (EPS of Rs 1.18=> PAT Rs 70 crs and No of Shares 59.2 crs on Full Dilution)…..while PBV would be 0.6 as Diluted Book would be @ Rs 17 (Networth of Rs 1000 crs on a fully Diluted shares base of 59.2 cr shares) 

Nine Months at 30/9/2013 shows an EBIDTA of Rs 131.13 crs and PAT of Rs 54.52 crs on Sales of Rs 2209 crs

Current Share Price hovers around Rs 10.50 on BSE and Turnover was strong at 1.72 lakh shares today against a two week average of just 8000 !….52 Week High /Low is Rs Rs 15.24/Rs 8.70 ….FIIs and DIIs are not shareholders and Market Cap is @ Rs 315 crs

Nah or Wah ! for Nakoda !?

Too many pondering variables to give it a ‘Wah’ !….so for now it’s got to be a ‘Nah !’ from me

Though there seems to some cushion to make gains in the short term on the Open Offer….but what if the Promoters approach the Supreme Court ?….then Time Value of Money plays a big factor…..four to 5 years at least ! we’ve seen that happen in the Nirma and Sri Ram Multitech case and even in Goldstone Infratech case

Not too enamoured by Nakoda Ltd on Fundamentals and even this Open Offer Gains Opportunity