While much has been said and
written about the well known MNCs, quite a few of which have come out with
delisting offers at mouth-watering valuations and others are well on their way
to do so to beat the max 75% promoter holding deadline, not much is published
about some of the other well-established ones which though may have boring
businesses have been steady performers over the years. Investing in boring
businesses may be boring but if one is looking for excitement, there are always
the casinos of Las Vegas and closer home, one can pick up shares of Kingfisher
and indulge in all the excitement that occurs daily with it.
DIC India (formerly Coates
of India) is a 72% subsidiary of DIC Asia Pacific Pvt, Singapore. This in
turn is a wholly owned subsidiary of the USD 9 billion Japanese group,
Dainippon Ink & Chemicals, or DIC. DIC, the world’s largest manufacturer of
printing inks, besides dealing in Graphics Arts and polymers and related
products (organic pigments), has interests in specialty plastics and compounds,
such as thermosetting resins, colorants and engineering plastics. The company
is also involved in building materials, water treatment plants,
pressure-sensitive adhesive materials, bio-chemicals and food and foodstuff.
Coates of India was originally
promoted by Coates Brothers Plc of the United Kingdom in 1947 in Kolkata as a
fully-owned subsidiary and subsequently became a public limited company in
1976. In 1991, Coates Brothers was acquired by the French company TotalFina, a
leading player in the petroleum sector, which also acquired a 51 per cent stake
in the Indian company. Then, in 1999, TotalFina exited the printing inks
business worldwide in favor of Sun Chemicals, a DIC subsidiary). In due course,
the company changed ts name to DIC india to truly reflect its actual parentage.
The company started with the
objective of manufacturing printing ink, printer sundries, synthetic resins and other surface coating materials.
Over the years however, they have divested most of the other businesses to the
respective global leaders in the respective areas (notably the adhesives
division to Bostik, and coatings business to Valspar Corp of US) to focus on
their core business of inks.
DIC India makes printing ink and
they have seven manufacturing plants, all located in the metros - Delhi,
Calcutta, Chennai, Mumbai. Since the metros have good consumption and
considering the demand for printing ink in packaging and so many other things,
they have virtually been a leader. The attractive part about the company
is the small equity base of 9.18 cr that they have. This company has its
year-ending in December and for 2011 which they have just finished, they have
declared their results with topline of close to about Rs 700 crore, a robust EPS
at about Rs 28-29 and book value at 290. That means the stock of an MNC is
available at 0.9 times book value, and @about 270, a P/E of about 9.
This is not a flashy player
unlike the other MNCs which flaunt P/Es in excess of 20-30 irrespective of
their actual growth, but over the years has shown a steady growth. The parent
holds about 72%, so technically there is no worry for it as it meets the
criteria of < 75%, as is the case with quite a few MNCs which have been
flying on the bourses over the last year in anticipation of delisting and some
have actually gone on to do it. Interestingly, none of the MNC schemes of mutual
funds (Birla Sun Life, UTI etc) holds this stock in their portfolio, at least
not in the top ones. Considering the steady business growth, and the dirt cheap
valuations the company enjoys currently, there is ample scope for growth going
ahead. If the parent do decides to delist, it will be an added bonus.
Though it has taken nearly 18 months after I first wrote about this, DIC Asia Pacific Pvt. Singapore, a wholly owned subsidiary of the USD 9 billion Japanese group, Dainippon Ink & Chemicals, or DIC, the world’s largest manufacturer of printing inks, has finally decided to take a call on de-listing its 72% subsidiary DIC India (formerly Coates India). You can read its history above.
ReplyDeleteIn the last 18 months, the price had gone down to as low as 150 only to bounce back to about 235 now (prior to the de-listing announcement on Friday, 22nd Nov.; today it was on the UC of 20%). 18 months ago, it was quoting at 270 @P/E of just 9 which was way too low for an MNC. However, the last 18 months have taken a heavy toll on DIC, as with most other economically sensitive stocks (L&T has gone below 1000). And today, the first day post the de-listing announcement, the stock has hit the UC of 20%.
As I had said earlier, technically, there was no case for DIC to de-list since its stake was below the maximum permitted of 75%. However, as with the rationale of most MNCs wanting to de-list, DIC too wants to increase its shareholding to have increased operational flexibility to support the company’s business (whatever that means) and to provide the minority shareholders and exit opportunity given the low liquidity in the shares of the company, another dubious reason (they have been having this stake for quite some time now and it is very surprising that they have felt a sudden sympathy for the minority shareholders).
And now some interesting points:
DIC Asia Pacific Pte Ltd has indicated a price of Rs 260 for the proposed de-listing. While promoters hold 71.75 per cent stake in the company at the end of September, about 8,600 individual shareholders control 24.31 per cent stake in the company. And there is hardly any institutional presence in the company. The company has a low equity base of 9.18 crores meaning 91.8 crore shares (@fv 10). Out of this nearly 66 crore shares are hold by the parent leaving only about 25 crore shares in the market. And these too are spread among 8600 individual shareholders. Out of these, one Mr. Hitesh Jhaveri alone holds nearly 5 crore shares.
Now for the de-listing to go thru, the company needs to acquire shares which will be the maximum of
1. Shares required to reach 90% promoter holding (18.25%)
2. 50% of the balance public holding (12.16%)
In this case, it translates to 18.25% (16.75 crore shares). And considering that there is negligible institutional shareholding, and those holding less than Rs 1 lakh worth of shares are 16.72%, they will really have to come up with an attractive price to get 18% of the remaining 24%, considering the nature of retail Indian investors.
Now consider the fundamentals. It is already quoting at a ttm P/E of 23.57 (and even higher if u annualize the last 2 quarter results) which is fair for an MNC. However desperate MNCs Alfa Laval and Atlas Copco paid in excess of a multiple of 30. So if u consider that, the target price could be nearer 400.
They have indicated a floor price of Rs 260 which has been easily crossed today. And as we have seen before, the floor price has hardly any meaning. Incidentally, another Japanese company Denso which de-listed recently, had given a floor price of Rs 60 in May ’13 and an indicative offer price of Rs 95/share in July ’13. And guess how much they actually de-listed at (the discovered price)? A whopping Rs 145. This in a way went similar to the earlier ones such as Atlas Copco and Alfa Laval where the final price was way above the floor price or even the indicative offer price. So given by those yardsticks, 400 looks a reasonable certainty here (a couple of 20% more circuit filters should do the trick). And consider the fact that there are no institutions involved to bring in any rationality the way it happened with Fresenius Kabi where Reliance MF held the key and probably accepted a decent premium over the average price over the last 2 years.
DIC is now quoting at 652 from the levels of close to 280 in Nov. '13, a compounded annual return of about 51%. No wonder they wanted to delist @260, which was rightly unsuccessful. And even at this price, it is still quoting at a reasonable ttm P/E of 26.
ReplyDeleteSo it does pay to watch out for low profile, yet sound pedigree MNC like DIC.