Wendt (India), a cash rich MNC from the capital goods space, is a global abrasives and precision component maker. Another global giant in the same area, Grindwell Norton, has a smaller presence in the super abrasives segments. Bosch, Hero Motors and SKF India are some of Wendt India's large clients.
Wendt (India) was incorporated in 1980 as a JV between Wendt GmbH and The House of Khataus. In 1991, Carborundum Universal Ltd (CUMI), a $3 Billion Murugappa Group Company acquired the Khatau’s stake in the business. Since then, WIL has been a 40-40 Joint Venture between Wendt GmbH and CUMI. The point to be considered is that it has a tiny equity component of just 2 Cr. (20 lakh shares), of which the public holds the balance 20% equity or 40 lakhs i.e. 4 lakh shares.
Wendt India makes super abrasives. While conventional abrasives can also be used for grinding or polishing work, super abrasives, made from industrial and synthetic diamonds with cubic boron nitride, derive extreme hardness. This provides them longer life and ‘super' performance. To ensure that the company does not become too dependent on the super abrasives business, Wendt India has renewed its focus on one other segment, grinding machines and precision components. These components are used in almost all manufacturing units.
Wendt India imports over 50 per cent of its raw materials and is, therefore, exposed to currency fluctuations, especially during periods of rupee depreciation. However, this is partly hedged by its export revenue which account for a fifth of sales.
It is currently quoted around 1600 with a TTM of 91 giving a P/E of about 18, quite low for an MNC with such a pedigree. Its listed parent 3M is quoting @3700 with a similar valuation. Even assuming the vast difference in the businesses of the 2 companies, the valuation of Wendt looks on the lower side.
In Dec ’10, US-based diversified innovative technology devices manufacturer 3M acquired precision grinding tool major Swiss-based Winterthur Technologies AG--which is the parent of Wendt (India). As per regulations due to change in promoter, 3M made an open offer @1366/share when the share was quoting @1626, which is incidentally close to the current price 6 months down the line. When the news broke out the share crossed 2000; its lifetime high is 2065. The interesting part is what happened afterwards.
Wendt’s other promoter CUMI, contested the open offer stating that it has the right of first refusal. The matter is with the CLB and the offer postponed indefinitely. As and when the matter is decided, it could result in a windfall.
So this is somewhat similar to the case of DISA where patience would pay. It certainly makes for a potent combination – low equity, high promoter holding hence low floating stock and the prospect of a good offer price as and when it comes. An added bonus is its high dividend payout in line with other MNCs (last year it paid 25/share). Even otherwise, being a niche MNC stock, it would show steady growth in the years to come
