Category: Special Situtations

March 9, 2020

Suven creates value through demerger

The pharmaceutical component of the company which was carve-out in January got listed today , This is another demerger which was value accretive Pre Demerger Mkt cap was less than INR 3000 crore now separate companies have combined market cap ~INR 5000 crore

You can read a previous analysis of the company here

As far as scorecard is concerned , we would be removing both components (companies) from score card. The Pharmaceutical component at today’s trading price
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My rational

Life science component though close to … Read the rest

November 18, 2018

IIFL Demerger Analysis

The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You have to work hard on it. Ask yourself what are the arguments on the other side. It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.

—Charlie Munger

Nirmal Jain, co-founder of IIFL did this in 1999 when their firm realized that opening their paid research to world wide web would bring more clients compared to their current subscription model. They disrupted their own business

Source – Excerpt from Stay Hungry Stay Foolish

The binary decision paid off and in coming years they became of one of most successful broking business in India. My interest in the IIFL group rose due to an interesting remark made by one of the most astute investors in the world

IIFL, for example, in spite of an average 14% return on equity (ROE) and a 30% annual growth in book value per share over the past ten years, even at its current price of around 700 rupees per share is selling at … Read the rest

July 16, 2016

Max India Demerger saga finishes

Last week the final (3rd) company from Max India demerger exercise got listed on bourses, we started tracking this story in Jan 2016. A lot has happened over last six months and it’s time to take stock and understand how this spin off / demeger has played out.

In Jan’ 2016 we conservatively estimated that then market cap was a 5% premium to our calculated value of 3 sub-divisions. Let me do a memory jog for you

On date of spin off the insurance business was valued at about ~INR 10,500 crores even lower than our conservatively calculated value.

Was this expected ?

This is what Joel Greenblatt has to say on Spin offs in his book “You can be a stock market Genius”

Investors who didn’t want Life insurance simply dumped the stock. However our conclusion in Jan 2016 was a bit different

life insurance business is not directly listed in India so may see some traction with investors.

And hey ! what happened in June 2016

It is my hope that this book will promote self-awareness, forgiveness, reconciliation and assertiveness for women to peacefully live generic cialis 40mg the life God planned for them long before they were … Read the rest

January 2, 2016

Max India – Spin off Analysis

In Jan’ 2015, almost a year back diversified firm Max India spin off plan were announced management indicated it is splitting listed entity into three companies with the existing firm becoming India’s first listed company with insurance as the sole business.

The Max India Group is a multi-business corporate, the listed entity has following primary business

Life Insurance – As a 74: 26Joint venture with Mitsui Sumitomo of Japan
Max healthcare – Operating as equal JV with Life group of South Africa
Health Insurance – As a 74: 26 Joint venture with BUPA of UK
Antara – 100% owned retirement living real estate venture
Max specialty Films – 100% owned

Last year the conglomerate began a demerger exercise which will result in listed company being spilt into three listed companies as per below

Source – Investor presentation, Nov 2015

In this brief post we try and examine if the sum of parts would be greater or lesser than the current M-cap, Let’s go to the drawing board.

Max Financial services – The largest piece of the spun off entity is a well-established life insurance provider in India. Life Insurance is a crowded place in India were on one hand we … Read the rest

November 20, 2015

Spin off Investing – TCI Ltd

If you have gone through Warren Buffet’s early partnership letters, you would find that he had spilt his partnership portfolio into three categories and one of most interesting category was work-outs

So what are work outs ?

Our second category consists of “work-outs.” These are securities whose financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities. In other words, they are securities with a timetable where we can predict, within reasonable error limits, when we will get how much and what might upset the applecart. Corporate events such as mergers, liquidations, reorganizations, spin-offs, etc. Lead to work-outs. companies.

If you want to learn on how to invest in work outs (also called special situation investing / Risk Arbitrage Investing) the best book to pick up is Joel Greenblatts – You can be a stock market genius

In this post we will learn about spin off investing through a live example

First understand what is Spin offs

There are various reasons corporations opt for spin-offs, the primary ones are

Reading the scheme of amalgamation shared by company in their regulatory fillings to stock exchanges would spell out reason for spin off.… Read the rest