I have tried to analyse some current delisting cases using the framework which I have discussed in my earlier posts. You can read Delisting Framework Part I “Failure has patterns here and Part II Don’t be Fooled by Randomness here, Part III “Seek Uncertainty on Favourable terms” here, Part IV Use Checklists and Mindmaps here .
Cases with negative expected return
Rhodia Specialty [BSE code 506230]
[Click on image to enlarge]
Rhodia Specialty has combination of 1) Pathetic fundamentals [incurring losses for last five years] 2) Scattered shareholding pattern 3) steep valuation 4) Negative expected return. Thus it has all the patterns which I discussed in Failure has Patterns
Ricoh India [BSE code 517496]
Download detailed mindmap from here
Reasons for rejection are 1) Pathetic fundamentals 2) Steep valuation 3) Scattered shareholding 4) Negative expected return
I analysed this stock when share price was INR 115. Going by current market price of INR 140, indicative price of INR 120 and participation in postal ballot by shareholders, it looks like Ricoh India delisting might go through. In hindsight, it looks like my decision was wrong. But I will prefer to invest in situation in which I am confident and which have positive expected returns.
Novopan Industries [BSE code 500310]
Discovery of fair price is doubtful, top shareholders MIGHT be related parties…
Reason for rejection: Discovery of fair price doubtful and floor price not yet announced.
Ahlcon Parenterals [BSE code 52448]
Its a classic case of how promoters keep finding ways to cheat minority investors. B Braun acquired controlling stake during March 2012. Instead of acquiring 100% stake from promoters, they acquired only part stake and got the name of ex-promoters removed from promoter group. Now Ahlcon Parenterals requires 15% stake for delisting and ex-promoters holds more than 17% in the company.
Its a case of managed delisting case. Analysis of fundamentals and valuation is of no use, as there is no possibility of discovery of fair price. So worth buying only if share price is below 420.
Cases with positive expected return
DIC India [ BSE code: 500089]
Note: I analysed this stock when price was between INR 340-350.
You can download detailed mindmap from here
This is a situation when one can Seek Uncertainty on Favorable Terms. I like this situation for following reasons 1) No doubt on discovery of fair price 2) Fundamentals of company reasonable 3) At INR 35o, it was trading near book value [AVG 5 year pre-tax ROE > 12%]. 4) Delisting is difficult but not impossible. As discussed in Part III, this situation falls under BD matrix [Hard for me to estimate and hard for others to estimate] 5) Expected return at INR 350 was higher than 10%.
I had discussed this situation here . This is a case of managed delisting case. As discussed here, in managed delisting cases fundamentals of company, promoters past actions and valuations are of no use. Most important thing is buying below indicated floor price. Currently the price if around INR 170 and indicated floor price is INR 230. Biggest risk is not whether delisting will happen or not but the time risk.
Current market price suggest either delisting will not happen or there is huge time risk. Market is generally right in special situations, so one should THINK TWICE before taking any exposure to this situation.
When to sell
At the risk of repeating myself, let me remind readers again that there is no advantage in holding stock once public announcement is made [Read Part IV of delisting framework for full discussion] unless you are 100% sure of delisting success and that discovered price will be higher than the market price and the company will not reject the discovered price.
Before buying the stocks discussed under ‘cases with positive expected return’ and before selling stocks discussed under ‘cases with negative expected return’ please note that my analysis of APW President and Amrit Banaspati went totally WRONG. I did not liked Denso India and Jolly Board delisting cases and ultimate delisting price was more than double the price when I analysed. So please do your own due diligence. INVESTING ON OTHERS CONVICTION IS INJURIOUS TO YOUR FINANCIAL WEALTH.
- All the posts on this blog, including this one, are for educational and discussion purposes only.
- None of the material posted should be regarded as advice to buy/sell any stock. I do not have any proven stock performance record to talk about.
- As a professional investor, I may have positions in stocks discussed.
- Main objective is to seek contra views and not to recommend any particular stock as buy or sell.
- Delisting are very dynamic. Stocks are buy at one price and sell at another price.