Angel Broking is bullish on TTK Healthcare and recommended a buy rating on the stock with a target of Rs 686 in its April 30, 2013 research report.
Angel Broking report on TTK Healthcare
"The Board of TTK Healthcare approved for a scheme of amalgamation of TTK Protective Devices (TTKPD; formerly known as TTK-LlG), an unlisted public company, and TSL Techno Services (TSL), a wholly owned subsidiary of TTKPD, with itself.
Scheme of Merger
On amalgamation of the companies, the shareholders of TTKPD will be entitled to nine equity shares of Rs 10 each fully paid-up of TTK Healthcare, for every two shares of Rs 10 each fully paid-up held by them in TTKPD, thus leading to a equity dilution of 82 percent.
No allotment shall be made to the shareholders of TSL (which owns five acres of land), with it being the wholly owned subsidiary of TTKPD, and the value of TSL having already been considered as part of the valuation of TTKPD.
Background
TTKH was in the business of distribution of condoms purchased from TTKLIG (a JV between TTK group and Reckitt Benckiser). In Nov 2012, TTK Group bought a 49.9 percent stake in TTK-LIG (now TTK Protective Devices (TTKPD)) from Reckitt Benckiser at a valuation of ~Rs 300cr. However, the company’s profit of ~Rs 25cr in FY2011 scaled down to a loss of ~Rs 23cr in FY2012 due to disputes and differences between New Bridge Holding, BV (a subsidiary of Reckitt Benkiser) and TTK group (TTK) which impacted the exports revenue.
The dispute was resolved in Oct 2012.
Reckitt Benkiser retained its Durex and Kohinoor brands of condom after TTK acquired stake in TTK-LIG. TTKPD has stopped its supplies to Reckitt Benkiser or its subsidiary. TTKPD launched Skore brand of condom in Nov 2012 which captured a 4 percent market share; the company’s Management expects the market share to increase to 10 percent in the next 12 months.
Conclusion:
Overall, we believe the deal is a big positive since TTK Healthcare’s networth is expected to more than double post the merger, considering an ~Rs 160cr of networth of TTKPD.
Post the scheme of merger, the promoter shareholding will increase from ~65 percent to 81 percent. As per SEBI guidelines, all listed companies should have a minimum public shareholding of 25 percent, failing which the company might have to go for delisting. We believe the company may go for a stake sale to get its promoter shareholding to 75 percent.
We believe if the merger goes through, TTK Healthcare will utilize funds from TTKPD for its current expansion plans rather than raising debt, thus
maintaining its debt free status. We maintain our Buy recommendation on the stock with a target price of Rs 686," says Angel Broking research report.
Shares held by Financial Institutions/Banks
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