Chettinad Cement may rally to Rs 900: SP Tulsian

Chettinad Cement may rally to Rs 900, says SP Tulsian, sptulsian.com.

Tulsian told CNBC-TV18, “Chettinad Cement, promoters are holding 88.45% stake in the company and they have already given a notice to the company for initiating a delisting move because they want to acquire the remaining 11.5% stake and if you see the present breakup of that 11.5%, about 3.5% is held by Tamil Nadu industrial investment corporation and about 5.5% stake is held by 140 shareholders which includes the bodies corporate or may be the HNIs who it is learned that they are largely from the Chettiar family who are again the promoters are also the Chettiar and it is learned that they have negotiated or having given an indication probably to delist the company and acquire the remaining shares.”
He further added, “It is very essential to see the intention or the fate of these shareholders, 3.5% and 5.5% because promoters will be requiring close to about 6% of the public float out of 11.5% they will be requiring to close to about 5.75%, 50% of that to make the delisting successful and I am presuming that the talks must have happened with these people because 3.5% stake held by about 3000 public shareholders doesn’t material much even if 33% of them tenders may be about 1% stake because generally we have seen those shareholders remaining quite passive in the public shareholder category. Now if you come on the fundamentals the company already has 3 plants with a captive power plant backup in the state of Tamil Nadu with a total capacity of about 11.5 million tonnes and power generation capacity of 105 Megawatt (MW).”
“Company has recently commissioned a 2.5 million tonnes cement plant in Gulburga in Karnataka state and setting up a 2 million tonnes grinding unit in Sholapur and if you take the overall financial performance of the company for first 9 months of FY12 which they have reported, top line has been at about Rs 1500 crore and the EPS is close to about Rs 42 with a PAT of about Rs 155-157 crore for 9 months. So even the company’s debt position is not very severe. The total debt of the company is less than Rs 1000 crore. If I exclude the Rs 230-240 crore interest free sales tax loan, if I include that then the total debt is close to about Rs 1200 crore and if you take a valuation call, even if you value the existing capacity at USD 80 per metric tonne of the cement capacity because southern cement companies are carrying a lower valuation and the power plants are calculated with a EV of about Rs 5 crore per MW, the valuation comes to about Rs 7000 crore and if you take the present market cap of Rs 2100 crore, Rs 900 crore debt the EV comes to about Rs 3000 crore.”
“So logically the delisting should get discovered at about Rs 1500-2000, it could be as aggressive as that but as I said probably the promoters must have made a good homework by initiating the talks with the HNIs but still in all probability I am expecting that delisting should happen anywhere between Rs 1100-1200 per share and since the delisting move has been initiated by the company formally it has been initiated, I think the process can get completed may in next 2-3 months. So taking all this into account if somebody can keep a view of about 3 months he can expect a share price of Rs 900 while the downside risk is very minimal.”