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Last Updated : Dec 18, 2014 04:54 PM IST | Source: CNBC-TV18

Did You Know: Bengal & Assam trades at 85% discount to its investments

The company was incorporated in 1947 and is a flagship core investment company of Singhania Group. It owns over 30 percent in JK Lakshmi and JK Tyre.

Did you know a company that owns over 30 percent of JK Lakshmi and JK Tyre, has no debt on its books, but still trades at 85 percent discount to its investments?

The name of the company is Bengal & Assam. The company was incorporated in 1947 and is a flagship core investment company of Singhania Group.

The investment picture of the company is most crucial. There are stocks held in group companies in three ways. One is direct investment, second is via JK Fenner in which the company holds 88.1 percent stake and third is through Florence Investment, wherein the company holds 43.3 percent via direct and indirect.

Second, there is an unlisted company Fenner Industries, which is a hidden asset for the company. It is an auto ancillary company and gives an EBITDA of Rs 80 crore and a profit after tax of nearly Rs 40 crore, which is important.

Besides, the company has investments in mutual funds and has fixed assets – land, plant and machinery as well.

Importantly, the company has a market cap of only Rs 400 crore, but if one puts together all investments, it comes to nearly Rs 3100 crore, which clearly means there is a discount of nearly 85 percent on the investment held by this company.

But if one doesn’t count any discount, the value per share will actually be Rs 3600. In case of a 20 percent discount, it should be nearly Rs 2800, for 40 percent, it should be around Rs 2100, in case of 60 percent, around Rs 1440, for 80 percent discount, it should nearly be Rs 720 and for 90 percent discount, around Rs 360.

The stock is trading around Rs 490, which means it is around 82-83 percent discount compared to its investment.

The company holds 36.44 percent in JK Lakshmi Cements. Again this is the direct plus along with JK Fenner and the Florence investment put together. The JK Lakshmi Cements stake is valued around Rs 1370 crore. A 35 percent in JK Tyres is valued at around Rs 550 crore, while a 44 percent stake in JK Papers is nearly Rs 200 crore.

Udaipur Cement is a listed entity, wherein the company holds 24 percent stake via JK Lakshmi Cement at around Rs 150 crore and many other investments. Put together in terms of stock investments in these group companies, the value comes to nearly Rs 2375 crore.

On hidden asset, Bengal & Assam holds 88.1 percent in Fenner Industries, an unlisted auto ancillary company. In FY14, Fenner reported sales of Rs 533 crore, PAT of nearly Rs 40 crore and EBITDA of Rs 80 crore. Fenner has total assets worth around Rs 842 crore.

Even if one were to take a conservative multiple of 10 times, this company should be valued around Rs 370-380 mark. And an 88 percent stake of Fenner Industries comes to around Rs 340 crore.

In mutual funds, the total investments as per the balance sheet FY14, is Rs 50 crore. The company has ICICI Prudential Money Market Fund, Reliance Liquid Fund and UTI Money Market Fund.

The net block which the company again reports on FY14 balance sheet land, building, plant and machinery is nearly Rs 360 crore.

The promoters have been increasing stake in the company. Currently, it stands around Rs 71.7 percent. LIC holds nearly 3.1 percent stake in the company. There are nearly 33500 retail investors too in the company.

Menaka: I suppose it is just a case of people not recognising the full value of this company which explains why it is trading at such a deep discount?

A: I have to agree with that because lately especially in this bull market phase we have seen that there are other stories as well which we have pointed out and slowly when the investors come to know about that they are buying it.

One concern which I would seriously want to point out in these investment companies that one of the reasons why they trade at such high discount is because of their dividend policy. They get around Rs 60-70 crore as dividend from all these investments but they only cough up Rs 10-20 crore per annum. Had the dividend policy of these investment companies been a bit liberal you could not see these kind of discounts going in- in terms of these investment companies. They have a cash of at least Rs 300-400 crore lying in. Even if they go ahead and give that Rs 10 per share discount, in the last year they gave Rs 5 per share as dividend. If they are more liberal with the dividend policy people will not mind investing in these companies.

I had a word with one of the companies whose investment company is listed. They say it is a legacy issue that these companies are listed. They don’t have anything to do with these companies. There is a huge discount going on, they can’t delist because if they go to the 90 percent mark the stock will move up and all but they are just listed because they are listed but if they go ahead and do a liberal dividend policy you will not see these kind of discounts in all these investment companies.

First Published on Sep 12, 2014 04:25 pm
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