KICL

                                    KALYANI INVESTMENT COMPANY LTD.

KICL is a “Holding Company” of Bharat Forge group & is classified as a Core Investment Company.

KICL constituted the investment business of Kalyani Steels Ltd. (KSL) & was demerged from KSL in FY10.

CMP = Rs.380/-

MCap = Rs.165Cr.

Share Capital = Rs.61.96Cr. (this includes, 14% Non – Cumulative Redeemable Preference Shares having book value of Rs.57.6Cr. issued to Kalyani Steel Ltd. as per scheme of demerger )

Total Assets = Networth = Rs.342Cr. (out of this Rs.338Cr. are “Non-Current Investments”)

EV = Rs.222Cr. (treating Preference Share Capital of Rs.57.6Cr. as ‘debt’)

QUOTED INVESTMENTS :

Company Name : No. of shares held x CMP = Value of Holding

BHARAT FORGE : 3.16 Cr. shares x Rs.300/- = Rs.948Cr

BF UTILITIES : 60.6 lakh shares x Rs.410/- = Rs.448Cr

HIKAL : 51.55 lakh shares x Rs.320/- = Rs.165Cr

Total Market Value of Quoted Investments = Rs.1561Cr.

Book Value of Quoted Investments = Rs.182Cr.

Therefore, KICL is trading at a discount of 89.5% from the market value of its underlying holdings.

UNQUOTED INVESTMENTS :

Book Value of Unquoted Investments = Rs.156Cr. (this includes Rs.56Cr. investment in share capital & Rs.84.5Cr. investment in 0.1% Non – Cumulative Redeemable Preference Shares of Kalyani Gerdau Steels Ltd.)

Kalyani Gerdau Steels Ltd. (KGSL) is a JV between Kalyani group & Gerdau. Gerdau is the world’s 14th largest steelmaker and the largest producer of long steel in the American continent. Kalyani Group is a junior partner in this JV. KGSL is in deep losses. KICL is trying to exit this JV. The management is in negotiations with Gerdau to sell their stake and expects to recoup the full investment of Rs.140Cr. (Rs.56Cr. + Rs.84Cr.) in FY13 itself. It remains to be seen when & how much value the co. is actually able to salvage from its investment in this troubled venture.

KICL has issued 14% Non – Cumulative Redeemable Preference Shares worth Rs.57.6Cr. to Kalyani Steels Ltd. (KSL). The co. had to pay Rs.9.3Cr. as preference dividend to KSL during FY12 which constituted 56% of the PAT. Due to this burden, KICL is not able to pay dividend to its equity shareholders.  

If KICL is able to divest its Rs.140Cr. shareholding in KGSL & redeem the Rs.57.6Cr worth of preference shares from KSL, then that will be a big trigger for the stock as the Enterprise Value (EV) of KICL will decrease from Rs.222Cr. to Rs.82Cr.

During FY12, KICL earned Rs.18.96Cr. in dividends from its holdings.

Post Deal (sale of holding in KGSL to Gerdau) :

EV = Rs.82Cr.

EV / Market Value of Holdings = Rs.82Cr. / Rs.1561Cr. = 5.25%

EV / Cash Flow  = 4.3x (Cash Flow ~ Dividend Received)

A company holding quoted investments (in Kalyani Group) worth Rs.1561Cr. & trading at an EV of Rs.82Cr. (or 5.25% of underlying holding) makes no sense.    

PORTFOLIO WEITAGE = 1%