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- Investing style - pure value driven with minimum target returns of 2x in < 1 or max 2 years with lowest possible risk to reward ratio. - Trading Style - My trading bias is mostly only on the short side . i.e buying puts,shorting calls. - Market focus - investing in Indian stocks and... More
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Saanpaurseedi aka Snakes and Ladders
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  • Sayaji Hotels open offer by Clearwater Capital - any upside left ?

    Raid De Hotel – The `Phoren` Hand  - Distresed Foreign fund acquiring stake ( open offer at 110) in Indian Hotel co. SAYAJI HOTELS Ltd (SHL)

    • Event – Foreign distress fund CLEARWATER CAPITAL Partner (Cyprus) Ltd. (CCPL) open offer to acquire SAYAJI Hotels at 110. ( already holding 8% stake and also holding FCCB at conversion price of 75) . This could be first instance of foreign fund acquiring an listed Indian hotel.

    ·         Offer Price – 110. To buy 35 lac shares ( 20%).

    ·         Open offer period from 20th May 2010.

    • Technicals -Cmp 118 ( +5% upper ckt. No sellers. Redundant info but 100% delivery) on volumes of just 4k shares ( vs 2 week avg of 28k). pending order of 50k.

    ·         In past one month SHL is up 64% from its low of 73. New 1 yr high

    ·         200 DMA of 62. 50 DMA of 80.

    SAYAJI HOTELS – chart since 2002

    Whats hot about Sayaji –

    • Operates 3 Hotels in Pune, Indore & Baroda – total rooms of 535 ( Sales of Rs. 83 crs last year. 24 crs in Dec`09 qtr)
    • Also has separate restaurant business -Barbeque Nation. 18  BBQ Nations operational. (Sales of Rs. 8 crs last year.)
    • Not just a hotel room occupancy business but also a food play as Food & beverage (F&B) revenue to Rooms Revenue ratio at 1.4 vs 0.7 industry avg.
    • Sayaji PuneSayaji Indore 
    • Sayaji Hotels    
      Sayaji Baroda 73 Rooms  
      Sayaji Pune 252 Rooms  
      Sayaji Indore 210 Rooms  
      Total Rooms Excl Baroda 535  
      No of Shares 1.75  
      cmp 110  
      Mkt cap 192.5 Rs. Crs
      Mkt cap per Room 0.36 Cr per room
      Debt 176 Rs. Crs
      EV  368.5 Rs. Crs
      EV per room -unadjusted 0.69 Cr per room
      BBQ Nation Valutn 40.0 Rs. Crs
      EV per room -adjusted for BBQ Nation 0.61 Cr per room

    Well in generally I would avoid these kind of companies that have issues like Sayaji (SHL)

    1.       High debt – debt to equity > 2.5 with Interest Coverage ratio < 2.0

    2.       Prompters pledged 90% of its 50% holding in the co.

    3.       Has secured FCCB ( Convertible debt) with conversion price at 75 of 47 lac shares. ( Clearwater is holding that and has already converted some into shares) As market price is higher than the conversion price, risk of dumping shares into open market is a big risk apart from equity dilution by exercising conversion of debt into equity shares.

    4.       Latest results are not great – in losses . still recovering from recession.

    Points 1 & 2 can lead to bankruptcy and share price falling to zero. So plain simple avoid these kind of companies will save lots of nightmares. But for SHL things are suddenly turned different because of

    1.       FCCB holder ( Clearwater) wants to convert all shares and thereby his shareholding will go up from 8% to ~ 32% and promoter stake going down from 51% to 38%.

    2.       At first glance, the situation this seems to be a hostile takeover but with the promoter also saying they are comfortable and there will be joint ownership.

    3.       This seems to be win-win as the new partner (CCPL) will be willing to put in more money, if required for any debt repayment or further growth of business.

    Some questions

    1.       Some individuals with surnames similar to the promoter ( Dhanani) have raised their holding in last 2 years to around 6%, even though promoter stake gone up by 3% from 49% to 51% in last 2 years.

    2.       CCPL also has reduced its stake from 13% to 8% in last 2 years. Why do they want to raise their stake now ? Is it that now they believe in the prospects of the company more than earlier ?

    3.       Worse case situation – this could be pump & dump facilitation exit by CCPL and other shareholders to raise up the price so as to dump the shares and exit - citing reason like could not offer high offer price.

    4.       CCPL is holding FCCB – how many of 47 lac shares has it converted ? and if it converts more debt into equity , what will  be the maximum dilution ?

    Now let us evaluate if this open offer bid of Rs. 110 per share by Clearwater Capital Partners Ltd (CCPL) for Sayaji Hotels Ltd ( SHL) is good enough or not.

    ·         On past earnings – Cash PAT was 10 crs for last years or trailing PE of 19. PSR  - Price to sales of 2.3x and EV/ EBIDTA of 17x. This seems a fair value .

    ·         Cost vs Replacement value method - EV – Enterprise Value or Cost of acquisition per Room comes to Rs 0.70 Crores per room. ( incl. Market cap of 193 crs + Debt of 176 crs  = total EV of ~ 330 crores) This seems a fair value.  But This compares with the avg.  cost of building a hotel room ( incl. land cost at historic value ) of ~ 60 to 80 lacs. But keeping in mind all existing 535 hotel rooms of SHL are already operational across Pune,Indore & Baroda and track record , there seems to be a lack of adequate premium in the price. A 30% to 40% premium would be nicer ( implying open offer price of  ~140)

    ·         Market proxy method -But another way to look at is to compare with the recent sale of some transactions. The most recent sale was Unitech`s sale of Marriot Budget hotel in Gurgaon for 231 crs for 200 rooms or market price of 1.15 cr per room. Add debt this would easily cross 1.8 crs per room. ( also keep in mind this hotel was just completed with no running track record). This comparison would mean Open offer price should be hiked by 70-80% to Rs 180 per share.

    ·         Valuing Food Business of SHL separately–  Two factors to take into consideration  

    1.       Given that SHL Food & Beverage Revenue to Rooms Revenue is at ~1.4 ( double the industry average).

    2.       And also it holds 18 operational restaurants Barbeque Nation all over India with last year Revenue of Rs. 8 Crores. A ball park Conservative Value of such business would be a multiple of 3 to 5 times sales or 30 to 40 crs.In Feb 2008,Management expected Barbeque Nation Valuation of 250 Crores.

    3.       Taking the above two factors the stripped down EV per room value comes down to 30 to 40 lacs per room from EV of 70 lacs per room ( at offer price of 110). This again implies an fair value of at least 2x  higher or offer price of Rs 200 per share

    ·         Embedded value – since it had plans to building hotels in other cities, it could be owning land at historical cost but I do not have any clue of those.

    So all in all , CCPL offer of 110 per share seems to be a decent value but a 180-200 per share offer would be ideal value for the SHL .

    Technicals -Sayaji all time high was 130-140 in Jan 2008. And in context of that also , open offer seems less.

    How likely will the open offer price of 110 be hiked to say 140 ?  

    Difficult to say. As CCPL can also sell its share –holding of over 1 Mn. In case the open offer is not successful. Also dificult to get entry into SHL.

    A related play would be Kamat Hotels that is held by Clearwater also. see this post,

    Disclosure: None
    Apr 04 6:46 PM | Link | 1 Comment
  • Archies -Strong Buy - Vs. Infrasoft IPO
    Archies Limited - also known as Archies Gifts and Greetings. ( one can it the Hallmark of India ?). An India listed micro-cap of $13 Mn.
    • Today -Archies - made high of 106. closed at 100 up +12% on strong Vols of 8 lac shares ( 40x its 2 week avg volumes). stock has ckt limit of +/-20%.
    • IPO to open on March 23rd.  ( its business mode is free e-greeting cards ,98% of revenues ( 25 crs) is thru internet Advt. -CPM basis or cost per thousand impressions)
    • Maintain 120 target in next one month.( of course key assumption is that 35 crs IPO gets subscribed)
    • Archies -5 days stock chart
    archies - 5 day perf.jpg

    • Disclosure - Long Archies.
    • at any stock buys at these levels , one should be ready for 20% correction given the 100% rise in past 1 yr.
    Got the info of the upcoming IPO from VC Circle. it is definitely positive for Archies. today archies up +14%at 101 on strong vols of 4 lac shares( up 20x 2 week avg. vols)
    •  planning to raise 35 crs at 100 per share ( 25% dilution) , so valuation of 150 cr. vs arches 68 cr @ 101 cmp
    • will have PE of 27 vs < 6 for Archies
    • PAT of at 5 cr vs 10 cr for archies ( though 123 net margins are > double of archies, fact is for this kind of busines , you also need off-line stores) has filed DRHP with SEBI in Oct/Nov`09 and it typically takes 5-6 months for SEBI to revert with approval so it can get approval anytime and that would be an immediate trigger for Archies. ( update : to open for IPO on 23-Mar-2010)
    Archies -
    • cmp 89 . mkt cap just 60 crs. 
    • technical shorter term target- if stock closes well above 95 , 1st target is 120 ( 1 yr high) . stop loss 80-85.
    • longer term buy - can be even a buy n hold for a patient value investor. can touch 200 ( its lifetime high) over couple of years as it shows improving results
    • Technicals
    • key trigger - could hit IPO market anytime soon. awaiting SEBI approval. co. funded by Intelcapital - $ 5 mn. not sure of valuation of the co. and funds that it plans to raise. anyone got any news ?? see link
    • fundamentals
      • 9m results showing good top line growth of ~10% at 100 crs. but bottom line flat to -ve growth.9m PAT of 8 crs vs 10 crs. thats one reason for stock correction.greetings segment showing recent 33% decline but gifts showing decent 20% growth and also has online venture called archies online
      • stock at cheap FY10 PE of 6 vs. larger cap retail peers having 30 PEs. P/CFO also very reasonable at 10.
      • Mar`10 qtr results to be definitely better than last yr as in last Mar`09 it had loss of 3 crs.
      • stock stuck in business model transition mode ( who buys greeting cards nowadays ?)
      • but over longer term in attractive retail /domestic consumption sector. co. sales of just 140 crs. so lots of room to grow provided it plays it cards well.
      • now GIFTS contributes over 55% of total sales. "greeting cards " contribute just 30% now.
      • co. owns 120 stores all over india. ( mostly leased).that would be a key asset for a acquirer -for any retail business - food,cafes..etc.. at cmp. cost to acq. per store would be 50-60 lacs per store
      • promoter has shown clear intention earlier to sell out if given price 400 crs or 7x from cmp of 60 crs.or price of ~600
      • promoter stake steady at 62% since the past few yrs.
      • key shareholders - Times of india TOI( Benett and Colemann)) & Videocon are holding 8% since past couple of years. TOI bought 0.25 Mn shares at 160 per share or Rs. 40 Mn 2 year ago.
      • No pledged shares. has stopped dividend since 2006 ( 2 per share) due to capital requirements
      • debt of just 17 crs and its reducing Year on Year.
    • negatives - Main negative is promoter trying to hikes its 62% stake. so one can expect 15% dilution. In 2008 it had issued 0.1 cr shares to promoters( 15% equity dilution) ,through warrants.  at price of 160 ( Rs 16 crs) by paying 10% immediately and to pay the remaining by Dec`08 but promoters decided to skip the warrants as price at Dec`08 was at 50-60.
    Disclosure - Long Archies.

    Disclosure: Long Archies
    Mar 17 5:30 PM | Link | Comment!
  • US dollar - US debt clock
    here is real time live ammo for all the dollar bears
    amazing. though I suspect It might look the same for most countries *lol*.
    Tags: ERO, UDN
    Nov 28 11:25 AM | Link | Comment!
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