Sunday, June 17, 2012

Riddhi Siddhi Gluco Biols Ltd (RSGBL)

Riddhi Siddhi Gluco Biols Ltd is India's largest starch and starch derivatives company with about 25% market shares. The EPS for FY 2011 was Rs 147.22, which should come down to Rs 20 to Rs 25 depending on the loss of March,2012 quarter. 

Roquette Freres, one of the largest Starch Company in the world holds 14.93% stake in Riddhi Siddhi Gluco Biols Ltd. It has entered it to arrangement with Roquette Freres to sell its starch business for Rs 985 crores.

As per scheme of arrangement of Riddhi Siddhi Gluco Biols Ltd, RSGBL will transfer all its Starch business and its factories in a subsidiary M/s Riddhi Siddhi Corn Processing Private Limited (RSCPPL). Under the said scheme the manufacturing units of RSGBL at Viramgam, Gokak and Rudrapur would be transferred to its subsidiary Company M/s Riddhi Siddhi Corn Processing Private Limited (RSCPPL). Roquette Freres will make an investment to acquire majority stake of RSGBL in RSCPPL, with further option to buy all the shares held by RSGBL in RSCPPL, and as part of the Scheme RSGBL will reduce it's paid up capital to the extent of shares held by Roquette Freres (around 14.93% of the present paid up equity). This is subject to approval of the Shareholders, Creditors and concerned authorities.

The scheme of arrangement is approved by Gujarat high Court on 2nd may, 2012 and the order is received by the company RSGBL on 31st May, 2012.

As things stands
a)  The corn business of the company is transferred to RSCPPL.
b)     It will get Rs 985/- crores  form Roquette Freres for sale of RSCPPL
c)     New Equity of RSGBL is 94,78,300 shares as the stake held by Roquette Freres stand cancelled in the company.
d)     Based on Interest cost in quarterly reports, we can assume that the company has a debt of Rs 175 crores to 200 crores.
e)    The company will have to pay capital gains tax of almost 20% without considering indexation.

Based on above facts, the company will have cash of almost Rs 588 crores (After paying taxes and all debts) in hands, which converts into Rs 620/- per share.

The company is left with loss making wind power business, where it has already invested sizable amount and intend to invest more.

It has also indicated to handsome dividend to shareholders to rewards shareholders for the sale of its subsidiary (Please refer its Annual report of FY 2011)

It current market price is Rs 255/- which is almost available at a discount of 60 % to its cash in the company. In recent times cash in books are not valued at par and are often available at a discount, it is true for many well know companies as is true for RSGBL.

Why Should I invest in the company?

a) My rationale for investment is the company is dividend stripping and it will be huge, Based on cash balance in the company, its statement in Annual Report about Special dividend has given comfort that it will give special dividend. I perceive that the dividend should be around 25% of cash value in the company, which will be almost Rs 150/-.
b)As and when the transaction takes place (almost 3 months), the company will declare dividend and the stock will be Re -rated.
c) There is a well known financial wizard, who is known for investment call is an investor holding 1,50,000 shares in his personal capacity.

After the dividend is distributed, it will be left with almost Rs 450/-per share and Cost of that will be Rs 104/- (254 – 150). (Forget the tax planning part by getting Rs 150 as tax free and also claiming short term loss).

I am convinced that stock will be Re - rated as soon as the dividend is declared and we can expect a return of more than 20%.

PS: Riddhi Siddhi Gluco Biols Ltd and Riddhi Siddhi Bullion are not related entities , though both of them are based in Ahmedabad.

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