Do not be seduced by recently relisted Shree Precoated Steel at Rs 27…Clearing misconception of consideration to be received on slump sale of it’s Steel Business to Essar Steel

Thanks Keshav for the query for Shree Precoated Steel (SPS) at Rs 27
My advise is to steer clear of SPS..don’t get seduced on the relisting at Rs 27
There is a misconception that SPS is receiving Rs 600 crs for the sale of the steel business to Essar Steel
 
I went through the Information Memorandum (IM) and was frankly amused
 
Under a Composite Scheme of Arrangement the Steel Division of Demerged Company Ajmera Realty & Infra India Ltd(ARIIL) got transferred to the Resulting Company SPS…..Now this whole Steel Business is being sold under slump sale to Essar Steel by SPS ….Now the Ajmeras have two listed companies…ARIIL @ Rs 200 ( Equity Rs 35.48 crs) and SPS @ Rs 27 (Equity Rs 82.80 crs)
Why did they have to demerge first and then sell the Steel Division?..Could not they have sold it directly from ARIIL as they had the intention to exit this business ?
 
SPS has a networth of Rs 208 crs at March 31,2009 with reserves at Rs 125 crs…..but the break up of assets and liabilities shows a sorry picture
 
Assets total Rs 1380 crs
 
Net Fixed Assets :Rs 393 crs
Capital WIP : Rs 254 crs
Inventories : Rs 255 crs
Debtors: Rs 258 crs
Cash & Bank:Rs 79 crs
Loans and Advances :Rs 141 crs
 
Liabilities total Rs 1162
 
Secured Loans : Rs 655 crs
Unsecured Loans : Rs 185 crs
Current Liabilities : Rs 322 crs
 
Short Term Debt is stated at Rs 471 crs and Long Term Debt is at Rs 369 crs
The networth from the above comes to Rs 218 crs…..There is a difference of Rs 10 crs from the actual networth stated at Rs 208 crs….poor due diligence when preparing the Statement of Assets and Liabilities for the IM
 
The Book value comes to Rs 25
 
The consideration for the slump sale of the steel business is to be determined as follows (verbatim from the IM):
__________________________________________________________________________________ 

Material developments since the last balance sheet date

(i)

 

 

The financial year of the Company has been extended to 30th September, 2009(18 months) and the

same has been approved by The Registrar of Companies, Maharashtra vide its order under Section

210 (4) of the Companies Act, 1956 dated June 9, 2009.

(ii)

 

 

(a). The Shareholders of the company have approved sale/transfer of Steel Business of the Company

on slump sale basis to Essar Steels Limited by passing a Special Resolution at the Extra-Ordinary

General Meeting of the Shareholders of the Company held on September 7, 2009.

(b). The Company has entered into a Business Transfer Agreement (BTA) with Essar Steels Limited

(Acquirer) pursuant to which Fixed Assets, certain current assets & liabilities, entire Term Loan/Working

Capital facilities relating to the Steel Business of the Company will be transferred to them with effect

from 1

 

st July,2009.

(c). Net Purchase Consideration payable by Acquirer = Value of fixed assets including Capital Work in

progress and auxiliary equipments valued as Rs.601 Crores

 

+/- ([Certain Current Assets–Current

Liabilities]

 

Term Loan/Working Capital outstanding) . The valuation of Certain Current Assets and

Liabilities is being carried out by independent auditors M/s Ernst & Young.

__________________________________________________________________________________________

 

So if you take the above assets and liabilities as at March 2009 and the consideration formula,the max SPS can receive is Rs 172 crs…..but I suspect there will be a downward adjustment to current assets and the consideration may just barely come to Rs 100 crs….E& Y is doing this valuation

So a restated SPS Balance sheet will show equity of Rs 82 .80 crs and adjusted reserves of @ Rs 25 crs to give a networth of Rs 100 crs matched by the Rs 100 crs received for sale of steel business…so book value will be Rs 12 !

What will SPS do with the Rs 100 crs ?…Ajmeras have had serious Corporate Governance and Credibility Issues…the Board is Senior Citizen stuff…they will probably lend it out to ARIIL !…even if they earn net 10% on it the EPS barely crosses Rs 1 as profits would  Rs 10 crs

The Share Price of SPS currently at Rs 27 has to recede towards single digits

Do Not be seduced by SPS on it’s recent relisting last week !…Yesterday it moved back from Rs 22 to Rs 27 on high volumes….Steer clear of SPS

 

9 thoughts on “Do not be seduced by recently relisted Shree Precoated Steel at Rs 27…Clearing misconception of consideration to be received on slump sale of it’s Steel Business to Essar Steel

  1. Gaurav,

    What is the difference between buying Gold ETF and Physical gold.

    Do we pay less if we buy through ETFs?

    One post on where and how to invest in gold will be very useful.

  2. Dear Madhu,

    This is an extract from my blog of Feb 20,2009

    “So in India,how do you create exposure to Gold ? You could

    Buy Physical Gold…99.95 Purity Coins from Jewellers or more expensive ( by 15% ) 99.99 Purity Coins & Bars from Banks
    Go Long on Gold by Purchasing Contracts on the Commodities Exchanges
    Invest in the Secondary Stock Markets in Listed Units of Gold Exchange Traded Funds (ETFs)
    Invest in the Secondary Stock Markets in Gold Mining Companies…after assessing Price v/s Value
    One more Advice….Silver too will ride Piggy back on Gold…you could see Silver racing to US $ 75/oz in the next two years…so you could buy into Silver too”

    Buying physical gold will involve wealth tax after holding size of Rs 15 lakhs + storage,purity and higher cost issues

    ETF mode is a nice way to invest in Gold….you just buy units quoted of the listed ETF…quotes are based on spot prices of gold and the ETF corpus is invested in actual physical gold which supports the gold units you hold in demat form

  3. Dear Gaurav,

    Thanks for your reply.

    Is there a cost difference between buying physical gold (from jewellers) and buying ETFs.

    If ETFs keep physical gold, then i assume they also have issues like storage, purity etc. Am i correct?

  4. Dear Madhu,

    Seems you prefer Physical Gold…this is wise for a certain quantum of your gold exposure…as ETF unit quotes have the spot gold price as the underlying,the cost differential is marginal….but ETFs have big parents and therefore the necessary infra to store etc…so you get the same benefits on gains + easy and quick liquidity too without worrying about physical safety issues…..howevr the comfort level you get from touching physical gold is something else !

  5. Gaurav,

    I don’t have any preference. But my wife prefers buying physical gold. 🙂 Ofcourse for the touch and feel of it!

    We were debating about this for quite sometime now. We are just starting our gold investment, so we are not looking at a size which would attract wealth tax.

    My only concern was about the purity of physical gold which we will end up buying. we never know the purity of gold sold by our next door jeweller.

    That should be the main concern for a middle class investor who’s not gonna buy large quantities to worry about storage.

    Thanks for your clarifications…

    Our debate still goes on!!!

  6. Remember Madhu, a wife is always right !….why don’t you check out State Bank of India Gold Coins….recently they advertised that they will sell these at whatever is the spot gold price….Banks otherwise sell these coins at 10% to 20% higher …checkout one of my blogs on this in the Category ‘Gold and Silver’

  7. Hi,
    Wish you a Happy and Prosperous New Year 2013!

    I have about 2000 Shree precoated shares on NSE. Now that the company is delisted, i cant trade it or do anything about it. What happens to, whatever the value may be, my shares?

    Thanks and Best regards,

    Anis

    1. Hi Anis,

      Happy 2013 despite your predicament with holding 2000 shares of Shree Precoated Steel Ltd !

      It was voluntarily delisted on NSE on May 12,2012 but is yet listed on BSE where the shares can be sold at @ Rs 3

      ~ It has,as I suspected and strongly warned at Rs 27 to stay away from, revealed itself to be a rip off Ajmera Group company relisting in 2009 at Rs 27 and even climbing to Rs 50 High in that year ~ it had sold it’s Steel Business to Essar Steel and had got the market excited with the Rs 600 crs deal !

      A Bad Mistake Anis,best forgotten fast !

  8. Thanks a lot Gaurav for taking time to reply. Anyways I bought it low so not at too much of a loss; it is just too boring to see it sitting there. Better to get rid of it..at any cost ..

    Anis

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