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“In India, companies may fall sick, but promoters rarely do!”

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Piramal Glass at Rs 95…MD increases holding through Market Purchase of 100000 shares

The MD of Piramal Glass (PG),Vijay Shah, has invested nearly another Rs One Crore by picking up One lakh Shares of PG on June 25,2010 when the Price ranged between Rs 93 and Rs 98 that day…..He now holds 7.19 lakh shares in PG…0.89% of the Equity of 8.04 crs shares……Interesting increase in Exposure

PG has turned around and even declared a 10% dividend this year earning nearly Rs 16 crs on sales of Rs 671 crs…EPS of Rs 3 on weighted capital ,but just under Rs 2 on current equity of Rs 80.43 crs…Market Cap is under Rs 800 crs….Networth is Rs 401 crs with Equity at Rs 80.43 crs and Reserves at just over 320 crs 

Now this is interesting…in August 2009,it had a rights issue in a liberal 7:2 ratio,raising Rs 189 crores by issuing  62.29 million shares at Rs 30,that’s at a Premium of Rs 20…the issue opened on August 26,2009 and closed on September 9,2009….The Share Price closed at cum rights on August 10,2009 at Rs 89…It opened the next day ex-rights at Rs 45….and remained in the range of Rs 35 to Rs 40 while the Issue was Open…The Equity moved up from Rs 17.98 crs to Rs 80.43 crs and Promoters Stake from 69.94% to 76.79%…this computes to Promoters subscribing and being alloted to an incremental 5.17 more million shares  than entitled…this also means the Rights Issue was undersubscribed/rights renounced by 8.3% going by the entitlement in the ratio of 7:2….the Share Price has since surged inside ten months to near Rs 100 …that’s over 230 % gains over the Rights issue Price of Rs 30 !

Entitled Shareholders of PG who let go of the Rights last year surely must be cursing their luck and many must be looking for a Punching bag ! suspecting that the promoters downplayed the Turnaround and maintained the ex rights price range of Rs 35 to Rs 40 while the Issue was open,so there would be undersubscription and this would enable them to corner more shares in the Rights issue than entitlement ? ….Hmmm….

52 Week High/Low is Rs 110/Rs 28…..

Rewind to a little more than a month ago to May 2010….Economic Times had reported that the Piramal Group was in talks with  Hindusthan National Glass to acquire Piramal Glass….PG denied this

Perhaps a coincidence that earlier in the month of May itself, the Group flagship,Piramal Healthcare had announced that they are selling their Domestic Formulations business to Abbott laboratoties for a whopping US $ 3.72 billion….Nine Times the Value of the Business ! 

So how’s the Glass being moulded in PG ?…Glass is being poured,blown,pressed and moulded into some definite pre planned shape surely !

A price range of Rs 125 to Rs 150 on the horizon….or more  ?….why would a MD sink in Rs One Crore more and increase his stake in the Glass Company he heads !…surely not for the Glass to shatter !

Read the MD,Vijay Shah’s Interview in Business Standard last month …link is given below….he’s a Piramal Loyalist..over 20 years with Ajay Piramal and clearly successful in the challenging task of turning around the struggling US Companies that PG had acquired a few years ago

Now if Piramal Glass is actually acquired by another…..?…it would be a classic execution of a Long term Plan of taking over sick companies (PG took over struggling US Glass companies a few years ago),investing additional funds in the Business,turning them around,building up scale and then selling them off at huge Profits…..Nothing wrong in this….as long as Corporate Governance issues are adhered to 

The MD states in his interview that another Rights issue of Rs 150 crs could be made….I figure  that’s 2 cr shares at assumed Rs 75 issue price…so the Rights issue would be in a 1:4 ratio

Keep an eye on Piramal Glass and don’t be surprised if it surges in FY 11 towards Rs 150 and more…and if an announcement is made that it is to be acquired !

Another small angle…Promoters hold marginally over 75%..they will have to dilute to 75% to comply with the new diktat of a minimum 25% public holding

And a last word of caution on Valuations…At Rs 95,PG is quoted at over 45 times FY 10 EPS of Rs 2 on current Equity and nearly 2 times Book of @ Rs 50

So unless you have an inside track on how the Glass is being shaped up in PG,it would be safer to watch the Game as a spectator from the Stands….but then what’s the Fun unless you play the Game !

All the Best

Cheers !  


2 thoughts on “Piramal Glass at Rs 95…MD increases holding through Market Purchase of 100000 shares”

  1. I sense deal is around the corner but raises serious Corporate Governance issues. Also business has just about turned around & they wanna sell, u wonder if its ‘dressing up’ of company to extract a steep price from the acquirers?
    Interest cover is just about adequate though total debt(556 cr) is high. Not one for the faint hearted, but hey when MD is buying u know that u are safe, cause like u say,”In India Companies fall sick, promoters rarely do!”
    P.S. Do you/clients have position in the stock?

  2. Gaurav Parikh

    Wish we had,Swaroop from Rs 35 levels !….No regrets though…..though I know of a shareholder who regrets skipping the rights issue last year !

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