Done deal: Godrej gets 100% of Godrej Sara Lee JV

Godrej Consumer Products today announced that it has acquired the remaining 51% stake in Godrej Sara Lee Limited from its JV partner Saralee Corporation, USA for €185 million or Rs. 1055 crore.

Sometime back I worked on trying to figure out the expected value of Godraj Sara Lee Limited deal. Am sharing the same here, hope it is useful.

Godrej Sara Lee Limited or GSLL, a 49:51 unlisted joint venture company between the Godrej Group and Saralee Corporation, USA, was incorporated on April 10, 1987. It is involved in the business of manufacture and marketing of mosquito repellants, air care, hair care, shoe care and home care products. The company owns popular brands like GoodKnight, Jet, Hit, AmbiPur, Brylcreem and Kiwi.

Godrej Consumerbiz Limited, a subsidiary of Godrej & Boyce Manufacturing Company Limited held 29% of GSLL shares and Godrej Hygiene Care Private Limited, a subsidiary of GIL held 20% of GSLL shares. Pursuant to a scheme of amalgamation, Godrej Consumer Products Limited (GCPL) bought this entire stake and now holds 49% stake in GSLL. For this, GCPL issued 30,296,727 equity shares of FV Re.1 to Godrej & Boyce Mfg Co Ltd and 20,939,409 equity shares of FV Re.1 to Godrej Industries Ltd. GCPL announced the amalgamation on May 27, 2009; we assume this to be the D-day of the deal valuation.

Calculations point that the shares offered by GCPL for GSLL were worth Rs. 846 crore on the day of the deal announcement, valuing Godrej Sara Lee at Rs. 1726 crore or 16.5 times its 2008-09 earnings.

In 2008-09, GSLL had sales of Rs 755 crore and a net profit of Rs 105 crore. Taking the most bearish estimates, I believed that GSLL could end 2009-10 with sales of Rs. 810 crore and a net profit of Rs. 115 crore. Assigning the same PE (of 16.5 times) to this, I arrived at a revised valuation of Rs. 1890 crore for GSLL. I also took into account the fact that Godrej could possibly end-up paying 10-15% more than this to Saralee Corporation due to: 1) better valuations in the equity markets; 2) premium for 100% control and 3) lucrative price offers by third parties.

However, as per the company announcement made today, it seems that the tide turned in favor of Godrej. In 2009-10, GSLL had sales of Rs 965 crore and a net profit of Rs 137 crore, way above my estimate of Rs. 810 crore and Rs. 115 crore. At Rs. 1055 for a 51% stake, GSLL was valued at just about 15 times its 2009-10 earnings.

Institutions stock-up Hero Honda, Idea Cellular, HDFC in 3Q 2010

Details of the changing shareholding pattern across the Nifty 50 stocks during Mar 2010 and Dec 2009 seems to suggest that FII/DII have turned bullish on stocks like: Hero Honda, Idea Cellular, HDFC, Maruti, Tata steel, Siemens, HDFC Bank, SBI.

Check the table below to learn more:

May 10 2010

Morgan Stanley bought a little more than half a million shares of Greaves Cotton Limited @ Rs. 359/- each. The stock is on the recommendation list of many a brokerages.

Reliance Mutual Fund bought nearly 1.5 million shares of Talwalkars’ Better Value Fitness Limited @ Rs. 152.60/- each. This is quite large, considering the fact that the latter had offered just 6 million shares @ Rs. 128/- each through the IPO.

Tuning In: Private Radio Broadcasting (an overview)

Radio broadcasting, once written off as a mode of entertainment, is again finding favor.

As per various studies, the Rs. 1000 crore Radio broadcasting industry of India is in for some serious business. Most players are looking forward to an improved business scenario post the expected changes from the Phase III policy.

The Government of India opened Radio broadcasting for private players sometime in 1999-2000 through the Phase I auction. At that time, the Ministry of Information & Broadcasting (MIB) offered 108 radio frequencies (channels) across 40 cities. It received 101 bids, aggregating to a license fee of Rs.425 crore. However, with most bidders defaulting MIB received just Rs. 160 crore for 37 channels. The sadder part is that a mere 22 channels were actually operationalized.

Discussions between the industry and government helped improve the situation through the Phase II auction held in 2006. In the Phase II policy, 337 radio frequencies across 91 cities were offered to the private sector. The MIB awarded 280 frequencies for Rs. 1150 crore, including OTMF by existing players. The new players paid OTEF or One Time Entry Fee, while the existing players paid OTMF or One Time Migration Fee.

Putting it frankly, the ‘revenue-sharing model’ under Phase II Policy came as a savior and helped infused life in the FM radio industry.

Phase I: Private FM allowed, Fixed License Fee, 15% escalation, 10 year validity, No FDI/FII, Open bidding
Phase II: Revenue sharing model, OTEF/OTMF, FDI/FII limit at 20%, 10 year validity, 15% max frequencies per operator, Closed bidding
Phase III: To be announced

Radio Mirchi owned by ENIL – a times group company – claims to be the largest private radio broadcaster in India. It earns over Rs 225 crores in revenues per year.

Radio Mirchi; 98.3; 32 stations; Times Group
BIG FM; 92.7; 45 stations; ADAG Group
Red FM; 93.5; 43 stations; Sun TV
Radio City; 91.1; 20 stations; MBPL
MY FM; 94.3; 17 stations; Dainik Bhaskar
FEVER; 104.0; 4 stations; HT Media
Radio One; 95.0; 7 stations; Mid-Day

Notes:
1) A Radio Broadcaster normally broks a day in 5-7 slots: like Breakfast Show, Youth, Afternoon Hour, Drive Time, Prime Time and Graveyard Shift.
2) Airtime Rates (advertisements on radio) are usually in the range of Rs. 300 - Rs. 1100 per 10 sec slot in smaller towns and Rs. 2500 - Rs. 5000 per 10 sec in case of Metros
For more details on this, write in to mtulsian@gmail.com

Bullish on Dabur; Buy Fem Care

Fem Care, which is set to amalgamate with FMCG major Dabur, is currently available at a discount of 2.75%. Few days back, the discount was as high as 7% due to a run-up in the stock price of Dabur India.

Based on the “Scheme of Amalgamation” following the acquisition of Fem Care by Dabur in 2008, Dabur India is to allot 5 Equity Shares of face value Rs. 1 each, for every 1 Equity Share of the face value of Rs. 10 held by the shareholders of Fem Care Pharma.

Fem Care Pharma Ltd. and Dabur India Ltd. closed at Rs. 875/- and Rs. 180/- respectively, on May 7 2010.

(Dabur had acquired close to 72% shares of Fem Care for Rs 203 crore. In Nov 2008, Dabur made the mandatory open offer to acquire additional 20% stake in Fem Care @ Rs. 800 per share. As a result Dabur owns 92% shares of the latter now.)

May 7 2010

Credo India Thematic Fund bought nearly one million shares of Gokul Refoils and Solvent Limited @ Rs. 75/- each. Gokul had reported extremely strong numbers for the quarter ended Dec 31 2009.

It is to be noted that Cresta Fund, an FII, holds close to 10% in the company.

GTL Ltd. bought close to 5 million shares in sister concern GTL Infrastructure @ Rs. 40.75/- each today. Both GTL and GTL Infrastructure (owned by Manoj Tirodkar) command market capitalization of Rs 4,000 crores each.

May 6 2010

Thakral Corporation sold-off its remaining stake in Gateway Distriparks Limited @ Rs. 123.50/- each. For more details refer to the previous posting on May 5 2010.

IDFC Mutual Fund is seen buying shares of Ceekay Daikin Ltd. for the past few trading sessions. The fund house bought 37,517 shares @ Rs. 176/- each today and 51,300 shares @ Rs. 176/- yesterday. This seems a little weird, since the shareholders of Ceekay Daikin have an open offer from Exedy Corporation (Japan) to sell out their shares @ Rs 178.50/- to the latter. The open offer closes on May 26, 2010.

India Discovery Fund Ltd buys 300,000 shares of Forbes & Co @ Rs. 390/- each. The fund already owns 5.8% in the Shapoorji Pallonji group company.

May 5 2010

SBI Mutual Fund and DSP Black Rock Mutual Fund bought 3 million shares each of Gateway Distriparks Limited @ Rs. 123.50/- from Thakral Corporation.

Thakral Group – an initial investor in Gateway Distriparks – had acquired these shares at an average price of Rs. 7.12 each. Thakral Group is a large distributor of consumer electronics in Singapore and a promoter in garments company Givo Limited.

The other big investors in Gateway Distriparks are: Fidelity, LIC of India, and Norges Bank (Norway).

Few months back, IFC and Blackstone had announced investments in two different a subsidiaries of Gateway Distriparks.

Jagran buys Print Business of Mid-Day for 174 crore

Jagran Prakashan announced an all stock acquisition of the print business of Mid-Day Multimedia today afternoon.

The deal will add nearly Rs. 100 crores or 15% to the topline of Jagran.

Based on the current market price of Rs. 33.50/- for Mid-Day and Rs. 115/- for Jagran, the deal will cost 15.1 million shares to Jagran or Rs. 174 crores worth of new shares. (The swap ratio has been decided as 7 : 2 – i.e. for each 7 fully paid up equity shares of Rs. 10 each of MML, its shareholders will be entitled to 2 fully paid up equity share of Rs.2 each of JPL).

Assuming a net profit margin of 20% in the Print Business, the deal has been done at a earnings multiple of 9x, a substantial discount to most companies (HT Media, DB Corp) in similar business.

It is to be noted that the radio business of Mid-Day, operated through Radio One FM94.3, will remain with the Ansari family of Mid-Day Multimedia Limited. Radio One FM94.3 one, a JV between Midday and BBC, operates in 7 key cities namely Mumbai, Delhi, Kolkata, Chennai, Bangalore, Pune and Ahmedabad. The business generates an annual revenue of Rs. 25-30 crores.

Last month Blackstone announced an investment of Rs. 225 crore in Jagran Media Network Private Ltd, the promoter holding company of Jagran Prakashan Ltd.

NYSE exits NSE India investment with over 50% gains

As per various media reports, NYSE Euronext is believed to have sold-off its 5% stake in the National Stock Exchange of India after three years for $175 million.

The deal values NSE at $3.5 billion vs. $2.3 billion, when NYSE bought the stake in 2007.

In Jan 2007, the NYSE Group had reached an agreement to buy 5% stake in NSE for $115 million in cash from a consortium of selling shareholders, including ICICI Bank Limited, IFCI Limited, IL&FS Trust Company Limited, Punjab National Bank, and GIC of India. The deal closed in April 2007.

(The Indian government allows international investors to buy as much as a combined 49% in any of the nation's stock exchanges with a limit of 5% for a single investor.)
As of March 2010, there were 1,470 companies listed on the NSE with a combined market capitalization of Rs. 60 lakh crore. The average daily trading turnover on the exchange is currently around Rs 88,000 crore. (Ratio of Cash:FO - 15:85)

At the time of NYSE deal, there were 1,185 companies listed on the NSE with a combined market capitalization of Rs. 36 lakh crore. The average daily trading turnover on the exchange stood at Rs 40,000 crore. (Ratio of Cash:FO - 20:80)

Other points that are noteworthy:

The average daily turnover (CM segment) on the NSE is nearly 2.5x that of the BSE.

NSE generates more than 7x the business generated by the BSE. Transaction charges earned by the NSE are close to Rs. 500 crores a year.

NSE/BSE members are required to pay transaction charges on trades undertaken by them. The transaction charges (payable on every Rs. 1 lakh of turnover) are higher in the CM segment than on the F&O segment.

For the period ended March 31, 2009, NSE generated an income of Rs. 1,025 crore and a net profit of Rs. 516 crore compared to Rs. 1,039 crore and Rs. 521 crore, respectively, in the previous year.

LIC, Birla Sun Life… bullish on Amtek Auto

Life Insurance Corporation of India, the largest investor in the Indian stock market, seems to have formed a bullish opinion on Amtek Auto. The LIC is believed to have bought over Rs. 100 crores of Amtek Auto shares at an average price of Rs. 165/- each over the past few months.

In fact, LIC is not alone. Birla Sun Life (Mutual Fund and Life Insurance) too is believed to have picked up over Rs. 125 crores of Amtek Auto shares at an average price of Rs. 170/- each during the past few months.

Some of the others who bought into the auto parts maker recently include: Swiss Finance Corporation, Macquarie Bank and Copthall Mauritius.

The cost of going Public

I had recently done a small study for a client and am sharing some of the findings from that on this blog, without infringing the contract obviously. I think it could be of interest to some of you.

The work tries to answer one simple question: How much would it cost a company if it were to move public via an IPO?

There’s no perfect answer to this.

Based on the data gathered from nearly 20 companies’ that went for an IPO this year, the cost could vary anything between 4% to 13% of the money raised. One can try to see this in the following format as well.

Slab x: Money Raised in cr: Cost %
Slab 1: Less than 100cr: 10%
Slab 2: 100cr to 200cr: 7.5%
Slab 3: 200cr to 500cr: 5.0%
Slab 4: 500cr and above: 4.0%

Cost or Issue Expenses are usually in the form of: Fee to BRLM; Marketing, Printing charges; Fee to SEBI/NSE/BSE; Fee to Legal Counsel; Fee for IPO Grading; Registrar charges; and Misc. expenses.

April 30 2010

Nomura India bought a million shares in Mcleod Russel @ Rs. 220/- each. Nomura held 1.6 million shares in the company as on March 31 2010 through "Nomura India Investment Fund Mother Fund".

Nomura India also happens to amongst the four anchor investors in Nitesh Estates.