Wednesday, September 06, 2006

>Alembic Glass : cheating investors

Check this day light robbery
Share this with everybody you care as an investor!!

Alembic Glass Limited: You can steal with a pen much more than what you can with a gun

Summary: Alembic Glass Limited has around 150 acres of land in Bangalore.
The company is now merging this listed company with another private company at an unfair valuation.
The company has completely ignored the underlying asset, which is worth around Rs 1200 cr and does not want to share the valuation methodologies adopted.
This merger is not in the interest of small shareholders. A detailed note is mentioned below

Alembic Glass is a 50 year old company and probably the only one in the organized glassware market.
A few decades ago the company operated a factory in Bangalore which it moved to Vadodra.
As you know due to escalation in land prices, the factory land on Whitefield Road has now become a goldmine and attracts premium for 2 key reasons

1. Proximity to the upcoming International Airport
2. Large parcels of land are not available in Bangalore

Table 1

Approximate area in acres*

150

Approximate price per acre in cr

8

Roughly realization in cr

1200

Outstanding equity shares in lakhs

4.71

Value embedded per share

25478

Current Share price

1600

Discount

94%

Instrinsic value as a multiple of CMP

16




* Address of land : Whitefield Main Road, Opposite Kadugodi Police Station, Mahadev Pura, Banglore - 500048.

The above value ignores

1. The valuation of a business that generates positive cash flows
2. The land parcel in Vadodara

The promoter wants it all ...

Instead of taking actions so as to unlock the value,
promoters want to merge the company with a privately owned company


Promoters know the above math, in Table 1 better than anyone else.
Promoters own 71% of the company and should rightly be sharing the above wealth with the balance 29% public shareholders.
However the promoters don't think this is such a good idea and are adopting a strategy to cheat small unprotected shareholders.

Step # 1 : Get a privately held company to be valued at many times its true intrinsic value
Step # 2 : Merge this company into the listed AAG
Step # 3 : Threaten small shareholders with delisting

Step # 1 : Get a privately held company to be valued at multiple times its true intrinsic value

The company is merging an obscure privately held company by the name Shreno Limited.
This company with a turnover of Rs 13 cr, operating loss of Rs 22 lakhs and Reserves of Rs 3 cr

Table 2

Existing Shares o/s

471,285

New shares issued to Shreno

1,027,702

Value embedded per share

25478

Valuation of the company Rs cr

2618




The company claims this was done by "independent valuers" and refuses to share the report with shareholders.
How can a company that reports a loss of Rs 22 lakhs on sales of Rs 13 cr be valued at Rs 2618 cr ?


This is unfair to small minority shareholders.


Step # 2 : Merge this company into the listed AAG
This move increases the promoter's holding in AAG from 71.41% to 89.77%

Step # 3 : Threaten small shareholders with delisting

On the liability side, the company does have a case pending with ONGC.
The case relates to some payments relating to gas supplied f or the period from 1.4.1979 to 29.01.1987 is under dispute.
The company has already provided this amount of Rs.811.99 Lacs in it's books.
The matter is still sub-judice and pending before the court.
The management is using this so called liability of around Rs 20-30 cr as a excuse to merge a company that is worthless.
Shreno brings no value and is a mere "shell" company used to increase promoter holding.


Post de-listing, the promoters want to sell the land and benefit themselves.

Allowing one company to get away will open the floodgates for other promoters to do the same.
Authorities need to set examples so that such day light robberies resulting in looting small shareholders is not attempted, leave alone being successful

Investing in capital markets as small shareholders is basically a matter of trust.
Trust at two levels. One, trust in the company management to increase the value of the company and two, that the system that will facilitate a profit on the investment through public markets.
If corporates get away with such cheating, the basic belief in the capitalism process is being questioned and shareholders are increasingly being looked upon as "helpless and harmless" participants.
This threatens the integrity of the capital markets itself.

Typically, Indian companies have high promoter shareholding.
Most of the resolutions in AGM's go through since the vote of small shareholders hardly matters.
This in turn means that mostly all cases, minority shareholders are at the mercy of promoters who own majority stakes in their companies.
Where do unprotected shareholders go ?

Request you to kindly spread this awareness among investors

6 comments:

Balu Natarajan said...

A similar example of harassment would include IMPAL and TISCO .

IMPAL- wanted to buy back its stocks from its shareholders. They had listing only in Madras Stock Exchnge where in the entire volume is around 6000 stocks a day (All traded stocks put to gether). IMPAL wanted to buy back the stock from its share holders at Rs 160 when the EPS was Rs 30 and Book value was Rs 170. My family happened to be one of the single largest holder of IMPAL and hence we took the issue to SEBI. SEBI stopped the buy back and asked IMPAL to list themselves in NSE . The stock is trading at Rs 192 today after a 1:1 bonus which means it is worth around Rs 400 today ( what the company wanted to buy back for Rs 160) . IMPALs Market cap is around Half a billion dollars .

TISCO had take over threats during mid 90s because of not having 33% equity . We did not have Demat then as well. They continuously harassed small share holders for stock buy backs when ever stocks came in for a paper transfer (excuse was signature did not match.send it again) .

Anonymous said...

>Alembic Glass : cheating investors"
Fantastic Article Rajeev. But some body has to bell the cat & report this to SEBI . A similar example of harassment would include IMPAL and TISCO .

IMPAL- wanted to buy back its stocks from its shareholders. They had listing only in Madras Stock Exchnge where in the entire volume is around 6000 stocks a day (All traded stocks put to gether). IMPAL wanted to buy back the stock from its share holders at Rs 160 when the EPS was Rs 30 and Book value was Rs 170. My family happened to be one of the single largest holder of IMPAL and hence we took the issue to SEBI. SEBI stopped the buy back and asked IMPAL to list themselves in NSE . The stock is trading at Rs 192 today after a 1:1 bonus which means it is worth around Rs 400 today ( what the company wanted to buy back for Rs 160) . IMPALs Market cap is around Half a billion dollars .

TISCO had take over threats during mid 90s because of not having 33% equity . We did not have Demat then as well. They continuously harassed small share holders for stock buy backs when ever stocks came in for a paper transfer (excuse was signature did not match.send it again) .

Hail Corporate Values

Anonymous said...

The least we can do is noise. Make noise. In these days or Internet and email it can get heard.

Anonymous said...

It even happen in case of sterlite ind when price was 160 in 2002-2003.
Sterlite people sent cheques to investors and Only smart people able to send that cheque back to company and for rest shares had been bot back by cheating

today that 160 rs is near 2000-3000 + if we adjust after split and bonus

Anonymous said...

great article..must read & understand ..as many investors [even me] dosent know how to lodge complaint to sebi , pls throw some light also...very knowledgable article ,thank you pls carry on with this types of article it will help all investors....

ankit_ldh said...

ITS GREAT NEWS FOR INVESTORS WHO R NOT AS AWARE AS THEY MUST BE.WHEN THEY INVOLVE IN STOCK MKT.THANKS-ANKIT