Research Report - BOC India
Valuechase
Short term
1
Short term
On
Group plc,
To our understanding, as per Indian Takeover code, Linde AG (acquirer) is required to make an
open offer to the minority shareholders of BOC India to the extent of 20% of all outstanding
shares by
As per Regulation 20, the offer price should not be less than higher of 1) the average of the
weekly high and low of the closing prices of the shares of the target company as quoted on the
stock exchange where the shares of the company are most frequently traded during the twenty
six weeks; 2) the average of the daily high and low of the prices of the shares as quoted on the
stock exchange where the shares of the company are most frequently traded during the two
weeks preceding the date of public announcement. According to our estimate, this price would
be in the range of Rs.184/- based on last 2 weeks average price.
In these circumstances, Linde has two choices:
1) Lie low and let the offer fail by offering the minimum price as per SEBI formula, i.e.,
around Rs.184. In which case, since the offer price will not be at decent premium to the
current market price, the quantity offered would be negligible. Linde will not have to
incur any additional cost whatsoever except the compliance costs.
2) Consolidate its holding in BOC India by making an open offer at a premium. The
options here could be multiple depending on the quantum of money Linde is prepared to
shell out.
Though its difficult to ascertain what course of action Linde would take, however after looking
at growth opportunities in BOC India and its performance over the years (covered in the
following pages), we believe that Linde may want to further consolidate its holdings in BOC
through creeping acquisition route either.
In any case, Linde’s acquisition cost for
BOC India for USD 90 – 120 millions considering various offer prices ranging from Rs.184 –
Rs.250-, which is really a fraction of the price, it has paid to acquire its parent company. The
fact that BOC India is growing at a fast rate and have been selling non-core real estate and is a
steady operation, may lead to Linde deciding to make an open offer for the full balance 45.2%
stake.
However, in such case the reverse book building regulations would be attracted. Reverse Book
building process have normally resulted into higher prices to investors since they decide at what
price they would like to tender their shares.
From an investor’s point of view, in case Linde chooses option 1, they may not make any
money but the downward risk is limited since BOC India is a good company (Company details in
following paragraphs) and the investors will be able to sell the shares in the open market
Valuechase
Short term
2
without incurring any losses. In any case, the Current Market price is lower than the minimum
price to be offered under SEBI Regulation.
In case Linde decides with Option 2, the gains are bound to follow.
The acceptance ratio is likely to be 50% assuming that about 5% of the investors would not be
participating due to reasons of ignorance, not liking the price, etc.
Offer Price Scenarios
Offer Price No. of Shares 184 200 225 250
Acquisition cost @ 175- 100 17500 17500 17500 17500
Acceptance 50% 50 9200 10000 11250 12500
Cost of remaining shares 50 8300 7500 6250 5000
Cost of remaining shares / share 166 150 125 100
We believe that current market price does not factor in the impending open offer and that’s the
reason that BOC’s price has touch a low of Rs.174- after touching a high of Rs.198- on 30th
October 2006 itself.
In any case, depending on the offer price, the investors can decide to exit. We expect the price
of shoot up as soon as the offer is announced and if the offer price is not high, the investors
can exit the stock at that moment itself.
What makes BOC a safe bet at this high levels of sensex is that it is news driven story and is
unlikely to be affected by sensex movement and maximum period of investment would be 1
month.
The Company
BOC India started operations in
has since evolved into a subsidiary of the BOC Group, bringing the best international technology
and safety standards, while catering to the needs of a wide variety of industries.
More than 20 production facilities, including one of
warehouses and depots; 100 dealers; more than 100 dedicated tankers in the distribution fleet;
- all this and more give BOC a geographic reach, which puts it close to its customers in any part
of
It supplies more than 20,000 gases and mixtures - that make steel plants more efficient, help
conserve our environment, preserve food, help hospitals to sustain lives and in general make its
customers more productive.
It has four focused business areas:
• Industrial gases
• Medical gases
• Special gases
• Projects
Valuechase
Short term
3
Strong financials
During 2005-06, BOC registered its highest ever turnover of Rs.560.93 crores, a 32% increase
over the previous year. Its profits before tax and extraordinary items also went up by 77% to
Rs.80.92 crores. Even without considering profit on sale of immoveable property at
BOC’s profit after tax stood at Rs.37.68 crores.
BOC’s Sales and PAT have grown at a CAGR of 22% and 69% respectively over last 3 years.
Rs. in Millions
Year Mar-06 Mar-05 Mar-04 Mar-03 CAGR
Gross Sales 5609.3 4243.6 3471.8 3222.7 20%
Excise Duty -387.4 -396.5 -342.1 -325.4
Net Sales 5221.9 3847.1 3129.7 2897.3 22%
Other Income 134.5 30.9 40.4 47.7
Total Income 5356.4 3878 3170.1 2945
Expenditure -4262.6 -3139.7 -2648.5 -2459.8
Operating Profit 1093.8 738.3 521.6 485.2
Interest -36.6 -39.6 -95.2 -139.6
Gross Profit 1057.2 698.7 426.4 345.6
Depreciation -248 -242.9 -225 -231
Profit before Tax 809.2 455.8 201.4 114.6 92%
Tax* -432.4 -195.6 -144 -36.5
Profit after Tax 376.8 260.2 57.4 78.1 69%
Extraordinary Items 409.5 19.5 235.5 85.2 69%
Net Profit 786.3 279.7 292.9 163.3 69%
Equity Capital 490.8 490.8 490.8 490.8
Reserves 2493.2 1874.9 1742.4 1502.4
EPS 16.02 5.7 5.97 3.33
* Higher tax charge of Rs.432.4 millions during the year 2005-06 is due to movement to normal
rates of tax from Minimum Alternate Tax regime for past several years.
For first half of 2006-07, BOC’s profit after tax without considering exceptional items is
Rs.16.05 crores against the profit of Rs.5.76 crores in the previous year same period
representing a growth of 178%.
Encashing non-core real estate
During the year 2005-06, BOC sold its immovable properties at
Rs.47.46 crores on the same.
Even during current year, BOC made a profit of Rs. 2429 lakhs from the sale of the Company’s
immovable property at Tondiarpet, Chennai.
The surplus cash generated from the above is being used for funding the expansion.
Valuechase
Expanding continuously
During the year 2005-06, BOC commissioned a 65 TPD merchant Air Separation Unit in Medak
near
modern liquid compression facility at a new site near Chennai. It also completed installation and
commissioning of 1260 tpd plant at Dolvi.
It also launched new products i.e., Fire suppressants and refrigerant gases, which were well
received in the target markets.
During quarter 1 of 2006-07, BOC has signed another long term contract with JSW Steel Ltd.
for supply of gases to meet their additional demand arising from the expansion of their steel
making capacity at
1800 tonnes per day plant, to be commissioned in 2008.
On
the paid up share capital, commissioned its 855 tonnes per day Air Separation Unit at
supply of gases to JSW Steel Limited as per the long term gas supply contract entered into in
this regard.
During quarter 2 of 2006-07, BOC also commissioned a state of the art liquid compression
facility at a
at Taloja.
With fresh capacity build up in the Steel and Petrochemical industries, BOC’s growth
prospects look promising.
DISCLAIMER
This report has been prepared solely for information purposes and does not constitute a solicitation to any person to
buy or sell a security. While the information contained herein has been obtained from the sources believed to be
reliable, readers are advised to satisfy themselves before making any investment decision. Valuechase does not bear
any responsibility for the authentication of the information contained in the report and consequently, is not liable for
any decision made on the basis of the same.
Valuechase and / or authors and their family members may have positions in the security mentioned herein and may
make purchase or sale therein while the report is in circulation.
We invite readers to send valuable comments, feedback, stock and subscription queries at
valuechase@rediffmail.com
Valuechase is an Equity Research cum Personal finance advisory that in addition to
bringing out its research reports, also provides services in the area of Portfolio advice,
customised Investment research and Personal Finance Health Check and advice. Please
posted by Seby at 5:16 AM
0 Comments:
Post a Comment
<< Home