(Publish Date: 02/02/2021)
Let us imagine today is 11 December,2020 and since our analysis in November the price has risen to around Rs140
Review Again: Why? We analysed the all cargo situation again, as
there was significant price reaction in the stock. The rise of around of 17
percent in the past 2 days. The price is trading in 145-150
range already up around 22-25 percent from the entry point in the time
period of 35 – 40 days.
We need to take the decision whether to hold the position or
cut it now to book the profits. In both scenarios, we have to analyse the
odds of further increase in price from here on wards. If odds of further increase are high,
then we could hold it otherwise we need to book the profits.
Analyse: To analyse, assume we are thinking of taking new position at this
price point ie. 145-150.
Recall What we did: Now if we recall from the odds analysed in Part 1, we
were unable to find the strong evidence behind the promoter intention to get
the firm delisted . Yes , black-stone involvement in the company through
some deal might be reason but not that strong one.
Still we took the position considering the Price to earning was not something bizarre to
which promoter may not hesitate to pay up.
A) Price Perspective (Price to earning)
At this price point,
- the price to earning is near 20, whereas the median
price to earning in its lifetime is 16.
- if we talk about the competitors which is Gateway Distriparks and Transport corporation of India ( not exact similar business but somewhat comparable), their lifetime median
Price to earning is 18.5 and 11.5 respectively.
From the perspective of Promoters, high Price to earnings reduces our odds of further increase in price increasing the risk (Only if promoter has some other reason he may act, but as of now we don’t think there is some other reason)
B) Law Perspective
What does the delisting law state: The promoter has the 1 year time period to submit the final
application to the recognised stock exchanges from the date of passing
In our case special resolution was passed in October 2020, the promoter has enough time left until
September 2021 to file final application with exchanges. After which, it will take another 15-20 days to culminate the whole delisting process.
As of today , there is not any announcement in this regard by the promoter. Usually during this time period of 1 year, the promoter is arranging funds to complete the delisting process.
We are not sure of timeline which may go further in the process, If more time passes extra returns need to be generated to compensate for that which we see minute chances due to the price being on the higher side of spectrum and no visible reason for promoter to pay very high price.
With this thought process (using promoters perspective), we think cutting the position at this stage is highly beneficial considering 20% pre tax profit in 35-40 days and no further odds of significant price increase.
This is part of an ongoing case study, and we will cover in part 3 what happened. We would love to hear from you how you may have thought differently during the similar situation or what mistake we may be making. This may help enriching experience of all of us together.
May we all learn together.
(This is no way a recommendation, please consult us or your own financial advisor before taking such positions. Remember there are some things like allocation which are not discussed, which may lead to significant risks)