TTK Healthcare - Event Update - Merger of TTKPD and TSL - Angel Broking

The Board of TTK Healthcare approved for a scheme of amalgamation of TTK Protective Devices (TTKPD; formerly known as TTK-LlG), an unlisted public company, and TSL Techno Services (TSL), a wholly owned subsidiary of TTKPD, with itself.

Scheme of Merger

- On amalgamation of the companies, the shareholders of TTKPD will be entitled to nine equity shares of Rs. 10 each fully paid-up of TTK Healthcare, for every two shares of Rs. 10 each fully paid-up held by them in TTKPD, thus leading to a equity dilution of 82%.

- No allotment shall be made to the shareholders of TSL (which owns five acres of land), with it being the wholly owned subsidiary of TTKPD, and the value of TSL having already been considered as part of the valuation of TTKPD.

Background

- TTKH was in the business of distribution of condoms purchased from TTKLIG (a JV between TTK group and Reckitt Benckiser). In Nov 2012, TTK Group bought a 49.9% stake in TTK-LIG (now TTK Protective Devices (TTKPD)) from Reckitt Benckiser at a valuation of ~Rs. 300cr. However, the company's profit of ~Rs. 25cr in FY2011 scaled down to a loss of ~Rs. 23cr in FY2012 due to disputes and differences between New Bridge Holding, BV (a subsidiary of Reckitt Benkiser) and TTK group (TTK) which impacted the exports revenue. The dispute was resolved in Oct 2012.

- Reckitt Benkiser retained its Durex and Kohinoor brands of condom after TTK acquired stake in TTK-LIG. TTKPD has stopped its supplies to Reckitt Benkiser or its subsidiary. TTKPD launched Skore brand of condom in Nov 2012 which captured a 4% market share; the company's Management expects the market share to increase to 10% in the next 12 months.

Conclusion

- Overall, we believe the deal is a big positive since TTK Healthcare's networth is expected to more than double post the merger, considering an ~Rs. 160cr of networth of TTKPD.

- Post the scheme of merger, the promoter shareholding will increase from ~65% to 81%. As per SEBI guidelines, all listed companies should have a minimum public shareholding of 25%, failing which the company might have to go for delisting. We believe the company may go for a stake sale to get its promoter shareholding to 75%.

- We believe if the merger goes through, TTK Healthcare will utilize funds from TTKPD for its current expansion plans rather than raising debt, thus maintaining its debt free status.

We maintain our Buy recommendation on the stock with a target price of Rs. 686.

Source : Equity Bulls

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