Fairfield Atlas - Book Profits - Sushil Finance

We had released stock review on Fairfield Atlas Ltd. with a 'Buy' recommendation on 05th December 2012 at Rs.129 with a target price of Rs.165. On 26th Feb. 2013, we had recommended our investors to book 50% profits at the price of Rs.160 and remain positive for the delisting play for rest of the quantity for future course. Since our release of report, the stock price has posted a high of Rs.237. At CMP of Rs.235, it reflects a gain of ~82.2% from our initial recommendation vis-à-vis S&P BSE SMALL CAP return of negative ~20%.

We believe that delisting cost has gone up significantly in the market for most of the MNCs resulting in failure of the voluntary delisting attempt by the MNCs. On 15th Jan 2013, the voluntary delisting of a third MNC i.e. APW President failed as the premium offered by its promoters seems to be insufficient to attract minority shareholders. Before this, French MNC Saint-Gobain Sekurit and Ricoh India failed in their attempt to delist. Companies like Blue Dart Express, Honeywell Automation, Disa India, BOC India, 3M India, AstraZeneca Pharma, Kennametal India, Oracle Financial Services Software, Elantas Beck India, Fresenius Kabi Oncology, Novartis India, Sharp India and Styrolution ABS (India) have opted to reduce the promoter's holding to 75% instead of delisting.

During Q4FY13, FAL's sales de-grew by 12.9% YoY due to overall slowdown in the Auto sector. Higher Depreciation & tax rate and lower other income has hampered the profitability and margins of the company. During FY13, its sales de-grew by 8.9% YoY and higher tax rate impacted its profitability.

Considering the CMP of stock, it is only 4% below its discovered price of Rs.245 from the recently held delisting issue period (22 May 2013-27 May 2013). With high delisting cost in the market, its weak performance in Q4FY13 & FY13 and current slowdown in the Auto Sector, we recommend our investors to book remaining 50% profits at the current price before the exit price announcement by the promoters on 06th June 2013. We have also observed that the stock price has fallen sharply for companies like Ricoh India, Saint-Gobain Sekruit and APW President Systems on the delisting failure announcement by the promoters (Please refer the below table for more details).

We believe it is very unlikely that the promoters of FAL will declare the exit price above the discovered price of Rs.245 on 06th June 2013 as shares tendered at or below discovered price is 9.9% of the total equity capital against minimum requirement of 8.0% for successful delisting. Hence we recommend our investors to book remaining 50% profit for FAL at the CMP and protect itself from the possible crash in the stock price in case delisting fails due to non-acceptance of discovered price to the promoters.

Source : Equity Bulls

Keywords