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R i g h t s i s s u e t o p a r e d e b t …
Bajaj Hindusthan (BHL) has announced a rights issue for its shareholders.
It is offering two new shares for an existing share (ratio of 2:1) at a price
of | 36/share (face value of | 1 and a premium of | 35). The record date
for the same is September 22, 2011. Hence, through the issue BHL plans
to raise | 1644.2 crore and utilise the amount for repayment of its debt.
ƒ Scenario 1: If rights issue is fully subscribed
If the rights issues is fully subscribed, then there will be a dilution of 200%
of the share capital and the adjusted price would be | 41/share. Hence,
the diluted equity share capital for the company would become | 57.3
crore.
ƒ Scenario 2: If rights issue is subscribed up to 50%
If the rights issue is subscribed partially (~50%) then the adjusted price
would be ~| 44/share and diluted equity share capital will be | 43.5 crore.
According to the management, the entire funds from the issue would be
utilised for repayment of the debt (| 6350 crore) on the books of BHL.
Hence, the current long-term debt of | 5100 crore would come down to |
3500 crore (100% subscription), thereby helping the company to save on
interest cost to the extent of ~| 140 crore per annum.
V a l u a t i o n
At the CMP of | 52, the stock is trading at 5.9x its SY12E EPS of | 8.8 and
5.0x its FY13E EPS of | 10.5. However, post dilution (considering 100%
subscription) the stock would trade at 15.5x and 13.5x its estimated SY12
and SY13 EPS of | 3.3 and | 3.9, respectively. Considering the company’s
lack of execution capability in the power segment and issues like coal
supplies remaining a snag for power companies, we will await the
company’s performance in power. Moreover, an expected higher
sugarcane cost in SY12 (due to election in the state) could further keep
earnings from the sugar business subdued. Therefore, we advise our
investors to avoid the rights issue and remain negative on the stock with a
target price of | 39/share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
R i g h t s i s s u e t o p a r e d e b t …
Bajaj Hindusthan (BHL) has announced a rights issue for its shareholders.
It is offering two new shares for an existing share (ratio of 2:1) at a price
of | 36/share (face value of | 1 and a premium of | 35). The record date
for the same is September 22, 2011. Hence, through the issue BHL plans
to raise | 1644.2 crore and utilise the amount for repayment of its debt.
ƒ Scenario 1: If rights issue is fully subscribed
If the rights issues is fully subscribed, then there will be a dilution of 200%
of the share capital and the adjusted price would be | 41/share. Hence,
the diluted equity share capital for the company would become | 57.3
crore.
ƒ Scenario 2: If rights issue is subscribed up to 50%
If the rights issue is subscribed partially (~50%) then the adjusted price
would be ~| 44/share and diluted equity share capital will be | 43.5 crore.
According to the management, the entire funds from the issue would be
utilised for repayment of the debt (| 6350 crore) on the books of BHL.
Hence, the current long-term debt of | 5100 crore would come down to |
3500 crore (100% subscription), thereby helping the company to save on
interest cost to the extent of ~| 140 crore per annum.
V a l u a t i o n
At the CMP of | 52, the stock is trading at 5.9x its SY12E EPS of | 8.8 and
5.0x its FY13E EPS of | 10.5. However, post dilution (considering 100%
subscription) the stock would trade at 15.5x and 13.5x its estimated SY12
and SY13 EPS of | 3.3 and | 3.9, respectively. Considering the company’s
lack of execution capability in the power segment and issues like coal
supplies remaining a snag for power companies, we will await the
company’s performance in power. Moreover, an expected higher
sugarcane cost in SY12 (due to election in the state) could further keep
earnings from the sugar business subdued. Therefore, we advise our
investors to avoid the rights issue and remain negative on the stock with a
target price of | 39/share
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