This Kalyani Group firm owns Rs 7,150 cr worth 3 Kalyani stocks; its m-cap stands at 90% discount!

Holding and investment companies trading at 30-70 per cent discount to underlying assets is nothing new. But Kalyani Group’s investment company Kalyani Investment Company, a smallcap, is trading at an unusually 90 per cent discount.

The market value of three companies where Kalyani Investment Company holds material stakes — BF Utilities, Bharat Forge and Hikal, were worth Rs 7,147 crore, as of Tuesday’s close.

Retail investors holding up to Rs 2 lakh worth shares owned 15.64 per cent stake in the company as of September 30. This 15.64 per cent stake is valued at Rs 1,117.79 crore, if Kalyani’s investments are taken into consideration. But the company’s total market capitalisation as of Tuesday’s close stood at Rs 814 crore. 

The stock is illiquid.

Kalyani Investment, a part of $2.5 billion Kalyani Group, has investments in listed and unlisted companies from sectors such as forging, steel, power generation, chemicals and banking.

It was formed in 2009 by demerging the investment business of Kalyani Steels and by amalgamating investment undertakings of three of wholly-owned subsidiaries of Kalyani Steels namely Chakrapani Investments & Trades, Surajmukhi Investment & Finance and Gladiolla Investments.

Investments

In Bharat Forge, this investment company held 6,33,12,190 shares or 13.60 per cent stake, as of September 30. This stake is worth Rs 5,526 crore as of Tuesday’s closing. Its 31.36 per cent stake in Hikal was worth Rs 1,388.72 crore. In BF Utilities, the company has 16.45 per cent stake worth Rs 233.13 crore.

In the case of Kalyani Investment, Tuesday’s total traded quantity stood at mere 6 shares while Wednesday’s volumes were a bit better at Rs 193! This was against the two-week average of 157 shares.

As per data publicly available with Trendlyne, Bharat Forge’s average target price at Rs 938.57, up 7.54 per cent. Hikal’s average target price at Rs 362.67 suggests no upside. No target is available for BF Utilities.

Decoding discount

G Chokkalingam, founder, equities research and advisory firm Equinomics said a 90 per cent discount for a investment company is a surprise. He said normally there is a discount of a maximum of 60-70 per cent and, only in rare cases, companies with serious issues, have such deep discounts. The expert  said a discount for an investment company depends on four key factors:

The foremost factor is the reward that investment companies give to their investors. He gave examples of Tata Investment Corporation and Bajaj Holdings, which give good dividends and, thus,  reward shareholders. Data available with BSE suggests no history of the company announcing any dividend or share buyback. 

Second is the hope that the investment company will someday unlock value from investments. He noted that there were rare cases where the investment companies distributed shares to investors.

Third is whether the investment company is holding investments only in group companies or non-group companies as well.

“Tata Investment has substantial investments stocks like ICICI Bank and Infosys. Their investments in non-Tata group firms are worth Rs 3,000-Rs 4,000 crore or even more. If a company has a significant exposure to non-group companies, there is a scope for treasury operations. For example, in a bull case, it can book profit and take care of investors,” G Chokkalingam said adding that Kalyani has unfortunately not delivered on any of the three points, despite having good earnings per share.

The fourth is the misuse of money received from the invested companies. Thankfully, Chokkalingam said, this does not the case with the Kalyani Investment. But it lacks on other variables, he added.

Promoters held 74.97 per cent stake in this investment company as of September 30. Bodies corporate held 3.49 per cent stake while FPIs held another 1.28 per cent stake in the company.

The scrip is up 5 per cent in 2022 so far. It is down 30 per cent in the last three years.

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