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Dear Readers,

We would like to bring to your notice an interesting Special situation/Arbitrage opportunity in the case of Orient Paper & Industries Ltd (NSE Code: ORIENTPPR, BSE Code: 502420) initiaited on 11th Jan’12 for all the Alpha Plus Portfolio members at Rs 50.50.

The High Court approval is still pending and we therefore believe that there’s still some upside from the current levels.

Orient Paper & Industries Ltd (NSE Code – ORIENTPPR) – Jan’12 Risk Arbitrage II from Alpha Plus Portfolio

Well there are many undervalued stories out there in the market, both due to depressed market conditions and market negligence. However, what is important is “The Trigger”. Yes, as has been observed in many cases, demerger is one corporate action which acts as a strong trigger for bringing forth the hidden/suppressed values (of land bank, business unit, etc.) out on the table.

Most importantly, it expedites the process and lets you know the approximate investment duration.

In any normal value unlocking story, one buys the stocks in the hope that market will someday reward the shareholders. In most of the cases, if you have done your due-diligence well, there’s a high probability that you will be rewarded in the long term, though the time span can vary and can extend to many years.

However, at times we come across opportunities arising out of Corporate transactions such as takeovers, mergers, de-mergers, special dividends, rights issue, de-listing, etc. where one can be sure of time-line (2-3 months in most of the cases) within which the desired investment objective can be achieved. These are also to a large extent immune from the regular market risks and volatility.

Well, without diverting from the subject further, please find below the salient features of the risk arbitrage opportunity (initiated on 11th Jan’12) for all the Alpha Plus Portfolio members.

  • Orient belongs to a reputed business house of India
  • The company has multiple business units and commands a leadership position in its Fans and electrical unit.
  • On the basis of sum of parts valuation, we believe there’s a potential for 40-50% upside from the current valuations.
  • On carrying out further sanity check, we realize that the replacement cost of the infrastructure set up by the company could be somewhere around 3 times the current market cap of the company.
  • Also the promoters issued convertible warrants to themselves, convertible into equity shares at a price which is at 15-20% premium to the current market price.
  • Most importantly the company has a very good track record and is currently available at a dividend yield of more than 3%

We believe the demerger of Cement unit will act as a perfect trigger for the value unlocking of its various units. The company has already received approvals from the following: Board of Directors, Shareholders, Secured Creditors, lenders, etc, only the High Court approval is pending.

As per our talks with the Company Secretary, the High Court approval is expected anytime now. We expect decent returns from our investment operation in this risk arbitrage opportunity (though it has already delivered 20% since Jan’12 including Rs 1.00 per share dividend).

For complete details along with the investment and the profit booking strategy, refer the attached report.

Note: Unlike de-listing opportunities, de-merger arbitrage opportunities are susceptible to market risks and can be highly volatile before the High court approval.

Best Regards,

Ekansh Mittal

http://www.katalystwealth.com/

Ph.: 0120-4109766, Mob: +91-9818866676

Email: info@katalystwealth.com