“It is not what you are looking at, it is what you see….”
Henry David Thoreau
Dear Elusionist,
Why complicate everything with these “holding company discounts” and this and that.
Just look at it as a standalone company that you – a billionaire investor – are being offered for sale. Forget about everything else.
The sale price is Rs. 60 per share. The company has Rs. 28 in cash in the bank – CASH. Another Rs. 34 if you calculate a very conservatively valued market price of a listed company called PTCFS (forget about it being a subsidiary and everything). That is more than the price you are paying in the first place.
THEN. You have another Rs. 31 in cash receivables etc. – none of which is dodgy or doubtful. And you have a 11% stake in the Teesta-III HEP in Assam. And you have own stakes in Athena Power and others.
ON TOP OF THAT. You are getting a wonderfully run business which is the market leader in its field whose rather conservative management expects business to grow at 10-15% in the next few years. More if a few macro issues are resolved.
So would you buy the whole company if you were a multi-billionaire…..because I don’t know how you became a billionaire if you haven’t already taken that deal….
And as far as your comment to the effect that “…but the Company will never sell those shares….” are concerned – then theoretically the only way to value a company is its Dividend Yield. That is all the money you are REALLY getting. They are not going to give you the assets – so the book value / asset value should mean nothing. They are not going to give you their earnings – so the cash flow also has no meaning.
When in fact it does. That is what you and I look at when we purchase equity ownership in Companies through the medium of the Stock Markets – don’t we??
Just look at it as if you were a billionaire buying the entire Company. Forget about everything else. It is all yours. You will never go wrong that way.
Also, by the by, two very important developments are going to help this Company in the future.
a) Recap of the SEBs should be approved by the Cabinet today itself. This will help in two ways. First the possibility of them having non-performing receivables decreases. Two, the SEBs will now be in a position to purchase more electricity.
b) There is a humongous push for rationalization of the grid linkages over the next few years. That too will increase the business for them.
My two cents.
Regards,
Mohit
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