PCBL did Aquapharm acquisition followed by INR 448 Crs warrants issue (equity at maturity) which stands at around 7% of current net worth. Below is my brief thought process:
Thesis:
- Management is trying to move towards more stable margin business from commodity highly cyclical. They have selected market leader in the segment (2nd biggest globally). In case this works then we’ll see totally different PCBL in few yrs.
- Warrants at reasonable price is a signal that management is doing walk the talk. I have seen many companies issue warrants at quite cheap rates (as they get at older average price) when stock prices zoom, taking advantage of price movement. But PCBL seems to have not taken advantage of this. Also reason for this equity infusion was guided well in advance.
- Promoters are connected to chemical business. Though not openly revealed but Nov-2023 concall hint is there about know-how of opportunity in this acquisition.
- Valuations for Aquapharm are quite reasonable. As an optionality, in case this chemical company’s earnings/margins are right now temporarily suppressed due to overall chemical industry headwind, then it can be great acquisition.
Antithesis:
- It is definitely a divesification into unrelated business. Management will require able team to run this business.
- As new company acquisition is still its at early stage, no management guidance exists. Quantification of future size is difficult at this moment.
Overall:
I have taken small tracking position, mainly due to confidence and walk the talk from management. But definitely it’s an early stage, actual benefits will take some time.
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