Valiant’s move from private to public and merger

Valiant Organics Limited approved the scheme of amalgamation of AbhilashaTex-Chem Ltd into Valiant Organics Ltd.

Abhilasha Tex – Chem Limited (ATCL) and Valiant Organics Limited (VOL) both are engaged in the business of manufacturing, buying, selling and exporting of chemicals.

VOL is mainly engaged in the business of manufacturing and marketing different types of chlorophenol, which is a chemical having several applications mainly into agro-chemical industry with a single location manufacturing facility at Sarigam Industrial Estate.

ATCL is in the business of Speciality chemical named as Para Nitro Aniline for own sale as well as on job work basis having manufacturing facility at Tarapur.

Rationale

• This Scheme of amalgamation will lead to consolidation of business and assets of the company, synergy of operations and networks of both the companies.
• The merger of ATCL with VOL will result in an increase in the public float of VOL which will form part of public shareholding and will positively impact the liquidity of the shares of VOL.

Promoters of both the Companies

Gogri family is part of promoters of both the companies.

Transaction

ATCL (Public unlisted company) will get merged into VOL, a public limited company, listed on SME BSE, where the consideration will be issued in the following manner;

365 Equity Shares of VOL of Rs10 each will be issued for every 100 Equity Shares of ATCL having Face value of Rs100 each.

The existing share capital of ATCL is 609323 Equity Shares of Rs100 each. Thus in the course of amalgamation, 22,24,029 new shares of Rs10 of VOL will be issued to ATCL. Respectively, we can see the change in the pre and post shareholding pattern of the company in below-mentioned table 1.

Appointed date for this transaction is 1^st July 2016.

Both the companies are not having any carry forward losses, so it is tax neutral decision to keep the cut-off date as appointed date or any date later to year ending date.

VOL has gone for IPO in the month of September 2016 and in the board meeting held on 9^th November 2016, the company approved the amalgamation with the appointed date as 1^st July 2016

Shareholding Pattern of VOL

Table 1: Shareholding Pattern

Particulars	Pre – IPO		Post – IPO		Post – Merger
Name of Shareholders	No of Shares	% Holding	No of Shares	% Holding	No of Shares	% Holding
Promoters	2457210	67.50%	1892961	52%	2771683	47.26%
Public	–	–	964800	48%	3092666	52.74%
Other	1183110	32.50%	782559
Total	3640320	100.00%	3640320	100%	5864349	100%

Public Shareholding will increase post-merger though in percentage terms increase will be only around 5%. Post-merger, promoters of ATCL except Gogri family is considered as public.

Financials

Table 2: Financials of VOL (All figures in INR Crores)

Particulars	30-9-2016	2015-16	2014-15	2013-14
Equity	3.64	3.64	0.36	0.36
Reserves & Surplus	23.73	19.11	21.10	18.34
Carry Forward Losses	0	0	0	0
Net Worth	27.37	22.75	21.46	18.70
Total Income	25.73	53.48	60.24	43.91
Total Expenditure	18.56	37.72	49.30	35.71
Profit before tax	7.17	15.72	10.94	8.20
Profit After Tax	4.62	10.24	7.28	5.54
Margin % (PAT/Total Income)	17.9556	19.1473	12.0850	12.6167
Cash Profits After Tax	7.69	16.68	11.76	8.98
RONW % (PAT/NW)	16.8797	45.0109	33.9235	29.6257
EPS	12.68	28.14	199.88	152.31
Book Value	75.18	62.50	589.62	513.69

Upon the coming into effect of this scheme, the authorised share capital of Valiant shall stand increased to Rs10,50,00,000 divided into 105,00,000 equity shares of Rs10 each.

Share Capital History of VOL

1. In the year March 1^st, 2005, company was formed with the nominal shares capital of Rs. 100,000 (10,000 shares of Rs10 each)
2. IN 2005, company further allotted 4,38,000 at Rs.250/- share issue price in consideration for acquisition of running business. (consideration disbursed by way other than cash)
3. Thus the total amount invested in the business by the end of March 2005, is Rs 1.05 crore

Buy Back

VOL bought back shares for almost 5 times from 2005 to 2016.

• Buying back shares of stock allows a company to reduce the extra cash that it has on its balance sheet without having to raise the company’s dividend.
• If the rise in the company’s cash balance is temporary, then it may be more beneficial to pass that increased cash value on to shareholders through a share buyback programme rather than trying to force an increased dividend yield that cannot be sustained over the long term.

Table 3: Buyback of Shares for VOL over the years

Date	No of Shares	Issue Price	Total Buyback price
15-12-2007	59136	280	1.66
22-01-2009	102630	291	2.99
23-02-2010	122008	330	4.03
25-03-2011	90430	372	3.36
26-04-2012	63796	440	2.81
Total amount paid for buy back			14.84

Bonus Issue

VOL has issued 32,76,288 bonus shares in the Financial year 2015– 16 in the month of August in the ratio 9:1 (Nine Shares for every one previously held share).

• A bonus issue is taken as sign of the good financial health of the company.
• The issue of Bonus Shares helps in bringing proper balance between paid-up capital and accumulated reserves and helps in improving the market image of the company.
• Increasing the number of outstanding shares through a bonus issue increases the participation of smaller investors in the company’s shares and hence enhances the liquidity of the stock.
  

  Date	No of Shares	Bonus Ratio
  07-11-2007	89600	1:5
  21-11-2008	47846	1:10
  04-01-2010	169472	2:5
  11-01-2011	47114	1:10
  05-08-2015	3276288	9:1
  Total Bonus Shares Issued till date	3630320

Dividend Payment

VOL has also declared dividend on Equity Shares amounting to Rs 7.28 crore for the Financial Year 2015-16 and total dividend in last 5 years comes to almost Rs 15 crore.

Initial Public Offer (IPO)

Also, in September 2016, VOL has gone for IPO of 9,64,800 equity shares of Rs10 each for cash price of Rs220 per share aggregating to Rs 21.23 crore through an offer for sale.

Table 4: Financials for ATCL (All Figures in INR Crores)

Particulars	30-9-2016	2015-16	2014-15	2013-14
Equity	6.09	6.09	0.55	0.55
Reserves & Surplus	11.65	8.90	9.58	5.43
Carry Forward Losses	0	0	0	0
Net Worth	17.75	14.99	10.13	5.98
Total Income	17.64	36.93	39.87	33.60
Total Expenditure	13.36	27.63	33.68	33.46
Profit before tax	4.28	9.30	6.20	0.13
Profit After Tax	2.76	4.34	4.19	0.09
Margin% (PAT/Total Income)	15.6462	11.7519	10.5091	0.2678
Cash Profits After Tax	4.72	10.13	7.74	1.84
RONW % ((PAT/NW)	15.5493	28.9526	41.3622	1.5050
EPS	45.26	71.27	756.30	15.55
Book Value	291.27	246.01	1829.02	1080.02

Accounting Treatment

1. The merger and IPO can be undertaken for the benefit of business as a whole, or its just one more step towards wealth maximisation of promoters
   From the appointed date, all inter-party transactions between the Transferor company and Transferee company shall be considered as intra-party transaction.
2. Transferee company i.e. VOL shall follow Amalgamation in the Nature of Purchase method for the purpose of accounting as per AS 14.
3. VOL shall record all the assets and liabilities transferred to and vested in VOL at their respective book values.
4. Intercompany balances if any shall stand cancelled.
5. VOL Shall credit Equity Share Capital account with aggregate face value of shares.
6. The difference between the net value of assets over aggregate face value be adjusted to Capital reserve or Goodwill, in the books of VOL.

Conclusion

• Valiant’s promoter shareholders got around Rs 50 crore by way of buyback, dividend and offer for sale in last 5 years just before listing. Post-IPO, promoter’s stake became 52% from 67%, still holding majority part in Valiant.
• As of today, the Market Capitalisation of Valiant is Rs 155.08 crore, out of which around Rs 78 crore of value is held by promoters of Valiant.

Hence, if we take into account the stake of promoters and past events (such as constant buyback and dividend payments), it is little bit difficult to say whether this merger and Initial Public offer is really undertaken for the benefit of business as a whole, or its just one more step towards wealth maximisation of promoters.