Sulzer India. Will delisting happen?

Sulzer India announced its plan to delist the shares from the stock exchanges. Sulzer, Switzerland-based parent company, an 80% shareholder of the company has proposed to acquire the remaining 20% equity shares of the company through an offer and intention to voluntarily delist the equity shares of the company from all the stock exchanges in India.

Read my initial report about Sulzer India here (Specifically read my Note of Caution section)

The company is offering 870Rs/share as an initial offer to its shareholders which will value the company at around 8 times its expected EPS of 110Rs by FY10 March. The company in 2006 also had tried to delist its shares but failed.

Will the delisting happen this time?

The company is really in a Catch22 situation now. I would say this case applies to most of the MNC’s listed in India who has high promoter stakes. Even though MNC companies want to increase their Indian operations, most of them would like to have greater control in their day to day and financial operations.


Most of them are slowly hiking their stakes looking for the best opportunity to delist their shares from the Indian market. However new SEBI guidelines on the need for minimum 25% public float for all companies is a huge setback to the delisting ambitions of many listed MNC’s in India. And moreover SEBI guidelines direct these companies to slowly disinvest their holding in a calibrated manner till the public float becomes 25%.

So I think this time there is a strong compulsion for the MNC’s to delist now if they want to do it. Else going forward it becomes very difficult.


But the catch here is it is not very easy for these companies to delist from the Indian market. If they want they will have to pay a premium to the Investors.

So what will be the kind of valuation Sulzer has to offer its shareholders to get it delisted? If you look at the valuation of most of the listed MNC’s the PE will be in the range of 20-25. So if you take a base PE of 20 even then the fair value of this stock is above 2000Rs.
 
I would probably bet on such a price to come in the near term. To delist at such a price the company will have to spend something like 140cr (for around 7lakhs outstanding shares). This 140cr should not be a big amount for an MNC like Sulzer. So guys whoever has bought the stock just hold on :-) and enjoy the party.
 
There are many other MNC delisting plays in the Indian market I will write about it some other time.