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Jyoti Structures: NCD + Warrants Tradeable, Worthwhile?


Jyoti Structures recently offered a rights issue of Non Convertible Debentures (NCDs) and Warrants to its shareholders. See: Letter of Offer


Redemption price: Rs. 120 on April 15, 2012
Interest: 7% payable quarterly
Current Market Price: Rs. 114.
Started on: Jan 15, 2011


  • You get about Rs. 1.45 as first interest if you hold the share before 23 March 2011.
  • You’ll get about 15 months of interest. That’s Rs. 8.75 , so the eventual redemption included, the total you get back is Rs. 128.75. You put in Rs. 114, so the effective yield, over a year, is 12.94%.
  • Interest is taxable, so if you’re in the 30% bracket, you will make a net Rs. 6.2 on the interest post tax. Since the 114 investment goes to 120 redemption, the gain there is 5.3%, but the long term capital gains tax calculation works out to zero (which allows for inflation indexation). So your real return drops to 10.7%.
  • Some crap in the Direct Tax Code might be of concern, but let’s wait to see.
  • Highly illiquid, so you can’t get in/out easily.
  • Still a better deal than most other NCDs that are around. The best other NCD I know of is a pre-tax 11.4% by L&T’s N4 NCD.
  • If you want to buy, do it after the 23rd of March 2011. At the lower price (which will drop about Rs. 1.5) your yield goes up, plus you don’t have to pay tax on an immediate interest receipt. But buy before the 31st to get the best tax deal.
  • Can they repay? They’re a power transmission contractor. Stable business, utility customers. Balance sheet and cash flow looks strong. We’ll only know after how things work out at the end of this financial year (reports to come in only after Apr). But the yield at about 13% is not big enough to counter the small cap nature of the stock; I would have expected more. Having said that the risk piece is analysed differently by different people.
  • I haven’t gone through the offer letter in microscopic detail – am not buying right now. 


Exercise Price: Rs. 120
Current Jyoti Structures Price: Rs. 80
Warrant Price: Rs. 10 or so
Exercise Dates: Aug 15 to Sep 15 2011, and similar one month ranges ending Mar 15, 2012, and then September 2012.
What do you do to exercise: Pay another Rs. 120 to buy the share

Effectively this is a call option.


  • What the F. Paying 9 bucks for a long term call option? Expensive. You could buy the stock with a 11% stop loss instead.
  • Long term chart is hugely unattractive. The stock’s broken all supports on the way down until, well, a low volume support at these levels.
  • image (Click for bigger version)
  • TTM EPS is about Rs. 12, which reflects 10% growth. Each of the last two quarters has seen around that much in growth. The stock has a current p/e of 6, and will see increasing debt costs as rates go up. Overally, not 
  • Not worth the effort; the stock needs to go to 129 in 18 months – if you think that’s possible why not buy the stock itself, in smaller quantities? The call option stays strong now, but will lose time value toward the end of the exercise period.
  • There is a 20% dilution if the stock goes about 120. That should set up a ceiling for the stock in 18 months.
  • Must keep a lookout for this if the stock rises; in a few months the warrant might have an attractive price tag.

This is my new "note taking" version of analysis.


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