- Wealth PMS (50L+)
The market continued its downward streak into the second week of December. The Nifty 50 is down -3.3% from its all-time high.
On monthly basis, Nifty is down -1%. Yet, on the yearly time frame, it does worse than gold. Crude went below $80 while gold closed flat and silver is down -1.4%.
On valuations, the price-to-earnings (PE) ratio for the Sensex was at 23.2, and there’s a graph below for historical comparison.
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We’ve previously discussed, Prataap Snacks, a packaged food company, in a past edition of this newsletter here; today, we’re discussing one of its competitors undergoing a special situation: DFM Foods (New Delhi, ₹2,256 crores), which makes and sells extruded snacks under its age-old brands Crax and Natkhat, and under neoteric brands Curls and Fritts.
I’m never sure what the adage “Nostalgia isn’t what it used to be” implies, but in the case of DFM Foods, selling nostalgia isn’t how it should be. But then, I am equally not sure about what fuels forgotten brands such as Nintendo and Converse in the West, and Royal Enfield and Thums Up back home, to rise back from the ashes, and make triumphant comebacks. What’s troubling is, earlier DFM hadn’t been sure either: the company’s topline grew at just 7.5% per year during FY16-FY19, a time when the extruded snacks’ market was growing in double digits.
It was roughly the end of that period when Advent International, like many global private equity players do, valiantly decided to join the fray, hoping to turn things around with picking up a 74% stake of the company. A management overhaul under Mr. Lagan Shastri’s (of Hindustan Coca Cola Beverages fame) helm, and changes to the business model ensued, but as the pandemic struck, things didn’t go as planned.
Still, the brand holds promise, at least to Advent anyway. What’s more: some of its listed peers aren’t doing better.
Fast-forward to what’s happening now: DFM Foods is undergoing a delisting process. Why? It could be that Advent wants to dramatically restructure without being bothered by other shareholders, or it would rather not share what comes after a turnaround, among other things. But a delisting is not a bad thing, as Deepak explains in the linked post above: shareholders may get more for their shares than they are worth now from the promoters, who could be willing to pay a premium for taking the company private.
Here are the murky details: the floor price is set at ₹263.8, and the bidding window started on the 13th, which will close on the 19th of this month, that is, Monday. Then, a “discovered price” will be calculated based on the bidding, and the promoters will have an option to accept the discovered price, make a counteroffer, or simply decide not to proceed with the delisting.
All things considered, they need an additional 16.3%, or 81.95 lakh shares for the delisting, and they’ve received bids for 26.73L shares until Friday close. Other than getting the necessary number of shares, it’s a game of deciding how much premium Advent is willing to pay, and the shareholders seem optimistic.
(Disclaimer: The information conveyed in this post is intended for informational purposes and shouldn’t be considered as investment advice. Please do your own research before making investment decisions)
Our latest episode, had three key discussions: 1) Markets taking U-turn? 2) What is Forced selling? 3) Q&A
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