TTK Healthcare announced on April 5 its intent to delist from the markets and followed it up on April 20 with a floor price announcement of ₹1,051 per share.
The promoters own 74.56 per cent of the company and are offering to buy the entire public shareholding of 25.44 per cent to take it private, subject to clearing the delisting process. The floor price is at an 18 per cent discount to the April 20 trading price and the stock since gave up only 1.8 per cent despite the discounted offer.
The company also announced a voting period from April 24 to May 22 for the proposal.
The voting, reverse book building process, and a few possible offers and counter-offers based on the discovered price are the various steps built into the process, which safeguards minority shareholder rights. Hence shareholders need not act in haste.
Cash-rich from asset sale
The company operates a consumer and protection division with personal care — Eva; baby care — Woodward’s Gripe Water; home care — Good Home; and Skore condom brands, which accounted for 58 per cent of 9MFY23 revenues. Animal products, medical devices (orthopaedic), and foods made up the rest.
TTK Healthcare sold its human pharma division to Bharat Serums and Vaccines (BSV) in March 2022 for ₹805 crore (five times annual sales). The transaction was consummated in two stages.
First, the assets were transferred to a new entity in consideration, for which TTK Healthcare received cash of ₹595 crore and a 26 per cent equity stake in the new entity. This cash is reflected in the balance sheet data filed by the company at the end of 1HFY23.
Also read:Woodward’s Gripe Water maker TTK Healthcare proposes voluntary delisting from stock exchanges
Subsequent to the filing, the 26 per cent equity stake was also bought by BSV in Q3FY23 for ₹208 crore, as per the company’s Q3 results filing.
The company had net cash of ₹722 crore at the end of H1FY23 and, assuming minimum cash burn in the third quarter, the net cash position should be around ₹930 crore, compared to the current market cap of ₹1,795 crore. Detailed balance sheet data is usually filed by companies on a half-yearly basis and, thus, the exact cash balance will be clear in the Q4 FY23 results.
The company paid a dividend of ₹14.2 crore in H1FY23, up by 73 per cent year-on-year, which could have been driven by the sale proceeds. The stock also gained 11 per cent during the year since sale of asset (March 2022 to mid-March 2023).
The stock has further gained 43 per cent since March 17, 2023, during which Abakkus Asset managers picked up 1.74 per cent stake in the company at an average price of ₹911 per share.
Delisting rationale
The company has detailed the reasons for delisting. Post exit from human pharma business, the many consumer and B2B product lines with single-digit margins will require investments and significant cash outflow towards product rationalisation and expansion.
This may involve a different risk profile and funding requirement.
At the floor price, the promoters will have to spend ₹377 crore to delist the company. By taking the company private, the promoters can have the operational, financial, and strategic flexibility needed for the above-mentioned turnaround, without subjecting minority shareholders to excess risk.
Delisting process
Delisting can proceed only with double or more votes (at least 67 per cent) in favour of it.
Shareholders would then tender their shares at an appropriate price at their discretion, and the lowest cost at which 90 per cent of the shareholding can be mopped up would become the discovered price. In the interim the promoters can revise the indicated price above the floor price as well, before the start of bidding.
The promoters can also make a counter-offer if the discovered price is not acceptable. If the above process sails through, the remaining shareholders can expect to exit at the delisting price within a year.
With such a long-dawn process involving a reverse book building and possible counter-offers, shareholders can bide their time watching the proceedings before taking a call. After rallying 64 per cent in the last year, the company is trading at 55 times trailing earnings (annualised 9MFY23), which is at the higher end of the broader industry range of 25-50 times.
This is due to the significant cash balance in its books. The floor price implies a valuation of 46 times trailing earnings. Investors can wait to see whether institutional investors or other significant minority shareholders push for a higher delisiting price.
The Vedanta experience
In the recent period, the Vedanta delisting was the largest attempt and it failed at the price discovery stage. Even with strong retail participation in book building, which was around the company offer, LIC tendered its shares at a significantly higher premium of 266 per cent to the delisting price.
LIC offered its shares at ₹320 per share compared to the floor price of ₹87.25 offered by Vedanta, which eventually crashed the delisting.
The stock is now trading at ₹275 per share, from a peak of ₹430 in April 2022. While every delisting has its own unique dynamics, the primary takeaway should be that the floor price is only indicative and can inch up based on the potential of the business and its visibility.
TTK Healthcare has strong brands in the consumer space, which are indeed in need of revenue growth and margin improvement. The cash on books of nearly ₹900 crore can serve as a sufficient war chest to restructure the portfolio, which shareholders can leverage in their favour during the bidding timeline.