Disa India - Delisting effort to revisit - Angel Broking

Disa India (Disa), an 86.5% subsidiary of Disa Holding AG, is a market leader in manufacturing modern foundry equipment with a 70% market share in India. As per the June 2010 amendment of Securities Contract (Regulations) Act, all listed companies should have a minimum of 25% public shareholding by June 2013.Since the promoters' stake in Disa is at 86.5%, we believe that the company may opt for delisting rather than diluting its stake considering the company has tried delisting in the past. If the delisting doesn't get through, still the stock is trading at an attractive valuation of 12.8x its CY2013E EPS, owing to the company's collaboration with Wheelabrator's technologies, continuous expansion and improving order book. We initiate coverage on the stock, with a Buy recommendation and a target price of Rs.3,353.

Potential delisting candidate: The amendment of Securities Contract Act in June 2010 mandates all listed companies to have a minimum 25% public shareholding by June 2013. We believe, Disa being a multinational company (MNC)'s subsidiary, with the global company holding an 86.5% stake, may opt for delisting since it has a history of delisting effort in CY2007.

Business scenario upbeat: Disa's continuous capacity expansion complementing its improving order book would be a major growth driver. Moreover, the company's collaboration with Wheelabrator's technologies would not only provide access to new target markets, but also improve profitability by reducing cost per part.

Strong balance sheet: We expect Disa to post a modest 14.8% and 15.6% CAGR in its revenue and profit, respectively, over CY2011-13E. Disa's debt free position and cash reserves indicate its strength in situation of worsening economic environment. At the current market price of Rs.2,678, the stock is trading at a PE of 12.8x for CY2013E earnings, which we believe is attractive for an MNC. We initiate coverage on the stock with a target price of Rs.3,353 based on a target PE of 16.0x for CY2013E.

Source : Equity Bulls

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