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CMP - Rs.25 NSE Symbol - HBSTOCK BSE Code -532216
Deep Value ......
HB Stockholdings Ltd. is an Investment company belonging to the Delhi based HB Group & has huge value in investments in various quoted equities.
Investment Holdings
HB Stockholdings has an Equity Capital of Rs.25.44 crores. The company has zero debt. The company has investments of Rs.69.87 crores (Book Value), primarily in quoted and unquoted equities.
The company has investments of Rs.48.09 crores in Quoted Equities. The single largest investment of the company is Rs.12 crores for 30.37 Lakh shares of Jaiprakash Associates. The shares were acquired by the company a few years back at an average price of less than Rs.40 per share. The stock currently trades at Rs.725 which translates into Rs.220 crores as market value of its investment in Jaiprakash Associates. (Rs.86 per share).
Besides its investments in Jaiprakash Associates, the company has investments in many other listed companies - these include DCM Shriram Industries (Current Market Value Rs.5.50 crores), Chemplast Sanmar (Current Market Value Rs.1.9 crores), Greaves Cotton (Current Market Value Rs.1.62 crores). The total number of quoted equities comprise over 150 stocks, whose value at the current price is roughly Rs.250 crores.
Besides, the company has investments of around Rs.13 crores in unquoted equities. This includes investment in Credit Capital Asset Management Co. Ltd. which manages Taurus Mutual Fund.
Deep Discount to the Value of Investments
The stock of HB Stockholdings currently trades at Rs.25 and is available at a deep discount to the market value of its investments. Even considering its single largest investment in Jaiprakash Associates, the huge discount to the intrinsic value is not justified since HB Stockholding is not a holding company holding shares in group companies (where values rarely get unlocked).
Value Unlocking
The investment in Jaiprakash Associates made a few years back by the company is long term in nature and long term capital gains being exempt from tax will result in tax free profits for the company. This would result in a windfall whenever shares of Jaiprakash Associates are sold.
Risks & Concerns
Any effort on the part of management to dilute the value of the minority shareholder is the major risk we see with the investment in HB Stockholding.
Conclusion
HB Stockholding is a totally debt free company holding quoted equities whose market value at the current price is Rs.250 crores. The company has a market cap of just Rs. 65 crores. The stock thus trades at just 25% of the value of investments in quoted equities - not to mention its investments in unquoted equities where value unlocking may take place as and when these companies decide to plan listing; and the loans and advances of Rs.9.0 crores that the company has advanced to its group companies.
Consider an optimistic scenario - incase the stock price of Jaiprakash Associates moves up to Rs.1000 and the company decides to liquidate its investment, this will translate into Cash Flow of over Rs.300 crores and a profit of Rs.290 crores (all exempt from tax). This would mean an EPS of over Rs.100. The Cash of Rs.300 crores if put to good use can work wonders for the company and its shareholders.
Whether and when the management will sell shares of Jaiprakash Associates; whether the money realized will be used prudently by the management; are questions that we donot have the answers to at this point in time, only thing we can say is that the stock which has been lackluster till now will witness great action when the management sells its holding in Jaiprakash.
At the current price of Rs.25 and current market cap of Rs.65 crores, the downside however looks restricted. Long term investors can choose to accumulate the stock.
