Friday, September 10, 2010

SANGUINE MEDIA: Warrants case Study

I dont know exactly what made me to look into this stock SANGUINE MEDIA way back in januray and after a simple analysis of the company's balance sheet and stock price moving in narrow range i made a decision to buy some stock in it.It never moved out from that range for long time until some events made the stock pricet zoom Its current Mcap is 7.2 Cr with a low holding of Promoters

Suddenly in july the board announced  Increase the Authorized Share Capital of the Company to Rs. 120,00,00,000/- (Rupees One Hundred and Twenty Crores Only). from 15 Crores. I dont have a clue for making such a change.May be they were in expansion mode and might need additional capital?but see 6 fold increase in capital..  looks like they might be having aggressive plans going ahead

Now in August comes the surprise

Sanguine Media Ltd has informed BSE that the Board of Directors of the Company at its meeting held on September 03, 2010, approved the allotment of 10,00,00,000 Convertible Equity Warrants at an offer price of Rs. 10/- per warrant to various Allottees from whom 25% of the upfront money has been received in pursuance to the resolution passed in the Annual General Meeting held on August 18, 2010. link

Here are my observations:
  • First why did they go for Warrants instead of selling the stock
    • Its like head I win, tails you lose
    • If they plan to sell the stock it has to be 10 or 15 % below CMP for it to be successful and there by the company will not get enough capital
    • If they go for warrants then its like selling the stock with a premium here it comes around 100% premium meaning when they convert the warrants its like selling the stock to public at double the company benifits not the investor who might be buying at more than 10 Rs in future..(lets see this in future)
    • How ever if the warrants are never exercised then its clear profit to the company
  • Allottees paid 25% amount mean they paid  25 crores to the company to buy the options
    • Now they can improve the business with new capital which they got and hope they increase the EPS in coming quarters.
    • Another doubt i had is who al got allocated with these warrants..BSE website doesn't contain any such information ...hope it will be cleared in coming days..
  • My Feeling is that Stock Price will rise for some days till we get some clear status on exercise period and the allottes names.
  • My Target Price is around 15 to 18 ( Time Frame based on exercise Period )Rs ///lets see if it can reach that price (My feeling is that operators might pull the stock to that price before any conversion).

1 comment:

  1. I think this information is wrong.."Allottees paid 25% amount mean they paid 25 crores to the company to buy the options"

    They paid 25% but the amount is not 25 crores its 10 crores..its calculated based on 6 month average price and since its 4 Rs. we get 4* 10 crores warranrs = 40 crores and 25% of it is 10 company got 10 crores from warrant money from allottes