What can we expect in OMDC ?

The Board of Director of Orissa Mineral Development Corporation has rescheduled the meeting on 13th Sep, 2012 to consider bonus.

http://beta.bseindia.com/corporates/anndet.aspx?newsid=1fd72d14-8b00-45d8-a579-b7cba64c5985

Recently It has also declared split in the company in the ratio of 1:10.

What is the ratio of bonus we can expect in meeting ?

To answer the question, let us see the fundamentals

a) It has issued, subscribed and paid up capital of Rs 60 lakhs, recently it passed a resolution to increase its authorized paid up capital to 25 crores. 

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=ff562444-6875-4776-b544-ead228afd95c&param1=1

b) It has net worth if Rs 800 Crores against only 6 lakhs shares, it has no debt and cash of more than Rs 700 crores as on 31mar, 2012.

c) All its mines were closed because of environmental clearance, out of which it has got the permission to do mining in Khola - Rhodia.

d) It has decided to merge Bisra Limestone Company,(Group Company) with  itself.

http://www.bseindia.com/stockinfo/anndet.aspx?newsid=5c5f118b-97b7-44f1-841a-bc0c27d4435f&param1=1

Based on above fundamental reasons, it is easy to infer that they will give liberal bonus (To the extent of 40 shares) because of increase in authorized capital.

Can We expect such a liberal bonus ?

a) The Balance Sheet permits the company to give liberal bonus and maybe that will make shares more liquid on stock exchange.

b) But we are not sure that the increase of authorised capital is for bonus only or it also takes into account the increase because of merger of Bisra Limestone.

c) Also the company have appointed Merchant Banker to look at various aspect of merger with Bisra including the merger ratio.

It seems the company is giving split and bonus to pave way for the merger of Bisra. Stock price of OMDC is almost 53000/-  but Bisra is not a liquid stock with few share holders and no trading.

I tried to look at the balance sheet of Bisra Limestone:

a) Bisra has not made profit in last 5 years.

b) It has a huge capital of 87 Crores.

c) There will always be pricing pressure on company as its main client is SAIL which is also a PSU.

d) The Net worth of company is negative.

e) The company is looking for Capacity Expansion and Modernization.

f) There is an Income Tax Demand of Rs 137 Crores, It is also expecting Aid of Rs 137 Crores from Government.

I cant see anything positive in Bisra and the Rationale for merger is primarily Cash and Cash equivalents of OMDC which can be used by Bisra for modernisation.

The Fair value of Bisra cannot me more than Rs 20/-as they have mines, which are not renewed yet and also mining of limestone has not given any returns to company in last 5 years. Also they have mentioned in B/s that business scenario is becoming more and more competitive.

After reading all these, maybe now we can take some conclusion about the bonus,

The Bonus is about merger and not liquidity. We can expect a liberal bonus but please keep tab on merger ratio of Bisra, which if unfavorable can take value away from the company.

The expected scenario for OMDC can be Split of 1 : 10 and Bonus of 1: 24 taking no of shares to 250 and the merger ratio of Bisra can be 1 sh of OMDC (1 Rs Paid up)  for every 10 sh of Bisra.

Also I expect a special dividend from OMDC as It is cash rich company and Bisra has negative net worth. OMDC has almost Rs 11,500/- of cash and cash equivalent PER SHARE.

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.