Good time for short-term investors to sell Kalindee Rail

The stock has gained almost 25% in the past fortnight

As the battle for gaining a controlling stake in Kalindee Rail intensifies between Jupiter Metals Pvt Ltd and Texmaco Rail & Engineering, the Kalindee stock has regained some of its lost glory. The stock, which had slipped from a high of almost Rs 200 in January 2010 to Rs 44.15 on March 28, 2013, (99-month low), has gained almost 25 per cent in the past fortnight.

This follows the Kalindee board’s decision to allot shares equal to a 24.9 per cent stake to Texmaco, which is also in the process of buying the promoter’s holding of 11.74 per cent. The two acquirers have also come out with open offers to the existing shareholders to acquire 30 per cent stake in Kalindee, with Jupiter Metals offering Rs 65 a share and Texmaco Rs 68 apiece. On Wednesday, however, Jupiter raised its offer price to Rs 70 a share. Experts believe as this takeover battle intensifies, the stock could gain further ground, providing a good exit opportunity for shareholders with a short-term perspective. Their assessment assumes that the fundamentals of Kalindee Rail may not change in a hurry.

Kalindee Rail has expertise in developing railway infrastructure including tracks, signalling and telecommunication systems, etc., on a turnkey basis. For Texmaco, which has expertise in wagon manufacturing and a decent order book in the space, the acquisition would mean an increase in its services basket. Further, given that the expenditure of Indian Railways on wagons is around 30 per cent of its overall capex, getting into infrastructure space will also help Texmaco grow its order book meaningfully.

Experts say Kalindee has been an ideal takeover candidate for long. While earlier, Larsen & Toubro (L&T) had also attempted to take over the company, things did not materialise then. Nevertheless, the scenario has changed now, especially after the demise of the company’s managing director, Arvind Gemini (also a part of promoter group) last year. Although the last quarter of FY14 was not good with Kalindee reporting a loss, the overall performance has been healthy..

On the flip side, the key concerns are delay in railway orders and execution. Analysts also say that the company’s attempts to execute private projects too did not yield good results, with payments getting delayed leading to higher receivable days. Thus, March 2013 quarter saw interest costs rising 80% to Rs 4.34 crore, compared to the year ago period.

In light of the company’s recent performance and share price gains, some experts like A K Prabhakar, Vice President Research at Anand Rathi, believe that it makes sense to exit the stock utilising the current rally.

From a longer term perspective, though, given the company’s presence in the railways space (including metro rail), there is strong potential for growth. Kalindee had also bagged orders worth Rs 366 crore in May this year, including Rs 200 crore from Indian Railways and Rs 166 crore from Kolkata Metro, which provides comfort.

But, the quantum of gains would depend on the acquirers’ ability to grow the current business. Here, analysts believe that acquisition by Texmaco could prove favourable for shareholders of Kalindee.

Chetan Kapoor, analyst at IDBI Capital who tracks the sector, says that if Texmaco gets the majority stake in the company it will be better for Kalindee and valuations will also start improving. He believes that Texmaco has rich experience with the Railways and can grow the company better compared to Jupiter Metals, who is primarily a Hydro-mechanical player.