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Sri Lanka Equity Forum » Stock Market Talk » Why Kalamazoo (KZOO) share at Rs.804.80 is overvalued and why it needs to come down to Rs.510/- per share before Rights

Why Kalamazoo (KZOO) share at Rs.804.80 is overvalued and why it needs to come down to Rs.510/- per share before Rights

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SelvaKolla


Stock Analytic
Stock Analytic
Renuka Holdings PLC bought 34,985 of Kalamazoo Systems (KZOO) nearly 69.97% at Rs.1428/- per share from Nimal Perera in July 2016 but soon after Renuka decided to reverse integrate the Deal by a Capital Infusion to Kalamazoo systems and then to re-invest it back in Renuka Developments Ltd.

According to the Business Model currently Kalamazoo Systems has 50,000 shares in issue and Price per share is around Rs.804.80 per share. Renuka Holdings decided to increase shares to 3,050,000 by issuing 60 rights for every share held at Rs.520 per share 'Right share' price. This will help Kalamazoo to get Rs.1.56 billion but soon shares will be sub-divided after the Rights Issue in the Ratio of 1 to 100 which means the number shares will be 305 Million.

Meanwhile Renuka Holdings have changed their idea of reverse integration and re-investment in Renuka Developments Ltd company and have decided to invest new capital raised from Rights issue into other Financial Instruments such as Fixed Income, Equity,...etc.

As a result average Price of share after Rights and Sub-Division will be.

Rs. 1,560,000,000 (Rs.1.56 billion) divided by 305,000,000 (305 Million shares) = Nearly Rs. 5.11 per share value.

Thus after the proposed model share price will come down to Rs.5 per share when considered with company's capital position.

But Current Share Price is around Rs.804.80 this means if someone want to buy 100 shares now they must invest Rs.80,480 plus Brokerage Fee and Taxes.

And if the person don't subscribe for any new Rights they will Receive only 10,000 after Rights and Sub-Division; so at Rs.5.11 per share post Rights and Sub-Division the 10,000 shares will be only valued at Rs.51,100/-. That means an investor who currently buys or thinks it is worth at Rs.804.80 or above will lose above 36.5% in their Capital Gain and current share value after Rights and Subdivision. So it is best time to sell all Kalamazoo shares if you want to have a Capital Gain and exit before the Shares get 36.5% loss in an unstable market that is also expecting to see Capital Gain Tax implemented by the current government.

Better Sell KZOO now get the money recovered; later when share comes down after post rights and subdivision you can invest back at Rs.4 or Rs. 3 per share to buy at a really cheaper Price that will cost you only Rs. 40,000 or lesser to buy 10,000 shares of KZOO.

Eugine Fernando


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@SelvaKolla wrote:Renuka Holdings PLC bought 34,985 of Kalamazoo Systems (KZOO) nearly 69.97% at Rs.1428/- per share from Nimal Perera in July 2016 but soon after Renuka decided to reverse integrate the Deal by a Capital Infusion to Kalamazoo systems and then to re-invest it back in Renuka Developments Ltd.

According to the Business Model currently Kalamazoo Systems has 50,000 shares in issue and Price per share is around Rs.804.80 per share. Renuka Holdings decided to increase shares to 3,050,000 by issuing 60 rights for every share held at Rs.520 per share 'Right share' price. This will help Kalamazoo to get Rs.1.56 billion but soon shares will be sub-divided after the Rights Issue in the Ratio of 1 to 100 which means the number shares will be 305 Million.

Meanwhile Renuka Holdings have changed their idea of reverse integration and re-investment in Renuka Developments Ltd company and have decided to invest new capital raised from Rights issue into other Financial Instruments such as Fixed Income, Equity,...etc.

As a result average Price of share after Rights and Sub-Division will be.

Rs. 1,560,000,000 (Rs.1.56 billion) divided by 305,000,000 (305 Million shares) = Nearly Rs. 5.11 per share value.

Thus after the proposed model share price will come down to Rs.5 per share when considered with company's capital position.

But Current Share Price is around Rs.804.80 this means if someone want to buy 100 shares now they must invest Rs.80,480 plus Brokerage Fee and Taxes.

And if the person don't subscribe for any new Rights they will Receive only 10,000 after Rights and Sub-Division; so at Rs.5.11 per share post Rights and Sub-Division the 10,000 shares will be only valued at Rs.51,100/-. That means an investor who currently buys or thinks it is worth at Rs.804.80 or above will lose above 36.5% in their Capital Gain and current share value after Rights and Subdivision. So it is best time to sell all Kalamazoo shares if you want to have a Capital Gain and exit before the Shares get 36.5% loss in an unstable market that is also expecting to see Capital Gain Tax implemented by the current government.

Better Sell KZOO now get the money recovered; later when share comes down after post rights and subdivision you can invest back at Rs.4 or Rs. 3 per share to buy at a really cheaper Price that will cost you only Rs. 40,000 or lesser to buy 10,000 shares of KZOO.
MR. S.K,
YOU HAVE MISSED OUT IN YOUR CALCULATION THE ENTITELEMENT OF THE RIGHT ISSUE  EACH SHARE YOU WILL GET 60 RIGHT ISSUE SHARES IF YOU ARE NOT SUBSCRIBING STILL YOU  CAN SELL THOSE RIGHTS IN THE MARKET., TO MY CALCULATION RIGHT SHARE CAN BE SELL ATLEASET @ 5/- PER SHARE FROM THAT YOU WILL RECOVER 300/= PER SHARE FROM YOUR INICIAL COST. Very Happy Very Happy

SelvaKolla


Stock Analytic
Stock Analytic
Eugine tell me if Rights hit Rs.5 per share and how many will buy Rights to subscribe that price or whether inter companies of Renuka group itself will sell and buy those Rights! Haha.

Eugine Fernando


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@SelvaKolla wrote:Eugine tell me if Rights hit Rs.5 per share and how many will buy Rights to subscribe that price or whether inter companies of Renuka group itself will sell and buy those Rights! Haha.
AFTER RENUKA HOLDINGS BOUGHT THE SHARES FROM NIMAL PERERA THEY OFFERED TO BUY THE REMAING SHARES @ 1,428/-BUT ONLY FEW SHARE HOLDERS HAVE SOLD. IF THE RENUKA HOLDING REALY WANTED TO BUY THE REMAINING SHARES, STILL THEY CAN BUY  LESS THAN WHAT THEY HAVE OFFERED TO BUY,

IF THEY BOUGHT @ 1428/- THEIR COST FOR  61 SHARES WOULD BE 1428.00 + 520/- X 60/- = 32,628.00 COST FOR ONE SHARE 543/80 

IF THEY BUY THE RIGHTS @ 5/- THEIR COST WOULD BE 520/- + 5/- = 525.00

 THIS IS MY CALCULATION IF I AM WRONG PLEASE CORRECT ME.

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