Arbitrage Opportunity: Phoenix Lamps Merger with Suprajit Engineering

phoenix suprajit merger
Phoenix Lamps Limited (formerly known as Halonix Limited) was promoted in 1991 as an Indo Japanese Joint Venture. In 2007, Private Equity Investor Actis acquired a majority stake in the company. Further in 2015, cable manufacturer Suprajit Engineering Ltd.,  bought stake in the company and also made an open offer for Rs. 100 per share  to acquire 61.8% stake in  Phoenix Lamps Ltd. Though majority stake in Phoenix Lamps is currently owned by Suprajit Engineering, the proposed merger between the two companies by means of share swap is pending due to change in merger rules which now require the merger to be cleared by the newly setup National Company Law Tribunal(NCLT).

About Phoenix Lamps:
  • Phoenix Lamps is the one of most dominant player in the domestic OEM Halogen Lighting for Automotive business with standing of 25 years.
  • Supplies to  major OEMs like Maruti Suzuki, Honda Motors, Hero MotoCorp, etc. & also Exports its products.
  •  A decade ago the company had ventured into CFL business which proved to be a big drag on the company and was later divested.
  • Phoenix Lamps enjoys cost competitiveness over its major rival Philips on account of local manufacturing.
  • Phoenix Lamps has three manufacturing facilities in India, 2 facilities in Germany and Luxembourg.
  • Phoenix Lamps was acquired by Suprajit in May 2015 ( 61.8% stake)

Present Arbitrage Opportunity:

    • 4 Shares of Suprajit Engineering are proposed to be allotted for every  5 Shares of  Phoenix Lamps.
    • Post share swap only Suprajit Engineering shares will be traded.

As on 07 July 2017

  • Current Market Price(CMP) of  Phoenix Lamps = Rs. 222
  • Current Market Price(CMP) of Suprajit Engineering= Rs. 310
  • 5 Shares of Phoenix Lamps CMP @ Rs. 222 = Rs. 1110/-
  • Swap into 4 Shares of Suprajit Engineering  CMP @ Rs. 310/- = 1240
    Net Profit based on current scenario = Rs. 1240 – 1110 = Rs. 130/-
    % Arbitrage Gain = Rs. 130/1110  =  11.8%
Note: The share swap may take some more time due to delay in the Merger process. Merger proposal is now being dealt by National Company Law Tribunal (NCLT), Bangalore  Click Here for More Details which may be dealing with merger case for the first time.
The Government had decided to setup National Company Law Tribunal & The National Company Law Appellate Tribunal (NCLAT) as quasi-judicial bodies  in the country with the stated objective of ushering professionalism, speed and reduce burden on courts. These bodies were established under the Companies Act 2013 and were constituted on 1 June 2016.
Some progress has been made in this matter of merger between Phoenic Lamps & Suprajit Engineering and NCLT has conducted some hearing in this matter. A final decision may materialize in 1-2 months time. 
About Suprajit Engineering

Suprajit Group comprises of Suprajit Engineering Limited, Suprajit Automotive Limited, Suprajit Europe Limited, and Phoenix Lamps Limited. The group is a global leader in the automotive cable industry. Suprajit which has been hitherto focused on automotive cables acquired Wescon Controls, USA which is a leading manufacturer of control cables in the non-automotive Outdoor Power Equipment (OPE) space. is now a major exporter of non automotive control cables and push pull cables to some of the world’s leading manufacturers.
With a compounded annual growth of over 30%, the group has one of the largest manufacturing capacities for automotive cables in the world and the the company has increased its annual cable capacity from 75 million to 225 million cables in the past 5 years. The company’s majority of 97 percent business comes from the automotive sector while the remaining 3 percent from the non-automotive segment.

Financials & Ratios : Phoenix Lamps and Suprajit Engineering

All figures in Rs. Crore
Parameter / Company Phoenix Suprajit 
Revenues ( ye 2017) 330.55 1213.8
Operating Profit 46.84 224.87
OPM % 14.17% 18.53%
Profit Before Tax  41.67 172.56
Net Profit 29.36 111.49
NPM % 8.88% 9.19%
Share Capital 28.02 13.13
Face Value 10 1
Book Value 61.34 42.57
EPS 10.48 8.49
Current Market Price  221.55 309.8
PE 21.14 36.48
ROCE (3 yr. average, 2013-16) 18.07 30.71
Price / Book Value 3.61 7.28
Market Cap in Rs. Crore 621 4068
  • There has been significant delay in merger process of the two companies due to new government policy of setting up National Company Law Tribunal (NCLT) and referring of such cases to this body. NCLT being recently set up is not fully equipped to ensure a fast disposal of these cases and has taken considerable initial time to gear up to taking task.
  • A Key risk to gains through arbitrage in above deal, remains in the possibility that as market is presently at all time high, Suprajit Share price may head southwards and the arbitrage gains based on present market rates of Phoenix Lamps could diminish. To avoid this pitfall one can accumulate Phoenix Lamps over a period of time in small lots.
  • The merger is already cleared by both the exchanges and there is no issue with regards to minority shareholders, The deal should go though after one or more hearings of National Company Law Tribunal (NCLT). 
  • Present arbitrage ratio which hovers above 11% could shrink to 5-6% post the announcement of NCLT verdict and hence there exists a reasonable arbitrage opportunity albeit with some minor risks.
  • Otherwise also, Suprajit Engineering seems to be well poised for a period of growth and thus owning a part of it through Phoenix at a discounted rate till this opportunity lasts, seems to be  a good option.

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