INVESTORS are indeed fickle. When you show them profits they ask: “Where is the cash?” And when you offer them cash, they ask: “But where are the profits?” Cash may be king in their hands, but they refuse to value it when it lies with the company.
Gwalior Chemicals (GCL) is a case in point. When the company decided to sell off its entire business along with its debt to German specialty chemicals maker Lanxess at a steep premium, its shares were expected to hit the roof. But what happened was exactly the opposite. GCL’s shares lost over 17% in four trading sessions to close at Rs 88.8 on Friday from Monday’s close of Rs 107.3 when the deal was disclosed. The deal values the company’s equity at Rs 380 crore against the current market capitalisation of Rs 220 crore.
GCL’s promise to distribute Rs 100 crore among its shareholders on completion of the deal also failed to support the stock. A special dividend is expected to bring in at least Rs 35 per share to investors, after accounting for the dividend distribution tax.
Investors do not appear to be too enthused by the possibility of dividendstripping to manage their tax liabilities. With no business left and cash as its only asset, GCL’s stock price is set to fall once the dividend is paid out. If an investor buys the scrip three months prior to the record date of the special dividend and continues to hold it for at least three months after receiving the dividend, the investor will be entitled to tax-free dividends, on the one hand, and a short-term capital loss, on the other hand, which can be set off against any other capital profit.
However, doubts dog investor sentiment. “Buying GCL shares at today’s price can be justified only if they could be sold at Rs 55, after getting a dividend of Rs 35 per share. However, today even that is unclear,” explained a stockbroker who tracks the company.
The company is set to retain its Ankleshwar facility and may go for production of some other specialty chemicals. It also has plans to enter the power generation business. Company sources maintain they have identified some specialty chemicals, whose production could begin within weeks of the finalisation of the deal.
Gwalior Chemicals (GCL) is a case in point. When the company decided to sell off its entire business along with its debt to German specialty chemicals maker Lanxess at a steep premium, its shares were expected to hit the roof. But what happened was exactly the opposite. GCL’s shares lost over 17% in four trading sessions to close at Rs 88.8 on Friday from Monday’s close of Rs 107.3 when the deal was disclosed. The deal values the company’s equity at Rs 380 crore against the current market capitalisation of Rs 220 crore.
GCL’s promise to distribute Rs 100 crore among its shareholders on completion of the deal also failed to support the stock. A special dividend is expected to bring in at least Rs 35 per share to investors, after accounting for the dividend distribution tax.
Investors do not appear to be too enthused by the possibility of dividendstripping to manage their tax liabilities. With no business left and cash as its only asset, GCL’s stock price is set to fall once the dividend is paid out. If an investor buys the scrip three months prior to the record date of the special dividend and continues to hold it for at least three months after receiving the dividend, the investor will be entitled to tax-free dividends, on the one hand, and a short-term capital loss, on the other hand, which can be set off against any other capital profit.
However, doubts dog investor sentiment. “Buying GCL shares at today’s price can be justified only if they could be sold at Rs 55, after getting a dividend of Rs 35 per share. However, today even that is unclear,” explained a stockbroker who tracks the company.
The company is set to retain its Ankleshwar facility and may go for production of some other specialty chemicals. It also has plans to enter the power generation business. Company sources maintain they have identified some specialty chemicals, whose production could begin within weeks of the finalisation of the deal.
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