Thursday, May 6, 2010

Update on IMPAL & Hidden Value

I analyzed India Motor Parts & Accessories (IMPAL) here a few weeks back. One of the visitors Chinmay who runs a wonderful blog here, made interesting comments on the unquoted Investments worth 18Crs on book of IMPAL that i had left out in the valuation but mentioned about in the post. Further IMPAL came out with strong Q4 numbers as expected and the stock rallied 20% on Friday but has now come back to earlier levels following the fall in the markets. Lets take a look at these 2 issues:

1. Hidden Value

IMPAL holds 1,80,19,231 shares of "Royal Sundaram Alliance Insurance Company"(RSAIC) valued at 18Crs in book. This comes to a stake of 8.58% in RSAIC which we can glean by looking at Sundaram Finance's Annual Report. Now Sundaram wants to exit the General Insurance business and is in talks with Reliance General Insurance : . So if this deal goes through, Royal Sundaram Alliance will get 26%  stake in Reliance General Insurance.  Now Reliance General Insurance is not a listed company ,ence its valuation is unknown, however various reports that i found peg the value at around 3000 - 3500 Crs. This puts IMPAL share at around 66 - 77 Crs . I shall assume that Reliance General Insurance is conservatively valued at 2000Crs which adds about 45Crs to IMPAL's existing investment. So now the total investments in IMPAL's books are actually worth:

               88crs (Sundaram Finance + MFs + Cash) +  45crs(RSAIC) =   133 Crs or Rs 320/share

2. Latest Results Update 

IMPAL came out with Q4 results recently which also gave us the Profit & loss figures for FY 2009-10 . Though Q4 figures were lower than those of Q3(but well above Q1 & Q2) what i am more concerned is with the yearly results. Total Income was up 19.2 % but more importantly Net Profit was up 42% . So IMPAL managed to have another year of record profits after 2009. Now with the new figures  & the added value calculated above the valuation becomes even more attractive. The market is currently valuing IMPAL at 217crs(Rs 522) which comes to just 84 Crs excluding Investments. IMPAL made Net Profit of 24.67 Crs in 2010 bringing the P/E to  3.5 and P/BV to 1.82 which appears quite attractive. I am not quite sure how the next quarter or year will pan out for IMPAL but at the current valuations the downside seems to be well protected and i will let the upside take care of itself.

                "Heads I Win Big; Tails, I Don't Lose Much" - Mohnish Pabrai

Disclosure: Long IMPAL 
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