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%
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|
|Profit Before Tax||41.67||172.56|
|Current Market Price||221.55||309.8|
|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.