I found these two investment ideas on the blog ‘Indian equity guru’.

http://equityguru.blogspot.com/2006/12/stock-idea-srf-polymers.html
http://equityguru.blogspot.com/2006/11/stock-idea-maharastra-scooters.html

Both the ideas are of holding companies. For ex: SRF polmers has a substaintial holdings of SRF. As a result if you add the value of the business to the value of holdings, the company is selling at a substantial discount to intrinsic value.

One can make a similar case for Balmer lawrie limited and BMIL. Actually I would not be surprised if there are several such stocks available. I find such ideas interesting and cannot argue against the basic logic. What I cannot get my arms around is how will the value get unlocked? There seems to be no catalyst in sight as the holding company is a means for the promoter to exercise control. As a result the holdings may never get sold. What will unlock the value then in such cases?

Somehow these ideas seem to have a mirage like quality. You can see the value out there, but may never gain from it (unless there is an underlying catalyst to unlock the value)

One Comment

  1. Sachin says:

    Hello Rohit,

    One question. Why do you think that its important to unlock the value. If we know the value is there and we buy such a story and hold on to it, whats the drawback. Eventually the rest of the world will also reaize that there is value in the stock and start buying thereby the stock will start reflecting the true value in the market as well.

    Is this not a fair argument. I think that if the company holds an investment in another company, its a source of cash flow and should be included when calculating the value of company.

    Sachin

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