Jasch To Demerge Automation Division, Stock Gain 8%
Jasch Industries had in a move decided to demerge its automation division, a wholly owned subsidiary of the Company.
Therefore, the company will hold a shareholders' meeting on January 11, 2016, to consider the option for demerger of its automation division and also to consider and approve unaudited December quarter financial results.
Other than automation activitiesl, the company is also engaged in the production of polyurethane (PU) resin and PU/polyvinyl chloride (PVC)-coated fabric, also known as synthetic leather. Company’s major focus is on PU synthetic leather where competition is somewhat less while it offers high margins compared to PVC synthetic leather. PU resin and PU-coated fabric which currently contribute around 62 per cent of the total revenue of synthetic leather business.
Segment-wise, the company’s synthetic leather and automation division business revenues contribute in the ratio of 80:20. However, at the EBIT level its contribution is in the ratio of 55:45 as automation division earn EBIT margin of around 17 per cent compared to 5 per cent in case of synthetic leather.
As on Friday’s closing price of Rs 46.4, the company’s m-cap is of Rs 52.6 crore which means it currently trading at m-cap to sales at 0.52x. This stock we have recommended in our low price column at Rs 31.3 per share and on last Froday, it traded at Rs 46.4, appreciated by around 50 per cent.
We believe, its automation division deserves a higher valuation due its very niche market positioning and also its ability to generate higher operating margin. If the company approves demerger of automation division, the step will help the company to create value and unlock the potential of both the entities.
This is just an initial stage and still many more formalities are required to demerge the automation division. The above news flashed on BSE after the market hour last Friday. Today, its gain 8 per cent in the morning trade and currently traded 4.85 per cent up at Rs 48.65 on BSE.