Wendt India

Abrasives and precision component maker Wendt India, a Rs.10 face value stock quoted at over Rs.1100, market cap of around Rs.230 crore, debt free, with a consistent dividend paying track record, as such does not look like a small cap stock. But its earnings drive home that point. It’s performance for Q3FY13 was not all that great with a flat topline at Rs.26 crore and net profit sliding 30% on a YoY. Q4 was even more of a downslide, with net profit at Rs.2.74 crore, down 32% (YoY) and down 5% sequentially. Its equity capital is tiny at Rs.2 crore, explaining why it is ‘small cap’. The export turnover was due to lower sales to Germany, France, UK, US, Singapore, Indonesia, and Malaysia.

The German parent holds 39.87% stake and Carborundum Universal holds 39.87%.  Thus promoters stake is at 79.74%.  The company imports over 50% of its raw materials, thus faces risk of volatile rupee but this is partly offset by its export revenue, which accounts for one fifth of its sales. The German parent is not averse to selling off its almost 40% stake and is even ready to offer it to Carborundum but is demanding the market price of Wendt, which is not acceptable to Carborundum. The stake of German parent was bought out by 3M and Carborundum has moved the Company Law Board saying that it has the first right of refusal to buy out shares of the parent. KPMG has suggested a fair price for the buyout which may or may not be accepted by 3M. Coming months could be interesting and this expectation alone will keep the share price buoyant. And as such with the deadline of SEBI to bring down promoters stake to 75% looming large, the next few days could be interesting on this counter.