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Kiri Industries (NSE:KIRINDUS)

Kiri Industries is a leading integrated Dye manufacturer in India with a global presence spanning over 50 countries across all seven continents and a market cap of ₹1518cr (approximately $190 million).
Kiri Industries (NSE:KIRINDUS)

Disclosure: Invested today at 289.65. Not a recommendation to invest.

CMP: 288.85.

A Special Situation

A ‘special situation’/arbitrage, as Graham liked to call it, or ‘workout’ as Buffet likes to call it, is a situation in which a particular development is counted upon to generate a profit in a security, regardless of the movements in the general market. Kiri Industries is one such special situation/workout available in the market today.

Kiri Industries is a leading integrated Dye manufacturer in India with a global presence spanning over 50 countries across all seven continents and a market cap of ₹1518cr (approximately $190 million).

Kiri Industries has historically traded below book value due to a longstanding legal dispute over its most valuable asset – its stake in Dystar Holding. Although Dystar has been a profitable venture, Kiri hasn't reaped the rewards due to the actions of Dystar's majority stakeholders, Senda. As a result, Kiri's shareholders have discounted the value of its holding in Dystar, valuing the business solely on its standalone operations.

The recent resolution of the legal proceedings, however, provides an intriguing arbitrage opportunity, not yet reflected in the company's share price.

Dystar Holdings: A Brief Overview

Kiri partnered with Chinese dye manufacturer Longsheng Group in 2010 to establish DyStar Global Holdings (Singapore) Pte Ltd, intending to acquire DyStar's business. Kiri held the majority shareholding, while Longsheng possessed a convertible bond. By 2012, DyStar had become profitable, and Longsheng's subsidiary, Senda, converted its debt into equity, becoming the majority shareholder of DyStar. This development strained the relationship between Kiri and Senda as joint venture partners.

In 2015, Kiri filed a lawsuit in the Singapore High Court against Senda, alleging minority oppression. In July 2018, the court ruled in favour of Kiri and ordered Senda to buyout Kiri’s stake in Dystar. The Singapore International Commercial Court (SICC) valued Kiri's stake in DyStar at US$481.6 million as of July 2018. On March 3, the final value for the buyout order was increased to US$603.8 million. The court also awarded Kiri legal costs totalling S$8.11 million, payable by Senda by January 20, 2023. However, as of February 13, 2023, Senda had not made this payment.

With around 5.18cr shares outstanding, a successful buyout at $603 million (roughly ₹ 4974cr) would mean a cash enrichment before taxes of over ₹ 950 per share. Factoring in the S$8.11 million (roughly ₹ 49.2cr) in legal costs adds in roughly another ₹ 9.5/share. So, if the buyout and recovery of legal costs is successful - Kiri shareholders can expect a cash enrichment before taxes of ₹ 960 per share. Yet, it currently trades at under ₹ 290 - less than 3 times the value of the buyout sum.

Key Concerns

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