Galaxy Commercial: Financially sound

Recommendation: Accept

Sowmya Krishnan

GALAXY Commercial has made an open offer to its shareholders to acquire 20 per cent of the equity capital at Rs 10 per share.

Prior to the open offer, the acquirers had entered into an agreement to purchase 53.97 per cent of the equity shares of Galaxy Commercial at Rs 4 per share.

The offer price at Rs 10 per share appears reasonable due to the following reasons:

The company has not paid dividends for the last three years as it has not reported healthy earnings in this period. The return on networth and earnings per share, which represent the returns from the investment are also unimpressive. The returns on the stock have been poor and the stock might not fetch higher valuation in future.

The stock is listed on the New Delhi and Uttar Pradesh stock exchanges. The shares are hardly traded in these exchanges. The illiquidity in the stock is another reason for the shareholders to use this open offer to exit.

Following the open offer, the acquirers are expected to hold 73.9 per cent of the equity capital. Galaxy Commercial is an NBFC engaged in the business of finance and investments. The acquirers - chartered accountants by profession - intend to enter into the business of hotels and restaurants. They might also discontinue the existing line of business (finance and investments).

The company's future prospects appear uncertain. The chances of shareholders gaining value by holding on to the stock appear bleak. As there is no reason to hold the stock, shareholders may tender to the open offer.

The offer opens on November 22, and closes on December 21. The manager to the offer is Doogar and Associates.