The Hindu Business Line : Wendt India: Reject

SHAREHOLDERS of Wendt India may reject the open offer made by the Wendt group. As the fundamentals appear robust and the growth prospects bright, there may be scope for appreciation over a one- to two-year period.

The principal risk to our recommendation is the moderate trading volumes in the stock, with only a few hundred shares traded on several days. If you are a shareholder with a long-term perspective and exposure of less than 1,000 shares, this may not be material.

As the group intends to keep the stock listed, the promoter groups may also have to offload 5 per cent to comply with the minimum requirement for continuous listing imposed by SEBI.The promoter groups — Wendt of Germany and Carborundum Universal — hold a stake of about 80 per cent in the company. A global level restructuring of ownership stakes in the Wendt group has triggered the open offer; this has led indirectly to a change in control and management, and hence the open offer. It covers 20 per cent of the equity of Rs 2 crore and is priced at Rs 642 per share.

The stock trades at about Rs 640 having receded from a high of Rs 715. It trades at a price-earnings multiple of 12 times its likely FY-06 earnings; the company is likely to maintain a growth of about 30 per cent. It is attractively valued from a longer-term perspective.

Wendt India is engaged in manufacturing abrasives (diamond tools) that find application across several industries.

In line with the recovery in the engineering sector, its revenues and earnings have risen at a healthy clip over the past three years. We expect this trend to continue.

It is also likely derive benefits from the consolidation of the Wendt group operations at the global level.

As the company enjoys a debt-free status, it is well placed to finance its business growth and also continue attractive dividend payments. The strong presence that Carborundum Universal has in the same line of business is also likely to augur well for the prospects of Wendt.

Against this backdrop, shareholders may retain exposures though they may have to show the patience to hold the stock through a period when it trades in a narrow band.

This will be the case, especially if the choppy conditions in the stock market continue. But we believe that the payoff from holding this stock over a two-year period will compensate for the risks involved.

The manager to the offer is DSP Merrill Lynch. The offer closes on November 5.

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