Aashish Tater website www.fortunewizard.com

Downgrade the stock as strict avoid from investment angle

Dear Subscriber,

Our old recommendation PTL Enterprise has seen some development which is negative for small shareholders. The company is planning to hive of its Hospital business for 180 odd crores which we feel is atleast at 50% discount to fair value including the debt. Now the returns have started flowing in from hospital business and management wants to hive off the division for meager 181 crores of equity value.

This could lead to serious downgrade for the stock as the promoter move is unfriendly for retail holders. We have seen such development in the past, has lead to serious stock correction. Considering such a scenario we advise exit from the stock and an avoid rating for some time as we would like to see move of share holders how they approach the matter and whether they take it to SEBI and appeal against the resolution that destroys the valuation for PTL small shareholders.

Overall we advise to exit the stock even if the stock sees 10% + correction from here on. Such moves have always led to value loss for shareholders in the medium term.

Attaching old note for reference but now it will command a PE of 5-6 times as the move will be seen negative by markets,

Rating Downgrade to SELL target revised to N/A from 45-55

PTL Enterprise is an Apollo Tyre associate company and is sitting on valuation of one forth to its derived fair value. The risk gets mitigated with the fact it’s a consistent dividend payer over the years and now the dividend is expected to rise substantially. The rental income of this company is 40 crores. The company entered into a contract with ATL for 8 years for lease agreement which is expected to get renewed in 2014, we expect 35-50% rise in rentals and approximately, 40 percent rise in PAT on standalone basis to 25 crore and dividend expected to increase anywhere between 1.5 to Rs 2. Thus, at current market price the stock is expected to give dividend yield of 7.5 percent. The company has leased out 32 acre land in Kalamassery Kerala approximate land bank value 15 crore per acre. Apart from the land bank lease rental the company owns Artemis Hospital whose valuation is more than the current market capitalization

Hidden Gem: Artemis hospital existing capacity of appx 350 beds expected to increase over 550 beds by next year. They had expanded by 47 beds last year in Dwarka. The hospital chain clocked revenue of 219 crores vs. 192 crores last year and generated a cash profit of 9.76 crores. This has been a turnaround year for the hospital and now bottom line will add to PTL consolidated results.

The conservative valuation of the hospital is approximately 460 crores valuing at just 1.35 crore per bed and adjusting for the debt of 125 crores. The value for shareholders is approximately 335 crores. There has been talks in the past that company was offered 2 crore per bed capacity valuation by some leading players which are valued 4-5 crore per bed but the management refused the 600 crore valuation as per the market sources. Even if one ignores the buzz the most conservative valuation the subsidiary valuation is bigger than EV of the company

The lease rental which the company generates is appx 40 crore per annum from next year the company will generate rental of 40-60 crores depending where the agreement will be reached. The debt of the company in last two years have reduced by 70 crores in 2011 it was 199 crores which will save a huge interest outflow and thus generate higher PAT in years to come. At this run rate we expect the company on consolidate basis to become debt free by 2016.

Considering a value play we feel adding subsidiary value to shareholders at 335 crores and value of land bank on rentals approximates at 288 crores. The fair value to equity is 630 crores against current market cap of 135-140 crore. Given the conservative approach of valuing the company at 0.6 times to fair value on conservative ground we arrive at TP of Rs 55.

PTL Enterprise
Details / Particulars / Valuations
Land bank value discounted / Conservative Mkt value 32 acre total appx Rs 15 cr per acre / 288 crores
Hospital Artemis & related diagnostic centre + Dwarka / 347 / 468 crores
Total Valuation / 756 crores
Less Debt / 125 crores
EV for Shareholders / 631 crores
Discount model @ 50% / 315 crores
Discount model @ 60% / 378 crores
Current Market Cap / 138 crores
Upside range ( Target Price) / 45-55
Promoter holding / 74.92%

Disclaimer: Aashish Tater is an equity analyst and investment consultant based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at . This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article. Safe to assume stock recommended to clients.