Follow up on the Infomedia ltd arbitrage

April 8, 2006

I had a look at the AR of infomedia to figure out what could be the downside risk to the arbitrage opportunity I discussed in my previous post

Following are my observations/ conclusion from what I read in the AR

  • Infomedia is a fairly profitable company with a networth of 155 cr and a cash and equivalents of 126 cr.
  • The company has a Return on capital in excess of 30 % (invested capital net of cash, net profit excluding exceptional items)
  • The company is a zero debt company and is does not have a very capital intensive business.
  • The net profit growth in mid to high single digits (7-9%).
  • The publishing/ printing industry is growing at a moderate rate ( 8-13 % on avg – see macmillan performance which has a similar business as Infomedia)
  • A fair valuation would be around 16-20 times free cash flow. Currently the free cash flow seems to be around 7-8 Rs / share. I would at best value the company at 160-180 Rs/share. So at 210 the company seems to fairly valued. Defintely not a long term buy at the current prices

So if I put the price after the buyback at around 180-190, the annualised return seems to be around 30%. Ofcourse the post-buyback price is just a guess on my part.

I still need to find how tendering of the shares is done? Does the company send some documents to the investor and is the investor supposed to fill up some papers to tender his shares? If anyone knows how the process works, please let me know or leave a comment.


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