Smartlink Network Systems has said it will sell its Digilink business to Schneider Electric India for Rs 503 crore in cash.
The Digilink operations consist of passive networking business including the manufacturing, marketing, and sale of structured cabling products.
Aashish Tater of Fort Share Broking in an interview on CNBC-TV18 spoke about SmartLink Network and the latest buzz surrounding the stock.
He clarified that this was not a stake sale but more a business sale on a slump sale basis. This means that SmartLink promoters are selling out their key business but are not selling any stake of the company to Schneider Electric which would warrant an open offer. So there is no open offer deal coming from minority shareholders.
Below is a verbatim transcript of his interview with CNBC-TV18’s Udayan Mukherjee. For complete details watch the accompanying video.
Q: It is not the entire company which has been sold at a premium. It is a business which accounts for 90% of the revenues. What does it mean for shareholders because there will probably not be any open offer? Do you think the cash which is coming in will find its way to the shareholders of SmartLink?
A: This particular move from the promoters to sell their flexi brand Digilink is not going to benefit the small shareholder in larger terms because the small shareholder might get a special dividend of close to Rs 8-10. That is why we have actually downgraded the stock. When I recommended the stock around the Rs 70 mark I had a target of Rs 150 for the stock from a two-year perspective.
But now we feel that this will not reward any open offer and not reward small shareholders. I feel for an Rs 8-10 dividend, the profit should be booked from current levels. People should move to some other interesting stories.
Q: We do not know clearly how much stake is up for grabs from Schneider Electric. How would you approach the company if indeed someone like Schneider comes in as a majority partner in SmartLink?
A: I was always bullish on this particular company. But I don’t think the company promoters would sell their stake but are only going to sell Digilink. The recent announcement that the company has made is clear that they are going to exit the business. Now shareholders will be left only with the cash in the balance sheet.
Apart from the marketcap, they are going to get Rs 503 crore. They also own Rs 90 crore of mutual funds. That means a cash equivalent of Rs 600 crore on a marketcap of close to Rs 270 crore. But the promoters need to come and clarify as to what kind of business they are trying to enter into.
If I see the latest annual report that was available in the public domain, they wanted to foray into voice data and internet cable. They have been procuring orders from government and the education space under their flagship brand Digilink which will now go to Schneider. I do not think that Schneider will participate with SmartLink promoters but they would foray into the company separately.
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