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Katalyst Wealth

Nov 8, 2021 • 12 tweets • 3 min read

#delisting 🧵

A thread on delisting based special situation opportunities in India and how to play them in 2 ways:

- Just after the company announces delisting offer
- after the delisting fails

So, making money in stock markets is about recognizing patterns

Finding the ones which work and then investing whenever an opportunity with a similar pattern emerges

With respect to delisting, there are 2 patterns we believe work

First one is just after the delisting is announced by the company

We have discussed this through multiple cases and you can read about (4 cases) them in our presentation, 6th page onwards - katalystwealth.com/2021/10/21/spe…

Important learning:

- Avg. timeline - 3-4 mnths
- Decent absolute returns, though exit needs to be timely and not at the very end
- Aim for smaller consistent gains than max. possible returns in each opportunity
- MNC delisting's have a better track record

2nd way one can make money in delisting opportunities is after the delisting fails:

Our observation - every time a company comes up with a delisting offer, one can expect something positive to happen in the business/sector in 2-3 years.

In fact, a failed delisting can throw up a good investment opportunity because correction, post a failed delisting, usually marks the bottom of the stock

Examples - Allcargo, Vedanta, Ineos Styrosolution, Linde, etc

Why does the above strategy work?

Well, when the promoters come up with a delisting offer, they have to buy shares from public shareholders. Unlike IPOs, at the time of buying shares, they would like to pay the lowest possible price

Thus, most of the time promoters come up with a delisting offer when the industry cycle is down or when their recent performance has been bad but they expect a major improvement going forward

We observed the above pattern in several cases like Vedanta, Ineos Styrosolution, Linde, etc.

In fact, we made use of this to our advantage in Allcargo by not selling when the delisting failed and adopting a trailing stop loss strategy.

On 13th Sep'21 Allcargo informed exchanges about the failure of the delisting offer

Stock opened 7% lower, but soon recovered and closed 2.5% down indicating strength in the stock despite the adverse news

We asked our members to hold on to the stock with a trailing SL of 210

Recently the company announced good set of results and the stock has shot up to 348

Other cases - Ineos Styro delisting failed in Jul'20. Stock corrected from 870 odd levels to 500 odd levels and since then has recovered to 1500 with major improvement in operating performance

Linde India delisting failed in Jan'19. Stock corrected from 780 to 420 and since then has moved up to 2,500 with major improvement in numbers

Disclosure: This is not a reco to buy/sell stocks mentioned above. Allcargo recommended to members at 124 and still on. RA doesn't hold

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