Mumbai: Brokerage firm KR Choksey Shares and Securities believe that the present scenario offers the perfect opportunity for investors who are looking to diversify their wealth into mid and smallcap stocks.

KR Choksey expects a huge upside in Pilani Investment and Industries Corporation Ltd. The group has consistently rewarded its shareholders with a strong dividend track record for the last ten years.

Pilani Investment is the holding company for Birla Group. Birla promoters (BK Birla and KM Birla) are backed by a strong legacy and adherence to high standards of corporate governance. The current market value of Pilani’s investments in listed companies alone is worth Rs approximately 7900 crores, excluding real estate holdings. Given its small equity base of only 79lakh shares, its resulting in a NAV of above Rs 9500 per share. The share is currently trading in the range of 2300-2400 with a 52 week high of Rs 2465. The current market price is around 55% of its should be the market price (based on its EPS136.15 and Industry P/E 30.68 whereby its market price should be Rs 4200/- approximately). The current market cap of Pilani Investments is approximately Rs1900 cr i.e. a whopping 75 percent discount to its NAV.

A Buyback is ideally suited for Pilani Investments as per the brokerage firm, it being a holding entity for the Birlas, there is no requirement to utilise its cash for business purposes. Also, it would serve the purpose of rewarding the shareholders akin to Tata Investments. It would also improve its financial ratios and reduce the discount over its share price. With its market cap at a 75 percent discount to the NAV a 10 percent buyback at Rs3500-4000 per share would require an allocation of Rs280-300cr.

With the asset strength of Pilani Investments, the funds for such a buyback is surely not an issue. In case of a 10 percent buyback, the NAV per share would see a jump of 7-8 percent for the residual shareholders at Rs10000- 11000 range per share. The buyback would also convey a positive message to its equity investors in turn boosting the stock price and reducing the subsequent discount currently observed between the market cap and the NAV.

Apart from participating in the buyback, the residual investors could also see a subsequent value unlocking in the future. With the end of litigations over a portion of shareholding of Pilani Investment appearing imminent, there is a strong possibility of value unlocking of assets or monetisation of land/real estate In case of any such value unlocking, the entire investors of the Company could stand to benefit. Thus a buyback for Pilani Investments would prove to be a win-win situation for the management, small investors who choose to participate in the buyback as well as the residual investors who choose to remain invested post buyback.