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| Elnet tech IT park |
Article published as on Tuesday, 11th
April, 2020 at 7:48 p.m.
Have
you ever come across any stock with negative enterprise value?
What do we mean by Enterprise Value
(EV)?
Enterprise value is the value used to
acquire whole company considering you have to pay off debts and get cash on its
books.
This is sometimes more preferred as it
takes into account both cash and debt component of the company and gives a
holistic view.
Formula
EV = Market cap + Debt - Cash
equivalents.
In other words when Cash equivalents
are greater than the Debt Component and the Market Cap of any Company it is
known to be Negative Enterprise Value, means you have more than what you value
or pay for.
Considering these conditions and
parameters can you guess or name any such company which has a Negative
Enterprise Value?
Friends here is one, Elnet tech!
(listed only on BSE)
Q) What does it do?
A) It is in the business of renting out
Office spaces through its owned Building in Chennai, It is set up by Tamil Nadu
Government, known as IT park (similar to Nesco), which was built in 2000's to
promote IT development in the state.
Its primary source of earning is rental
income and expenditure is maintenance of building the balance left is net
profit!
Revenue - 21.04 crores (FY18-19
figures)
Net profit -8.41 crores (FY18-19
figures)
Now as per a financials
Let’s calculate our components of the formula.
Year 2018-19 figures are (figures in
lakh INR)
.
|
 |
| financials of Elnet tech |
(1) Cash
and cash equivalents (liquid assets)
Non-current investments
|
|
Financial assets
|
|
investments
|
803.14
|
Other financial investments
|
1039.50
|
(These are liquid investments in shares and mutual funds
respectively, just classified under non-current assets.)
Current assets
|
|
Cash
and cash equivalents
|
155.33
|
Bank
account
|
4218.13
|
Other
financial asset
|
100.20
|
(2)Debt
-
Debt
|
1096.20
|
(3)Now market cap as on 8-April-2020
Equity Capital: INR 4 Crore (40,00,007 Eq. Shares of Rs.10/- Face
Value)
Share price – INR 90.
Market cap INR 36 Crores.
Let’s find Enterprise value now
EV = Market cap + Debt - Cash equivalents.
EV = 3600
+1096.20 - 6316.30
EV = -1620.1 (lakhs INR)
(One can get slightly different values based on minor inclusions and
exclusions)
There you have it!! Isn’t it amazing!?
Let’s understand this situation with an example.
Suppose you go for shopping and see a jeans for INR 200.
And you know there is 200 INR, in its pocket?
Wouldn’t you be amazed at such a deal?
You get jeans with Rs.200 of cash in
its pocket, just for INR.200!?
 |
| INR200 in a Jeans. |
Some
quick FAQ's!
Q) Why is
there debt of 10.96 crores if it has so much of cash?
A) If you
know system of rental business, the landlord takes security deposit, same in
this case also Elnet tech is just taking security deposit as a precaution, its
common practice so nothing to worry about.
Q) How
could it be possible? Maybe it’s just a paper company or its accounts are
cooked?
A) Well
it is a kind of a Semi-PSU, since 26% stake in it is owned by Tamil Nadu
Government through its holding Company ELCOT, so it’s a real company with real
assets, only thing is people are not aware about this company.
Q) If
this company has so much assets and its cash rich why isn’t share price not
increasing?
A) There
are many reasons, few of them are:
1)
People are unaware of this company.
2)
There is limited scope of value unlocking.
Q) Is
value unlocking possible in future?
A) Value
unlocking has not happened till now, maybe with the help of activism it would
be possible in the future!
Yes! It
is amazing but as you have read these FAQ's you would know that following
factors contribute towards negative enterprise value.
· It
has passive business of just rental collection.
·
Value unlocking is difficult.
· Lack
of awareness is what is causing depressed share price.
Few big
positives are, they are generating massive operating cash flow.
It has lease hold land for 90 years starting from 14-January-1999. For which prepayment of 90 years is made in advance.
Plus as
mentioned they have massive cash reserves only on a market cap of 36 crores.
Well
let’s see if any value unlocking takes place in the future.
(Disclaimer-this are my views based on my research and study, and
not necessarily a recommendation)
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