What makes Tide Water Oil an attractive bet for investors

It's a hugely profitable company and the equity base is small, making it a takeover target, says an investor

The open offer from Standard Greases & Specialities for Andrew Yule group company Tide Water Oil Company (India) is the culmination of a seven-year interest.

Standard Greases started buying into the public sector company in the October-December quarter of 2008. It picked up a 12.22 per cent stake when the stock was hovering around Rs 3,000 a share. On Tuesday, the company launched an open offer for 26 per cent of Tide Water Oil's equity at Rs 16,632 a share, totalling to around Rs 376 crore, and spurring a renewed interest from investors. The stock closed at Rs 17,636 a share on the BSE on Wednesday, up 3.46 per cent from the previous close.

It is not clear why Standard Greases made the open offer, though the company's joint managing director and founder, Vinod Vyas, has said it's to consolidate its holding, which was at 24.93 per cent and close to the Securities and Exchange Board of India's threshold limit of 25 per cent, which would have triggered an open offer.

In 2008 when Standard Greases picked up stake in Tide Water Oil, it might have done so keeping the possibility of disinvestment in mind. Around that time, the ministry of heavy industries had given the nod to disinvestment of the company.

Tide Water Oil chairman Kallol Datta, however, said disinvestment was not on the radar right now. "It is not required."

However, Standard Greases is not the only company to take an active interest in Tide Water Oil. Much before it bought into the Andrew Yule company, Kolkata-based Keventer group was acquiring its shares. At one point, Keventer had a 20 per cent stake in Tide Water. Keventer finally exited towards the end of 2013 when the stock was around Rs 7,000 a share.

But it was in the early months of 2014 that the stock was re-rated and steadily climbed to Rs 10,000. By the beginning of 2015, it was at Rs 18,000-levels. What made Tide Water such an attractive bet for investors?

Datta says the company has been on an upswing. In 2011, the firm expanded its global footprint with the acquisition of Veedol International from Castrol and Lubricants UK, wholly-owned subsidiaries of BP Plc. The acquisition brought it global rights to a wide portfolio of registered trademarks for brand, Veedol.

"We are now in Europe, Middle East, America, Canada, Turkey, Taiwan," pointed out Datta. Tide Water Oil is likely to clock in a turnover of Rs 1,500 crore by the end of the financial year. In FY15, it had net sales of Rs 1,034.95 crore. There are other sub-brands such as Prima, Turbo and Take Off.

According to an ICICI Bank research report, the company, which is into automotive and industrial lubricants, has an extensive distribution network with 50 distributors and 650 dealers servicing around 50,000 retail outlets. The network is fed by five plants and 55 depots located strategically across the country. Tide Water also has a technical collaboration with JX Nippon Oil & Energy Corporation.

"It's a hugely profitable company. The equity base is small, making it a takeover target. At the end of the day, even if it's a government company, it's subject to regulations under company law," an investor explained.

Tide Water Oil's net profit in FY14 was at Rs 64.80 crore, which increased 144.68 per cent to Rs 158.55 crore.

Plus, Andrew Yule, which is 88 per cent owned by the government, has only a 26.22 per cent stake. Datta, however, is deriving comfort from the fact that domestic institutions Life Insurance Corporation of India and United Insurance have a combined holding of 11 per cent and Tide Water Oil Employee Welfare Trust 2.46 per cent. "We have an agreement with them," he said.

For potential acquirers, the comfort is the equity base of 871,200 shares.