Blue Star Infotech – A raw deal for shareholders ?

I would like to write in detail about how shareholders got a raw deal by Blue Star promoters but does not deserve so much time being spent on it. 

Very recently the company sold the IT Business at 180 cr. The company will now merge with Blue Star Limited.

Lets look at the announcement which was posted on BSE.

Blue Star Infotech and Infogain Inc. Join Forces with a Vision to Become the Next Digital Transformation Global Technology Leader

  • The announcement seems as if they did something great for shareholders 🙂 !!! After the company being sold to Infogain how does it matter to a shareholder what they end up doing or they become the No 1 in the world.?
  • This sentence by the CEO & MD clearly has no mention of shareholders.

“The IT industry is evolving as never before, and we are excited by the opportunity to offer our clients and employees increased scale of operations as well as broader capabilities including next generation technologies”, says Sunil Bhatia, CEO & MD of Blue Star Infotech.

The CEO has 5% stake in the company acquired through ESOPs at much much lower levels. He may further get ESOPs with the new company too 🙂

Look at these nos.

  • Topline of 260-270 cr on consolidated basis - Sell a company at 0.7 times sales. ?
  • PBT = 24 cr and PAT from IT biz would be 17 cr. -- Selling a company at 10 times ?
  • The company scaled up growth in last 2-4 yrs with new CEO but no premium in the valuation for it ?
  • Profit growth of 70% last 3 years --- Was this a dressing up of the bride for marriage ?

Unless there is some hole in the reported earnings which we do not know about , think this is a raw deal handed to shareholders.

Bottomline - Many Indian promoters over the years have handed such a raw deal to shareholders, i pray that this trend changes in the future.

#Disclosure - The stock was recommended in our Analyse India Big Value 2 product at 140 in May 2014. Half thq quantity was earlier sold at 215 and rest at 210 recently post announcement of this deal.

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