Mangalore Chemicals and Fertilisers Limited, a company belonging to Vijay Mallya is in the news. There was a stake purchase by friend SarojPoddar in Mangalore Chemicals through Zuari Industries of roughly 10%. This stake was of Vijay Mallya’s pledged shares to SBI. Then in the beginning of the month Deepak Fertilisers bought 24.46% of the equity of the company at a weighted average price of Rs 61.75.

There seemed to be a lull for the next 10 days or so and then Mr Poddar and Zuari were back in action buying around 42 lakh shares or 3.5% at around Rs 61 per share. What is interesting to note is that the shares owned by Vijay Mallya are now less than those owned by Deepak Fertilisers. Secondly the bulk of the shares owned by Vijay Mallya are pledged and therefore the company ownership has become vulnerable.

What’s at stake? The ownership of the company and the importance of the same for Deepak Fertilisers is that this becomes an entry for the company into the Southern states where they are not currently focused or present. Second is the fact that the company Mangalore Chemicals has surplus land which allows the company to expand its existing capacity and the plant has made changes to accept a dual feed of natural gas and the present feedstock of napha. The plant’s location on the port makes material handling economical and effective.

Zuari would like to leverage the friendship between the promoters and if necessary act as the white knight in the whole deal. Trading today saw the stock locked at the upper circuit and volumes on the NSE was74.30 lac shares while on the BSE it was 16.77 lac shares. Delivery volume and who the buyers and sellers were would be known later but very clearly in a dull market which seems to be going nowhere inspite of the heightened volatility, this scrip is a stand out.

The share price is at Rs 68 which means a PE of 12.10 times based on its EPS of Rs 5.62 for the year ended March 2013. The share is certainly not cheap when compared to its peers like Chambal Fertilisers a company promoted by Zuariand Deepak Fertilisers who happen to be the players in the probable take over drama. Deepak Fertilisers had an EPS of Rs 16.66 for the year ended March 2013 and at its current price of Rs 96 is available at a PE multiple of 5.76 times while Chambal Fertilisers with an EPS of Rs 7.34 and a market price of Rs 37.65 trades at a PE of 5.13 times.

There is a fight likely to brew over the control of the company and as long as the fight continues there would be action. However the market price is already too high and the PE more than expensive considering and taking into account that there is a battle on hand. There is a premium for blood and control but what happens when the blood is of the investor. Be cautious and take informed decisions on a scrip which is becoming interesting but frightfully expensive.