I was surprised to find there was no thread on Daikaffil Chemicals or on Open Offer Investing, so I thought I just make one myself. This presents details on Open Offer Investing as well as my thesis on Daikaffil Chemicals with the anti-thesis and risk factors.
Open Offer Investing
One of the interesting methods of investing which I’ve learnt off late is open offer investing. This term refers to a regulation which requires any company that has acquired more than 25% equity in a business to necessarily launch an open offer for 26% of the equity. This regulation is meant to protect small shareholders and ensure they get a fair deal if a takeover takes place.
I learnt about open offers from @Tar in his Wrap subscription and also he was the first person to cover this idea.
Open offers are inherently slightly messy, so you have to leave behind he traditional ways of thinking about and valuing businesses and focus more on three objective factors:
1. Who is acquiring the business: What is their net worth and related businesses
2. What do they intend to do with this business and why are they acquiring it: What are the future plans and how will that lead to alpha creation
3. How long will this transformation really take
I’ve participated in 5 open offers, and I’ve only been successful with at least three of them: the open offers of Windsor Machines, Popees Cares(Archana Software) and Daikkafil. Other open offers have generated returns, but they have not been as sustainable. Here’s a list:
Daikaffil is a stock which has already doubled from my first buying price and on my average buying is up by 50%. However in this correction, I am aiming to add more to the stock and just wanted to lead VP through my thesis on it once.
TLDR: I also made a video on Daikaffil which you can watch on 1.5X to just get through this quicker. It is linked here: ;t=561s
So lets just dive into this thesis:
1. Background on the Open Offer
2. Triggers and Potential Thesis
3. Upside Assessment
4. Risk and Antithesis
Background of Players: There are two major players in this open offer and their background is summarised below:
Essentially Heranba Industries which is a Agro chemical player engaged in manufacturing intermediates and formulations has acquired Daikaffil Chemicals at a price of 38.5 Rs.
Heranba’s core business is pretty cyclical and it has been their aspiration to start a CRO/CDMO business which is more structural as revenue.
Apart from core cyclicality, Heranba has also had several corporate governance issues in the past which have meant that it has always traded at a poor multiple as compared to other agrochemical companies. The details of this are highlighted in the VP thread of Heranba here:
Heranba Industries Untested - but worth a good lookHeranba Industries Ltd, incorporated on March 17, 1992, is a crop protection chemical manufacturer, exporter & marketer based in Vapi, Gujarat. It manufactures intermediates, technicals and formulations. Its one of the leading domestic producers of synthetic pyrethroids such as cypermethrin, alphacypermethrin, deltamethrin, permitherin, lambda cyhalothrin, etc. IPO in Mar 21 was oversubscribed more than 80 times. It has three manufacturing facilities in and around Vapi with a capacity of 14,024…
Daikaffil was a shell company listed on the exchanges that owned a strategic plant in MIDC Tarapur, near Palghar.
Further their plant is extremely close to manufacturing locations of UPL, Aarti Pharmalab etc
Heranba sought to acquire this company to get access to the plant at a much cheaper price by buying the promoter stake in the company.
This sheet shows the timeline of the open offer, Heranba’s Wholly Owned Subsidiary, Mikusu acquired 48.5% of the stake of Daikkafil off the market for 7 Cr and post this, they gave an offer for other equity.
In Novemeber, they shared a plan divided into two phases on what they want to do with the business. Since Sep 24, the promoter has continuously been buying shares in the company and they have acquired 2% of the company.
The open offer is being done as discussed above to start a new CRO kind of business for the purpose of which the company has sanctioned 50 Cr for repairs of the plant and has stationed 30 scientists in the new entity.
There are three major triggers in the business:
*** The phase wise plan that has been shared**
*** Continuous promoter buying**
*** Entry of major shareholders**
Let’s dive into them one by one
The company shared a two phase plan on how they will develop the plant for Daikkafil. While the first phase will all be about setting up the place for production, the second phase is set to expand the capabilities.
I’ve summarised the plan in a tabular format below:
Further, my sense is that once the basic lab and its amenities are in place, Heranba will then look to get more funding for this business and grow it more rapidly in the coming few years.
The promoter has bought equity worth 2.91 Cr in the business which is about 1.82% of the company, starting from September 24 till December 24.
I am also attaching a table summarising the buying below:
Sourced from The Wrap tools by @itstarH
Several good investors, like Sandeep Kapadia have entered into the business and have bought stakes in the business. Uday R Shah is another prolific investor who has bought in his own account as well as for his son
Sourced from Screener
These three make me feel that there is a disproportionate upside possibly in this business which can be utilised. This is extremely risky, but I suppose I really want to take the risk here.
To assess the upside, if you look at any CDMO, CRAMS company, you’ll see that they trade multiple times of their netblock.
Syngene for example trades at 20X their netblock. Syngene is the best CRO business in India, so we can assume a 2X-5X netblock kind of multiple, reasonably.
Till now, Daikkafil has put in a netblock of about 50 Cr in the business, if this is accelerated, and the company puts in more than this money which they would, considering the next phase is now lined up, the valuations and the company can move into a completely different orbit.
However, even with the current 50Cr net block, the company is valued justly at 150 Cr right no
If this goes anywhere, literally the sky is the limit. However it might take an entire cycle of 3-4 years for this to actually fructify.
So I am willing to be patient here.
There are four major risks in the business:
According to Perplexity, even before the promoter buying in Septermber-December 2024, the promoter owned more than 80% of the business
Screener reflects otherwise, it says that the current stake is only 49%
If the perplexity bit is correct, the company may well be on its path to delisting.
Since this is a much higher quality business than the one being run by Heranba, I’m not sure how well the investors in Heranba would take it that Daikaffil will now have all their scientists, they might push for some kind of amalgamation which will disrupt the thesis again.
Till now, this seems like a completely hope driven story. And I understand the pitfalls of falling into the trap of something like this, but I want to practice a kind of investing where Heads I win big and Tails and I don’t lose much and this company fits into that model. However for a conservative investor, this doesn’t make as much sense.
I would really like it if more senior members can comment on this or if other contributors add more to/critique the story.
If you want to learn more about open offer investing, I’m also linking my X posts on the Open Offer of Sir Shadi Lal here: x
12 Likes Shubham96 2I have been struggling to figure out what kind of CRO business Daikafill does. Not all CRO is good CRO, Take solutions is one of those examples where it failed as their nature of contracts changed suddenly - from the functional service provider (FSP) to the FSO model… also due to the nature of CRO it was in which was hyper competitive… due to this smaller CROs sometimes perish, syngene is on a whole other level of ops
3 Likes DeveshGaur 3I don’t know as much about the different kind of CRO businesses so it can be a big learning here. I’m just sharing a document which details the description by Heranba for their business.
But it does seem like this is all generic information for no
70dd49c6-7752-4f80-bdc1-3f6d3571ee64.pdf (1.8 MB)
2 Likes Shubham96 4No worries Devesh… been scratching my head here too as the oppurtunity seems interesting… thanks for bringing the idea to the community
1 Like DeveshGaur 5Also, I interacted with an investor who claimed to have spoken with the management team about their work, I’m just sharing the notes they shared with me:
Notes from management interaction:
PS : Currently no manufacturing with Daikaffil at all. Just an admin bldg which they will use for R&D to start with. No interest in Daikafil’s old pigment & chemical business. Will be in Agrochem space only.
Intention is to create value in Daikkafil is what they clearly said. Not to milk it.
5 Likes vada_buffet 6Very interesting write-up and thanks for introducing the concept of open offers.
Sorry if I missed it in your post but how do you track when a company acquires more than 25% equity in a business?
1 Like ganesh_bastwadkar 7So you can also open thread for Popees Baby care.
DeveshGaur 8Thank you!
So whenever a company acquires more than 25% of a business, an open offer gets triggered automatically. This is based on SAST regulations of SEBI.
This is in Daikaffil Chemicals case.
image910×325 45.7 KB
So you don’t need to track the equity stake but have to just wait for this announcement.
Attaching the pdf of the full open offer here too.
9689950f-16e8-42bf-a0b0-f97e8d047517.pdf (1.0 MB)
Usually, some insiders know about this before hand so price starts reacting. There is probably a volume based screen you can create to identify these before the takeover but otherwise its not possible to do this.
2 Likes vada_buffet 9Thank you for the explantation. I also just signed up for a trial of The Wrap after you mentioned it in your post and it looks like we can track these types of filings from TheWrap Insider data tool using the filter “Open Offers or Takeover”.
Another question - did you face any problems with liquidity i.e. are your buy orders going through instantly? Do you place market or limit orders? I checked the volume and on Friday, just 300 shares with traded.
2 Likes DeveshGaur 10Don’t mention it. You can also go through the weekly wraps and the weekly meet ups they do. Special situations are highlighted in detail there.
So liquidity is a problem in this stock. I usually place limit orders and it is also a trade to trade stock, so to purchase it, you’d have to place the orders at a certain time.
2 Likes DeveshGaur 11Thank you Ganesh ji for the suggestion, I will try to do that too and link it here once I do.
1 Like DeveshGaur 12Recently, I pitched the idea of Daikaffil to a few more investors. One person whose opinion I deeply respect brought up the following pointers:
I largely agree with both points, and they should definitely inform your investment thesis if you’re considering this stock. That said, here are my counters, focused on tempering expectations while highlighting potential opportunities:
While it’s true that the promoters lack experience in this specific vertical, they do have a background in the broader industry. This can potentially make it easier for them to secure supplier contracts.
The lowest-hanging fruit here is research and manufacturing for Heranba, which could generate stable revenues at the start. That said, I completely agree this is a long-gestation business. In my view, it’s a 4-5 year story before the full potential plays out.
It will likely take time for meaningful changes to transform the business. But that’s where the alpha lies—if you’re willing to deploy your funds smartly, allocate well, and hold on for 4-5 years.
With the recent market correction, don’t expect Daikaffil to hold its current levels; it may go down further. But remember these two points:
I agree that comparing Daikaffil to Syngene is a stretch. However, I believe a good CDMO (Contract Development and Manufacturing Organization) should get at least 2-5 times their net block. If Daikaffil deploys funds further, it could potentially shake things up significantly.
That said, here are some risks you need to be aware of:
Because of these risks, Daikaffil is only suitable for a specific type of investor—someone comfortable with risk and willing to play the long game with tempered expectations. If you can handle the uncertainty, this stock looks like a “heads I win, tails I don’t lose much” situation.
7 Likes DeveshGaur 13Daikaffil Chemicals: SHP Update
Some very interesting changes have taken place in the shareholding pattern of Daikaffil Chemicals, which should be noted and understood:
1. Promoter stake at 51%, this eliminates the Delisting Theory: Promoter has increased shareholding through its entity called SAMS Industries
2. Two popular SME investors have consistently bought and increased stake in the business
Sandeep Kapadia now owns 2.33% of the company
3. New Investor: Amit Chordia and World Foods LLP
The company has found a new investor with Amit Chordia and his company World Foods LLP, they together own more than 2% of the company no
1 Like basumallick 14For such small cos, one should not read too much into shareholding of 1-2% by investors. Most of the time, it is a fractional allocation for them (like spread betting, where they may be putting in a few crs in lots of small cos).
11 Likes DeveshGaur 15Thank you for this message sir. Will keep this in mind. Assuming that one mitigates their risk on companies like with their position size and is aware that they might lose their entire investment, what other information sources can somebody use to understand these triggers better? Have you invested in such companies before, how do you keep a track and look for more reliable information?
I’m asking because if shareholder information isn’t a source of signal as you mentioned, this means a greater level of uncertainty with these plays than I thought about initially.
1 Like basumallick 16In very small cos, especially ones trying to make a turnaround, meeting and understanding the management viewpoint is perhaps very important. Atleast it’s much more important than meeting management of establed cos with proven track records and conducting quarterly analyst concalls.
The reason I am cautiong against using a few individual investors investing a miniscule part of their portfolios into a stock is that you will never know why the person did so.
One option is to also put a very small allocation and start and then see how the business is performing before increasing stake. And as and when the performance improves keep averaging up.
14 Likes HarshVijay 18 DeveshGaur:There is probably a volume based screen you can create to identify these before the takeover
Hi @DeveshGaur, I also had the same question as @vada_buffet that how can we track open offer situations? You said we could also create some volume-based screen, can you please be kind enough to elaborate that?
TIA!
1 Like HarshVijay 19image837×784 123 KB
Also sorry if this is out of context but I need to understand this better. Is this also an open offer (the same kind as in Daikaffil) to Nazara Technologies?
Hi @HarshVijay , I think there are two ways through which you can track open offers:
It is a brilliant data tool which will help you with other things too. I don’t benefit from this in any way but I just think its the best tool out there in the market.
On the volumes screen, I think generally you can look at a few exponential volume screens by searching for them on google and looking at screener and trendlyne results. There will be many such screens.
1 Like DeveshGaur 21Yes so this is an open offer too. So is the open offer that’s going on for Religare. However as a principle:
However when it comes to smaller companies, if a larger company takes over them and uses them in a sustainable way, that can create a huge amount of value and reflect in the shareholder returns.
1 Like