Widely read:
After Tata Consumer Products, Vikas Lifecare is on an acquisition spree. It just spent a whopping Rs 757 crore on acquisitions.
But this is something many businesses do. True. Businesses acquire other businesses, and acquisitions help expand the company's operations quickly. So, what got us curious? Well, Vikas Lifecare, a polymer compounds manufacturer and trader, has acquired businesses that are poles apart from its normal operations. It's like Microsoft suddenly deciding to buy out Louis Vuitton.
Intriguing, right? Let's dive into the quirky details.
Event management extravaganza
First up, Vikas Lifecare is acquiring a 50 per cent stake in PME Entertainment for Rs 100 crore. This Dubai-based event management company is known for organising concerts and events. It even holds the bragging rights of being the organiser of the Miss World Competition for the next three years.
Polymer to parties, sounds wild, right? Hold onto your hats because it gets even wilder!
Clubbing with SKY 2.0
Next, Vikas Lifecare is set to acquire a 60 per cent stake in SKY 2.0 for around Rs 657 crore. And what's SKY 2.0? Only the biggest nightclub in the Middle East and Asia! That's right, Vikas Lifecare is now a part-club owner.
These acquisitions not only seem to make less sense business-wise, but they seem to make even less sense financially.
The acquisitions cost 79 per cent more than Vikas Lifecare's entire assets and over double its net worth. They paid for these through share swaps, a strategy where the company exchanges its own shares for the ownership of another company, a move that could potentially shrink the promoters' 11 per cent stake in the company. They also recently raised about Rs 50 crore through a QIP (qualified institutional placement).
That said, this isn't the first time Vikas Lifecare has made some head-scratching acquisitions.
A history of eclectic shopping
In FY20, they bought the recycled and trading compounds division of Vikas Ecotech, a same group company. But then, they took a wild turn into cashew nuts manufacturing the next year. Yes, cashews!
They didn't stop there. They acquired Kohinoor Foods for Rs 250 crore, which is in the business of manufacturing and sale of food products such as basmati rice and wheat flour.
And as if that wasn't enough, they jumped into a joint venture with Indraprastha Gas to set up a smart metre plant.
Vikas Lifecare also has an infrastructure division! Plus, until FY20, it was also present in the real estate business.
Conclusion
Vikas Lifecare is present in more industries than some renowned conglomerates. The venture into the entertainment industry is part of the long-term plan to diversify its business portfolio. However, consistency isn't their strongest suit, and their financial disclosure has been, let's say, 'creative'. For example, they conveniently didn't mention the revenue for their agro-products division (their biggest revenue contributor) in their September 2023 results.
Talking about the financials, it has been a roller coaster with lacklustre profit growth and even worse capital efficiency. But surprisingly, the stock gave a one-year return of 71 per cent and a one-month return of 52 per cent as of January 25, 2024. This puts Vikas Lifecare in the league of stocks rising in the recent bull run, despite having fundamentals as sturdy as a house of cards.
A note for investors
Don't get dazzled by the big acquisitions. Stocks like Vikas Lifecare can skyrocket and plummet just as fast. It's a classic case of price momentum, a concept we're diving into in the next edition of 'Wealth Insight'.
Also read: Tata Consumer Products' acquisition spree
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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