Tread with caution

While the new takeover code proposals are positive for the markets, don’t expect immediate gains, say experts.

The recommendations by the Securities and Exchange Board of India’s Takeover Advisory Committee are undoubtedly good news for the markets on various counts. This is also reflected in the markets' positive reaction, with many stock counters having witnessed an increased activity. However, there is a need to be cautious.

Says Ambareesh Baliga, vice-president, Karvy Stock Broking: “The markets are assuming that these entities (large non-promoter stakeholders) will come forward and raise their shareholding up to 25 per cent, which may or may not happen. The other assumption the market is making is that the code will be effective sooner than later.” Investors, thus, need not jump the gun.

We look at some of these companies, which have a single non-promoter entity holding between 10 and 15 per cent, have a market capitalisation in excess of Rs 100 crore and which have risen three per cent or more since Friday’s closing. We spoke to market experts on the rise in the share prices and the way forward. Read on.

EIH: The recent upward price movement could be the result of the Street's expectation that ITC may increase its stake to 24 per cent, believe analysts. While the EIH management has made it clear that it has no plans to sell out, analysts feel that prices could move up if ITC ups its stake. The increase in occupancies, the company’s plans to double its capacity over the next five years and the fact that the sector has seen a revival over the last two quarters are positives for the stock.

Gati: Analysts believe there is little impact of the code, though the stock has run up. Rival logistics players may not be interested in Gati’s express cargo business, given that the segment is dominated by unorganised players. Though the pick-up in industrial and economic activity should help the company, its revenues in the last two quarters have barely moved. Analysts advise investors to wait for growth in revenues in the June quarter, before considering an investment.
 

TAKEOVER GAINS
Company	Shareholder  (non-promoter)	Stake (%)	Price ^	% chg	Promoter’s stake (%)
Shiva Cement*	ACC Ltd	14.34	10	21.3	28.75
Viceroy Hotels*	Jhunjhunwala Rakesh Radheshyam	10.02	54	10.6	32.08
Gati	Infrastructure Fund of India LLC	12.30	73	7.1	49.04
Kalindee Rail*	L & T Capital Company	13.66	141	5.0	16.03
Syndicate Bank	LIC of India	11.04	104	5.0	66.47
Petronet LNG	GDF International	10.00	85	4.6	50.00
Himadri Chem*	Citigroup Venture Capital Int'l	12.29	521	3.8	44.63
EIH	ITC Ltd	14.98	127	3.4	46.43
Sical Logistics*	IDFC Pvt Equity Fund II	13.28	74	3.3	42.66
Sesa Goa	Franklin Templeton Inv. Funds	10.00	352	3.0	55.73
*Shareholding as on March 31, 2010 whereas it is June 2010 for others ^Price in Rs as on June 20, 2010; change is over Friday (June 16) closing                    Source: BS Research, Capitaline Plus

Himadri Chemicals: While venture capital firms Bain Capital and Citigroup Venture Capital own 39 per cent in the company, the investments, analysts believe, are financialand strategic in nature and may not lead to management control-related issues. The company had a good FY10 as well as June quarter, with revenues growing 35 per cent and profits doubling on a low base.

Kalindee Rail: The recent rise in stock prices is due to positive expectations from the June quarter. Though L&T has a 13.66 per cent stake in Kalindee and promoters only 16 per cent, analysts say this is a strategic investment and there might not be a change in management. Given the higher allocations in the rail budget and improving order book position and execution, especially in the March quarter, analysts are bullish on the stock.

Petronet LNG: Uncertainty in diesel policy is bringing interest back to gas suppliers. The reason behind Petronet LNG inching up in the last few days can be attributed to improving fundamentals (on track expansion of its operating capacity) and partly to the takeover code proposals. While business prospects look healthy, a leading research house is also positive on the stock.

Sesa Goa: Analysts believe the new code could be a small reason for the rise in the stock price. More than that, there has been buying interest in metal stocks recently. While the June quarter results were good, the markets remain watchful about the direction of iron ore prices, which is difficult to predict currently. While iron ore prices have been volatile, the view on future prices is divided.

Shiva Cement: The jump in Shiva Cement’s stock is both due to good June quarter results and the new takeover code. While ACC’s shareholding is consequent to a marketing alliance between the two companies since 2007, analysts say Shiva Cement’s in-place tie-ups for raw materials and location benefit could have attracted ACC. The cement over-supply situation will keep margins of producers (and stock prices) under pressure in the medium-term.

Sical Logistics: The company has been struggling with high debt and, so, has been looking at various asset sales over the last two years. Last month, it divested its 27 per cent stake in Chennai International Terminal. The revival in industrial activity should help grow its revenues, which fell 11 per cent quarter on quarter for the March quarter.

Syndicate Bank: Mid-cap banks have been in the limelight for some time now and this is why Syndicate Bank has risen smartly in the last three days. While the new takeover code is positive, its impact is expected to be marginal on the bank as stakeholders would need RBI permission for any major increase in their holdings. Positively, the business environment is improving and should provide support to banking stocks.

(With inputs from Sarath Chelluri)