Business as usual

Divestment appears to be back on track

The Union government has once again indicated that it intends to bring the disinvestment process back on track after a lull of nearly 20 months with the Cabinet Committee of Economic Affairs' clearing a proposal to divest 10 per cent stake in Neyveli Lignite and Nalco.

The last notable disinvestment was that of a 5.25 per cent stake in the utility NTPC, via an offer for sale in September 2004.

In FY06, the Department of Disinvestment had raised just Rs 1567.6 crore via sale of shares to public sector financial institutions and banks through the differential pricing method.

The market cheered the announcement as the Nalco stock gained 6.35 per cent to Rs 239.6 on Thursday, while Neyveli rose 16.5 per cent to Rs 66.35.

Except in 2003-04, when the government had raised over Rs 15,500 crore by sale of shares in companies such as Maruti, Gail and ONGC, the disinvestment has only sputtered. Even in 2004-05, the government raised about Rs 2,800 crore.

The government stake in Nalco was 87.15 per cent at the end of FY06, while in Neyveli it was 93.56 per cent. At the current market price, this disinvestment could help the government raise Rs 1350 crore.

These numbers are tiny compared with other big-ticket divestment such as ONGC in the past. Obviously, this move expresses the government's intention to accelerate liberalisation, but it is unlikely that it will be able to do much more considering the political compulsions.

Ciba : Textile blues

Ciba Speciality Chemicals has posted mediocre growth in FY06 with its standalone top line improving 11.3 per cent y-o-y to Rs 624 crore, and operating profit rising 13.3 per cent.

The growth in its speciality industrial chemicals business, where Ciba manufactures additives, base polymers, water and paper treatment chemicals was muted at 5.3 per cent.

Its speciality effects chemicals business, which includes textiles dyes and chemicals, and coating chemicals grew by 16.6 per cent in FY06. Textile effects is estimated to account for about 40 per cent of Ciba's consolidated turnover.

But as a part of the parent's global strategy, the Indian arm exited from the textile effects business for which it would receive Rs 122.5 crore directly and another Rs 43 crore in wholly owned subsidiary Diamond Dye-Chem.

Diamond Dye-Chem did well in FY06, as consolidated sales grew 15.5 per cent and operating profit went up 26.3 per cent.

While the company is expected to see the cash flow from the sale of textiles effect coming in the next few days, its September 2006 quarter will see a dent in top line as the textiles effects business will be transferred on July 1.

Since textiles effects contributes substantially to sales and profits, and is also posting good growth, the market's concern does not seem out of place as the Ciba stock declined 15.3 per cent on Thursday.

The stock price of Rs 295 discounts the FY06 EPS 9.8 times, making it one of the cheapest MNCs based on the P/E multiple.