Over the last year or so, the
market has been on what can best be described as a roller coaster ride, going
up by 500 points one day and down 300 points the next. After crossing 20K, it
again sunk to 18K in a short while and has again managed to come above 19K.
How things move from here will be driven by FII money/liquidity and govt.’s
reforms push which all of a sudden appears to have moved into 3rd
gear.
Amidst these gyrations of the
market, there have been many stocks which though fundamentally good have sunk
to new depths largely due to the news flow surrounding them. Some of them are
MNC stocks which were very much in the news due to being considered as delisting
candidates. However, when the delisting bubble burst due to the unrealistic
expectations of the investors who demanded astronomical valuations defying
economic rationale, and the MNCs didn’t think it worthwhile to pay them those,
a majority of them made a beeline for the OFS route to reduce their
shareholding to 75% or below. Of course a few like Fresenius made a smart play
by doing the OFS at a relatively low price and then 6 months or so later coming
out with an open offer at a substantial premium to the OFS price thereby hugely benefiting the subscribers of the OFS. This also meant that the number of
shares that they had to corner to delist also reduced significantly than from
the last time. While the spirit of law was followed in letter, the spirit was
certainly given the go-by. It remains to
be seen if other MNCs take a cue from Fresenius Kabi and take a similar route
or if the regulator sees thru this smart move and takes some concrete steps to
avoid them.
One such beaten down stock which has become attractively valued now is Styrolution ABS.
This was Ineos ABS earlier and was
considered as a top delisting bet since the parent held close to 87% of the
shares (Parent held 83.33% stake in Dec’11 but made an open offer to the shareholders
@606.8 for balance 16.67% stake but garnered only 4% of the shares making it
87.33%). And it reached levels of 800 at
the peak frenzy. However, as mentioned above, things didn’t quite pan out as
expected and this too went the OFS way to reduce its stake. But the interesting
part is that it priced the OFS at around 410, a discount of 23% to its then
last traded price and @P/E of just around 11, way too low for an MNC stock.
Styrolution ABS is a leading
manufacturer of an engineering plastic namely styrene monomer, polystyrene and
ABS. The company is a 50/50 joint venture between BASF (the German MNC) and
INEOS ABS formed by combining the styrenic business of two of the largest
global chemical companies. In the domestic market, Styrolution is the market
leader and holds 60% market share in ABS resins segment and 68% in SAN resins
segment. And it has an opportunity to reap the benefits of demand supply gap
(met by imports) which has persisted for long and continues to exist. Further,
CRISIL Research estimates that the supply of ABS would grow at 17% CAGR in
order to meet the demand growth of 10% CAGR during CY2010-15E, thus providing
revenue visibility to the company.
As per the public disclosures
made by the company, FIIs predictably have cornered a large chunk of the OFS
shares, squeezing the public shareholding further. So a re-run of Fresenius
story can’t be ruled out.
All in all, extremely cheap
valuations for an MNC company and good future prospects (demand as well as
pricing power being a leader in its segment) make this a reasonable bet even
for a conservative investor. A delisting offer would be an added bonus for this
stock.
SIR,
ReplyDeleteKindly post latest fundamental of Nagarjuna Oil, Electrosteel Steel, are these shares is worth buying at current level.
As far as NOR is concerned, there is nothing wrong with the company even today. As I had mentioned in my post, nothing is expected from this in the short run. Once its refinery is up and running, returns should follow. As of now, the proposed date is Apr '14 and this is already 2 years late. But these things are to be taken in stride going by past experiences of refineries even by the established refiners such as HPCL & BPCL.
DeleteIndia being a oil-hungry country, and with sound promoter backing, this should do well in the coming years post its refinery being commissioned. Chances of MNCs taking a stake is also not ruled out. All that is needed is patience.So all I can say is hold on.
Similar is the case with Electrosteel. The situation for this has worsened over the last year or so mainly due to govt. policies and a severe downturn in the steel cycle. And to top it all, it has quite a lot of debt taken for the plant. So till the economy improves and there is a good off-take of its products, it will continue to languish at current levels. Once the plant is up and running and there is a demand for its products, returns should start flowing.
In the case of both the above stocks, at least another 2-3 years would be required, assuming that the economy improves in this period. Anyone having a holding period of less than this should consider exiting.
Sir,
DeleteBut as far as Nagarjuna oil. There is a issue of corporate governance that oil refinery is under Nagarjuna oil corporaitio limited (NOCL) & what we bought share of Nagarjuna oil refinery limited (NORL). So how NORL is benefitted if refinery is start & generate cash. As all cash goes to NOCL. ( We also heard that NOCL is also isuue IPO but they not comes yet )
NORL is nothing but the listed project of NOCL. And besides Nagarjuna Fertilizers and Chemicals Ltd., the project has among its promoters Tata Petrodyne, Uhde Gmbh, TIDCO (Tamil Nadu govt. undertaking). So I should not worry too much at this stage. As I have said above, the real returns will only come later post the refinery getting operational in the next year or so. So if you can't wait till such time, you can always sell and exit.
DeleteFrom levels of 3-4, NORL has now come to 5.6 riding the market sentiment, still a return of about 40%+, depending upon when u bought it. And it has not even started producing oil.
ReplyDeletePeople who bought at those levels can certainly take some money home and keep the rest for acche din to come.
Styrolutions has also delivered from the date this was written with a return of more than 20% in a year. From a level of about 415 in July ’13 when I last wrote about it, this is now quoting at about 585 @P/E of about 25 which is not really high for a pedigreed MNC stock. And to top it all, it has launched an open offer for delisting @500. Considering the history of past de-listings, and the current floor price, it would be a reasonable expectation that the final price, if the delisting does go thru, would be way above what it is currently.
ReplyDeleteEven @P/E of 30, it should be about 700 which is about 20% from here. And if you consider 35 as a P/E benchmark for delisting, it should be around 800. However, one would be wise to remember that it did reach 800 levels during the delisting frenzy of earlier years (prior to the listing rules change) only to come crashing down to about half when the delisting was called off and they actually sold the excess shares.
Also, the OFS was at 415 which would still give a decent return at the current price.
Consider the arithmetic before taking a call.
Of the total 1.76 crore shares, parent already holds 75% i.e. nearly 1.32 crore shares. Of the remaining 44 lakh shares, all that they need is slightly more than 26 lakh shares. Out of this, MF (ICICI, SBI and Reliance) together hold about 17.5 lakh shares (not sure if they bought these at 400 levels in the OFS). That just leaves less than 9 lakh shares to be mopped up, provided the MF sell their shares at the price they set. Not a difficult task if their FII friends have cornered most of the remaining shares.
So the key is the discovered price and more importantly, its acceptance by the parent.
Styrolutions manufactures engineering polymers of which crude is a key raw material. With crude at its lowest in recent years, and looking to stay at these levels for quite some time, this is one stock which is set to benefit significantly in the period ahead.
ReplyDeleteAlso, the parent Styrolutions holds 75% and Reliance Capital 5.23% for its Small Cap fund which has done exceedingly well in the last few years. Thus the floating stock is only about 20%.
Styrolutions ABS has made 3 offers in the last few years, the last unsuccessful one being at 500 in July ‘13, and has failed in all the attempts. And this offer was made after a successful OFS @415, where no doubt their cronies would have cornered a large chunk only to offer it back to the company when it launches an open offer, and thus helping to make it successful. Unfortunately, none of these plans have as yet succeeded.
With a benign environment, things should definitely change for the better. And a de-listing offer at a good price should be a welcome move as well.