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.
