Investment advisor S P Tulsian sees the divestment of Nalco and Neyveli today, as a positive move. Though on the stock market front, this may not help the companies' valuations, it will push the country's growth, he says.
But Tulsian sees a good appetite for both these companies, once they hit the capital market. "In case of such company where the government has large holdings, we could see the price adjustment also during the offer time, which means share price remains at a lower level. That gives extra 5-7% scope for the acquirer," he explains.
Excerpts from CNBC - TV18's exclusive interview with SP Tulsian:
What would you make of the government's announcement today?
I read this as a positive move. In the last month, when we saw the market carnage, one of the points that the analysts or the overseas investors came with was that there are no moves from the part of the government as a reform process or anything like that.
When we are talking of the stupendous growth for the country and are looking at achieving GDP growth of 8- or 9% plus, I would say that this is a very positive move. But coming on the stock market front, I don't see much happening as regards to valuations of these companies.
So net - net, what does it do for a stock like Neyveli Lignite Corporation or Nalco?
For Neyveli, there is a very low floating stock, though the equity base is very high, about Rs 60-70 crore (Rs 600-700 million). The share is ruling practically at its book value.
Probably after the 10% divestment takes place, the government holding will come down to 84% and in that situation, we could see the interest getting revived. In case of Nalco, I think the valuation of that company is in line with other aluminum companies like Hindalco.
Do you expect to see an appetite for both these companies, when they hit the market?
Definitely. I think there are no problems for established companies. Obviously, we have seen whenever the government has come out with divestment of the existing listed companies, the divestment or the offer is made at a relatively lower price as compared to the market price.
Ultimately, market prices are the benchmark and they have to offer the share at 10-15%. In case of such companies, where the government has large holdings, we could see the price adjustment during the offer time, which means share price remains at a lower level. That gives extra 5-7% scope for the person who acquires it.
So I don't see any problems and a good appetite for both these companies, whenever they come to the capital market.
Do you think the Left parties will let it go through?
If they are shedding 10% and this is a non-strategic sale in non-Navratna companies, then though the Left will protest, this could be on the lines of Mumbai, Delhi airport privatisation, where they have shown their dissent, but finally allowed to go through. I think the same kind of thing will happen here too.
Do you see this as any kind of resurrection of the divestments theme or just an exercise of selling some stocks in a public offer and raising some cash?
This is just to break the ice. I do not see the divestment process getting revived. This could just be a process, where probably one could see a small portion being shed in the other non-Navratna PSUs. But I do not see this divestment process as the strategic sale getting revived.
What might be the next of the block?
It should be Balco and Hindustan Zinc, because of the residual stake sale and the third is Jessop, a company where again the valuation is very low. But those two things are hanging on for quite some time. In case of Balco, the Sterlite Group has already sent a cheque for the residuals stake sale.
In case of Hindustan Zinc also, though the second call option can only be exercised on April 10, 2007, prior to that, the government is again thinking of divesting their holding close to 29% of which 5% has been given to employees.
So they may think of shedding a part of their stake, but that could only happen after consultation with the Sterlite Group, where they have been given second call option under the shareholders agreement.
For more on markets & business, log on to www.moneycontrol.com.
More from rediff