De‐listing Norms : How To Play?
New minimum public shareholding guidelines were issued by Ministry of Finance in June 2010, wherein directive for minimum
public shareholding for all listed private & public sector corporates was issued. As per these norms, all private sector listed
corporates must attain at least 25% public share‐holding while listed PSUs should maintain a minimum public holding of at least
10%. The corporates then were given time of three years to abide by the guidelines. Hence, the deadline for companies to
achieve the stated level of public holding is June 2013. So companies, where promoter holding is more than 75%, are left with ~
17 months to decide whether to go for dilution or delisting.
Considering history, we strongly believe that fundamentally strong MNCs, which do not see any major advantage of being listed
and do not want funds from Indian markets or were forced to go for listing earlier, now may not like to increase public holding
and remain listed and rather utilize this new norm as an opportunity to go for delisting so that they can have better flexibility in
taking business decisions.
Apart from above regulatory incentive, MNCs have following other advantages to go for Buyback:
INR depreciation: INR after depreciating over 20% against USD is still down by 10% at present, which gives MNCs an incentive
The Term Paper on Minimum Wage
Minimum wage is the lowest rate employees may legally pay for an hour of labor (Merriam, 741). The United States has a minimum wage law to guarantee minimum hourly wages and to prevent the exploitation of workers and provide unskilled and part-time workers with a wage floor. People have argues that the minimum wage has become less of a safety net for primary earners in poor families than a floor ...
to go for buyback their shares as their cost will be reduced to the extent of rupee depreciation.
Relatively weak sentiments: The chances of success for delisting become brighter due to moderated expectations for stock
returns and the higher willingness to exit the stock at a small premium to current stock prices.
Relatively cheaper valuations: The case for delisting becomes strong as there has been PE de‐rating and hence fall in stock
prices, thus providing an opportunity for such corporates to buy out the remaining stake with the public at lower valuations.
Sustainable GDP growth: Being second fastest growing economy in the world, India has still long way to go in terms of growth
considering strong in‐built fundamentals such as favorable demographics, savings and consumption. MNCs would always opt
to remain invested in India and increase their size further with 100% ownership to reap full benefit of long lasting profits.
February 6, 2012
1
De‐listing Norms : How To Play?
So, in this study, we have tried to find another likes of Atlas Copco and Alfa Laval out of listed MNC having holding above 75%.
Historically we have seen how effective delisting process led to sharp re‐rating of the stock price.
Alfa Laval vs. Thermax
Atlas Copco vs. Ingersoll‐Rand
Average P/E
Atlas Copco
Ingersoll‐Rand
May’06 ‐ Sept’10
19.4
16.7
Oct’10
20.3
21.5
Feb’11
24.3
17.0
Mar’11
34.0
18.4
Apr’11
38.0
May’11
43.0
Source: BSE, Sushil Finance Research
Average P/E
Alfa Laval
Thermax
May’06 ‐ May’11
19.6
22.0
Sept’11
30.0
12.1
Oct’11
31.0
12.6
20.4
Jan’12
36.0
12.8
18.6
Feb’12
36.0
13.1
Source: BSE, Sushil Finance Research
We have tried to put an analysis of positive impact of delisting on share price. Both Atlas Copco ‐ Ingersoll‐Rand and Alfa
Laval – Thermax were trading at more or less nearby PE multiple for 4‐5 years ahead of delisting announcement. However, it
The Research paper on British East India Company
The British East India Company was the main source of trade between the east and Britain for more that 200 years. I chose to do my research paper on the British east India Company. The British east India Company was the most important of the various East India companies; this company was a major force in the history of India for more than 200 years. Queen Elizabeth I granted the original charter ...
can be inferred from the above tables that post de‐listing announcement by Atlas Copco on 28/10/10 and Alfa Laval on
05/10/11, their stock prices saw very sharp PE re‐rating whereas their peer did not see the same. Also stock price
appreciation for Atlas Copco was 46% vs. ‐8% Nifty, whereas Alfa Laval stock has appreciated by 30% vs. 11% of Nifty.
Another example of the same would be BOC India and Elantas Beck, which saw their P/E re‐rating during falling markets in
the recent past, after delisting announcement came into picture.
February 6, 2012
2
De‐listing Norms : How To Play?
Following is the list of 15 MNC companies, having promoter holding above 75% and offers scope of delisting.
Foreign Promoters’ Detail
MNC Associate
Foreign
promoter
holding (%)
Foreign Promoter’s Name
Listed on
Foreign Promoter’s
Cash Balance (Rs cr)
DE
Astrazeneca Phar
90.0
AstraZeneca
LSE
48986.9
0.57
Novartis India
76.4
Novartis International AG
Swiss Exchange
25213.8
0.43
BOC India
89.5
LINDE group
LSE
7619.4
0.82
Thomas Cook (I)
77.1
Thomas Cook group
LSE
2808.6
1.46
Kennametal India
Ineos ABS (India)
88.2
83.3
Kennametal Inc
Ineos ABS (Jersey) Ltd
NYSE
N.A
509.4
N.A
0.21
N.A
Honeywell Auto
81.2
Honeywell International Inc
NYSE
19301.6
1.26
Elantas Beck
88.6
Altana Group
NYSE
1048.2
0.15
3M India
Sharp India
76.0
80.0
3M Company
Sharp Corporation Japan
NYSE
NASDAQ
16772.8
15506.5
0.49
0.56
Timken India
80.0
The Timken Company
NYSE
2309.2
0.72
Blue Dart Exp.
The Essay on Hedge Fund and Galleon Group
The Galleon Group was a privately owned hedge fund firm that provided services and information about investments. The group was founded in 1997, and attracted employee’s from Goldman Sach’s and Needham & Co. The company made its profit and other companies by choosing stocks carefully. Raj rajaratnam was an analyst for Needham for 11 years before leaving to start Galleon Group, he took ...
81.0
Deutsche Post DHL
DAX
18206.8
0.87
Fairfield Atlas
83.9
Oerlikon Group
SIX Swiss Exchange
3641.7
1.07
Oracle Fin.Serv.
80.4
Oracle Corporation
NASDAQ
66008.1
0.46
90.0
Health care group Fresenius SE &
Co. KGaA
Frankfurt Stock
Exchange
4284.7
0.92
Fres.Kabi Onco.
Source: Company, Sushil Finance Research
February 6, 2012
3
De‐listing Norms : How To Play?
Parents’ Financial Flexibility
MNC Associate
Total Buy Back Amount
needed at CMP (Rs cr)
%of cash needed for
buying stake at CMP
Total Buy Back Amount
needed at 30% Premium
on CMP (Rs cr)
%of cash needed for
buying stake at 30%
premium to CMP
Astrazeneca Phar
416.9
0.85
541.9
1.11
Novartis India
512.3
2.03
666.1
2.64
BOC India
287.1
3.77
373.2
4.90
Thomas Cook (I)
199.6
7.11
259.4
9.24
Kennametal India
51.0
10.02
66.3
13.02
Ineos ABS (India)
‐
1.98
229.0
495.8
‐
Honeywell Auto
176.2
381.3
2.57
Elantas Beck
140.2
13.38
182.3
17.40
3M India
946.1
15.0
5.64
1229.9
19.5
7.33
11.18
4.00
335.5
947.2
14.53
Blue Dart Exp.
258.1
728.6
Fairfield Atlas
43.9
1.21
57.1
1.57
Oracle Fin.Serv.
3450.9
5.23
4486.2
6.80
Fres.Kabi Onco.
165.0
3.85
214.5
5.01
Sharp India
Timken India
0.09
0.12
5.20
Source: Sushil Finance Research
February 6, 2012
4
De‐listing Norms : How To Play?
Valuation Comfort & Institutional Holding
The Essay on India International Management Analysis
India - International Management Analysis I would like to start by saying that India despite it long history gained independence from Great Britain only in 1947. Ever since the country faces different disputes over territory with Pakistan, China and Bangladesh and enjoys massive overpopulation, environmental degradation, extensive poverty, in spite of impressive economic growth in the country ( ...
MNC Associate
5 years
Average
P/E
Trading @
Discount/
(Premium) to 5
years Avg P/E (%)
Institutional
Holding as % of
Non promoters
Holding
Prominent Names
Astrazeneca Phar
17.08
41.39
25.10
Reliance Capital AMC ‐ 1.14%, DSP Blackrock ‐ 0.58%
Novartis India
12.82
0.62
10.00
‐
BOC India
19.94
‐31.80
10.40
‐
Thomas Cook (I)
35.37
51.12
14.20
The India Fund Inc ‐ 1.3%
Kennametal India
15.19
0
15.70
DSP Blackrock Micro Cap Fund ‐1.13%
Ineos ABS (India)
8.35
‐5.51
5.10
Honeywell Auto
17.08
41.39
27.60
‐
Alliance Capital Mgmt‐1.66%, Sundaram Asset Mgmt‐
1.04%, Birla Sun Life AMC‐0.86%, IDFC Mutual Fund‐0.5%
Elantas Beck
14.82
‐74.29
12.10
3M India
29.17
‐1.17
48.50
ACACIA Conservation Fund LP ‐ 2.04%
Sharp India
‐
‐
0.05
‐
Timken India
18.25
‐0.55
24.30
DSP Blackrock‐1.04%, SBI Funds Mgmt‐0.96%, UTI AMC‐
0.9%, HDFC AMC‐0.79%, Goldman Sachs‐0.35%
Blue Dart Exp.
21.47
‐48.53
43.50
SBI Mutual Fund under various scheme ‐ 4.51%, IDFC
Premier Equity Fund ‐ 2%,UTI AMC‐0.3%
Fairfield Atlas
15.06
53.25
30.90
Oracle Fin.Serv.
20.65
49.78
39.80
Fres.Kabi Onco.
27.03
26.16
26.70
Reliance Capital Trustee‐5.51%
Prudential ICICI‐1.56%, Templeton AMC‐1.15%, Reliance
Capital AMC‐0.81%, Blackrock Grp‐0.58%, HDFC AMC‐0.28%
DSP Blackrock‐0.76%, Reliance Capital AMC‐0.43%
Source: Sushil Finance Research
February 6, 2012
5
De‐listing Norms : How To Play?
MNC Associate Cos’ Detail
5 years CAGR ROE
of Sales (%)
(%)
ROCE Cash Bal
D/E
(%)
The Term Paper on Gateway Of India
The Gateway of India is a monument built during the British Raj in Mumbay (formerly Bombay), India. It is located on the waterfront in the Apollo Bunder area, South Mumbai and overlooks the Arabian Sea. The structure is a basalt arch, 26 metres (85 feet) high. It lies at the end of Chhatrapati Shivaji Marg at the water’s edge in the harbor of Bombay. It was a crude jetty used by the fishing ...
(Rs cr)
MNC Associate
CMP
Astrazeneca Phar
1652
15.6
41.3
58.9
62.7
0.0
Novartis India
649
8.3
22.5
35.1
11.8
0.0
BOC India
318
18.0
7.5
9.3
46.3
0.1
Thomas Cook (I)
Kennametal India
Ineos ABS (India)
Honeywell Auto
42
821
595
2384
10.2
9.4
10.8
18.2
26.1
21.3
16.6
31.0
16.0
31.9
25.8
40.6
184.8
20.0
64.3
162.6
0.5
0.0
0.0
0.0
Elantas Beck
1528
13.1
22.8
33.7
9.5
0.0
3M India
Sharp India
Timken India
3496
29
219
21.1
‐8.0
14.0
21.8
1.2
16.3
33.7
3.2
24.2
43.7
0.2
6.7
0.1
0.4
0.0
Blue Dart Exp.
1665
17.3
20.4
30.6
37.7
0.0
Fairfield Atlas
100
16.7
27.8
13.4
7.4
0.6
Oracle Fin.Serv.
2097
8.1
18.9
20.3
2884.7
0.0
Fres.Kabi Onco.
99
9.6
10.2
11.8
241.7
0.3
History of Delisting
Tried volunteer delisting in June 2010 at Rs 586/share but
failed to get proper response.
‐
Tried for delisting in Jan 2011 at Rs 225/share but failed
due to insufficient response. Reverse book building price
discovered at Rs 600/share.
‐
Applied in Jan 2011 at Rs 514.98/share but got failed.
‐
Tried twice, once in Jan‐10 at Rs 219.1/share & another at
Rs 330/share, but failed in both the attempts. Discovered
price through reverse book building at Rs 600/share ,
which was not accepted to the promoters
‐
‐
‐
Tried for delisting in August 2006 at Rs 550/share, but
failed to get proper response.
The Term Paper on Information Technology 8
Advancements in information technology have had many great benefits on society. It has revolutionized the phase of business and living around the world. Information Technology has made Local businesses become international due to a simple website. Information technology (IT) is the use of computers and telecommunications equipment to store, retrieve, transmit and manipulate data. The term is ...
Attempted for buy back in July 2007 at Rs 81/share but got
failed.
Came out with open offer in Dec 2006 at Rs 1475/share
and upward revised at Rs 2100/share, but did not get full
success from I‐Flex share holders to tender their share.
‐
Source: Company, Sushil Finance Research
February 6, 2012
6
De‐listing Norms : How To Play?
We have used promoters holding equal to or above 80% as a primary filter, which removes 3M India, Novartis and Thomas cook (I)
from our list. We have then further selected 7 companies out of 12, using 7 secondary filters with different weights, which are as
follows:
Criteria
Weight
Reasoning
Parent D/E or equal to 15%
20%
15%
To measure comfort of parent to go for delisting considering
strong return ratios & profitability.
To measure comfort of parent to go for delisting considering
consistent growth.
Institutional Holding as % of Total Non‐
Promoter holding > or equal to 25%
5%
To measure Minority shareholders comfort
Past attempt by Parent to delist Indian
entity
20%
To understand mindset of promoters and their willingness.
Source: Sushil Finance Research
February 6, 2012
7
De‐listing Norms : How To Play?
Based on the above seven filters coupled with score of 65 out of 100 as cut off point, we have come out with following seven
companies:
Rank
1
2
3
4
5
6
7
Name
AstraZeneca Phar
Blue Dart Exp.
Kennametal India
Honeywell Auto
Fairfield Atlas
BOC India
Oracle Fin. Serv.
Score (%)
100.00
90.00
80.00
70.00
70.00
65.00
65.00
1
Exceptional Rank
3M India
80.00
Source: Company, Sushil Finance Research
Though 3M India was not part of study amidst promoter holding less than 80%, it scores exceptionally well at 80 out of 100,
so we still consider it as one of the strong contender for delisting.
February 6, 2012
8
Research
Kartik Mehta| +91 22 4093 5093
SALES
Devang Shah | +91 22 4093 6060/61
Ruchita Kapoor | +91 22 4093 5088
Disclaimer:
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requested to use the information contained herein at their own risk.
This report has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description
of the securities, markets or developments referred to in the material. The information, on which the report is based, has been obtained from sources, which we believe to be
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February 6, 2012
9
