After an ambitious start to sell its minority shareholdings in the Specified Undertaking of UTI (SUUTI) fund in July, the government’s divestment plan hit a road block when it got a tepid response from investment bankers and had to pull back its request for proposal (RFP).
As bidders complained that earlier clause were too restrictive, the government reissued the RFP, and also increased the number of merchant bankers to six from three.
The six merchant bankers — appointed for a tenure of three years — have to help the Centre find buyers for its minority stake in these companies.
First on the plate are the three blue-chip stocks – Axis Bank , ITC and L&T – which contribute to approximately 95 percent of SUUTI’s holdings in value terms.
Judged by the nature of these companies, it is speculated that they will be absorbed by the market but given the current bull rally and the country’s macro scenario, will this be a good time to be gung-ho on these stocks?
Market expert Prakash Diwan is not much upbeat on these three companies as he feels the current prices are fairly reflecting their fundamentals.
“Axis has come up with a poor set of numbers, ITC just scraped through in terms of expectations,” Diwan said on the first quarter earnings result for this fiscal.
Do read the results: ITC , Axis Bank , L&T .
If the overall market mood changes for the worse, these stocks could take a beating, he added.
Also, Diwan feels concerns over supply overhang because of the impending divestment could keep the stock prices in check for a while.
Market expert Hemindra Hazari shares Diwan’s view, and said that the orderbook for L&T is going nowhere, Axis Bank also has problems of asset quality and for ITC, only the cigarette volumes are doing great, whereas, the share price for all these have gone up.
The divestment could likely depress the share price in the short term and it may not hurt to wait a while before buying the stocks
ITC THE LONE WOLF
According to Prakash Diwan, out of the three only ITC shows some promise.
ITC as a stock will see appetite from mutual funds, because the cigarette volumes have increased despite the shutdown and despite not being able to increase prices till May, the company has done well in terms of margins and volume growth, he said.
He feels that ITC appears reasonably priced at 27-28 times one year forward earnings unlike HUL which is trading at 42 times one year forward earnings
The option to buy into these stocks is only good for long term institutional investors and not for individual investors, Diwan further added.
FROM THE GOVERNMENT’S PERSPECTIVE
The government needs money to support the capex cycle in the economy as the private sector is still grappling with overcapacity and excess debt on balance sheets.
Over the last few years, both the UPA 2 and NDA governments have fallen short of their annual divestment target. At times, volatile market conditions were to blame while at other times, investors did not find the target companies attractive enough at the price being quoted by the government.
Revenue from divestment can be used by GoI to fulfill its infrastructure and growth promises.
As per Friday’s closing, the government’s holding in these three companies stood at around Rs 63,413 crore.
ANOTHER LIC BUYOUT?
There have been reports that Life Insurance Corporation (LIC) of India may be asked to buy a chunk of the SUUTI stakes in L&T, Axis Bank and ITC. That could overexpose LIC to these companies considering that it already holds a sizeable stake in each of these companies.
Source: suuti.in, notices, news reports