PSU divestment: To buy or not?

According to stock brokers,retail investors have a likeness towards the public sector companies due to their perceived stability because of the government ownership. Official statements reveal that the equity dilution for Nalco will be to the extent of 12.15 per cent,MMTC 9.33 per cent,Oil India 10 per cent and Hindustan Copper 9.59 per cent.

SHOULD YOU INVEST?

Dipen Shah,Head-Private Client Group Research,Kotak Securities,says  there are three parameters based on which the retail investors should take their investment call.

The overall macro scene and the fundamentals of the industry in which the company is operating.

The valuations at which the offer is being made.

Discount,if any,if the company is already listed. The recent issues from the government have offered a 5 per cent discount.

The follow-on public offers FPO of NTPC and REC in 2010,had failed to excite the retail investors much. One of the reasons,according to market experts,was their aggressive pricing. Apart from the fundamentals of the business,the pricing of the issue plays an important part in deciding whether one should invest in an FPO or not.

Prithvi Haldea,MD of Prime Database,says pricing is the key and one should look at the discount available on the current market price of the stock. If the issue price is closer to the prevailing market price then secondary market could be a more prudent route towards investing in these stocks.

Sandeep Nayak,ED and CEO of Centrum Broking,is bullish on these stocks. The metal sector offers,if priced appropriately,would result in huge capital appreciation for the investors over the next couple of years. Likewise,Oil India is also poised to do very well given that the world economy is limping back to normal with monetary intervention to stimulate demand in weakening economies.  The operating performance of these PSUs compares well with peers and some of them are leaders in their sector, he says.

For long term,investor should look at the merit of each stock,rating by rating agencies etc,and then look at investing.  Of the 4 stocks,we have a positive view on Oil India and neutral view on Nalco, says Rikesh Parikh, VP Equities, Motilal Oswal Securities.

There have been cases when there was a lot of noise about a particular offering and post listing,investors suffered huge losses.

Investing just because your neighbor is doing it,or you believe in the hot tip you got on a website or television show can be dangerous.

Kapil Narang,COO,Ameriprise,says that investors should see if they really believe in the core business of the company as the key reason to buy into any company is its strength and quality of business. Those interested in investing in any of these companies must have a hard look at their respective businesses along with financials before putting their hard earned money to risk.

OIL INDIA

In 1981,OIL became a wholly-owned government enterprise. It is engaged in the business of exploration,development and production of crude oil and   natural gas,transportation of crude oil and production of LPG. The authorised share capital of the company is Rs 500 crore. Governmentcurrently owns 78.43 per cent and after disinvestment,its stake is likely to come down to 68.43 per cent.

As on quarter ended June 2012,the earning per share EPS of OIL stood at 15.47. The paid-up capital of the company is Rs 601 crore. OIL reported revenue of Rs 2,439.63 crore while its net profit stood at 929.93 crore. The market cap as on September,28 stood at Rs 29,425 crore.

NALCO

Incorporated in 1981,as a public sector enterprise of the government,the Odisha based National Aluminium Company Nalco is Asia8217;s largest integrated aluminium complex,encompassing bauxite mining,alumina refining,aluminium smelting and casting,power generation,rail and port operations.

Currently,Nalco has an equity capital of Rs 1,289 crore. After divestment,governments stake would come down from 87.15 per cent to 75 per cent. As on quarter ended June 2012,the EPS of Nalco stood at 0.87. It reported revenues of Rs 1,748 crore while its net profit stood at Rs 223.08 crore. The market cap of Nalco as on September,28 stood at Rs 13,182 crore.

MMTC

Established in 1963,MMTC,one of the two highest foreign exchange earner for India and is a leading international trading company with a turnover of around 10 billion. MMTC is major global player in the minerals trade and is the single largest exporter of minerals from India. It is the largest non-oil importer in India.

The offloading of equity in the commodity trading company MMTC,with a paid-up capital of Rs 100 crore,will bring down governments stake from 99.33 per cent currently to 90 per cent. In the quarter ended June,2012,MMTC reported revenue of Rs 5,323.24 crore while its net profit stood at Rs 12.06 crore. The EPS of MMTC stood at 0.12. Its market cap as on September 28,stood at Rs 76,065 crore.

HINDUSTAN COPPER

It is a public sector undertaking incorporated in 1967. It has the distinction of being the nations only vertically integrated copper producing company as it manufactures copper right from the stage of mining to beneficiation,smelting,refining and casting of refined copper metal into downstream saleable products. The company markets copper cathodes,copper wire bar,continuous cast copper rod and by-products,such as anode slime containing gold,silver,etc,copper sulphate and sulphuric acid. More than 90 per cent of the sales revenue is from cathode and continuous cast copper rods.

The governments stake in Hindustan Copper,post-disinvestment,will come down to 90 per cent,from the current 99.59 per cent. The equity capital of the company is Rs 462.61 crore. In the quarter ended June 2012,the company reported revenue of Rs 313.76 crore while its net profit stood at Rs 48 crore. The EPS of Hindustan Copper is Rs 52. Its market cap as on September 28 stood at Rs 24,337 crore.

While a state owned company does give a sense of stability,you dont need to buy a stock just because its a PSU FPO available at a discount,experts advise. It is also critical to see your overall asset allocation and risk profile. If you already have enough equity exposure,you may choose to stay away from investing in these FPOs.

ritukant.ojhaexpressindia.com