Should investors look for potential delisting stocks?
In this issue:
» Will the US economy rebound?
» Iron & steel tops list of restructured debt
» Will India be able to unlock its demographic dividend?
» Is India's rural demand slowing?
» ...and more!
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The webinar answered questions that could be troubling any Indian Investor today. Where is the Indian Economy headed in 2012? Is Gold still a good investment? Could the Stock Market touch the 21000 figure in 2012?
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And let's understand what lies ahead for India and how could this impact your investments.
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While the IPO (initial public offering) market has dried up, the markets are abuzz with delisting offers. As you may know from the term itself, delisting means a listed company removing its shares from trading on the stock exchanges. There can be several reasons why companies delist their shares. In general, companies delist when companies don't need further capital, or when they want to expand or restructure, or are acquired by others, or promoters want to increase their stake, etc.
Walt Disney has put forth a delisting offer for UTV Software shares with a price band of Rs 835-1,000. Similarly, companies like Khorakiwala family-owned Carol Info Services, Japanese auto component maker Exedy India, Sweden-based parent's Indian unit Alfa Laval India and Patni Computer Systems have all announced plans to delist their shares from the Indian stock markets. In the coming months, several other multinational companies (MNCs) are expected to come out with their delisting offers.
It goes without saying that the stock prices of all the above mentioned companies have sky-rocketed in recent times and are trading at a significant premium to either their floor price or offer price. Many investors find such delisting opportunities a lucrative way to make quick bucks. So would it be a wise strategy to invest in potential delisting candidates? Though there is no denying that investors have made handsome gains on these stocks in the short term, we would suggest investors to refrain from making such speculative bets. The announcement of delisting offers usually attracts a lot of speculative interest. Stock prices tend to shoot above the roofs and investors anticipate even higher premiums by promoters. But you cannot ignore the high amount of risks involved. As per regulation, a company seeking to delist has to buyback more than 90% of its total outstanding shares. For any buyback to be successful, both promoters and investors have to agree on a price. If the investors demand too high a price and the promoters don't agree, they are free to call off the delisting offer. What would happen to the stock price then? They would come crashing down and leave a lot of investors with burnt fingers.
We believe serious long-term investors should keep away from such speculative bets. Instead, stick to the fundamentals of value investing. Buy great businesses at a discount and you are pretty much on your way to a good fortune.
Do you think it is wise to invest in delisting candidates? Share your comments with us or post your views on our Facebook page / Google+ page.
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Chart of the day | |
Data source: CDR Cell Data as at end of Sept 2011 |
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But wait? We seemed to have looked only at the positives. What about the accounted and the unaccounted for deficits the US economy will continue to face and also the needless wars that it keeps going into. Besides, the housing sector is not completely out of the woods yet. Thus, as can be seen, there are just as many wealth-destructive forces lying in wait as there are wealth-creating for the US economy . And hence, years of below par growth may not be a very bad option to consider rather than being a total optimist or a total pessimist. What say?
02:53 |
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The statistics so far are not encouraging. India has a higher education gross enrollment ratio of only 12.4%. The remaining 87.6% drop out at various points in school. Only 2.5 m out of a total of 7 m that reach class XII go on to a university. The reasons for this largely depend on affordability and accessibility. There is no doubt that investments will have to be made into education although the stretched finances of the government raise considerable doubt about whether it will be able to do so. But it goes without saying that rising unemployed youth is a dangerous trend that could lead to great unrest of the kind we recently witnessed in the Middle East and so it is not an issue that the government can ignore for long.
03:43 |
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The 230 Hariyali stores have a presence across the states of Punjab, Haryana, Uttar Pradesh, Uttarakhand, Madhya Pradesh, Rajasthan, Maharashtra and Andhra Pradesh. Hariyali Stores typically sell agri-inputs, cattle feed, FMCG products, plastic furniture, automobiles and services such as banking and crop insurance. As per data from Hariyali Stores, there has been a general slowdown in rural purchases including staple food whose off-take is in lower quantities.
However, not all data points to a rural gloom. For example, there has been no slowdown in growth of ITC's Choupal Sagars which are large-format rural malls with 24 stores. The Choupal Sagars have operations in Uttar Pradesh, Madhya Pradesh and Maharashtra. Even market survey conducted by market research agency IMRB (Indian Market Research Bureau) quelled fears of a slowdown. As per the survey which was conducted across 30 product categories, the rural FMCG market grew 10% by volume and 12% by value during the period January-October 2011.
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04:45 |
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6 Responses to "Should investors look for potential delisting stocks?"
Manoj
Dec 11, 2012If we suspend our belief in perfect markets, a proti-making company should not be allowed to delist unless the promoters and majority of shareholders agree. Then too, regulator should force promoters to buy out all small investors (shareholders) at prices which are higher of (a) market price (b)issue price+interest. As I see it, the promoters raise capital from the market and invest. After this the market exists to equalize the power of big and small shareholders. Just because a company has been profitable, and profits distributed selectively through accounting, should not give a right to the promoter to cheat other shareholders out of their right to earn proportionately. Similarly, promoters of unprofitable company should never be allowed to delist without a stringent audit of how investors money was employed.
sunilkumar tejwani
Jan 16, 2012the best way to make money will be to invest where there are chances of a DE-listing but so far the company has not announced any such plans, but provided the current valuations are reasonable enough, so as to make the best out of it.Whether the company intends to buy back or not, the earnings growth should compensate/ give better returns in the short to medium term. Although this is a guessing game but not too difficult to spot such companies which are potential candidates for a De listing offer. Especially multi nationals where the parent companies hold more than 65 to 75% & which have a strong earnings (huge piles of cash) sitting on their books.It is foolhardy to buy where the De listing offer has already been made & the stock prices are quoting near or above the offer price.
Srinivasan
Jan 16, 2012Sir,
you are right in that the stock prices are likely to come down crashing if the delisting plans do not go through.
however, this is only one aspect to the whole scheme.
if you notice carefully most of the delisting candidates, if not all, are well run MNC companies with good balance sheet, consistent profit making, dividend paying and well managed ones.
if one can take a small exposure commensurate with one's risk appetite in such companies way prior to such delisting plans then the portfolio suffering due to risk of price crash is minimal indeed.
kind regards
Shiva Prasad
Jan 16, 2012I think it is a good idea to identify MNC stocks where the parent is holding more than 75% of equity and wait patiently for delisting. Normally, the dividend payout during he waiting period is between 4 to 5%. Further, these stocks don't tank more than 10% during the downturn.
Vishal
Feb 10, 2014We Buy Delisted / Unlisted / Physical Shares, Kindly Contact If anyone Want to Sell It. Vishal 097260 56080