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IBP: Riding on disinvestment - Views on News from Equitymaster
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  • Oct 11, 2000

    IBP: Riding on disinvestment

    IBP, the pure marketing company, has been gaining ground in the market. The stock is up 33.6% in the last month. It seems to be riding on the expectations of a Government disinvestment in the near future.

    According to the latest announcement the Government is close to putting IBP under the gavel. It plans to divest 33.6% of it stake in favour of a strategic investor. This will bring down the Government's equity holding to 26%. It proposes to divest through the inetrnational bidding route. This will help the Government achieve maximum realisation from the asset sale.

    Company Shareholding (m) No. of Shares Old New
    Government of India 13.2 59.6% 26.0%
    Financial Institutions 5.1 23.0% 23.0%
    Free Float 3.9 17.4% 17.4%
    Strategic Investor     33.6%
    Exp. Realisation from sale (Rs m) 1,081.6    

    The earlier guidelines laid down by the Government permitted private sector entry into retailing of transport fuels only if the entity had invested a minimum of Rs 20 bn in refining activity or in production of at least 3 MMTPA of crude oil. These stipulations are now said to be relaxed to include petroleum infrastructure development companies e.g. pipelines, terminals.

    (Rs m) FY99 FY00UA Change
    Sales 57,322 65,690 14.6%
    Other Income 359 441 22.8%
    Total Income 57,681 66,131  
    Operating Profit (EBDIT) 930 1,065 14.5%
    Operating Profit Margin (%) 1.6% 1.6%  
    Interest 708 703 -0.7%
    Depreciation 167 326 95.2%
    Profit before Tax 414 477 15.2%
    Tax 61 62 1.6%
    Profit after Tax/(Loss) 353 415 17.6%
    Net profit margin (%) 0.6% 0.6%  
    No.of Shares (eoy) 22.2 22.2  
    Earnings per share 15.9 18.7  
    CMP   145  
    P/E   7.8  

    However, certain issues still need to be ironed out. The Government has yet to decide on IBP's subsidiary, Balmer Lawrie. It plans to acquire IBP's stake in Balmer Lawrie and offload the same to either Hindustan Petroleum (HPCL) or Bharat Petroleum (BPCL). These companies, though, are not favourable to such a move.

    Over the last month the oil majors have taken a beating at the bourses, as their earnings have been jeopardised by high feedstock prices and the oil pool deficit. IBP should have suffered similar fate. The disinvestment news has resulted in possible speculative holding in the stock.



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