Updates On NOVARTIS

We have seen promoters going public by diluting part of their stakes in their closely held companies, which keep primary market moving. But, due to market giving poor valuations to the listed ones, no one is really keen to go public and we are seeing virtually a non-existent primary market. However, some small issues keep coming, which infact, is killing it further.

Due to pathetic valuations existing for major listed companies, many cash rich promoters are keen to delist. We have seen these moves having been initiated by the promoters of PSI Data and Madras Aluminium while Novartis and Matrix Lab is in the process of doing it. Companies like Ingersoll Rand and Lotte India are doing it in a phased manner.

We see share price shooting up the moment such move is proposed by the promoters.Madras Aluminium touched its 52 week low of Rs. 35, on 24-11-08 and finally discovered a delisting price of Rs.115, on 20-3-09. A rise of 230% in less than 4 months.We may see many companies waiting on the sidelines to do so and prominent amongst them could be Oracle Finance and Blue Dart.

The arguments by the promoters , going in for delisting, are that, in view of a holding of 75% or more by them in the company, they are prohibited to buy anything more , inspite of good growth visibility and rich assets value, which otherwise is not recognised by the market .In such a scenario, they have no other option but to go for delisting .It is also planned by them that once the capital market , especially primary market revives, which is bound to happen in the next 5 years ,the promoters may plan to divest a minor stake at much higher and better valuations. In the interim period , the company also saves on compliance costs and issues.

We are seeing share price of many companies ruling at close to 10% to 20% of its IPO price, inspite of rich asset quality and good growth pipeline .Realty stocks are some of them. The problem of these companies is not of solvency but of liquidity, which is temporary in nature and would get corrected over a period.

There are many stocks which are now ruling at a market capitalisation, lower than the cash and listed investments held by the company. The core business comes absolutely free. Even there are pseudo realty companies having quality realty assets located in Tier I cities having present value of close to 5 times of its market capitalisation.

Hence, delisting can be a trigger for the market to move up or even shareholders of such companies should take a fundamental call on these stocks and can hold, instead of taking a value call on them, based on day to day market price.