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PSU disinvestment: Govt plays it safe

To avoid repeat of ONGC kind fiasco, govt sets Hindustan Copper share auction floor price at 41% discount to market

Palak Shah  |  Mumbai 

After the fiasco over share sale of Oil and Natural Gas Corporation (ONGC) in March this year, the has softened its stand over the pricing of its share sales.

The floor price for sale of government's 4 percent stake in state-run was set at Rs 155 a share today. This is at 41.79 per cent discount to company's current share price at Rs 266 on the stock exchanges, which is a steepest discount the has offered ever for selling its stake in any company. The offer for sale will open on Friday.

Experts say, this floor price may ensure that the issue sales through and create a feel good factor in the stock market too. The is planning share sale in Oil India Ltd and NMDC by December 20.

The offer for sale (OFS) had to be bailed out by Life Insurance Corporation (LIC) as other institutional players stayed away due to higher floor price. Then, the had set the auction floor price at three per cent premium to its market price at Rs 290. Also, issue size was around Rs 12,000 crore while the will raise Rs 574 crore by selling stake at floor price. LIC had put in around Rs 12,000 crore to buy 400 million shares and he market price of has still not come close to Rs 290.

The share price of rose 16 per cent in intra-day trade today as markets were aware that would announce auction floor price for share sale in company.

"The floor price for set by the is a fair value price. The share price has seen sharp rally in the past few months as the company has very little floating stock -- 0.41 per cent -- in the market and large proportion of that too is controlled by few players," said independent equity advisor SP Tulsian.

has issued over 925.2 million shares out of which only 3.7 million shares are traded in the market. The owns 99.59 per cent stake in the company and rest is divided between seven institutional players, two trusts, 842 corporate bodies, 27,772 retail investors and 300 non-residential indians.

This is not the first time that has said they would dilute their stake in The share price of the company had seen a massive rise between December 2011 and February 2012 when had announced that they would sell stake in but nothing materialised and share price fell. The share rose from a 52-week low of Rs 146 on December 20 to touch a high of Rs 320 on February 2. Only last week the share was traded at Rs 222 and has been rising in anticipation of announcement.

Tulsian said, the few players who control the free float of are playing the counter and keeping the company share price high. "The fair value for is around Rs 150 and that too is mainly because the company has a copper mine."

The counter saw a spurt in traded volume on BSE and NSE a couple of days ago and volumes were double of the fortnightly average volumes in the counter.

The copper prices are down over 6 per cent since October. At the current market price of Rs 266 a share, trades at 76 times its 2011-12 earnings per share (EPS), say analysts. At Rs 155, trades at at 47 times its trailing four-quarter EPS, which may still be expensive to global standards.

Hindustan Copper’s first half results saw company's net profit fall by 13 per cent even while its revenue rose by 10.8 per cent to Rs.596.4 crore.

First Published: Thu, November 22 2012. 19:51 IST