Piramal Enterprises: No windfall gains expected for shareholders

Company will look to re-invest the money, so special dividends for shareholders is unlikely

Piramal Enterprises' decision to divest its entire equity stake in Vodafone India Limited has brought some life to its stock prices that have been underperforming the Sensex for some time now. The stock has seen upmove of more than 9% in last two trading sessions and trades at Rs 574 levels now. However, analysts feel that the upside from here on may be limited as benefits from the stake sale get factored in.

Piramal is selling 45.42 million shares representing around 11% stake in Vodafone India Limited to Prime Metals Ltd, an indirect subsidiary of Vodafone Group Plc, for a total consideration of Rs 8,900 crore, valuing the shares of Vodafone India at Rs 1,960 per share. This marks handsome returns of 52% on Piramal’s investments of Rs 5,864 crore in two tranches during the financial year 2011-12.

The company’s approach post the sale of its pharmaceuticals formulation business to Abbott has been very clear, to employ the cash in opportunistic investments. The investment by the company in Vodafone was also on the same lines. The company’s investment in Vodafone was a calibrated move and the company ensured not only the returns it would be getting but took assurance from Vodafone too. So to that extent, the stake sale and the returns the company has got has not come as any surprise, feel analysts.

The company after booking profits on the investments in Vodafone will thereby be looking at some other investment opportunity to deploy these funds. Thus there is very less chance that the company will distribute any special dividends to its shareholders.

Says Phanishekhar, fund manager at Angel Broking that this is not a one-time activity where after booking profits the company will distribute the same to shareholders. Instead it will re-invest the same into other opportunities. A similar view is echoed by Kunj Bansal, Chief Investment officer and Executive Director at Centrum Broking. While Kunj does not see any major dividend payout, he adds that most listed ventures or holding or other such companies have not seen major sustained upside in their stock prices post such events.
 
Many such investment companies as Bombay Burmah Trading Corporation limited or Tata Investment Corporation Limited have not given any outstanding returns to their shareholders, feel analysts.