10 of 12 OFS stocks have underperformed the markets

Out of the 12 companies that raised funds via this route, six stocks are trading up to 46% higher, while four stocks have recorded negative returns

Ten of the 12 state-owned companies that have raised money through the offer-for-sale (OFS) route in the past have seen their stocks underperforming the markets. Of these, stocks of six are trading up to 46 per cent higher, while those of four — Hindustan Copper, NTPC, NMDC and MMTC — have given negative returns.

In contrast, the gain for the BSE Sensex has averaged around 49 per cent since these offers.

State Trading Corporation of India (STCI) and India Tourism Development Corp (ITDC) are the only two that have outperformed the market, gaining 150 per cent and 86 per cent, respectively.

Mayuresh Joshi, vice-president (institutional), Angel Broking, explains: “Companies like Oil and Natural Gas Corp (ONGC) and Rashtriya Chemicals and Fertilizers (RCF) had regulatory overhang. ONGC still has the overhang of how the subsidy sharing will pan out. At a fundamental level, if crude oil prices sustain at these levels, the realisations for ONGC might get capped. The government is probably trying to create a mechanism where the reaslisations do not get capped if the oil prices stay between $50 and $60 a barrel. Similarly for RCF, the urea subsidy remains a crucial issue, affecting stock performance.”

Between 2012 and 2014, the government had raised about Rs 40,000 crore through stake sale through the OFS route. Steel Authority of India Ltd (SAIL) and Hindustan Copper raised money twice, according to data available with CapitalinePlus.

The government had mobilised about Rs 12,767 crore though the ONGC stake sale towards the end of February 2012. The stock is trading at Rs 354, a 22 per cent gain over the floor price of Rs 290 a share, compared with a 67 per cent rally in the Sensex since then.

Oil India, National Aluminium, National Fertilisers, RCF and SAIL are among those that raised money in 2013 and are now trading eight to 46 per cent higher than their respective offer prices. In December last year, the government again raised Rs 1,720 crore through a sale of stake in SAIL, at Rs 83.26 a share. The stock is currently trading at Rs 78.95 a share, five per cent below the OFS price.

Stock strategy
On Wednesday, the government announced a 10 per cent stake sale in Coal India through the OFS route. The government also plans to pare its holdings in ONGC, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) at a later date.

As regards Coal India, most analysts see this as a good opportunity for retail investors to buy the stock. The possibility of an interim dividend in February is an added advantage, they say.

“Disinvestment of a five to 10 per cent stake in CIL has been a lingering overhang on CIL’s stock, on account of the government’s aggressive disinvestment receipt target in its annual Budget, more so after the Securities and Exchange Board of India’s (Sebi’s) recommendation that all listed companies, including public-sector undertakings (PSUs), must achieve and maintain a minimum public shareholding of 25 per cent of issued capital, within three years,” Nomura’s Anirudh Gangahar and Archit Singhal said in a report, while maintaining a ‘buy’ rating on the stock.

“As has historically been the case, we believe CIL may well consider declaring an interim dividend next month (perhaps in line with its earnings in the December quarter of this financial year). As investors who buy Coal India shares in the coming OFS would be allocated shares on February 2 or 3, the prospects of an imminent interim dividend (Rs 15 a share in our earning forecast for 2014-15)  might well act as a sweetener,” they add.

Angel Broking’s Joshi maintains the long-term prospects of these disinvestment candidates remain good, especially at a time when the economy is taking a turn for the better. Retail investors, he says, should use the government’s OFS programme to buy these counters, provided there is clarity on regulatory issues.