Will Novartis, BASF delist successfully? SMS Global answers

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Will Novartis, BASF delist successfully? SMS Global answers

Novartis India surged by 11.78% on the stock exchanges on Monday amid reports that its promoters may buy rest of the shares of the company and delist from the stock exchanges.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets Novartis India BSE | NSE 01/01/70 Are Mutual Funds betting on Novartis India? Other Stocks in this news BASF India | Fresenius Kabi Oncology | INEOS ABS (India) |

A few of the individual midcap names have been buzzing for the last few days, including some candidates for delisting, usually MNC companies. There have been a few off late and there are more which the market is speculating about.

Novartis India surged by 11.78% on the stock exchanges on Monday amid reports that its promoters may buy rest of the shares of the company and delist from the stock exchanges.

For the delisting to be successful, Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities Limited said, the promoter needs the response of at least 13.58% in reverse book-building. The current promoter holding is at 76.42%. "The chances of delisting going through successfully are very low," he said.

Along with it, BASF India shares also shot up by 8.29% to Rs 636.80 and Fresenius Kabi by 3.35% to Rs 132.75 on the exchanges on talks of delisting.

The chances of delisting are quite high as far as Fresenius Kabi is concerned, said Thunuguntla as the promoters already hold 90% of the stock and require only 5% more to conclude the delisting.

"As far as BASF India is concerned, for the delisting to be successful, the promoter needs response of at least 16.67% in reverse book-building," he said adding, "The wide spread shareholding will make it difficult for the delisting to be considered successfully."

Another stock where chances of delisting are quite low is Ineos ABS (India) said Thunuguntla. "The chances of delisting going through successfully are quite low considering the wide spread shareholding of the company in the hand of retail investors," he felt.

Below is a verbatim transcript of Jagannadham Thunuguntla's interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. For complete details watch the accompanying video.

Q: Let us start with Fresenius Kabi. There has been a lot of rumour going around in the market. Do you think it fits the bill?

A: It seems like of all the delisting candidates that are there in the expectation of the market, Fresenius Kabi are fitting to be a likely candidate where delisting can successfully go through. 90% held by the promoters, and 10% is outside. So, technically 5% response should come in the reverse book building; that is a decent percentage that can be expected in the response. But, having said that, the price at which it is trading, the share price is on the fundamental basis is appearing to be an expensive bet. But, as you know, the delisting, how it happens, that naturally there will be enthusiasm. But of all the companies Fresenius Kabi is like candidate, where the delisting can successfully go through.

Q: It is Novartis which was really excited yesterday and expectation of some kind of delisting. How does the ratio work there?

A: I believe it may be slightly over enthusiasm from the market. In the sense, a promoter is holding about 76.41%. Even if he has to bring down to 75%, it will be a lot more logical and easier to reduce its stake by 1.4% and reduce it to 75%, instead of going all the way and completing the delisting. Even if he tries to bring the delisting, the chances of delisting closure is very, very less. In the sense that retail holding it substantially high, not even a single holder holds about 1% or so. In that, hardly any other large holder holds any meaningful stake. Retail holding is about 18%. All in all, I believe Novartis delisting to be completed is very less chance. Most likely Novartis will choose a choice of reducing the stake back to 75% instead of going all the way and completing the 100% delisting.

Q: What about Ineos ABS, where the promoters hold 83%? Would you rate the chances as higher?

A: Again probably if they choose for going for the delisting, again the chances of completion are very less. Again the retail holding is the culprit. In the sense, again widespread holding. In the anticipation of delisting already the share price has went way above the reasonable valuation levels. Currently the PE multiple itself is around 17-18 times, may be it may sound extensive in that sense. So, all in all Ineos also may slip; in the sense, delisting may not be able to close.