Honeywell Automation perfect case of delisting: SMC Global

Jagannadham Thununguntla, SMC Global, says that Honeywell Automation has the makings of all a perfect case study of delisting case. The only hitch in the overall delisting of Honeywell Automation is what if the eventual price which will get discovered in the reverse book building procedure is way too high and if the Honeywell Automation does not accept it.

Below is the dited transcript of his interview to CNBC-TV18. Q: What is your view on Honeywell Auto? A: Honeywell Automation has the makings of all a perfect case study of delisting case. Sebi is very strict about June 2013 deadline with regard to companies stand on delisting or the sell offer. Considering Honeywell Automations' shareholding pattern and its parentage it appears that delisting will be announced. If they announce a delisting there are good chances that sufficient response in delisting. It is no big deal for their parent company which has a market cap of USD 50 billion to pay Rs 550 crore for delisting. The only hitch in the overall delisting of Honeywell Automation is what if the eventual price which will get discovered in the reverse book building procedure is way too high and if the Honeywell Automation does not accept it. Q: At this stage would you recommend to buy Honeywell Auto? A: Yesterday, there was a good upward movement in the stock. Existing investors should enjoy the rally and should not exit. Fresh investors should buy the stock once it dips by 4-5 percent. Q: There are many delisting candidates which are available in the market likes Oracle etc. Which ones do you think provide any kind of a trading opportunity for the investors? A: Our study shows that now different companies will choose different routes. Honeywell, Elantas Beck, Oracle, Gillette and Blue Dart probably will choose the route of delisting considering their shareholding pattern and the past experience. 3M India, Novartis and Vendetta India will go for offer for sale, because in these cases the promoters are holding around 76 percent, mean thereby they may find it much more useful to sell 1 percent stake and coming down to 75 percent rather than going for delisting and then buying 24 percent which is outside. In the past both Kennametal and AstraZeneca tried delisting, but could not complete. So I am not sure whether they will go for delisting. They may choose for offer for sale. All in all overall, these corporates have reached a point where they have to take a call. It is just a matter of six months. Q: What about other companies where you are getting a sense that expected delisting will not happen? Disa India recently announced offer for sale because now easier routes are available. Are there any candidates erstwhile promising but now less promising? A: In Disa India there was anticipation that they will also go for delisting, but as they announced the offer for sale the stock has already dipped by 12 percent. The offer for sale amounts of Rs 40 crore is not a big amount and they can easily pull it through.  Equation is also very important where the offer for sale amount is not big. A decent merchant banking support should be able to pull the deal. I think they will choose that route. In many of these cases if the company chooses offer for sale the stocks can significantly correct. Many of these stocks are trading at expensive valuations. The moment the offer for sale is announced, the delisting euphoria and that related valuations may get cooled off. The investors have to be very, very careful with that angle. Q: Which candidates may opt for Offer For Sale (OFS) instead of delisting? A: 3M India and Novartis India. Q: Among Elantas Beck, Oracle, Gillette, Blue Dart and Honeywell itself which would be your favourites? A: I think Elantas Beck and Oracle will get extremely sufficient support in the delisting, because of the shareholding pattern breakup. Q: Any views on Fresenius Kabi? A: Fresenius Kabi is an interesting case. It needs to be seen what course they will choose. At this point in few cases we found it difficult to make a case whether they will clearly choose the delisting or offer for sale route. If they choose the delisting current prices are fine, otherwise probably even the same cool off event that traders have to be little cautious.