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GMDC makes a lacklustre debut
V S Fernando
At the one end, the country's "reformist" finance minister is desperate to collect more revenue. For that, he is even prepared to "set aside the appeals and prosecutions" and bend sops like VDIS to the past tax-evaders as well as black-marketeers, share-forgers, hawala racketeers, bogus lessors and other white collar criminals.At another end, we have a 100 per cent state-owned monopoly corporation, keeping itself busy with "novel" tax avoidance exercises to reduce the payment of income tax to the national exchequer! Believe it or not, in order to "prevent" a large tax outflow to the central government, Gujarat Mineral Development Corporation Ltd (GMDC) gifted a staggering Rs 48.15 crore as "donations" to local trusts in fiscal 1996 alone. In fact, the donations, obviously to the trusts controlled by the political masters, are more than 36 per cent of the company's pre-tax profit in that year. But, can it continue to drain the profit, say for example, on community healthcare programmes, after going
public? It is indeed a pertinent question in the light of GMDC's shares getting listed on December 30 on the company's regional stock exchange at Ahmedabad. The scrip is yet to be listed, as per promise, on Mumbai, Rajkot, Vadodara and National Stock Exchanges. Merchant banking sources, however, maintain that the company has completed all the listing formalities with the stock exchanges concerned. It may be recalled that in October this year, the state government of Gujarat made an offer of sale of 82.68 lakh shares of the 34-year-old GMDC at a premium of Rs 120 a piece with the sole objective of getting the shares listed on the stock exchanges. The promoter government offloaded 26 per cent of its holding in the company's equity of Rs 31.80 crore for a total price of Rs 107.48 crore. The offer price of Rs 130 per share discounted the company's EPS of Rs 16.20 for fiscal 1997 about 8 times. The scrip, now listed on Ahmedabad Stock Exchange on December 30, 1997, opened for trading at Rs 141.25. It attained
its high and low of Rs 141.50 and Rs 130 respectively before closing marginally above the issue price at Rs 131.75. The next day, the scrip closed the year at Rs 119.75. The New Year day closing quote of Rs 117.50 has not arrested the slide. Market watchers are not surprised at the GMDC meltdown. Of course, at the time of the offer for sale, a senior director of GMDC had disclosed that one of the lead managers to the offer, Peregrine Capital, was willing to "buy out" the entire public offer of 82.68 lakh shares at a price of even Rs 200 a piece! Peregrine was so bullish about GMDC at the time of the offer that it had convinced three FIIs to subscribe to 4.37 lakh shares valued at Rs 5.68 crore out of the firm allotment quota under the public offer. Coming to the profile of GMDC's investors, the net offer to the public, after the upward adjustment for the undersubscription in the reservation for the employees, was subscribed to the extent of 2.94 times. The basis of allotment indicates that as against
27,35,150 shares reserved for preferential allotment to NRIs/OCBs/FIIs, the subscription amounted to 37,13,700 shares. On scrutiny of the pattern of investment in this segment, one finds that 6 investors, possibly major FIIs or OCBs, have applied for 30,56,000 shares and allotted 22,50,750 shares or more than 82 per cent of the reservation in this category. As far as the domestic investors are concerned, while 251 major investors (including body corporates) have applied for 86,46,250 shares and been allotted 19,14,900 shares, 18,026 investors, with applications below the threshold limit of 1,000 shares, have applied for an aggregate of 26,29,700 shares and allotted 19,14,900 shares. Further, among the major investors, 27 applications for, or in excess of, 100,000 shares each, have contributed to 61,85,850 shares in the offer while securing a cumulative allotment of 13,69,500 shares. It is therefore discernible that the oversubscription in the public offer has been brought about by subscriptions garnered
from large investors like financial institutions, banks and corporates who did not get firm allotment in the offer. Looking from the small investors' standpoint, out of the total offer for sale of 82,68,000 shares, amounting to 26 per cent of the equity capital of GMDC, 41 major investors like financial institutions, banks and FIIs hold an aggregate of 51,40,915 shares, or 16.16 per cent of the equity capital of GMDC, amongst them. Normally, this should indicate the company's intrinsic worth as institutional investors are capable of better evaluation than individual investors. However, the stock market performance of the scrip in the short term is essentially dependent on market conditions. With the markets moving in a narrow range, and with elections round the corner, the investors may not realise handsome gains in the short run. On the contrary, with the markets remaining subdued, the scrip is expected to slide further. Fundamentally however, GMDC has a lot of strength. GMDC is the largest merchant
seller of lignite -- an alternate to coal, and the sole lignite mining company in Gujarat. No doubt, the government is contemplating opening of the lignite mining for the private sector. But, to pre-empt any future competition, GMDC has already acquired mining licences for 50 per cent of Gujarat's proven reserves of 720 million tonnes. The company is also likely to enter into the power sector. Thus, the company's future seems to be secured. So is the price level of the scrip. As the government of Gujarat intends to disinvest further equity in a period of 24 months so as to bring down its holding to 49-51 per cent, it can not normally be expected to make its next offer below the recent offer price. So the public investors had hoped against hope for the market price to be above the offer price at least till the next issue, if not longer. The lacklusture listing has dashed all the hopes. Mallcolm marshals stock price? The offer for sale of 13 lakh shares of Rs 10 each by the promoters of Mallcolm (India)
Ltd was one of the 26 issues made by companies from the "city of joy" in 1997. The issue was lead managed by an obscure merchant banker, Unoasia Investment Banque. The company, which is an existing exporter of industrial safety products, has a foreign collaboration with Delta Plus Group (DPG), France, which also hold a 15.38 per cent stake in the company. The company's promoters, Calcutta-based Mall family, held 84 per cent of the equity of the company which was to come down to 59 per cent post offer. The financial performance of the company in the last few years has been reasonably steady. For the year ended March 1996, it reported a turnover of Rs 22.80 crore and a net profit of Rs 1.83 crore. However, in fiscal 1997, it could post a net profit of only Rs 1.31 crore on a turnover of Rs.19.70 crore. While this translated into an EPS of Rs 4.01 on an equity base of Rs 3.25 crore, just before the issue, the company capitalised Rs 1.95 crore reserves, resulting in the equity expanding to Rs 5.20 crore.
The net profit of Rs 1.31 crore reported in fiscal 1997 amounts to an EPS of Rs 2.52 on the enlarged equity. If one were to project EPS for fiscal 1998 based on the profit of Rs 18.04 lakh in the first two months of the year, one would net Rs 2.08 per share. The company's shares have now been listed on the Calcutta Stock Exchange and are traded since December 22 although they are yet to find a place on the Delhi Stock Exchange as promised in the offer document. On CSE, after opening at Rs 10 per share, the scrip has steadily moved upward to record a high of Rs 13.90 on December 30 before closing at Rs 12.80 on the same day. The current price discounts the projected EPS a little over 6 times. Considering the present sluggish market conditions where unknown cash scrips have witnessed poor discounting and poorer liquidity and also in view of the fact that the company has a subsidiary operating in the same line of business, investors should look to book their gains before it is too late. (Arranged by
INVESTAR -- The Aarthik News & Research Syndicate)
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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