Market-savvy firms

Restructuring pays. That is the message which is being sent by stock markets to the corporate sector. Some of the companies which have decided to restructure their businesses and are trying to bring in greater focus have been handsomely rewarded by bourses. Here are a few examples. The Voltas scrip, after the company decided to hive off a number of unrelated businesses, rose from about Rs 30 to the current level of around Rs 140, all within the span of six months. The Philips scrip doubled in the last year. Raymond, which is selling off its steel division, has seen the price of its scrip double in the last six months. The Siemens share price, after the company hived off its loss-making telecom division, has also been rising fast. The most recent example is Grasim. After acquiring Indian Rayon's cement division, the price of its scrip has gone up by almost 50 per cent. Even Bilt, although it is in the paper industry, which is down in the dumps, has seen the price of its scrip rise. Investors have clearlydecided to support those managements which are serious about trimming their sails to capture the winds of change blowing in the corporate sector.

But does that mean all that corporates have to do is divest unrelated businesses? Not at all. Many companies which have restructured substantially, such as SRF, Siel, or the Usha Group, have not had much success with their scrips, inspite of substantial restructuring. India Cements is another example of a company which hasn't gained inspite of new initiatives in the form of acquisitions and a VRS. Simply put, mere restructuring is not enough. Additionally, managements must also be perceived by the markets as being keen to deliver shareholder value.

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