Given that the government has refrained from giving a time frame as to when the issues will hit the market, how should you play ONGC, NHPC and Coal India?
A day after the Union Cabinet paved the way for the government reducing its stakes in Oil and Natural Gas Corporation (ONGC), Coal India Ltd (CIL) and NHPC, the shares of these companies fell 3.4-5.2 per cent on bourses.
By comparison, the benchmark Sensex ended 0.2 per cent lower, while the BSE public sector undertakings index closed down 0.4 per cent.
The fall in the ONGC, CIL and NHPC stocks comes amid expectations that these issues will be at a discount to their prevailing market price.
In his 2014-15 Budget speech, Finance Minister Arun Jaitley had announced a disinvestment target of Rs 58,425 crore for this financial year. Since then, the ONGC stock has rallied eight per cent, while CIL and NHPC have lost ground.
Given the government has refrained from specifying when the three issues will hit the market, many are wondering how they should play these stocks.
Analysts suggest though these stocks remain good long-term bets, one must treat each company on own merits. The possibility of a discount to retail investors in the share sales, however, could be a near-term dampener for these stocks, they say.
“Each stock has its own strengths and weaknesses. While oil prices, production ramp-up and gas price reforms could prove triggers for ONGC, CIL has its own set of dynamics, both for and against it. Since the past few years, NHPC has faced cost overruns, deployment of capital in setting up a hydel plant, securing environmental clearances, etc,” said Mayuresh Joshi, vice-president (institutional), Angel Broking.
Recently, CIL worker unions served a notice to follow ‘work–to–rule’ (doing no more than the least work required) during September 18-20 to protest against several issues, including the move to disinvest stake in the company.
Last year, a stake sale in the company had to be deferred, following stiff opposition from trade unions. As a result, the company paid Rs 19,000 as dividend to bridge the shortfall in the government’s coffers.
This time, the government is more resolute and focused on augmenting coal production (which bodes well for CIL’s volume-led earnings growth), analysts say.
The Securities and Exchange Board of India has mandated all listed entities to have free float of at least 25 per cent within three years (currently, CIL’s is 10.35 per cent).
“Worker opposition is likely to persist and the Centre is arguably aware it has a fall-back option for securing the targeted proceeds by asking CIL to dole out a special dividend again. Hypothetically, if the issuance is at Rs 300-350/share, the Centre’s gross receipt will be Rs 18,900-22,100 crore.
If this consideration was to be recovered through a special dividend plus dividend tax thereon, the required special dividend will be Rs 28-32.75/share,” Anirudh Gangahar and Archit Singhal of Nomura said in a recent report on the company.
“Overall, the risk of disinvestment overhang does go up, but disinvestment materialising might not be a done deal. We maintain a ‘buy’ rating on the stock,” they added.
Joshi of Angel Broking believes the ONGC issue will see investor appetite, as the government is focusing on the oil & gas sector. For NHPC and CIL, one should have a horizon of two-three years, he says, suggesting retail investors will be better off buying these three stocks through the divestment/offer-for-sale routes, instead of secondary markets, given the possibility of a discount.
