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M&M sees biggest gain in shareholder wealth

M&M sees biggest gain in shareholder wealth
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First Published: Wed, Jun 10 2009. 10 40 PM IST

Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. Sandeep Bhatnagar / Mint
Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. Sandeep Bhatnagar / Mint
Updated: Wed, Jun 10 2009. 10 40 PM IST
Mumbai: Auto-to-software group Mahindra and Mahindra Ltd, run by the uncle-nephew duo of Keshub and Anand Mahindra, has emerged the biggest gainer in market capitalization in calendar year 2009 among India’s top business conglomerates.
Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. Sandeep Bhatnagar / Mint
The combined market capitalization of the Mahindra and Mahindra Group gained by 210% to Rs42,845.96 crore on Wednesday, from Rs13,809.02 crore on 31 December.
During this period, Sensex, India’s 30-stock benchmark equity index, rose 60.32%. Mahindra and Mahindra, the group’s flagship company, is part of the Sensex with a 1.44% weight.
Market capitalization is arrived at by multiplying the share price and the number of shares outstanding. It provides a total value for the company’s shares and thus for the company as a whole.
Mint’s analysis of market capitalization took two sets of timelines into consideration. The first looks at the appreciation in market capitalization from the beginning of the calendar year to 10 June and the second tracks the effect of market capitalization on business groups since the election results on 16 May.
Since January, many Indian business groups, including public sector enterprises, have regained a large portion of the shareholder wealth they had lost following a sharp drop in the Sensex after touching a lifetime high of 21,206.77 points in mid-January 2008.
A study of the share price movements of the group companies of big industrial conglomerates since 15 May, ahead of the Sensex’s 2,100-point leap, shows that public sector enterprises were among the biggest beneficiaries of the market re-rating after the Congress-led United Progressive Alliance government came back to power with a comfortable majority.
Market capitalization of public sector enterprises appreciated 42.84% to Rs16 trillion from Rs11 trillion between 15 May and 5 June. There are around 70 listed public sector enterprises. The government’s stake in these companies varies between 20.18% and 99.59%.
The trigger for the appreciation in value for public sector enterprises stocks could be attributed to the President’s speech in the new Lok Sabha. President Pratibha Patil spoke about the right of Indian citizens to own a part of the shares in public sector undertakings, even as the government retained majority control in public sector enterprises.
“My government will develop a road map for listing and people-ownership of public sector undertakings while ensuring that government equity does not fall below 51%,” she said, outlining the agenda of the new government.
Prime Minister Manmohan Singh in his reply to the debate on the President’s speech in both houses of Parliament, made a strong pitch for divestment to raise resources for social programmes.
The rise in shareholder wealth at M&M Group, to a large extent, is due to the aggressive bid made by its group firm Tech Mahindra Ltd for gaining control over Satyam Computers Services Ltd, whose promoter confessed to a Rs7,136 crore scam in January, the largest in India’s corporate history.
The last two days have seen the two scrips gaining traction after Satyam’s performance till February was released.
Tech Mahindra, a joint venture between British Telecom and the Indian conglomerate Mahindra and Mahindra, won control of Satyam after a bid that valued the company at $1.2 billion.
Tech Mahindra was the highest bidder for Satyam, with a Rs58 per share bid, for 31% of the company. An open offer is currently under way to buy 20% more equity in the company.
Ambareesh Baliga, vice-president of Karvy Stock Broking Ltd, attributes the rise in market capitalization of the M&M Group to the overall rise in utility vehicles and tractor sales and to the aggressive acquisitions made by the group.
Another reason is the flagship company’s “less leveraged balance sheet” compared with peers such as Tata Motors Ltd. The acquisition of Punjab Tractors Ltd helped Mahindra, Baliga said.
The character of the group, from its earlier avatar of a predominantly auto and ancillary maker, has changed under the leadership of Anand Mahindra. After the Satyam acquisition, the revenues for the group will be more evenly distributed between information technology and auto and financial businesses.
The market heavyweights, too, rose sharply in this period. Between the Ambani brothers, Anil Ambani-controlled firms gained more post-elections than the companies in the Mukesh Ambani fold.
Among the Reliance—Anil Dhirubhai Ambani Group (R-Adag) firms, Adlabs Films Ltd’s market cap rose by 76%, followed by Reliance Capital Ltd’s 66%, Reliance Communications Ltd’s 50.67% and Reliance Power Ltd’s 44.44%.
Reliance Capital’s market cap rose on speculation that it would take its life insurance subsidiary to the market. The R-Adag market cap on 10 June was at Rs1.85 trillion, rising 51% post-elections.
Elder sibling Mukesh Ambani’s group hasn’t done too badly for its shareholders. The announcements relating to the start of commercial operations at Krishna-Godavari basin and Reliance Petroleum Ltd, along with the latter’s merger with Reliance Industries, have been the triggers for the rally.
His group companies have not risen as much as R-Adag post-elections but when the gains are computed for the longer term, since 1 January, the Reliance Industries Ltd (RIL) group has gained more.
In this group, Reliance Industrial Infrastructure Ltd is the biggest gainer post-elections, with a rise of 53.29% in market capitalization, followed by Reliance Petroleum Ltd’s 20.81% and RIL’s 19.09%.
The group market cap is now at Rs4.32 trillion, rising by 19.46% post-elections. Since 1 January, the group’s market cap has risen 85.24%.
The Tata group, weighed down by the refinancing of its acquisitions during this year, has posted a handsome 64.58% appreciation in market capitalization during the calendar year till date, an illustration of the market’s recognition of the launch of the small car Nano as well as successful refinancing of bridge loans.
Tata Motors and Tata Chemicals Ltd together refinanced $3.3 billion bridge loans originally taken to fund acquisitions.
The Nano, Tata Motors’ ultra-cheap car, attracted 203,000 bookings and garnered about Rs2,500 crore. Tata Motors’ earnings also beat the street expectations. It has reported a net profit of Rs1,001.26 crore for 2008-09, a decline of 50% over 2007-08. Tata group’s aggregate market capital on 10 June is at Rs2.06 trillion, rising 64% since January.
Anil Agarwal’s Vedanta Group and the Jindal group that focus on ferrous and non-ferrous metals have both managed to claw back impressively. The Jindal brothers have carved separate businesses for themselves though their mother Savitri Jindal remains the common chairperson. O.P. Jindal group’s market cap on 10 June touched Rs52,318 crore and that of Vedanta group Rs75,691 crore.
Sunil Bharti Mittal’s Bharti group showed the least traction among Indian business groups in creating shareholder wealth but the scenario may change with Mittal setting his sights on the MTN group. Successful closure of the Bharti-MTN deal, expected by mid-July, would create the world’s No.3 wireless group with around 200 million subscribers and combined revenue of $20 billion.
In the last week of May, when Bharti Airtel announced its interest in MTN, the stock fell more than 5% to close at Rs811.4 per share.
K.P. Singh, the main promoter and chairman of the realty firm DLF Ltd, at one point threatened to topple the Ambani brothers in market capitalization.
Caught by the economic slowdown and a severe cash crunch in the sector, DLF is again gaining traction and is the second biggest gainer in the post-election market rally. Its promoters recently raised Rs3,860 crore by selling around 10% stake. At its peak value, DLF had a market cap of Rs2.05 trillion in January 2008. Now, it is Rs67,174.94 crore.
While DLF shares were not in the reckoning before the elections, Munesh Khanna, managing director, investment banking, at Centrum Capital Ltd, a Mumbai-based brokerage, argued there are other real estate stocks that outperformed DLF, such as Unitech Ltd, which gained 74.22% compared with DLF’s 53% post-election results.
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First Published: Wed, Jun 10 2009. 10 40 PM IST