Mumbai: Cashing in on the opportunity to consolidate its stake in Hindalco, state-run Life Insurance Corp (LIC) has hiked its stake in the Aditya Birla flagship to over 9% through open market transactions after its share price plunged on Novelis buyout.
Hindalco’s stock price plunged 14% to Rs149.45 on 12 February, a day after the company announced its $6 billion Novelis acquisition. The price has since remained closer to this level, luring the country’s top insurer, which bought more than two crore shares in the company between 31 March and 28 April this year, according to BSE data.
Between 5 January 2006 and 28 April 2007, LIC purchased 2.05% or 4.01 crore shares in Hindalco, the company said in a regulatory filing.
However, a closer analysis of the shareholding pattern reveals out of this 4.01 crore shares, LIC acquired 2.13 crore shares for up to Rs324 crore in just 20 days after 31 March.
In comparison, it took LIC 15 months to increase its holding to 8.6 crore shares till 31 March, from 6.48 crore shares, or 7.01% stake, as on 5 January 2006.
Investors may have dumped the Hindalco stock citing short-term concerns like Tata Steel after acquiring Corus, but LIC took the opportunity to grab position in a company which is slated to be the world’s largest aluminim rolling company after the Novelis buy-out.
Going by the highs and lows of the scrip during the 20-day period of April 2007, LIC could have bought the stake for a maximum of Rs324 crore and a minimum of Rs250 crore.
Compare this with the acquisition cost in May 2006, when it would have cost LIC around Rs542 crore for buying the same stake at Rs251 per share.
The Hindalco Industries stock carries a weight of 1.43% on the Sensex. The scrip has still not returned to its Rs180 levels as in January and closed on 9 May at Rs144.80.
Hindalco’s Novelis deal was termed by analysts as a tad too expensive.
Rating agency Crisil had placed its outstanding long-term rating of ‘AAA/Stable´ on Hindalco on ‘Rating Watch with negative implications,´ shortly after it announced the Novelis acquisition. Crisil said the acquisition cost was significantly larger than the company’s net worth of about Rs9,500 crore as on 31 March 2006.
Even investment banker Merrill Lynch had downgraded Hindalco stocks to ‘sell´ from ‘neutral´ during that period.