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An FPO for Concor will harm investors

An FPO for Concor will harm investors
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First Published: Tue, Jun 21 2011. 10 31 PM IST
Updated: Tue, Jun 21 2011. 10 31 PM IST
According to a news report in The Economic Times on Monday, the government could consider selling a 5% stake in Container Corp. of India Ltd (Concor) to meet its asset sales target for the current fiscal.
This implies that a follow-on public offer (FPO) could be in the offing. If that happens, and if the recent history of state-owned firms’ FPOs is any guide for the future, then this is unlikely to be good news for Concor’s investors. It is well known that such issues in the recent past have come at a discount to the prevailing market prices in order to attract investors.
For instance, at the higher end of the price band, the offer price of Power Finance Corp. Ltd and Shipping Corp. of India Ltd was at 3-5% discount to the market price of both the firms. Power Grid Corp. of India Ltd’s offer price was at a 10% discount to the market price.
Considering how the government is going about with its stake-sale plans, it’s perhaps natural for investors to be concerned when such offers are announced. Not surprisingly, last month, Bharat Heavy Electricals Ltd’s stock fell 6.7% when it announced its FPO plans on the Bombay Stock Exchange (BSE).
Concor’s stock has already underperformed the BSE-200 index in the past year, and the outlook, too, isn’t great. Some analysts have downgraded their earnings estimates for the company for the current fiscal and the next, after it announced worse-than-expected March quarter financial results.
Profit was hit on account of poor performance of the domestic business, which was affected mainly because of a sharp rise in freight rates on select commodities. On the other hand, the export import (exim) business performed relatively better. Volumes on the exim route rose during the quarter on a year-on-year basis while that on the domestic route declined. In the current fiscal, Concor has forecast a 10% growth in volumes and earnings, which is modest. Moreover, analysts maintain that price realizations may remain stagnant on account of competitive pressures. Higher competition from road haulage and other private operators could limit Concor’s ability to pass on any future increase in freight rates completely.
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First Published: Tue, Jun 21 2011. 10 31 PM IST