BackABB Power open offer a good exit opportunity for investors
The company could be used for Hitachi’s global exports, which may improve order flows in the long runInvestors may, therefore, be better off selling their holdings in the open offer, especially given that stocks typically fall after the completion of such an offer
PremiumAn open offer by the promoters of a company to buy out its minority shareholders often results in a spike in the share price. And especially so when it is at a premium to the prevailing market price. A case in point is ABB Power Products and Systems India Ltd, whose stock rose 11% after its promoters made an open offer at a premium of about 19% to the prevailing market price. Note that this is less than two months since the stock listed in end-March.
ABB Power, which was hived off from ABB India Ltd when the global parent sold its power grid business to Japan’s Hitachi, debuted on bourses a little over a month ago.
Besides the premium to the open offer, the company clocked decent results in the March quarter, the first since its listing. Amid the covid-19-led weak macroeconomic conditions, its order book of about ₹5,200 crore provides revenue visibility for 15 months. Meanwhile, order flows of ₹930 crore during the quarter were also higher significantly than a year ago.
Meanwhile, shareholders could also benefit from the sale to Hitachi. Analysts point out that the firm could be used for Hitachi’s global exports, which may improve order flows in the long run. Further, focus on products, which bring in short-cycle orders compared to projects, will improve cash flows with less strain on working capital. “We like the company for its debt-free balance sheet with good cash collection despite challenging environment," said Umesh Raut, lead analyst (India industrials) at Yes Securities (India) Ltd.
That said, order flows may dwindle in the near term, given the challenges in government capital allocation due to covid-19. After all, about 48% of its business accrues from state utilities. Even the industrial segment, another significant part of its business, will be weighed down by the pandemic in the near term.
Note that industry peers such as GE T&D Ltd have been struggling with weak order flows, delayed execution and payments in the last few years.
So while ABB Power may have started operations on a clean slate, the near-term outlook looks cloudy.
Investors may, therefore, be better off selling their holdings in the open offer, especially given that stocks typically fall after the completion of such an offer.
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