Monday, January 30, 2012

Escorts Ltd Witness Sell by FII General Motors Asset Management

By Staff Reporter

(This article was updated on 31st January 2012 02:00 PM to account for a new development in the share-pledge issue.)

Escorts Ltd (BSE: 500495, NSE: ESCORTS) saw a significant sell of 8 lakh shares by the FII GMAM Investment Funds Trust, which amounts to around 0.76% of the total shares in the company. The notable sell was on the last trading day, 27th January, in NSE.

Escorts is a leading Indian manufacturer and supplier of Agri Machinery Products, Auto Suspension & Ancillary Products, and Railway Equipment. GMAM Investment Funds Trust is an arm of Promark Global Advisors Inc., formerly known as General Motors Asset Management (GMAM), and a group company of US based auto major General Motors. 

Interestingly, the massive sell was not bought by any identified institutions nor promoters, but probably picked up by the wider market. In the Indian market, buyers & sellers are identified only if they buy or sell over 0.50% of the total shares in the company.

Though the promoters had picked up an additional 0.80% during Q2 of this fiscal, this time they didn't chip in. The latest Share Holding Pattern of Escorts for Q3 is yet not filed in BSE, and the Q2 SHP shows a promoter stake of 27.57%, which is low by Indian standards.

It is noteworthy that no institutional buyers had come forward to pick up major portions of Friday’s sell, even at these low price levels for the stock. The scrip had its 52-Week High of Rs. 152.35 in BSE, exactly one-year back on Jan 27th of last year, but has since been in an almost steady fall, barring a couple of brief recoveries. Escorts had its 52-Week Low of Rs. 63.60 in BSE on 19th August 2011.

GMAM Investment Funds Trust seems to have used the second minor recovery opportunity in the counter, after the first recovery from the 52-Week Low fizzled out in November-December.

GMAM didn't even wait for Escorts Q3 results which is due out on February 2nd, which is just three days from now. They seemed to have taken a fast cue from a recent disturbing action from the promoters, which allowed invocation of 7.53% shares that had been pledged by them. This action that was taken on 11th January, was reported to the company on January 17th, and was filed at BSE on January 25th, two days before GMAM's exit.

Later, on 31st January, the company filed a revised disclosure at BSE stating that the pledged shares were in fact, not invoked, but released, and that they regret the error. The mistake appears strange, as it had caused a nearly 11% erosion in Escorts share prices, and most likely contributed to the exit of a noted FII. Corporate governance standards followed by companies are often viewed as inferior or even suspect, after such incidents.

A clearer picture on how far this incident has affected the holdings of other institutional investors will be known only on the publishing of Q4 SHP. But even Q3 SHP is yet to be published in BSE, and is late, compared with better practices.

Escorts Ltd has been facing erosion in fundamental performance over the past few years, with consolidated Net Profit Margin (NPM) falling to an unhealthy low of just over 3% in FY'11 ending September 30th for the company.

The stock has had a healthy participation by FIIs over the last few years, but one by one these FIIs seem to be deserting the counter. The FII participation which stood at over 31% in March 2011, had fallen to 20.62% by September. Notable reductions were made by CLSA and Merrill Lynch in Q1 & Q2.

Though DII buying had happened in Q2, evidently it was not enough to offset the slide caused by momentous FII offloading. The scrip still has a healthy DII participation of 17.48%, with players like LIC and Reliance Capital Trustee Company participating. But it remains to be seen whether they will continue to support the scrip, in the aftermath of these kind of volte-face incidents.      

The General Motors arm sold 8 lakh Escorts shares at Rs. 83.53, and the scrip closed Friday's trade at Rs. 82.70, down by 2.82% from previous day's close.

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