Tuesday, February 7, 2012

NCC Ltd Sees Sell by the FII, Norges Bank

By Special Correspondent

NCC Ltd (BSE: 500294 | NSE: NCC) counter in NSE yesterday witnessed a significant sell of 34 lakh shares by the FII, Norges Bank, amounting to 1.33% of the total shares in the company. The NCC sell was picked by the PE fund, Beacon India Private Equity Fund, which bought 34.69 lakh shares.

NCC Ltd is a leading construction, infrastructure and real estate development company in India. Formerly known as Nagarjuna Construction Company, NCC is active in verticals like Buildings & Housing, Transportation, Water & Environment, Irrigation, Power, Electricals, Metals, and Oil & Gas.

Norges Bank, which is the Norwegian central bank, also manages Norway’s sovereign wealth fund through Norges Bank Investment Management (NBIM). NBIM manages one of the world’s largest equity funds, The Government Pension Fund Global. Unlike its name implies, it is not a classic pension fund, but a sovereign equity fund created through Norway’s petroleum revenues, as reflected from its former name, The Petroleum Fund of Norway. 

The Government Pension Fund Global, valued at $573 billion, is one of the largest equity investors in the world, estimated to hold 1% of global equity markets, and at 1.78% of the European equity market, is Europe’s largest equity investor. In India, The Government Pension Fund Global is registered as an FII sub-account under the FII account of Norges Bank.

Norges Bank has been an early investor in NCC, and is currently (as per Q3 SHP) NCC’s third largest non-promoter investor in the company with an 8.29% stake, just behind Blackstone GPV Capital Partners with a 9.90% stake, and Warhol Ltd (of ChrysCapital Group) with a 9.89% stake. NCC has one of the most impressive institutional holdings among frontline companies in India, with almost 53% held by FIIs  with 43% and DIIs with 10%.

Other large stakeholders in Nagarjuna Construction Company (NCC) Ltd include, Citigroup, celebrity investor Rakesh Jhunjhunwala, as well as several mutual funds & insurance majors of India like Reliance Life Insurance, Birla Sun Life Insurance, ICICI Prudential Life Insurance, DSP BlackRock Insurance, Bajaj Allianz Life Insurance, Aviva Life Insurance, & HDFC Infrastructure Fund.

However, all the backing from these high profile institutional investors couldn’t protect the NCC scrip from significant value erosion that affected the Indian stock market in general, and infrastructure stocks in particular, during most of 2011.

The NCC scrip which had a 52-Week High of nearly Rs. 117.95 on 8th April 2011 in BSE, had since then fallen steadily throughout the calendar year, to mark a 52-Week Low of Rs. 32.15 on December 29, losing nearly 73% of its value within 9 months. Norges Bank has probably used this deep fall to average, and used the first relief rally since then, to trim its exposure to NCC, especially as the rally started to falter recently.    

Beacon India Private Equity Fund, which picked up the Norges sell, is a private equity fund sponsored by Baer Capital Partners. Baer is a Dubai based private equity sponsor founded by a few former senior professionals of the Swiss private bank, Julius Bar Group, and backed by Middle East entities like Dubai Ventures, Shuaa Capital etc, as well as Standard Chartered Bank. Beacon has a Foreign Venture Capital Investor (FVCI) license from SEBI. Beacon’s earlier investments include National Stock Exchange of India (NSE), Vatika Group, Everest Kanto Cylinder, A2Z Group, and Sterling Holiday Resorts.

Beacon is recently often seen as investing in stock picks of India’s ace investor, Rakesh Jhunjhunwala like A2Z and Sterling Holiday Resorts, and now in NCC Ltd.

Keen NCC watchers would be waiting to see whose call will be right in this deal in the coming days – a new PE entrant into the company like Beacon or a veteran in the counter like Norges Bank. A lot will depend upon whether Norges or other institutional investors will sell further, and whether new players like Beacon will pick up stakes at these relatively low price levels.

On the fundamental side, NCC’s core performance had deteriorated sharply in Q1 & Q2 of this fiscal, with not only net profit, but also revenues coming down. Norges Bank seems to have taken a cue also from NCC's Q3 results published yesterday that saw the situation worsen with the company swinging from net profit to net loss both on a standalone and consolidated basis. On an year-on-year basis, consolidated bottomline nosedived from Rs. 52.11 crore net profit in Q3 of FY'11 to Rs. 10.32 crore net loss in Q3  of FY'12. Nagarjuna Construction Company (NCC) also disclosed that the company expects the pressure on performance to continue in Q4, as it is largely due to higher interest cost. A positive turnaround is expected as and when the Indian interest rates come down, as is the case with most Indian infra players. 

One problem with the NCC counter is that promoter holding is relatively low at 19.52%. The promoters had however revoked some of their share pledges recently, most probably to avoid a bear run on the scrip again. 

NCC which had closed trade on Monday at Rs. 61.60 on NSE, opened nearly 10% down today, at Rs. 55.50.

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