Tuesday, March 13, 2012

ESAB India Sees Continued Selling by HDFC MF Before Open Offer Begins

Brendan Colgan,
ESAB India.
By Special Correspondent:

ESAB India Ltd (BSE: 500133, NSE: ESABINDIA) on Monday witnessed continued and significant selling of 89,563 shares by HDFC Mutual Fund, amounting to 0.58% of the total shares in the company. The sell was at Rs. 536.11 a share.

Earlier, on Wednesday, HDFC MF had sold off 86,977 shares, which is 0.57% of ESAB India, at Rs. 536.02 a share. Together, the deals are worth Rs. 9.46 crore. 

Both the sells were executed in NSE, where ESAB has much better daily volumes than in BSE.

HDFC Mutual Fund has been an early backer of ESAB India, first surfacing as a significant non-promoter shareholder in the company way back in December 2004 quarter. From then on, it has bought more ESAB shares than it has sold, and was at one point of time, its largest non-promoter shareholder.

If any of the original shares are in the recent sells, HDFC MF has made more than 4X gains in the ESAB counter now. 

HDFC MF’s last identified buy was in Q2 of the current fiscal, when the average prices were around the current levels, but lower-most  prices were around 13% lower than current levels.

Interestingly, there were no identifiable institutional buyers or promoters, as counterparties to the sells by HDFC MF, which signals that the large offloading was picked up by the wider market.

Non-promoter and non-institutional holding of ESAB India is rather low at 23.40%, as promoters hold 55.65% shares, and institutions hold nearly 21%, dominated by FIIs at over 12%, and the rest by DIIs.

ESAB India Ltd is a leading supplier in the country of welding and cutting products, in sectors like shipbuilding, petrochemical, construction, transport, offshore, energy and repair/maintenance. 

ESAB India is part of the more than a century old Swedish pioneer in the field, ESAB Group, which is headquartered in London since 2008. ESAB India is 55.56% owned by the ESAB Group, which has been under the whole ownership of London based Charter International plc.

On 13th January 2012, Charter International was bought over by Colfax Corporation (NYSE: CFX), and that has resulted in a mandatory Open Offer in India by Colfax and its PACs for ESAB India shares, which is set to open on March 19th. 

The Open Offer is for 40.02 lakh shares, which amounts to 26% of ESAB India, at an offer price of Rs. 550.10 a share. With promoter shareholding at 55.65%, acquisition of an additional 26% by the promoter group doesn’t look fully possible, unless institutional investors tender their stakes.

Since this step is for mandatory compliance to ensure fair play, the promoters too won’t be bothered even if the Open Offer fails to evoke much response.

However, what is noteworthy is that a long-term holder like HDFC Mutual Fund has found the run-up to the Open Offer as a good opportunity to sell over 1% of its stake.

ESAB India had corrected during the last leg of the market fall of 2011, falling from a 52-Week High of Rs. 591.30 on 14th September to a 52-Week Low of Rs. 422 on 20th December - a fall of around 29% in three months.

However, when the market rebounded and when the Open Offer details crystallized over the succeeding weeks, ESAB India rebounded sharply gaining by around 30%. 

HDFC MF’s sale has come at this stage. Despite there being no identified counter-parties to the sale, there was not much of a price erosion, which may be due to smaller investors and retailers finding comfort in the Open Offer price of Rs. 550.10.

However, HDFC MF’s continued selling is signalling that the upside in ESAB India may already be more or less capped for the short to intermediate term, which also means that if no further positive trigger comes and the market corrects sharply, ESAB India may fall with the market, after the Open Offer closes.  

The standalone company has been experiencing sluggishness in both topline and bottomline during most of 2011.

Other major stakeholders in ESAB India are two funds of Acacia Partners which together hold 8.65% stake, and Bajaj Allianz Life Insurance with a 1.04% stake. HDFC Mutual Fund held 5.35% stake as of Q3 SHP, and is the second-largest non-promoter shareholder after Acacia.   

On Tuesday, ESAB India closed trade at Rs. 535.45 in NSE, down only negligibly. 

The Open Offer which commences early next week, will close on 2nd April and payments to investors would be completed before 16th April.

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