The Hindu Business Line : The dilemma of the L&T shareholder

TO sell or not to sell, to hold or not to hold; ordinary shareholders of Larsen & Toubro have been in a dilemma about their holdings during the last three days, May 18 and May 21 (Friday ) being the last trading days for the stock on the BSE and NSE respectively.

Shareholders have been consulting their portfolio managers and have had hectic discussions among each other and on chat-sites as well.The most common question among them - and analysts insisted this is a short-term one - whether the stock will fetch as much when it resumes on the exchanges and when Cemco (the demerged cement company) gets listed.

Their common doubt follows this calculation: 100 shares of L&T would fetch 40 shares of Cemco of face value Rs 10 each, and 50 shares of L&T of face value Rs 2 each. Taking for current value a rate of Rs 500 a share, 100 shares work out to a market value of Rs 50,000.

If the investor tenders his 40 Cemco shares to Grasim in its open offer at Rs 342 per share, he would get Rs 13,680. Now, for his market value for 100 shares to be the same as Rs 50,000, the 50 shares he is left with in L&T would have to fetch a value of Rs 36,320, or Rs 726.40 per share.

Can L&T list at Rs 726.40 per share when it resumes trading after Cemco is separated from it? That was the common question.

"Rs 700 plus certainly seems very expensive, but to expect this would constitute a very short term view," said a senior research analyst with SBI Caps. "One cannot expect this kind of pricing in L&T to happen very quickly although there is a good future for it. With debt of Rs 1,750 crore off its balance sheet, and with a reduction in its share capital, this would present a very good P/E ratio for investors," he said.

"The company gets a positive re-rating once the not-so-profitable cement business has been shed."

A couple of other analysts linked to broking houses said one must not discount the fact that shareholders hold the stock at the current price following news of the demerger itself, before which it was trading at sub-200 levels. Another industry analyst said that since recent deliverables in the stock were higher, the market is in fact collecting the stock looking forward to the demerger.

Other investors felt it would be better to get rid of the stock since L&T engineering would never fetch Rs 700 per share, but to buy it again once it is listed. Some others who held a longer term view said they were buying more stocks since they felt L&T engineering would be one of the "scrips of the coming year," with its current larger order book position.

The stock closed at Rs 444.50 on the last day of trading on the BSE ( Rs 462.95) and at Rs 501.85 (9.69 per cent higher than previous day's close) on the NSE today.

On the NSE, there was some amount of arbitrage trading on account of trading having continued here after its stoppage on the BSE two days ago.

More Stories on : Mergers & Acquisitions | Stocks | Cement

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