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Though talks of any tug of war between two cash rich suitors for stake hike in EIH Ltd that runs Oberoi chain of luxury hotels appears to be premature, the interest in the EIH stock seems to be continuing with the stock registering a huge volume of trading in the stock exchanges for the third day on Tuesday, though the share price has started retreating.
The interest in the counter was triggered when SEBI unveiled the new Takeover Code on July 28 under which the trigger threshold for an open offer was raised from the existing 15 per cent to 25 per cent.
ITC's comment & after
The interest in the EIH counter gained momentum by the comments made by the Chairman of ITC Mr Y.C. Deveshwar, the next day when he said that he would look at (hiking ITC's stake in EIH) “if there is an opportunity and the price is good.”
This was presumed to be an indication that ITC was open for a stake hike in EIH in which it presently holds 14.98 per cent, just below the current open offer trigger limit of 15 per cent.
That the tobacco major sits on a cash pile of Rs 4,000-5,000 crore lent credence to the hopes that ITC may seriously look at this option of stake hike since the question of open offer to acquire a further stake of 26 per cent would arise only when its holding reaches 25 per cent in EIH.
The trigger
What fuelled the punters' hopes of a bidding war in the stock was that Reliance Industries Ltd (RIL), which acted as a White Knight to the EIH promoters last year, may throw its hat into the ring.
Last year three EIH promoters — Oberoi Hotels Private Ltd, Aravali Polymers Private Ltd and Prithvi Raj Singh Oberoi — sold 5.54 crore shares constituting 14.12 per cent to Mr. Mukesh Ambani owned Reliance Industries Ltd's wholly-owned subsidiary, Reliance Industries Investment and Holding Private Ltd for over Rs 1,000 crore.
Subsequently through the rights offer, RIL subsidiary increased its stake further to 14.8 per cent. But, so far RIL has remained cool, at least openly, and has not indicated after the SEBI's announcement, as to whether it was interested in hiking its stake in EIH.
RIL's strategy not known
While for ITC, hiking stake in EIH or even making a hostile takeover bid for EIH would be in line with its overall business strategy since it already owns a chain of popular luxury star hotels, it is not clear whether RIL looks at its EIH entry as a new business opportunity or simply an investment option.
The EIH share price, which crossed Rs 100 on Monday to touch Rs 100.75, however, was struggling to hold on to that level on Tuesday, with the Sensex down by more than 200 points.
On the BSE, the share closed at Rs 92.60, down by 2.63 per cent with about 3.86 lakh shares changing hands. On the NSE also, the share closed at Rs 92.65, down by 3.19 per cent but the trading volume was higher at 7.91 lakh shares.
Though the share price was down by nearly 50 per cent from the year's high of Rs 181 in the NSE, the valuation looks stiff even at this level with a PE of 88 as the EPS for the FY 2010-11 was just Rs 1.63 (share face value Rs 2).
The promoters' holding in the company is also much less at about 33.87 per cent than the public shareholding that stands at 66.13 per cent. This includes large holdings by both RIL subsidiary and the ITC that is almost at equal level, and by other institutional investors.
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