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Shares of >Novartis India Ltd witnessed a wild swing in prices, falling to a 52-week low after trading began on Thursday.
However, the stock appreciated by over 8 per cent on the >BSE after it was known that the parent company would dilute its stake in the Indian subsidiary to comply with the listing norms on minimum public shareholding.
SEBI warning
The timing of the announcement, which may be coincidental, came after the >SEBI Chairman U.K. Sinha issued a stern warning a few days ago that companies which failed to fall in line with SEBI rule on minimum public shareholding of 25 per cent would face "the consequences".
In a communication dated March 27, the Swiss parent Novartis AG had said that the promoter intended to reduce its shareholding in its Indian subsidiary Novartis India Ltd, which at the end of December 2012 stood at 76.42 per cent of the equity. Novartis AG said that it would take the offer-for-sale route through the stock exchange mechanism to comply with the norms within the timeframe prescribed.
Shareholding level
The public shareholding in Novartis India is at 23.58 per cent. The institutional shareholding is rather meagre. While FIIs hold 1.93 per cent, DIIs' stake in the equity is 1.05 per cent. Public (retail) shareholding was at 20.60 per cent as on December 31 last year.
The stock price witnessed wild initial gyration on the BSE, where it is listed, in the morning but stabilised after a while. The stock (face value Rs 5), which opened at Rs 580 levels, took a plunge to a 52-week low of Rs 565.05. However, after the announcement of stake dilution which was put on the BSE Web site at 9.38 a.m, the price movement reversed direction. The stock spiralled to a day’s high of Rs 639, where however it did not stay for long and settled around Rs 600 levels after a while. It closed at Rs 598.80, a gain of Rs 21.65 or 3.75 per cent.
Upside limited?
The reason for the stock's behaviour could be the realisation that upward potential in the counter might be limited in the near term as the percentage of stake dilution would be a mere 1.42 per cent if the parent company decides to just meet the minimum public shareholding norm of 25 per cent.
In terms of number of shares also, the stake dilution might not be very high as the equity capital of Novartis India is only Rs 15.90 crore. But the stock is down by nearly 30 per cent from its peak of Rs 934.20 it had touched on April 18, 2012, providing some room for appreciation. Its reserves stood at the end of last financial year at a huge Rs 801.89 crore and the stock trades at a PE ratio of around 15.
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