Shareholder activism against Indian companies has seen a spike ever since the Satyam scandal broke last month. Add to it rumours about companies whose Indian promoters have pledged shares to financial institutions and now facing margin calls from lenders as they see the value of stock crash due to the global credit crisis. A number of companies have had a rub off effect and are witnessing hectic activity on the stock exchanges.
VCCircle picked three such cases- IT firm Rolta which generates key income from domestic software related business, London's AIM-listed Hirco which is owned by Mumbai-based property developers Hirandananis and Siemens India.
ROLTA INDIA: Rolta which is promoted by KK Singh (owns more than 40% in the company) saw heavy trading volatility on Tuesday as rumours floated of promoters pledged shares being offloaded by some institutions and that some of the independent directors of the company have resigned. The scrip was down around 60% during intra-day trading, before recovering to end the day at Rs 87.10, down 17.75%.
Rolta denied the rumours as baseless and now plans to approach the market regulator Sebi to look into the trading activity yesterday as less than 5% of shares traded were for delivery meaning close to 95% of trading was for speculative gains. It meant a field day for traders and arbitrageurs who were seen striking bulk deals.
In the meantime, Rolta India CMD KK Singh said asset management major Fidelity had written to the management that they are increasing their stake in the company from 5% to 7%. He also said that the company had reconfirmed with all banks that no pledged share was sold.
HIRCO: On December 18, Hirco board approved the acquisition of two SPVs (which is developing two townships — one at Panvel near Mumbai and the other at Chennai) owned by the promoter Hiranandani family. Top shareholders, including hedge funds Laxey Partners and QVT, besides specialist property investor Alpine, had rallied against the proposed merger which would have given majority control to the Hiranandanis.
They had argued that the proposed merger reduces the net asset value (NAV) of Hirco shares thereby reducing chances of cash distributions going forward. There were also questions raised on the merger valuation.
Analysts were quick to draw parallels with the now infamous merger proposal of public listed IT firm Satyam with Maytas, the property arm of Satyam promoters Rajus.
Hirco had called the EGM on January 16 to enable its shareholders to vote on the restructuring proposal.
Ceding to mounting pressure from shareholders against its merger proposal, Hirco has deferred the EGM, until further notice. In a statement Hirco said: "There is a variety of views about the proposed merger and how best to address Hirco's share price discount. The Board feels it essential that sufficient time is allowed for all views to be considered and discussed."
SIEMENS INDIA: Shareholders and brokerages have been voicing their concerns over merger activity initiated by Indian as well as multinational promoters. Among those who have faced shareholders ire include German engineering giant Siemens which announced that its Indian public listed company is going to sell a wholly-owned IT subsidiary, Siemens Information Systems (SISL), to global parent for a consideration of Rs 449 crore.
Following this Siemens stock, got drummed on Tuesday as some brokerages advised clients to exit the stock. Brokerages had also questioned the transaction. "We continue to be disappointed by the disclosure standards at Siemens India. Historically, subsidiaries that have been sold to Siemens AG have witnessed EBITDA margin erosion, prior to the sale. During FY07, Siemens Public Communication Networks Ltd (SPCNL) was sold at book value of Rs 163.9 crore and prior to the sale, had also experienced decline in PBT margins. SISL has also witnessed decline in reported profitability, and book value as at September 8 stands at Rs 85.1 crore," said a Motilal Oswal Securities report.
Kotak Securities in an earlier report on Siemens had also highlighted that drop in profitability of SISL, which contributed to about 5.7% of EPS of Siemens Ltd for fiscal year ended September 2008, may be a precursor to its eventual divestiture in favor of parent entity.
Kotak report said Siemens had reported PBT margin of 7.3% for SISL in the year ended September 2008 versus PBT margin of about 16% in the year ended September 2007: "SISL accounted for 8.5% of consolidated PAT estimate for FY 2009E and FY2010E and is therefore relatively significant to earnings."
For the year ended September 2008, SISL had sales revenues of Rs 994 crore and a profit before tax of Rs 73 crore. Siemens attributed the fall in margins to a change in its business model.