Broking firms see GSKC stock price fall after open offer

Last Updated: Sat, Jan 12, 2013 18:40 hrs

Broking firms have recommended shareholders of GlaxoSmithKline Consumer Healthcare Ltd (GSKC) to cash in on the opportunity and tender their shares amid fears of stock price fall after open offer.

“We are seeing the share price of GSKC to fall similar to the incident happened in the case of ABB, Ranbaxy Laboratories and Siemens. Hence, shareholders must get the opportunity of high offer price and offload their holding to the company,” said Girish Jain, executive director, KJMC Capital Market Services.

Siemens, for example, came out with an open offer at Rs 930 in April 2011. But the stock price within a month of closing the open offer declined to Rs 870, which is currently quoted at Rs 660. Similar incidence was witnessed in ABB and Ranbaxy also. Jain sees the repeat of Siemens saga in GSKC, too.

GlaxoSmithKline Pte Ltd, along with Horlicks Ltd, is making a voluntary open offer to the shareholders of GSKC to acquire 13.3 million (31.84 per cent of equity) at Rs 3,900 per share to take its holding to 75 per cent. The parent offer is at a premium of 28 per cent compared to the closing price of Rs 3,040 on November 23 a day before the offer was made. The company plans to invest a massive Rs 5,221 crore to acquire this incremental stake.

To achieve the minimum cut-off level of 75 per cent, the company requires stake purchase from foreign institutions, domestic institutions and individual investors that hold 15.5 per cent, 16.5 per cent and 24.8 per cent of equity stake, respectively.

Sanjay Singh of Standard Chartered said in a recent interview he felt the Rs 3,900 a share offered by GlexoSmithKline Plc in its open offer for its Indian subsidiary is “pretty fair rational valuation”. The logic that dividend payout will increase and hence the stock will become more attractive is a flawed one,” Singh said.

The offer price was at a 28 per cent premium to the stock’s closing price at the time the offer was announced about a month ago and a marginal premium from the Friday’s closing price of Rs 3,862.45. Singh, however, does not see stock going further above Rs 4,000.

According to Dinker Shanbhag, head-equity institutional sales at Lotus Global Equities, the offer price of Rs 3,900 is attractive and shareholders should tender as much share as possible.

“There is not much left in terms of the price appreciation from here on. We are recommending our clients to tender their share in the open offer. We estimate 60-70 per cent of shares will only get accepted and once the offer closes, the share price could fall. Retail shareholders can tender the shares in the open offer and re-enter once the stock price falls after the offer closes, in case they want to remain invested in GSKC,” he added.

“We do not expect the share price holds the value over Rs 3,000,” Shanbhag said.

Meanwhile, Anand Rathi Securities has set a price target of Rs 3,425 (after the open offer price was announced). Hence, the open offer price of Rs 3,900 works out to the price-earnings (P/E) ratio at 38 in comparison leading fast-moving consumer goods companies like Hindustan Unilever, ITC, Britannia and Godrej Consumer are trading at P/E ratio of 35.

Experts said that in the last few years when the voluntary open offer is made, the stock price of these companies fell after the offer closed. For instance, ABB share price is down from the open offer price of Rs 900 to Rs 720.

“Looking at the past trends, we see GSCK stock price, too, to tank after the offer closes,” he added.

The stake hike may also reflect India’s importance in GSKC’s emerging market portfolio. While its total revenue grew five per cent in 2011, sales in India rose 19 per cent, in China 22 per cent and in Africa and West Asia 22 per cent.

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