MUMBAI: Much beyond what benchmarks can reveal, fifty-one sectors, out of a broader group of 66 industrial sectors, have got devalued over the past 13 months, well below their narrowly-represented market indicators.

While the collective valuation of BSE companies declined over 58% during the considered period, individual sectors like real estate, construction, steel, retail, shipping, consumer durables, finance, auto, cement and export sectors have fallen deeper in the range of 60-80%, since the first signs of economic downturn hit the domestic market. All the 66 sectors tracked by ET are logging a decline in market capitalisation. Only six sectors managed to restrict their valuation fall below 50%.

“In a bull market, when sector weightage goes up, it means there is a new entrant into that business or there is genuine growth in net sales (of the sector). When sector weightage falls (in bear market), it means either of the three: stock trading is down, sales turnover has dipped sharply or companies are exiting business,” said Parag Parikh Financial Advisory Services chairman, Parag Parikh.
The synchronised global recession coupled with dramatic changes in the financial landscape has resulted in India market capitalisation sliding from a $1.9 trillion early last year to $630 billion. Though valuations of Indian companies have touched five year lows, it still is not very clear for equity analysts, corporates or financial wizards as to what lies for companies (and stocks) ahead.

“Times were different when Indian companies crossed seas to acquire businesses. They had huge source of leveraged funds; credit lines kept flowing as there is no end to it. Indian companies acquired foreign majors double their size only because of their power to raise easy credit,” said a Mumbai-based merchant banker.

Hypothetically, Tata Steel head Ratan Tata, who acquired Corus paying Rs 36,000 crore, could now buy Sterlite Industries for just about Rs 20,000 crore or even steel biggie SAIL by paying just over Rs 30,000 crore. Mr Tata could have saved lots of ‘leftover’ money, which could easily assuage the need for Tata Motors floating a corporate FD scheme to raise money, paying a hefty 11% interest to investors.

Strategies and synergies apart, if Aditya Birla Group chairman Kumar Mangalam Birla managed to raise Rs 25,000 crore now (the money he paid to acquire Novelis), he could have lapped up three Sensex companies in diverse sectors–cement major ACC by paying Rs 10,000 crore, infrastructure major Jaiprakash Associates by doling out Rs 8,000 crore and pharma company Ranbaxy by writing a Rs 16,000 crore cheque. According to corporate advisors, biggies like Tatas or Birlas will not be perturbed by their high-priced acquisitions. Much more than
valuation, they would probably have considered strategic benefits of acquiring foreign companies, they opine.

“There is huge difference between a strategic acquirer and an investor,” said Karvy Stock Broking vice-president Ambareesh Baliga. “An acquirer like Tata or Birla would take a business decision while making overseas acquisitions. They would look at operating synergies much more than what they pay for a stake. In a way, they’ll always be ready to pay extra control premium while acquiring companies, if they find value in it,” Mr Baliga added.

However, Mr Baliga is quick to add that the sudden onset of recession and rapid fall in market values caught most acquirers on the wrong foot. “But who knows, ten years from now, almost all of these acquired companies could contribute to overall growth of India Inc,” Mr Baliga added.

According to experts, companies that were able to raise huge money from capital market were the smartest of all. Not taking into account issues like control premium, Reliance Power, which raised about Rs 11,700 crore through an IPO in early-2008, could easily buy Torrent Power paying just about Rs 3,400 crore or CESC by shelling out Rs 2,900 crore.

Delhi-based realtor DLF, which raised Rs 9100 crore through a public issue, could now buy Akruti City paying just Rs 5,516 crore or Indiabulls Real Estate by paying just Rs 2375 crore, thanks to fallen valuations.

source: Economictimes

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