Stock Market Updates For February 21, 2014

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Corporate News/Results Corner

Renuka Sugars to sell 27.5% to Wilmar Intl for Rs 5.2 bn; Preferential allotment of 257.5 million shares of fresh equity at Rs 20.08 per share; Open offer of ~243.1 million shares or 26% stake in Renuka Sugars at Rs 21.89 a share – Massive equity dilution at cheaper valuation has disappointed the street and the stock may react negatively in short term and will stabilize at 7-8% discount to open offer price

Wilmar International Ltd, the world’s largest palm oil processor, is acquiring 27.5% stake in Shree Renuka Sugars Ltd (SRS) for Rs 5.2 bn. Through a second round, Wilmar will raise its investment to about Rs 12 bn. Both the tranches of investment will involve the issue of fresh equity capital by SRS. The acquisition is being carried out through Wilmar’s fully- owned subsidiary, Wilmar Sugar Holdings (WSH). The deal values SRS at Rs 18.8 bn. It has been proposed that proceeds of the stake sale will be used to repay SRS Rs 37 bn debt in Indian operations. The company’s consolidated debt was Rs 84.8 bn as on March 31, 2013.

The first step involves the investment of Rs 5.2 bn by Wilmar, through a preferential allotment of fresh equity shares of up to 257.5 million at Rs 20.08 each. After the preferential issue, existing promoters, as well as Wilmar, will hold 27.5% of SRS expanded equity share capital.

Then, Wilmar and the Indian promoters will carry out an open offer for up to 26% (or 241.5 million shares) of the company’s expanded equity share capital at Rs21.89 a share. The second step will involve Wilmar and SRS’s existing promoters participating in a rights issue to raise up to Rs 7.3 bn. Meanwhile, SRS has also signed a joint venture agreement with its promoters and WSH to jointly control the company.

Both parties will have equal shareholding and board representation in SRS. While existing promoters will continue to oversee the company’s management, Wilmar will be actively involved in strategic decisions. The deal will help partly reduce SRS’s consolidated debt, which rose sharply after the company acquired two Brazilian units in 2009 and 2010.

We believe the deal has been stuck at low valuations and the street is disappointed as the deal will lead to massive equity dilution and minority shareholders has nothing to gain out of this deal. We expect the stock to react negatively in short term and will stabilize at 7-8% discount to open offer price.

Economic and Other News

<strong<IMF lauds india’s monetary policy to control inflation

The International Monetary Fund (IMF) lauded India’s ability to keep a tight rein on spending and monetary policy as it battles an economic slump and inflation, praise that comes amid signals of a difference of opinion over this between the government and the Reserve Bank of India. “Executive directors commended the Indian authorities for their ability to maintain macroeconomic and financial stability amid a challenging macroeconomic landscape,” IMF said, welcoming efforts to reduce external vulnerabilities, rebuild buffers and revive investment.

Need to align our export schemes with WTO norms

India will need to restructure its export promotion schemes by making them less dependent on government support to be WTO compliant, commerce secretary Rajeev Kher said, adding that several developed countries were raising concerns over India’s export promotion schemes. “We will have to re-engineer (the schemes) in a manner that they conform to international laws to which we are parties,” Kher said at the CII Export Summit. He said the WTO Agreement on Subsidies and Countervailing Measures (ASCM) allows India (which is an Annex VII country) to provide export subsidies as its per capita GDP on nominal terms (on 1990 prices) is still within $1,000.

World News

Initial Jobless Claims Dip 3,000 Last Week

Layoff activity moderated a bit last week. The U.S. Labor Department revealed that initial jobless claims fell 3,000 to 336,000 for the week ended February 15. This followed an unrevised reading of 339,000 in the previous week. Economists had expected the figure to dip to 335,000. Jobless claims measure the number of people filing for first time unemployment benefits. It is considered a good gauge of recent layoff activity, providing a glimpse at the health of the labor market.

US Consumer Inflation Remains In Check

Retail inflation remained in check in January; a slight increase in consumer prices for the month, but the advance slowed down from the previous month and matched economists’expectations. The U.S Labor Department revealed that consumer prices advanced 0.1% in January. This followed an increase of 0.2% in the previous month Economists had expected the figure to rise 0.1%. Core prices, which exclude the volatile food and energy sectors, also edged up by 0.1%. This matched the 0.1% rise seen in December.

Eurozone Private Sector Growth Slows In February

Eurozone’s private sector economy expanded for the eighth successive month in February,but the pace of improvement slowed unexpectedly as recovery remains fragile and uneven.The flash composite output index, which measures the performance of manufacturing and services, fell to 52.7 in February from January’s 31- month high of 52.9, results of the Purchasing Managers’ survey showed. Economists were looking for a score of 53.1. The index has now remained above the no-change 50 mark for the eighth month in a row.

Market Trend

NIFTY – CMP 6092

Synopsis

Nifty opened with a negative bias & traded in a tight range for the 1st half, but selling pressure was witnessed on all rises & finally closed the day 1% negative.

Going forward, 6085 is an important support which if held, can lead to a further short covering upmove till 6150.

Only on a break of 6085 & sustaining below it, support zone of 6020-6030 would be retested.

Daily Momentum is in positive territory while Weekly momentum is in negative indicating choppy price action at higher levels.

Bank Nifty – CMP – 10428

Synopsis

Bank Nifty opened with a negative bias & traded in a tight range for the 1st half, but selling pressure was witnessed on all rises & finally closed the day 1.7% negative.

Going forward, 10360 is an important support which if held, can lead to a further short covering upmove till 10650.

Only on a break of 10360 & sustaining below it, support zone of 10200-10140 would be retested.

Daily Momentum is in positive territory while Weekly momentum is in negative indicating choppy price action at higher levels.

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