This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at firstname.lastname@example.org
With its first divestment candidate this financial year, the government today fixed Rs. 83 as the base floor price for SAIL offer for sale (OFS) which is scheduled to be carried out on the stock exchanges tomorrow. Targeting Rs. 43,425 crore in divestment proceeds this fiscal year, the government has decided to sell its 5% stake in the company i.e. 20.65 crore shares.
At Rs. 83 a share, it seems that the government will be able to raise a minimum of Rs. 1,714 crore from this sale. Currently, the government holds about 80% stake in the company.
Before we consider the factors to decide whether we should invest in this OFS or not, lets first check the basic details of this offer.
Shares on Sale – The government will be selling 20,65,26,264 shares in the offer for sale, out of which 10% shares i.e. 2,06,52,626 shares have been reserved for the retail investors.
Offer Price – Share price of SAIL closed at Rs. 85.25 on the NSE today. The government has fixed Rs. 83 as the floor price in the OFS, which is a discount of 2.64% to its closing price. The floor price of Rs. 83 was disclosed by the government after market hours today. So, the market will react to this price in the trading hours tomorrow.
5% Discount for the Retail Investors – The company has decided to offer a discount of 5% to the retail investors. This discount will be offered on the price at which the company allots its shares to the retail investors.
Time Period – SAIL OFS will remain open for a single day only and that too, during the trading hours of the stock exchanges. You’ll get to know the status of your bids by 6 p.m. and if successful, you’ll get the shares allotted by the designated stock exchange on T+1 basis.
How does an OFS process work?
If you are investing in an OFS for the first time and want to know more about the process, here is the link to check the details about it. If you have any query regarding the process, please share it here, I’ll try to respond to it as soon as possible.
How to invest?
You need to contact your broker to know how it is facilitating the bidding process. I think most of the broking firms must be providing the investment facility through their online platforms. If you don’t have access to the online platform, you should contact the customer care department of your broker and get the bid placed through telephonic confirmation.
Should you invest in SAIL OFS?
I think it is not the best of the times for a company like SAIL to hit the capital markets. On one hand, global commodity prices including steel are on a steady decline as a result of falling demand and on the other hand, the pace of supply is expected to steadily go up in the next few years. So, these companies will continue to face pricing pressure in the absence of a demand pick-up.
As far as the financials are concerned, I think for a public sector company like SAIL, it doesn’t make sense to deeply study its financials and try to gauge its value based on certain financial ratios like price-equity ratio etc. I am saying this as firstly it is a government controlled company and secondly, it is into a cyclical industry.
The fortunes of companies like SAIL depend on various factors like economic health of the country, pace of industrial activity, global commodity prices and how well it is managed by the government and its officers.
In March 2013, the government sold its 5% stake in SAIL at a price of Rs. 63.07 per share. At Rs. 83 a share, the current government is seeking 32% premium to the last OFS price. I think the current price of Rs. 83 is fair and I expect around 35-40% returns from my investment in SAIL in the next 18-24 months. However, with positive economic environment, returns could also surprise on a positive side.