Sensex Opens Flat; Tech Mahindra Gains on Acquisition

Tue, 7 Mar 09:30 am

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Asian equity markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.10% while the Hang Seng is down 0.28%. The Nikkei 225 is trading down by 0.17%. Stock markets in the US & Europe finished their previous session on a weak note.

Meanwhile, Indian share markets have opened the day on a flattish note. The BSE Sensex is trading higher by 19 points while the NSE Nifty is trading higher by 14 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.2% & 0.3% respectively.

Barring information technology stocks, metal stocks & realty stocks, all the sectoral indices have opened the day in green with power stocks and energy sector being the top gainers on the BSE. The rupee is trading at 66.76 to the US$.

Information Technology stocks have opened the day on a mixed note with Tech Mahindra and HCL Technologies being the most active stocks in this space. According to an article in a leading financial daily, Tech Mahindra (TechM) has agreed to acquire US-based healthcare IT consulting company CJS Solutions Group for an enterprise value of US$110 million (about Rs 7.3 billion) to expand its presence in the healthcare space.

Reportedly, TechM will make upfront cash payment of US$89.5 million to buy an 84.7% stake in CJS and will purchase the remaining over three years. This acquisition is in line with TechM's 'DAVID (digital, automation, verticalisation, innovation and disruption)' strategy. It will give the company access to prominent healthcare companies in America and Britain.

The acquisition comes at a time when Indian IT firms are bracing for potential difficulties in the US, their largest market, because of the protectionist policies of the Donald Trump administration. The acquisition will not only position TechM as a significant player in the healthcare provider space but will also provide an opportunity to go deeper in this space, the reports noted.

TechM has been on an acquisition spree, with the company buying as many as 10 companies since 2012. The acquisition of Target Group for US$164 million and Bio Agency for US$66 million, both in 2016, were among its biggest buys.

The company has made several acquisitions in this segment to enhance its presence across the value chain and expand its footprint globally. What is more commendable, in spite of multiple acquisitions, the company has been able to maintain its debt to equity ratio at very low levels.

Large Acquisitions Yet Low on Leverage

Tanushree Banerjee, Co-head of Research is of the view that for the upcoming period the pace of acquisitions will slow down. Further, will the synergies of acquired companies (Subscription required) help in better cash flows? Here's what she has to say:

• "Tech Mahindra is now rightly considered acquisitions specialist! The company has made a slew of acquisitions since Satyam. And has been fairly successful at the integration. With more than US$4 billion in revenues, over 800 clients and a presence in more than 90 countries, Tech Mahindra has become a force to reckon with."

Tech Mahindra share price opened the day up by 1.2%.

Moving on to the news from steel stocks. In the latest development, the government has approved outright sale of Steel Authority of India (SAIL)'s three special steel units, including Salem and Alloy Steel plants.

In pursuance of the decision, SAIL has now sought advisors, including legal and merchant bankers, to carry out the strategic sale along with transfer of management control in Alloy Steels Plant (ASP), Salem Steel Plant (SSP) and Visvesvaraya Iron and Steel Plant (VISP).

The government of India has 'in-principle' decided for strategic disinvestment of ASP, SSP and VISP of SAIL with transfer of management control. One must note that, the government has budgeted to raise Rs 150 billion from strategic disinvestment in 2017-18. The Centre currently holds 75% stake in SAIL.

Considering disinvestment strategy, the government's disinvestment target has become all the more difficult to achieve. The dismal financials of public sector banks, laden with bad loans, has pulled down the overall performance of the public-sector enterprises in the country. The aggregate profits of 66 listed public sector firms, having sales turnover of at least Rs 500 million, eroded by 44% in FY16.

The industrial sector witnessed pain with seven out of the total of 30 firms slipping in to the red in FY16. These include the likes of large companies such as BHEL and SAIL.

SAIL share price began trading down by 0.2%.

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