Markets gain further ground

Wed, 25 Nov 12:30 pm

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After a strong start, the Indian markets steadily rose higher into positive territory during the previous two hours of trade on account of sustained buying activity. Metal and energy stocks are currently seeing the highest gains.

The BSE-Sensex and NSE-Nifty are trading firm currently, up by around 130 points and 40 points respectively. The BSE-Midcap and BSE-Smallcap indices too are trading higher, up by around 0.8% and 0.9% respectively. The rupee is trading at 46.33 to the dollar.

Aluminium stocks are currently trading weak led by Hindalco and Nalco. Aluminium major Hindalco has raised about Rs 29 bn through a QIP (private placement of shares to qualified buyers) in order to part-finance its expansion plans. The company sold the shares at Rs 130.90 per share i.e. at a discount of 1.7% to Monday's closing price. This QIP will result in an equity dilution of 11%. The promoter's stake in the company will come down to 32% from 36% earlier as a result of this QIP. The company plans to utilise these funds for three greenfield projects which might require a total capital outlay of Rs 230 bn. This is in contrast with the recent overseas share sale by the company which was aimed at restructuring the company's debt position. It may be noted that at the end of 2QFY10, the consolidated debt on Hindalco's balance sheet stood at around US$ 5.4 bn. The average interest cost on the debt is around 7% annually and all the repayment dates are scheduled from 2015 onwards.

Retailing major Pantaloon Retail is planning some aggressive moves in order to secure a better cash position for itself. It is planning to hive off its value retailing stores to a subsidiary, sell a few support businesses to the promoter group and restructure its financial services business. These moves are aimed at generating cash to invest in its core retail business, reducing non-core funding commitments and ensuring a better debt to equity ratio. The company intends to be the leader in the organised retail space which currently holds 4.5% share of the entire retail market. This share is expected to go upto 25% by 2018.

It may be noted that, Pantaloon recently raised Rs 5 bn through a QIP which resulted in lowering its consolidated debt-equity ratio as of June 2009 from 1.5 to around 1.3. It expects to generate around Rs 1.9 bn by selling some of its subsidiaries. Additional funds will be generated through hiving off of the value retailing business. All these moves will go a long way in not only lowering the group's debt levels but also in reducing its interest burden. The stock of Pantaloon is trading higher currently.