One often comes across news of the change of ownership of a company, either through acquisition by a competitor or a larger conglomerate, or, in some cases, when the promoters choose to exit after having run the company for decades. One question that frequently arises is whether the change in ownership causes a transformation in the company or if it turns out to be a counterproductive move.
Initially, this phenomenon was limited to smaller companies. However, recently, we have witnessed some larger companies seeing their promoters selling their stakes. The latest example is Cipla, where the Hamied family is eager to sell its stake, and according to media reports, Torrent Pharma is interested in buying it out. The next few weeks will determine the fate of this deal, which could result in the creation of a new, large pharmaceutical player with the combined synergies of Cipla and Torrent Pharma.
Now, let’s take a look at the journey of two companies that we have been tracking, both of which have changed hands and are now being led by new teams. One of them operates in the pharmaceutical space, while the other is in the domain of housing finance.
In July 2020, US private equity giant KKR agreed to acquire approximately a 54% stake in Mumbai-based drug manufacturer JB Chemicals & Pharmaceuticals, one of the oldest pharmaceutical companies in India, for Rs 3,100 crore. This stake was acquired from the founder family, the Modys, whose patriarch, Mr. J.B. Mody, founded the company five decades ago.
Since then, over the past three years, the company’s revenues have grown by 73%, and net profits have increased by 50%. The share price has more than tripled in the corresponding period. In this case, it is obvious that hiring a completely new management team has helped to revive the stock and add newer perspectives for growth. It is led by Nikhil Chopra, who was the former India Business head of Cipla.
Another company that saw the promoter sell off his complete stake was Indiabulls Housing Finance. In February of this year, Sameer Gehlaut, the founder and promoter, stepped down as the company’s promoter and reduced his stake in the company from 21% in December 2021 to just 2% currently. According to analysts tracking this company, it is moving towards an institutionalized structure as the promoter is poised to completely exit from the company. One of the first steps taken by the new team is the reduction of debt.
The stock price of Indiabulls Housing Finance surged by 38% in August 2023. This surge was attributed to investors reposing their faith in the company after it repaid Rs 1,112.5 crores worth of bonds this month. So far in 2023, the stock price of Indiabulls Housing Finance has gained 25%, following a period of consistent underperformance in the market from 2018 to 2022.
While the stock is still far from its peak levels of Rs 1400 per share and is currently trading at around Rs 200 per share, there is optimism that the change in management structure will attempt to propel the stock higher from this point onwards.
These are two cases where our team has been monitoring developments related to ownership changes. In both of these cases, there has been a positive impact on both the company and its stock price. Although a change in management is not the sole criterion for investing in a stock, in many instances, it leads to a company’s turnaround within a few years’ time.
ABOUT THE AUTHOR
Ketan Sonalkar (SEBI Rgn No INA000011255 )
Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.
Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice
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