Essars make a comeback

Till some time back, they were the outcasts on stock exchanges.

But the three Essar group companies, managed by the Ruia brothers Shashi and Ravi, have burst to the fore, ramping up gains at such a clip it could make them the biggest gainers of 2007 in percentage terms.

Christmas has certainly come early for the group, whose market capitalisation has almost quadrupled in just a month.

The spotlight of this year’s bull run has thus far has been on the Ambani brothers with shares of their companies rising to historic highs, which gave shareholders and themselves paper wealth of legendary proportions.

Now it’s the turn of the Ruia brothers and three of their companies — Essar Oil, Essar Shipping and Essar Steel.

Between November 7 and December 7, the market capitalisation of the three companies rose by an eye-popping Rs 33,793 crore or more than $8 billion, with nothing changing at the ground level.

The perception in the market of the Essar group being not friendly to the shareholders grew even as the group charted out a delisting process that envisaged yanking shares from Essar Steel, Essar Oil and Essar Shipping off the bourses.

“They have burst into action because the overhang of delisting has lifted considerably,” said Vinod Kumar Sharma, director and head of research at Anagram Securities.

Essar Oil, which recently announced plans to more than double its refining capacity in Jamnagar - next-door to Mukesh Ambani’s mega refinery ventures — rose almost 400% in just one month, to Rs 302 per share, on Friday.

Essar Shipping has gained 139% to Rs 94.60 in the same period, while Essar Steel, the company whose delisting was halted by the Securities Appellate Tribunal last week, rose 48.63% to Rs 67.85, much higher than the delisting price of Rs 48 per share.

Deepak Jasani, head of retail research, HDFC Securities, reasons the rise partly to the inclusion of Essar Oil in the futures & options segment.

“It helped matters. There are more technical reasons than fundamental to explain the rise,” said Jasani.

He believes that after Reliance Petroleum’s runaway rise, the market was in the lookout for similar stories and discovered that Reliance Petroleum had a neighbour next door which was not short on ambition.

What this Essar rally does is that it unlocks value for the promoters to spearhead another round of mega-expansion in oil, steel and shipping sectors.

Li ka Shing, the Hong Kong-based entrepreneur who partnered them in Hutch Essar (now Vodafone Essar), had helped the Ruias unwittingly unlock value, when he sold his stake to the European telecom services company.

They have secured an assurance of a minimum $5 billion for their minority stake in the second-biggest GSM cellular telephony provider.

But some small investors would be ruing. For selling out before the rally sparked after holding out for years, for the Essar projects to fructify.

In the dramatic fag-end pole vault to stock market riches, the Ruias are the biggest gainers by virtue of their 80% thereabout holdings.

There are failings in the group which analysts perceive. And the most common is what Vinod K Sharma talks about, which is not willing to share “timely information” with the outside world.

A lot of small investors would have sold their stock, when the share prices started inching up, says Sharma.

But the biggest challenges remain, of completing projects and wrapping financial closures on time. But with the changing fortunes on the bourses, the savvy brothers may be pulling off a major turnaround not only in stock market fortunes but also in taking a big leap to a business house of standing.

Via DNA