CESC shares plunge 19% on Firstsource acquisition
Shares in power utility CESC and business process outsourcing company Firstsource Solutions opened with deep cuts on Friday. CESC shares plunged nearly 19 per cent in early trade to a low of Rs 270 while Firstsource Solutions shares dropped 10 per cent to Rs 12.81.
CESC had announced the acquisition of a 49.5 per cent stake in Firstsource Solutions for Rs. 395 crore on Thursday, but some brokerages downgraded CESC post the deal announcement.
"For CESC this is an un-related diversification and puts a question mark on cash allocation strategy. We expect adverse stock price reaction to this acquisition," Macquarie said in a report today.
Citi downgraded CESC to "sell" saying this acquisition is unrelated and past track record of unrelated retail diversification has been poor.
CESC expects to invest a total of Rs. 650 crore to acquire Firstsource including a mandatory open offer for another 26 per cent of the shares.
Sanjiv Goenka, vice chairman the RP-Sanjiv Goenka Group which controls CESC has justified the acquisition.
"Fundamentally, the growth in the power sector has slowed and so we have been looking outside the power sector... Firstsource business offer tremendous upside and potential," Mr Goenka told NDTV Profit.
Analysts who track CESC shares said the sharp correction has pushed the stock in a bear territory.
"The stock has turned weak in the medium term and 305 will be a big hurdle for the stock," independent analyst Sarvendra Srivastava said.
At 09.20 a.m., Firstsource Solutions shares traded 7 per cent lower at Rs 13.30 on the BSE while CESC shares were down 10 per cent to Rs 298.20.
Firstsource will issue about 227 million shares, or 34.5 percent of equity capital, on a preferential basis to a unit of CESC at Rs. 12.10 per share. CESC has also separately agreed to buy a total 15 percent stake from existing Firstsource shareholders - Temasek Holdings, U.S.-based Metavante Investments and ICICI Bank - at Rs. 12.20 a share, it said in a statement to the stock exchange.
(With inputs from Thomson Reuters)