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CMC soars on divestment hopes

NetScribes/Abhijit Basu

Soon after the Centre accepted a Rs 5.51 billion bid by copper firm Sterlite Industries for a 51 per cent stake in state-run Bharat Aluminium Co Ltd, hopes of divestment in other state-owned firms have risen.

And so did their scrips. The CMC scrip rose 3.94 per cent to close at Rs 385, up Rs 14.60 from its previous close of Rs 370.40, on the heels of the announcement of the first big privatisation (Balco) in a decade.

"CMC is rising mainly on divestment news, with the government now perceived to be serious," said a senior software analyst with Span Capital Services.

He expected the scrip to rise further for some time. Though the analyst didn't want to put a finger on the exact quantum, he said it would rise by about another 5-10 per cent.

Analysts are, however, treading with caution over the CMC scrip. Repeated news of divestment has raised investor hopes time and again and the market seems to be in a state of confusion.

"Unless it is clear who the buyer is and till it is decided, I would remain cautious," said the analyst. "Lots has already been lost due to false information and expectations for some time now. The best idea would be to wait and watch," he said.

"CMC is traditionally not into very high-end services. It typically undertakes maintenance and training activities, for which it's not getting a very high valuation. The scrip, though on the up now, is echoing the same sentiment," said a senior analyst from Pranav Securities.

Analysts are also concerned over the company's low margins as compared to other technology companies. Also, its high exposure to the domestic market and lack of marketing initiatives, unlike its peers, is a cause for concern.

The government said earlier this month it planned to reduce its stake in CMC Ltd to 26 per cent, from its current holding of over 80 per cent.

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