Getting savvy

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Sunday , April 13, 2008 at 2329 hrs Unfettered and undeterred. These two words typify the very mood of Indian corporations. The way corporations across sectors are striking deals (read acquisitions) with utmost ease and efficiency, demonstrates that keen observation of value investments always win over the prevailing situation in the markets. Albeit the plummeting of markets and recurring bad news, the strength, appetite, and agility for investment opportunities is yet to wane. And in such developments, investors are set to gain considering the pace, acquisition-size, and potential involved in the acquisitions.

Acquisitions like the HDFC Bank's of Centurion Bank of Punjab, and ICICI Bank with Sangli Bank, and the still unconfirmed Orchid Chemicals-Solrex, and the likes, would see amalgamation of advantages and talents of the acquirer and the acquired entity and their resultant impact on the performance of these companies. However, in these developments, there were investors, who lost opportunities of picking up these companies in their portfolio, while others milked these acquisitions.

Hence, monitoring and being invested in companies, which have delivered fair performance and are relatively smaller in their respective sectors, could help you know about the possibilities of a bigger player acquiring these stars, which would have the ability to become the sun.

FE Investor, in a study of fundamentally strong companies across the sector, finds out the very potential targets, which you as an investor, can keep a tab of, and, if not invested, can invest in these companies. There are two things at which you need to have a closer look. First: the companies chosen (see the table) have a proven track record and are fundamentally strong and hold 'a possibility' of an acquisition by a stronger player and even if the acquisition didn't materialise in the short-term, these companies can add value to your portfolio. Companies, which scored well on the return on capital employed (RoCE), return on net worth (RoNW), sales, and PAT parameters, were chosen and sifted through. Second: there are certain characteristics, which a potential acquisition target company has, and in understanding such characteristics, you could identify a company, which could be a potential acquisition target for a bigger player in its sector. Here is an elucidation of these characteristics, which could help you pick these companies and enhance your possibility of deriving lucrative gains.

Understand the big brother’s needs