Well. I must admit I shouldn’t have written-off this Gujarat-based auto ancillary company while screening out the weekly bulk deals last week.
On Feb 17 2012, Morgan Stanley had bought 1 lac shares of Setco Automotive at an average price of Rs. 174/- from an unknown entity. Finding the deal to be worth just Rs. 1.7 crore, I deleted it from the list of candidates for discussion.
However, I again chanced to find the name in the list of bulk deals for the day, today.
On Feb 21 2012, Morgan Stanley bought an additional 3 lac shares of Setco Automotive at an average price of Rs. 174/- from an unknown entity. Apart from the promoters, New Vernon Private Equity, Ares Diversified and Reliance Mutual Fund are the other large shareholders in Setco Automotive. But who could be the seller?
I zero-in on New Vernon due to several reasons. First, Setco Automotive is doing well and the stock price has appreciated. Therefore, the promoters probably will not like to cut their stake at this time. Second, Ares Diversified does not have 4 lac shares to sell to Morgan Stanley. Third, Reliance Mutual Fund does not like to do shady deals. It always rings the bell and wants others to know that it is buying/selling into a particular company.
New Vernon makes a perfect choice because being a private equity it needs to exit investments within a limited horizon of 5-7 years; the PE firm holds much more than 4 lac shares in Setco Automotive; the stock price of Setco Automotive has appreciated well to deliver good returns; and New Vernon has offloaded stake previously.
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