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Daewoo: Ahead at full throttle

Raghuvir Srinivasan

THIS column tracks price movements on the Bombay Stock Exchange. The gains and declines in prices are with reference to the closing price of the first trading day in a cycle of 15 trading days. The Index Of Consistency (Column `N') shows the difference between the number of days, prices gained and number of days they declined.

THE market seems to be searching for direction as witnessed by the erratic movement during last week's trading. The week-end close in the Sensitive Index was only marginally higher than the week's beginning. Most operators seem to be waiting for the firs t quarter results to trickle in before taking major positions. Against this backdrop, only stocks of companies witnessing substantive developments have been active.

One such is the stock of Daewoo Motors. The stock is suddenly in the limelight attracting heavy trading volumes and moving up in the price band. It has climbed from Rs. 8.40 in the last week of May to Rs. 13.85 now. A fortnight ago, the stock was trading just below par at Rs. 9.80. Trading volumes, averaging around 4,000 shares till recently, have shot up to about 30,000-40,000 shares over the past few trading sessions.

The sudden interest in the stock is not surprising. Daewoo's South Korean parent is up on the auction block and last week, Ford was shortlisted as the preferred buyer for the company worldwide. Ford, which bid $6.9 billions for Daewoo Motors, was shortli sted from among such strong bidders as the GM-Fiat combine and DaimlerChrysler-Hyundai combine.

Ford will now have to do the due-diligence study of Daewoo Motors worldwide and if it is satisfied, the deal is expected to go through.

In India, where both Ford and Daewoo Motors are present in a big way, the expected acquisition would change the face of the passenger car industry. The Ford-Daewoo combine could prove to be formidable as together they would own at least two major success ful brands _ the Matiz and the Ikon.

The fact that both of them have integrated facilities means that with some minor investment, they can produce both models in their two plants at Chennai and New Delhi.

The Matiz has seen its sales gather momentum over the past six months to sell an average of 5,000 cars a month. The Ikon is also holding steady in its market. The combined entity can exploit the logistical advantages from their plant locations in the nor th and south. Also, the engine and transmission unit of Daewoo can come in handy for Ford as it has not set up an engine unit at its Chennai plant. Over these advantages would come the benefits of a combined marketing network.

The Daewoo Motors, South Korea, auction holds critical implications for the Indian market as whoever succeeds in it acquires a big presence in the country. So the biggest advantage for Ford, if the deal comes through, would be that it would push its worl dwide competitor, General Motors, out of the reckoning in the Indian market.

Almost 95 per cent of the Daewoo Motors India stock is owned by the South Korean parent. The balance represents the free float in the market. Obviously, the low free float is also a factor in pushing the prices steeply upwards. The direction of future mo vement depends on whether Ford is satisfied with its due-diligence to ultimately go through with the bid.