Grasim, Aditya Birla Nuvo tumble after merger announcement

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Grasim Industries fell 8.13% and Aditya Birla Nuvo tumbled a staggering 24.42% at 9:21 IST on BSE after the board of the directors of these two firms announced the merger of Aditya Birla Nuvo with Grasim as part of a composite Scheme of Arrangement.

Grasim Industries was down 8.13% at Rs 4,170. Aditya Birla Nuvo tanked 24.42% at Rs 1,183.40.

Meanwhile, the S&P BSE Sensex was up 131.49 points or 0.47% at 27,991.09.

After the completion of the merger of Aditya Birla Nuvo (ABNL) with Grasim, the financial services business of ABNL carried under Aditya Birla Financial Services (ABFSL) will be demerged into a separate company. ABFSL will be separately listed on the bourses in due course. For merger of ABNL with Grasim, each shareholder of ABNL will get 3 equity shares of Grasim for every 10 equity shares held in ABNL. For demerger of financial services business into ABFSL, each shareholder of Grasim (post-merger) will receive 7 equity shares in ABFSL for every 1 equity share held in Grasim. After the completion of the two-stage transaction, Grasim will hold 57% stake and Grasim shareholders will own the remaining stake in ABFSL. The transaction is expected to be completed by Q4 March 2017 or Q1 June 2017.

Kumar Mangalam Birla, Chairman, Aditya Birla Group said that the proposed restructuring will create one of India’s largest, well-diversified companies with a healthy mix of businesses with steady cash flows and long-term growth opportunities. With diverse businesses spanning manufacturing and services, the combined company provides a play on India’s growth story, Birla said. The demerger and listing of the financial services business will unlock value for shareholders, he added.

Grasim’s consolidated net profit surged 64% to Rs 830 crore on 9% growth in net revenue to Rs 9089 crore in Q1 June 2016 over Q1 June 2015. Earnings before interest, taxation, depreciation and amortization (EBITDA) rose 36% to Rs 2214 crore in Q1 June 2016 over Q1 June 2015. The result was announced after market hours yesterday, 11 August 2016.

With regard to future business outlook, Grasim said that in viscose staple fibre (VSF), the business environment has improved globally. Capacity additions have slowed down which have resulted in higher operating rates in the industry, the company said. Grasim said it will continue to focus on expanding the VSF market in India by partnering with the textile value chain and better customer connect through Brand Liva. Enriching the product mix through larger share of specialty fibre in the portfolio will be yet another focus area, it said.

In cement, demand is expected to rise by about 7% in the current year, driven by the government’s focus on infrastructure development, housing, smart cities etc, Grasim said. The company is well positioned across the country to cater to the growth in demand, it added.

The demand for caustic in India is expected to grow with the rising demand from the end user industry, Grasim said. To meet rising demand, caustic capacity is being raised by 2.08 lakh tonnes per annum (TPA) through brownfield expansion at Vilayat (Gujarat) and debottlenecking at other plants, the company said in a statement.

Grasim Industries’ board of directors at a meeting held yesterday, 11 August 2016, also approved 5-for-1 stock split.

Grasim Industries’ two main businesses are viscose staple fibre (VSF) and cement.

ABNL’s consolidated reported net profit declined 56.79% to Rs 305 crore on 0.18% growth in revenue to Rs 3194 crore in Q1 June 2016 over Q1 June 2015. The result was announced after market hours yesterday, 11 August 2016. ABNL net profit on like-to-like basis declined 13.1% to Rs 305 crore in Q1 June 2016 over Q1 June 2015 due to reduction of ABNL’s share in Idea Cellular’s net profit by Rs 148 crore.

For the current financial year (FY 2017), ABNL has planned capex of about Rs 325 crore for its divisions, including Rs 191 crore and Rs 40 crore towards the expansion of linen yarn and VFY capacities respectively. Besides, there will be a capital requirement to the tune of about Rs 750 crore in the financial services businesses and equity requirement of about Rs 150 crore for ABNL’s 51% share in the new ventures viz. solar power, payments bank and health insurance, ABNL said in a statement.

ABNL is a business conglomerate. It commands leadership position across its financial services, telecom, linen and manufacturing businesses.