Grasim trades lower after spin-off from fin services

Grasim Industries on Wednesday ended 3.7 per cent lower on the BSE, after the spin-off of its financial services business became effective. It had slipped seven per cent in intra-day trade to a low of ~1,013 from its opening of ~1,091 but recovered to close at ~1,050.

In August 2016, the boards of directors of Grasim Industries, Aditya Birla Nuvo and Aditya Birla Financial Services (now known as Aditya Birla Capital or ABCL) approved the merger of Aditya Birla Nuvo into Grasim, and subsequent demerger and listing of its financial services business.

Grasim was to issue three shares for every 10 shares of Aditya Birla Nuvo held by investors. Investors in Grasim were to get seven shares of Aditya Birla Financial Services for every one equity share they owned.

In announcing the scheme, Kumar Mangalam Birla, chairman of the Aditya Birla Group, said: “The proposed restructuring will create one of India’s largest and 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. The demerger and listing of the financial services business will unlock value for shareholders.”

Premji Invest, private equity investment fund of Wipro chairman Azim Premji, bought a 2.2 per cent stake in ABCL for around ~700 crore. ABCL will issue 48 milion preferential shares at ~145.4 each to PI Opportunities Fund, an affiliate of Premji Invest.

“The recent value discovery of ABCL has unlocked value for Grasim. Valuing the standalone entity at eight times the FY19 estimated profit after tax and stakes in UltraTech Cement, ABCL, Idea and others at a 40 per cent holding company discount to our fair value estimates, we maintain a 'buy' (rating), with a target price of ~1,420. Excluding ABCL, the target will get revised down to ~1,233/share," analysts at Edelweiss had said in a report after this development.