On June 1, 2017, The Hon’ble National Company Law Tribunal (“NCLT”) bench at Ahmedabad, have approved the merger of Aditya Birla Nuvo Ltd. (“ABNL”) and Grasim Industries Ltd. (“Grasim”), to be followed by the listing of Aditya Birla Financial Services Ltd (“ABFSL”).

APPOINTED DATE

ABNL will be dissolved from 1st July 2017 for first Quarter ended 30.06.2017 will not be available for approval of its shareholders as the first quarter results may not get approved as there is no board post 1st July 2017.
Since the appointed date was effective date, filing of the certified copy of the order with ROC 1st July 2017 on which date the company will be deemed to have complied with. Therefore, 1st July 2017 will be Effective date and appointed date for effectiveness of merger of ABNL with Grasim. So ABNL shall stand transferred to and vested in Grasim with effect from the effective date as a going concern.  And 4th July 2017 will be Effective date and appointed date for effectiveness of Demerger of financial services from Grasim to ABFSL.

But to note is that the shareholder of ABNL will become shareholders of Grasim and ABFSL, therefore they will be part of AGM of the Grasim and ABFSL respectively. With said the management should also initiate and made available separate financial of ABNL for shareholder’s view or approval.

FIXATION OF RECORD DATE

The merger committee of the board of directors of Grasim Industries Limited has fixed 6th July 2017 and 20th July 2017 as the record date for merger and demerger respectively.

SPLIT OF SHARE AND SWAP RATIO

Before the approval of the scheme Grasim has split share from Rs. 10 each to Rs. 2 each which has resulted into in adjustment to Share Exchange Ratio

Earlier Adjusted Swap ratio
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 merger of ABNL with Grasim, each shareholder of ABNL will get 15 equity shares of Grasim for every 10 equity shares held in ABNL.
For de-merger of Financial Services business into ABFSL, each shareholder of Grasim (Post-merger) will receive 7 equity shares in ABSFL for every 1 equity shares held in Grasim. For de-merger of Financial Services business into ABFSL, each shareholder of Grasim (Post-merger) will receive 7 equity shares in ABSFL for every 5 equity shares held in Grasim.

Please Note: There will be improvement in Liquidity due to Sub-divided equity shares from one (1) equity share of face value of Rs. 10 each fully paid up to five (5) equity shares of face value of Rs. 2 each fully paid up in Grasim.

PROMOTERS STAKE

The promoters increased stake in Aditya Birla Nuvo Limited by 4.37% from 58.39% to 62.76%, which will lead to simultaneously increase stake in Grasim and ABFSL post-merger.

Promoters stake in ABFSL i.e. Aditya Birla Capital Limited post rename will 75% of which through Grasim 57.30%
Grasim earlier stake was  38.82% will increase to 40.10% and allotment of 11,97,000 Equity shares in ABFSL will increase promoters stake by 0.56% i.e. 75% including Grasim.

Particulars Figure
Amount Invested by Promoters in ABNL post Scheme announcement (Crores) 774.74
Share Purchased pursuant above investment by Promoters in ABNL 57,00,000
Share will be allotted based on Swap ratio in Grasim for this additional investment 85,50,000
Share that could have been acquired based on Grasim share price as on 30.12.2016 89,98,139
Additional Shares would have been acquired in Grasim with direct Investment 4,48,139
Market Price of Grasim as on 23.06.2017 1,155
Lower value for promoters for stake acquired (Crores) 51.76

Please Note: If promoters would have directly acquired shares in Grasim then they would also get additional 6,27,395 Equity shares of AFSPL.  

Table 1: Shareholding of Grasim Post Merger of ABNL and ABFSL

Particulars Grasim (%) ABFSL (earlier) (%) ABFSLPost acquisition by promoters (%)
Grasim 57.30% 57.30%
Promoters 40.10% 17.10% 17.70%
Public 59.90% 25.60% 25.00%
Total 100.00% 100.00% 100.00%

MARKET PRICE MOVEMENT

Particulars Aditya Grasim Ratio
Market Price as on 11.08.2016 considering split 1,565 907 17.25: 10
Market Price as on 12.08.2016 considering split 1,300 913 14.24: 10
Market Price as on 23.06.2017 considering split 1,746 1,174 14.87: 10
Change in Price from announcement 11.57% 29.44%

On the date on announcement Aditya Birla was overpriced therefore immediately after the date of announcement, Aditya Birla collapsed to streamline with swap ratio.

Grasim Becoming umbrella for many unrelated businesses, in future it will also be likely to trade at much more discount than its intrinsic value as of now.
All the business (Gulf Fertiliser, Indian Rayon, Insulators, Jayshree, Finance and telecom) of Aditya Birla Nuvo had negative growth & lower margin and as compared to FY 2016, except for Financial Services Business.  Whereas all business (Cement, VSF and Chemical Business) of Grasim has shown growth with improvement in margin as compared to FY 2016.  Therefore, the has been considered in arriving at swap ratio for amalgamation.

ARBITRAGE POSSIBILITY AS ON OF NOW – MARKET PRICE AS ON 23.06.2017

Grasim Price 1,177
ABNL Price 1,738
Ratio 1.48
Swap ratio 15:10

Please Note: The Current market price of the Both the companies has been accordingly adjusted to their swap ratio.

Going forward at what value finance business will be listed

VALUATION

Considering the investment by PI Opportunities fund -1 owned by Azim Premji for 2.2% Stake Rs. 700 crores Aditya Birla Finance has been valued at Rs. 32000 crores.  The price of ABFSL for allotment is Rs. 145.40 per share.

DEMERGER DIVISION

Demerger Division transferred to ABFSL:

Particulars 2017 Rs. in crores 2016 Rs. in crores %Increase / Decrease (-)
Revenue
NBFC 3,399 2,482 37%
Life Insurance 5,314 4,839 10%
Asset Management 968 765 27%
General Insurance Advisory 121 97 25%
Broking 125 119 5%
Private Equity 17 20 -15%
Others/Elimination 17 2
Established Businesses 9,961 8,324 20%
New Operating Businesses 380 96
Total 10,341 8,420 23%
EBT
NBFC 834 582 43%
Life Insurance 161 73 121%
Asset Management 384 354 8%
General Insurance Advisory 39 32 22%
Broking 5 0
Private Equity 2 7 -71%
Others/Elimination -49 -30
Established Businesses 1376 1018 35%
New Operating Businesses -154 -112
Total 1222 906 35%

Please Note:

  1. New Operating Business consist of Housing Finance Company, My Universe & Health Insurance which currently has negative return but main business NBFC, life insurance and Asset management has generated positive return.
  2. Aditya Birla Finance Services Limited will be renamed to Aditya Birla Capital Limited.
  3. Finance Business consist of various business (Insurance, Investment and Financing) and all are under one roof. For Life business and Mutual Funds, they have joint venture with Sun Life and Health Insurance they have joint venture with MMI Holding.
  4. Other Business of ABNL which has generated negative growth:
    Revenue FY 2017 FY 2016 Increased/Decreased
    Jaya Shree 1,277 1,486 -14%
    Agri 2,165 2,504 -14%
    Rayon 1,035 1,036 0%
    Insulators 498 634 -21%
    Total 4,975 5,660 -12%
    EBITDA
    Jaya Shree 89 182 -51%
    Agri 191 213 -10%
    Rayon 259 269 -4%
    Insulators 52 116 -55%
    Total 591 780 -24%

    Please Note: This negative growth business pursuant to merger will remain with Grasim

Going forward

Grasim is already being traded at discount as its 60% Stake in Ultratech value being approx. Rs. 66,000 crores but current market cap is of Rs. 59000 crores in addition to this it also has VSF and Chemical Business. Post amalgamation of ABNL with Grasim, Grasim will be conglomerate company with having stake in various business including three major investment i.e. Ultratech, Telecom and Finance business to be listed. As post de-merger of financial business, ABFSL will continue to remain a subsidiary of Grasim with stake of 57%. So it should capture valuation of all the businesses mentioned above and after considering holding company discount of atleast 15-20%, it matches with the present valuation.

 

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