The boards of Aditya Birla Nuvo Ltd (ABNL) and Grasim Industries, at their respective meetings held on Thursday, approved a two-way restructuring process, to unlock greater shareholder value. In the first step, ABNL will be merged into Grasim, following which the financial services business (currently under Nuvo) will be demerged and listed separately.
In the new financial services company, 57 percent would be held by Grasim, post-merger. The transaction is likely to be completed by the end of FY2017. The separated Aditya Birla Financial Services Ltd (ABFSL) is likely to be listed at the stock markets between April to June 2017, officials said.
The strategy for this mega-restructuring within the Aditya Birla Group businesses is three-fold: to consolidate fast growing businesses with a strong, stable cash flow portfolio; unlock value for shareholders though the listing of financial services and simplifying the group ownership structure.
“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,” said Kumar Mangalam Birla, chairman of the Aditya Birla Group.
The consolidated financial position post-merger is estimated to be as follows: revenues for the Grasim-Nuvo merged entity would be Rs 59,766 crore for FY16 and net profit to Rs 4,245 crore, according to an internal company presentation.
Grasim Industries is a flagship company of the Aditya Birla Group, with business verticals such as viscose staple fibre, cement, chemicals and textiles. It also has a 60 percent stake in subsidiary Ultratech Cement. On Thursday, Grasim reported a standalone 64 percent jump in net profit to Rs 640 crore, on a 9 percent rise in revenues to Rs 9,089 crore for the June-ended quarter 2016.
Aditya Birla Nuvo has business divisions such as life insurance, financial services and also telecom through its 23 percent stake in Idea Cellular. Nuvo reported a standalone net profit of Rs. 1102 crore for the quarter ended June 30, 2016, on total income of Rs 1286 crore.
The swap ratio would be as follows: each shareholder of ABNL will get three equity shares of Grasim for every 10 equity shares of Aditya Birla Nuvo. For example, a shareholder holding 100 shares in ABNL will receive 30 shares in Grasim.
For demerger of the financial services business into ABFSL, each shareholder of Grasim will get seven shares of Aditya Birla Financial Services for every one equity share of Grasim (post-merger). This means that a shareholder with 100 shares of Grasim will get 700 shares in the financial business. The boards of Grasim and ABNL have approved the exchange ratios, which were based on the recommendations of the joint independent valuers.
There has been much speculation within the investor and analyst community regarding the rationale and details of the restructuring, after sections of the media reported that such a deal was in the offing. Sources had said that the move for the deal was to strengthen the balance sheet of group telecom firm Idea Cellular, in a scenario where competition is intense and price wars aggressive.
Prior to the official announcement on Thursday evening, Grasim shares had lost 14.2 percent since August 9, to close at Rs 4,538.95 at the Bombay Stock Exchange and Nuvo shares were also volatile.
Birla rubbished the fears completely. “This was not the intention at all, it is complete speculation. Idea has its own funding plan. To think that this restructuring was being done to fund Idea is preposterous. It is just that the deal may be coming close to the launch of Reliance Jio. Reliance Industries is gearing up for the launch of its fourth generation (4G) digital services business through its arm Reliance Jio Infocomm Ltd (RJIL), in the coming months. (Reliance Industries Ltd. owns Network 18, the publishers of Forbes India)
Aditya Birla Financial Services Ltd (currently under Nuvo) contributes significantly to the revenues of ABNL. Its funds under management stand at Rs 196,545 crore as of Q1 FY17 (this includes AUM of life Insurance, private equity and quarterly average AUM of asset management business). The total lending book for the NBFC stands at Rs. 28,700crores (including housing finance).
The financial services group serves 8.8 million customers through nationwide distribution network of 1,350 points of presence and over 120,000 channel partners.