Monday, November 16, 2009

[Investors] Grasim stock update ; Swap ratio marginally in favour of Grasim and its shareholders; ACCUMULATE ; Target: Rs 2,400


n        Under the restructuring proposal of its cement business (where Grasim will first hive off its cement assets into Samruddhi Cement Ltd (SCL) and eventually merger it with that of Ultratech cement (Ultratech)), the board of directors of Ultratech and SCL have finalized swap ratio of 4:7, i.e. 4 shares of Ultratech, for every 7 shares held in SCL (our expectation was of 1:2) 

n        Based on swap ratio of 4:7 Ultratech will issue 149.5 mn shares to SCL (i.e to Grasim (65% holding in SCL) & its shareholders (35% holding in SCL)). Eventually Grasim would hold 60.33% of combined entity and Grasim shareholder would hold 19.1% stake, where as Ultratech minority stakeholders would hold the balance 20.57% in the combined entity.

n        The appointed date of the merger is July 1 2010 and the merger is expected to be completed by Q2FY2010.

n        The merger ratio seems to be marginally positive for Grasim & its stakeholders as their combined economic interest in the merged entity increases from 78.6% earlier to 79.5% and that of Ultratech minority reduces from 21.4% earlier to 20.5%.   

n        The merged entity will have a cement capacity of 48.8 mtpa by the end of FY2010, thereby creating India's single-largest cement entity by a big margin, ACC being the distant second with capacity 27.6 mtpa.  The merger also makes Ultratech+SCL combine the tenth largest cement manufacturer in the world.

n        Post the merger, Grasim with 60.33% holding will retain its controlling and strategic interest in cement business, while providing 19.1% direct shareholding to Grasim shareholder in a pure play cement company, with global scale size. 

n        Given the encouraging demand outlook for cement business, the company would require to add capacity of 25 mtpa, at estimated investment of Rs150 bn over next 5 year just to maintain its current market share of 19%. Also with VSF division planning to improve profitability by moving up the value chain and with planned investment of Rs10 bn in Greenfield facility at Vilayat, Gujarat, we believe that the VSF division also needs to preserves its option for funding growth. Hence the proposed restructuring of business provides both the flexibility of financing and focus to drive growth in Grasim's key businesses of Cement and VSF. 

n        We see the merger ratio as marginally positive for Grasim shareholders as it marginally increases their economic interest in the combined entity. Also we believe the restructuring provides Grasim VSF business to aggressively pursue its expansion plans. The Rs10 bn expansion at Vilayat Gujarat is just a case in point. Hence we maintain our ACCUMULUATE rating the stock with a price target of Rs2400.

n        As mentioned earlier, though the merger ratio is marginally negative for Ultratech, we believe that the deal is likely to result in significant re-rating for Ultratech. We maintain our BUY rating the stock with revised price target of Rss890 as compared to Rs950 earlier. We are lowering our target on account of higher than expected equity dilution.

--
Safe Harbor:
The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
 
You received this message because you are subscribed to the Google Groups "Investors Please Listen !" group.
To post to this group, send email to investorspleaselisten@googlegroups.com
To unsubscribe from this group, send email to
investorspleaselisten+unsubscribe@googlegroups.com For more options, visit this group at http://groups.google.com/group/investorspleaselisten?hl=en

No comments:

Blog Archive

Life Insurance | Health Insurance | Auto Insurance


Investors Please Listen !

 
More than 100 kinds of Insurance products from more than
20 companies under one roof.



Call: 9818269396 
investorspleaselisten@in.com
www.investorspleaselisten.blogspot.com

 

 

Safe Harbor:

The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
Powered by Olark
Advertising Learn to Invest