The Aditya Birla Group is merging two of its main companies, Aditya Birla Nuvo Ltd (Nuvo) and Grasim Industries Ltd, both of which also serve as holding companies, in an attempt to create a stronger entity, and unlock shareholder value by spinning off and listing one of Nuvo’s subsidiaries, Aditya Birla Financial Services Ltd.
The merger will create an entity with yearly revenue of Rs.59,766 crore, net profit of Rs.4,245 crore and earnings before interest, tax, depreciation and amortization, a measure of operating profitability, of Rs.12,000 crore.
The merger, announced on Thursday, will also mean the end of Nuvo’s existence. Aditya Birla Nuvo emerged in 2005 after the Aditya Birla Group decided to rename Indian Rayon and Industries Ltd (a company founded in 1956) and make it a vehicle to hold its businesses in the areas of finance, apparel and fashion, telecom and information technology (IT).
Today, around 80% of Nuvo’s revenue comes from three businesses: financial services, telecom, and fashion and apparel. It has exited the IT business, although it retains some of its older businesses such as linen, urea, viscose, and insulators.
Interestingly, it has spun off and listed its telecom business (Idea Cellular Ltd), and fashion and apparel business (Madura Garments was spun off and merged with Pantaloons Fashion and Retail that the Aditya Birla Group acquired from the Future Group).
Now, it plans to do the same with its financial business. If there is a pattern there, it is by design. Aditya Birla Nuvo was always seen as a vehicle for the larger group’s new businesses. The idea was to spin off and list those that succeeded, and sell those that didn’t look like they could become or challenge the No. 1 or No. 2 in their respective businesses (IT, for instance, was one business that Nuvo and the Aditya Birla Group exited).
The merger will make Grasim “one of India’s largest, well-diversified companies with a healthy mix of businesses with a steady cash flow and long-term growth opportunities,” said Kumar Mangalam Birla, chairman of the Aditya Birla Group. He added that it also simplifies cross-holdings.
Although the Birlas hold their stakes in the group’s companies through a clutch of investment and holding companies, larger companies within the group, such as Grasim, Hindalco Industries Ltd and Aditya Birla Nuvo, also hold stakes in each other and in other group companies.
Birla added that with “diverse businesses spanning manufacturing and services, the combined entity provides a play on India’s growth story”.
Shareholders didn’t agree. With news of the merger making the rounds for at least a few days ahead of the announcement, which came after market hours on Thursday, shares of Grasim took a beating. They ended at Rs.4,538.95 on the BSE, down 6.44%, on a day the benchmark Sensex rose 0.31%.
Courtesy : LiveMint
The merger will create an entity with yearly revenue of Rs.59,766 crore, net profit of Rs.4,245 crore and earnings before interest, tax, depreciation and amortization, a measure of operating profitability, of Rs.12,000 crore.
The merger, announced on Thursday, will also mean the end of Nuvo’s existence. Aditya Birla Nuvo emerged in 2005 after the Aditya Birla Group decided to rename Indian Rayon and Industries Ltd (a company founded in 1956) and make it a vehicle to hold its businesses in the areas of finance, apparel and fashion, telecom and information technology (IT).
Today, around 80% of Nuvo’s revenue comes from three businesses: financial services, telecom, and fashion and apparel. It has exited the IT business, although it retains some of its older businesses such as linen, urea, viscose, and insulators.
Interestingly, it has spun off and listed its telecom business (Idea Cellular Ltd), and fashion and apparel business (Madura Garments was spun off and merged with Pantaloons Fashion and Retail that the Aditya Birla Group acquired from the Future Group).
Now, it plans to do the same with its financial business. If there is a pattern there, it is by design. Aditya Birla Nuvo was always seen as a vehicle for the larger group’s new businesses. The idea was to spin off and list those that succeeded, and sell those that didn’t look like they could become or challenge the No. 1 or No. 2 in their respective businesses (IT, for instance, was one business that Nuvo and the Aditya Birla Group exited).
The merger will make Grasim “one of India’s largest, well-diversified companies with a healthy mix of businesses with a steady cash flow and long-term growth opportunities,” said Kumar Mangalam Birla, chairman of the Aditya Birla Group. He added that it also simplifies cross-holdings.
Although the Birlas hold their stakes in the group’s companies through a clutch of investment and holding companies, larger companies within the group, such as Grasim, Hindalco Industries Ltd and Aditya Birla Nuvo, also hold stakes in each other and in other group companies.
Birla added that with “diverse businesses spanning manufacturing and services, the combined entity provides a play on India’s growth story”.
Shareholders didn’t agree. With news of the merger making the rounds for at least a few days ahead of the announcement, which came after market hours on Thursday, shares of Grasim took a beating. They ended at Rs.4,538.95 on the BSE, down 6.44%, on a day the benchmark Sensex rose 0.31%.
Courtesy : LiveMint
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