Aditya Birla Group recast

Grasim shareholders to get exposure to telecom, financial services

In a major restructuring of the $41-billion Aditya Birla Group announced on Thursday, Aditya Birla Nuvo (ABNL), a holdco for a stable of businesses, will merge into Grasim Industries. As a consequence of the merger, the group’s financial services business — Aditya Birla Financial Services (ABFS) — will be de-merged and listed as a holding company.

For every 100 shares of ABNL, shareholders will get 30 shares of Grasim and 210 shares of ABFS. For every 100 shares of Grasim, shareholders will continue to hold 100 shares in Grasim and will also get 700 shares of ABFS. After the merger, Grasim will house two new business lines, telecom and financial services.

Aditya Birla Group chairman Kumar Mangalam Birla said that while the new entity will have a stake in the telecom business, it would be wrong to assume the merger was aimed at funding Idea Cellular. “It is preposterous to assume that this is being done to fuel Idea’s growth. That is not the intent. Idea will be a separate operating company and has its own fund-raising plans,” he said at a press conference. Birla, however, refrained from commenting on the telco’s fund-raising plans.

He said the restructuring was a play on the India growth story. “We have a good mix of businesses, both mature and fast-growing. The exercise simplifies the group ownership and unlocks value for shareholders,” Birla said. The Grasim stock has lost 14.2% in the last three sessions with its market capitalisation down Rs.6,994 crore; on Thursday the stock closed at Rs.4,538.95.

Based on FY16 numbers, the new entity would derive 42% of revenues from cement, 17% from textiles, 16% from telecom and 15% from financial service. The new company’s revenues would be Rs.59,766 crore, earnings before interest, taxes, depreciation and amortisation would be Rs.11,961 crore and profit after tax Rs.4,245 crore. Including a proportionate share of Idea’s revenue in Grasim, the aggregate revenues would be Rs.61,475 crore. Birla noted that the new entity was modestly leveraged with a strong interest cover. Ajay Srinivasan, head, ABFS, said the company had a presence across diverse businesses. “We believe it’s a direct play on GDP and we’re expecting to grow at 15% if GDP is growing at 7-8%,” Srinivasan said, adding that growth will be driven by the lending business.

The asset management company (AMC) has Rs.1,63,000 crore of assets under management and a market share of nearly 8% in the total equity assets of the industry and nearly 12% in debt assets. The loan book of the non-banking financial company stands at over Rs.26,000 crore while the housing finance company has assets of Rs.2,452 crore. The private equity piece had a portfolio of Rs.1,000 crore. The financial services business also has a joint venture for a payments bank with Idea Cellular.

On Thursday, the boards of Grasim, ABNL and ABFS approved the merger of ABNL into Grasim and the subsequent de-merger and listing of its financial services business through a composite scheme of arrangement. The merger would require the approval of Competition Commission of India as also the approval of shareholders, creditors and the Gujarat High Court.