There’s merit in merger of Grasim and Nuvo

Aditya Birla Group on 11 August announced plans to merge Aditya Birla Nuvo and Grasim Industries in an attempt to c;reate a stronger entity

Mumbai: Grasim Industries Ltd has been talking to investors to convince them about the merits of the planned merger of group company Aditya Birla Nuvo Ltd. with itself, Group Chief Financial Officer Sushil Agarwal said on Friday.

The Kumar Mangalam Birla-led Aditya Birla Group on 11 August announced plans to merge Aditya Birla Nuvo and Grasim Industries, both of which also serve as holding companies, in an attempt to c;reate a stronger entity, and unlock shareholder value by spinning off and listing one of Nuvo’s subsidiaries, Aditya Birla Financial Services Ltd.

The complex merger proposition raised concern among shareholders.

Analysts said minority shareholders are likely to raise objections to the merger as Grasim will continue to get the same or a higher holding company discount when compared with Aditya Birla Nuvo. Even proxy advisory firms questioned the rationale for the merger.

“We believe shareholders will see value in what is being proposed. Post-announcement we have been talking to and meeting investors to convey what was not possibly understood at the time of the announcement. I think there is a merit in what is being proposed so I am sure as a minority shareholder one will support (the merger),” Agarwal said in an interview.

He said the group is currently going through the process of getting approvals from stock exchanges, market regulator Securities and Exchange Board of India, high courts, and the Competition Commission of India for the merger, and the separation of its financial business for a listing.

Grasim reaffirmed on Friday that the merger is expected to be completed by the fourth quarter of current fiscal or the first quarter of the next. Grasim Industries also reported a better-than-expected second quarter net profit, helped by the performance of its three businesses—viscose staple fibre (VSF), cement, and chemicals—and cost reduction initiatives in chemicals and cement, mainly in terms of power consumption.

The company reported a 50.4 per cent rise in consolidated net profit to Rs. 845.96 crore from Rs. 562.48 crore a year earlier. Net sales rose 2.7 per cent to Rs. 9,261.78 crore from Rs. 9,016.23 crore a year earlier.

Three analysts polled by Bloomberg had expected Grasim to report consolidated net profit of Rs. 821.10 crore on net sales of Rs. 9,136.70 crore.

Agarwal said the firm was waiting for environmental clearances to “de-bottleneck” and raise capacity by an additional 200 tonnes per day in the next six-nine months in its VSF business.

In its chemical business it expects to raise total capacity to 1 million tonnes per annum by fiscal 2018.

Shares of Grasim closed up 0.88 per cent to Rs965 on the BSE on Friday.