L&T has formally announced that it will de-merge its cement division. The company has announced that it will retain 20.0% shareholding in the cement company and the rest will be distributed proportionately among other shareholders. The management has also indicated that Grasim will buy 8.5% equity stake in the demerged cement entity initially at Rs 171.3 per share. Post this, Grasim will make an open offer for 30.0% of the equity of the cement company at the above-mentioned price.
L&T has also stated that, concurrently, Grasim and its associates will sell their entire holding in demerged L&T at Rs 120 per share to L&T Foundation/Trusts being formed. For the retail shareholder, this means that he will be able to get shares in the demerged cement business in proportion of his existing shareholding.
What the shareholders must also realise is that post the demerger and open offer by Grasim, the control of the cement division will pass on to Grasim. Grasim, in effect, will have control of over 30 m tonnes of cement capacity in the country (one fourth of industry capacity). However, if one were to look at the valuations of L&Tís cement division as proposed by Grasim, we find that assuming a debt level of Rs 25 bn for the cement division, the enterprise value of the cement division works out to US$ 87 per tonne (US$ 85 for Gujarat Ambuja for FY03E). We believe that this is a good valuation on a relative basis.
We shall put up detailed analyses of the demerger and the rationale behind whether one should go for tendering his shares in the open offer. Watch this space.
Larsen & Toubro (L&T) has announced third quarter results of financial year 2016-2017 (3QFY17). The company has reported 1.7% YoY growth in sales while profits have grown 38.9% YoY. Here is our analysis of the results.
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