Grasim holdco discount to remain at historical levels
See limited upside from present levels; Maintain Neutral
* Record date for Grasim’s shareholders to be entitled for 7 shares of ABCL (Aditya Birla Capital Limited) for every 5 shares of Grasim is 20th July implying ex-date to be 18th July.
* Grasim shares from 18th July will trade ex of ABCL share value of ~INR204/share which is benchmarked to recent transaction value of INR313bn of Premji investments (PI).
* We ascribe 40% discount to Grasim holdings of Ultratech and ABCL which is similar to long term average of holdco discount being ascribed to Grasim’s holding in Ultratech.
* We arrive at fair value of Grasim at INR1384/share valuing holding in Ultratech and ABCL at present market cap and transaction value of Premji investments respectively. Maintain Neutral.
Grasim’s shares to trade at ex of ABCL share value from 18th July
Grasim post the merger with ABNUVO holds 57% stake in ABCL. Additionally shareholders of Grasim are also entitled for 7 shares of ABCL for every 5 shares of Grasim held with record date being 20th July 2017 for the same (implying ex-date to be 18th July). Hence we expect Grasim shares on 18th July 2017 to trade lower by INR204/share. This value of ~INR204/share ascribed to ABCL shares is benchmarked to recent investment by Premji investments for 2.2% stake in ABCL thus valuing it at INR313bn (pre money).
PI invests 2.2% in ABCL at valuation of INR313bn (premoney)
Premji Investments in a recent transaction has entered into definitive share subscription agreement (SSA) to invest INR7.03bn in Aditya Birla Capital ( formerly known as Aditya Birla Financial Services (ABFSL)) for 48.4mn shares thus valuing the entity at INR320bn (post money) and INR313bn (pre money). The transaction translates into per share value of INR145/share for ABCL.
Expect long term holding discount to remain at elevated levels; See limited upside
Grasim’s long term holding discount to its investment in Ultratech has been ~40- 45%. We expect this long term holding discount to exist for Grasim’s 60%/57% holding in Ultratech and ABCL respectively. Hence we value investments in Ultratech ( at current market price) and ABCL ( Value benchmarked to Pi investments at INR313bn) at 40% discount, while investments in other group companies at ~50% discount to present market value. We thus arrive at fair value of INR1384/share implying 9% upside from present levels. Maintain Neutral
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