MUMBAI (NewsRise) -- Aditya Birla Group has unveiled a plan to merge its units Grasim Industries and Aditya Birla Nuvo, and hive off its financial services unit into a separate listed entity, in a bid to simplify the Indian conglomerate's structure and unlock shareholder value.
The merger will result in the consolidation of businesses owned by billionaire Kumar Mangalam Birla into Grasim Industries, with a combined market capitalization of 628 billion rupees ($9.4 billion) and operations including telecom, fertilizers, textiles, cement and financial services.
Under the terms of the deal, each Aditya Birla Nuvo shareholder will get three shares of Grasim for every 10 equity shares held, the company said in a statement. After the merger, Aditya Birla Financial Services will be demerged as a separate listed company, with the new entity owning a 57% stake. The board of Grasim also approved a split of its equity shares worth 10 rupees each, into five of two rupees each.
Following the demerger of financial services business, which includes payments bank, insurance and housing finance services, each shareholder in the new entity will receive seven equity shares in Aditya Birla Financial Services for every share held, it said.
The deal is subject to regulatory approvals and is likely to be completed by the end of this fiscal year in March, or the first quarter of next fiscal year. The merger will result in Grasim, with businesses in the viscous stable fiber and cement, expanding to new areas such as financial services and telecom.
Analysts have raised concerns about the merger that will expose Grasim shareholders to debt-ridden Idea Cellular, and the struggling telecom industry. Birla Group owns more than 42% in Idea, India's third-largest telecom company, through Aditya Birla Nuvo.
Idea had net debt of 377 billion rupees at the end of June. The company and rivals have been saddled with debt as they spent top dollars to acquire high-speed Internet frequencies to expand network coverage and fend off competition from billionaire Mukesh Ambani's Reliance Jio that's planning to start offering 4G services nationwide in the next few months.
In the quarter ended in June, Idea posted a 74% drop in net income, weighed in part by a one-time finance cost for spectrum.
Group chairman Birla said the new company will not have any exposure to the debt of Idea and the merger wasn't meant to strengthen the balance sheet of the telecom company.
"Idea is a separate listed company that has got many sources of finance which it has drawn on in the past," Birla told reporters at a press conference.
Grasim Thursday reported a 64% jump in consolidated first quarter net income to 8.30 billion rupees. Total sales grew 9% to 90.89 billion rupees from a year earlier.
The profit growth was aided by a 6% jump in volume at the cements unit Ultratech Cement amid a drop in fuel and logistics costs.
Shares of Aditya Birla Nuvo closed 3.5% higher at 1,565.70 rupees, while that of Grasim ended 6.44% lower at 4,538.95 rupees in Mumbai trading. The benchmark S&P BSE index rose 0.31%.