The Rallis India scrip gained over 10% in the last three trading sessions to close at Rs 760.8 on Friday following the news that Tata Chemicals would buy out stakes of other promoter group companies in Rallis. With this arrangement, Tata Chemicals will increase its stake in Rallis from the current 9.4% to 45.2%, thereby giving it the management control of Rallis.
Tata Chemicals’ board has approved to buy Tata Tea’s 24.52% stake in Rallis, 7.52% held by Tata Sons, 2.42% stake of Tata Investment and 1.35% stake of Ewart Investments at a price not exceeding Rs 850 per share. This will result in a maximum cash outgo of Rs 365 crore for Tata Chemicals, which was carrying Rs 990 crore of cash at the end of FY09. However, the other promoter group companies have not conveyed their approvals so far.
The asking price set by Tata Chemicals values Rallis India at a little above Rs 1,000 crore, around 10% higher than the latter’s current market capitalisation of Rs 911 crore. Although it’s difficult to evaluate the immediate operational benefit due to this transaction, the valuation appears fair for retail investors of Rallis India.
Since the transaction amounts to inter se transfer of shares among promoter group companies, Tata Chemicals need not come out with an open offer for Rallis India shareholders.
This transaction is the first step in the unification of the chemical businesses of the Tata Group. It will also create better co-ordination between the two companies, both of which have the same target customer, viz. the farmer. The group companies have long been sharing each other’s marketing infrastructure to increase customer reach. The arrangement does not impact fundamentals of Rallis in a big way. However, considering this as an endorsement of the current valuation of Rallis India, long-term investors should continue to remain invested.
Tata Chemicals’ board has approved to buy Tata Tea’s 24.52% stake in Rallis, 7.52% held by Tata Sons, 2.42% stake of Tata Investment and 1.35% stake of Ewart Investments at a price not exceeding Rs 850 per share. This will result in a maximum cash outgo of Rs 365 crore for Tata Chemicals, which was carrying Rs 990 crore of cash at the end of FY09. However, the other promoter group companies have not conveyed their approvals so far.
The asking price set by Tata Chemicals values Rallis India at a little above Rs 1,000 crore, around 10% higher than the latter’s current market capitalisation of Rs 911 crore. Although it’s difficult to evaluate the immediate operational benefit due to this transaction, the valuation appears fair for retail investors of Rallis India.
Since the transaction amounts to inter se transfer of shares among promoter group companies, Tata Chemicals need not come out with an open offer for Rallis India shareholders.
This transaction is the first step in the unification of the chemical businesses of the Tata Group. It will also create better co-ordination between the two companies, both of which have the same target customer, viz. the farmer. The group companies have long been sharing each other’s marketing infrastructure to increase customer reach. The arrangement does not impact fundamentals of Rallis in a big way. However, considering this as an endorsement of the current valuation of Rallis India, long-term investors should continue to remain invested.
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