Indian billionaire Kumar Mangalam Birla is combining two group companies to create a firm with $9 billion of revenues.
Birla will merge Grasim Industries Ltd., which controls India's biggest cement maker, and Aditya Birla Nuvo Ltd., that has stakes in companies from a mobile-phone operator to a life insurer, the two companies said in filings to exchanges. The proposed revamp also includes the subsequent spin off and listing of Aditya Birla Financial Services Ltd., according to the statement.
"This is really a play on the India growth story," Birla told reporters in Mumbai on Thursday. "The merged company will include a mix of mature, cash-generating as well as high-growth businesses. It'll be a slice of what the Indian economy today is all about."
The combined company will have access to more resources to fund expansion in the world's fastest growing major economy. UltraTech Cement Ltd., which Birla says has "stable cash flows," has been acquiring plants, while Idea Cellular Ltd., India's third-largest wireless operator, is bracing for increased competition from billionaire Mukesh Ambani's Reliance Jio Infocomm Ltd. which plans to start mobile-phone services this year.
"Their theory for the last 15 years is to consolidate business under limited verticals and so you have a much bigger player and a much bigger balance sheet," said Shishir Bajpai, senior vice president of IIFL Asset Management Co. The new structure sets the stage for Aditya Birla group's growth for the next two decades, he said.
The revamp proposal, which needs approval from shareholders, lenders and court, is expected to be completed by June 2017. The combined entity, which Birla called "new Grasim" with five lines of business -- financial services, telecom, cement, textiles and chemicals - will have about 600 billion rupees ($9 billion) in revenues and 40 billion rupees in net income.
For every 100 shares in Aditya Birla Nuvo, an investor will get 30 shares of Grasim and 210 shares of Aditya Birla Financial Services, according to a presentation filed with the exchanges. A shareholder with 100 shares in Grasim will get 700 shares of the financial services unit, according to the presentation.
Grasim's shares fell 6.3 percent to 4,539.6 rupees in Mumbai on Thursday, while ABNL advanced 3.4 percent to 1,562.5 rupees before the announcement. The benchmark S&P BSE Sensex rose 0.3 percent. Idea has been the worst performer on NSE Nifty 50 index this year.
Ambani's Jio has already spent 1.5 trillion rupees in setting up its wireless unit. India's government expects mobile-phone companies such as Idea to bid for airwaves in an auction in September. The government expects to raise 5.56 trillion rupees from the sale.
"Grasim shareholders get an exposure to fast-growing telecom and financial services businesses while Nuvo shareholders get the benefit of stable cash flows from cement and viscose fibre businesses," said Birla. Shareholders can choose whether they want to buy into the larger holding company or sector-specific entities, he said.