Chemical manufacturing company GHCL in March last year approved a proposal to demerge its textile business into a separate entity, whereby GHCL’s shareholders will get shares in 1:1 ratio in the new textile entity, and both businesses will be listed as separate business entity. HDFC Securities expects this restructuring to maximize value for all stakeholders, leading to a better focus on the demerged business.
The textile business will cease to be the company’s subsidiary after the restructuring. In a note, the brokerage firm said that the demerger of the Textiles division could result in value unlocking and give each segment the valuations they deserve. The process of demerger could get over in the next few months.
HDFC Securities believes once the record date for the demerger is announced, the stock price could begin to perform anticipating value unlocking. “Investors can buy the shares at the LTP and add on dips to ₹300-304 band.” (with a time horizon of one year). Given healthy growth outlook and strong set of numbers in Q1FY22, the brokerage has now revised earnings.
“The company expects this demerger to deliver various operational and strategic benefits to each Business segment such as focused growth, concentrated approach, business synergies and increased operational and customer focus. Besides, it will address independent business opportunities with efficient capital allocation and attract different set of investors, strategic partners, lenders and other stakeholders, thus the demerger is expected to result in enhanced value creation for stakeholders,” the brokerage note stated.
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