Mumbai, Feb. 26: The AV Birla group today made public its valuation of Larsen & Toubro (L&T) and its cement business.
The group valued the diversified company’s cement business at Rs 130 per share but what is more significant is its appraisal of L&T at Rs 292.50 per share.
Incidentally, this valuation of Rs 292.50 per share for L&T which includes its cement and other businesses is 53 per cent more than its open offer price of Rs 190 per share announced for the shareholders of L&T earlier.
While Grasim’s open offer is now awaiting clearance from the the Securities and Exchange Board of India (Sebi), market sources said its valuation of Rs 292.50 per share is a strong indication that the AV Birla group company may increase the open offer price if it obtains a clean chit from the market regulator.
This expectation fuelled a rally at the L&T counter on the premier bourses today.
In a communication issued to stock exchanges today, Grasim pointed out that it has made its proposal to L&T on January 27 and this proposal was circulated by the L&T board in its meeting held on January 29.
“Grasim has submitted a proposal for the vertical demerger of L&T’s cement business into a separate company and for making an open offer for acquiring control over the proposed new cement company by Grasim at a price of Rs 130 per share,” it said.
The company further stated in the same proposal that the value (price of Rs 130 per share for the cement business) is based on a combination of methods and the ratio of equity value of the remaining L&T business to the equity value of cement business is 1.25:1.
“On a sum of parts basis, assuming that a vertical demerger would create two separate entities, and on a relative basis, Grasim has valued the cement business of L&T at Rs 130 per share and the remaining businesses of L&T at Rs 162.50 per share and hence, with the aforesaid assumption the equity value of L&T works out at Rs 292.50 per share,” the A V Birla group flagship explained.
It also clarified that the price of Rs 130 per share has been indicated in the proposal based on the limited published information available to it. The same may vary depending upon further details, which may become available, or any other related development.
“Grasim wishes to reiterate that it does not have any control over L&T. It would be entirely up to the board and shareholders of L&T to decide upon the proposal. They may accept the proposal with or without modification or reject the same altogether. It is also not possible for Grasim to indicate any time frame for implementation of the above proposal of demerger by L&T,” it added.
Analysts here averred that the company’s valuation of L&T’s cement business which is a drag on the bottomline of the diversified and professionally managed company has been pegged at $ 80 dollars per tonne and it is comparable to what foreign cement majors paid for Raymonds and Tisco’s cement units.
Earlier this month, L&T had mandated Icra, the leading credit rating agency, to evaluate proposals put forth by both Grasim Industries Ltd and that of the L&T management with regard to demerger of the company’s cement division. The rating agency has been told to evaluate the proposals of the Birlas and the L&T management and give its opinion to the management.