On March 12, Aditya Birla Capital’s shares surged by nearly 4% upon opening on the NSE, a significant move triggered by the board of directors’ approval for the merger with Aditya Birla Finance Ltd on March 11. The announcement of the merger came after market hours, driving early investor optimism. As of 9:20 am, the stock was trading at Rs 186.90.
According to a regulatory filing by Aditya Birla Capital, the company’s board has “considered and approved” the merger of Aditya Birla Finance Limited, a wholly-owned subsidiary of the company. The filing stated, “The Scheme inter alia provides for the amalgamation of the Amalgamating Company with the Company, and dissolution of the Amalgamating Company without winding up.”
Following the proposed amalgamation, Aditya Birla Capital will undergo a transformation from a holding company to an operating non-banking finance company (NBFC), as per the company’s statement. This strategic move aims to create a unified large entity with enhanced financial strength and flexibility, facilitating direct access to capital.
Aditya Birla Finance, with total assets valued at Rs 1,400 crore, is set to merge with Aditya Birla Capital Limited, which boasts total assets worth Rs 13,000 crore as of December 2023. Vishakha Mulye is slated to take on the role of Managing Director & CEO, while Rakesh Singh will assume the position of Executive Director and CEO (NBFC) in the combined entity.
Morgan Stanley has issued an equal-weight call for the stock, assigning a target of Rs 196 per share. The brokerage notes that while a tangible economic benefit may not be significant, the merger could potentially reduce the holding company discount, particularly if the NBFC were to list by September 25. The report emphasizes that obtaining RBI approval for the merger is crucial for its success.
On the other hand, Jefferies has given the stock a buy rating and increased the target price to Rs 225 per share. The brokerage believes that if approved, the merger scheme would streamline the corporate structure and enhance the Capital to Risk-Weighted Assets Ratio (CRAR) by 150 basis points.
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