Shares of Crompton Greaves gained 5.5 percent intraday Friday as the Avantha Group company modified the demerger process and decided to implement a 100 percent demerger of its consumer products business soon.
After considering comments received from the SEBI, the Stock Exchanges and investors' feedback, the board of directors of the company (on February 19) evaluated salient aspects of the scheme of arrangement with respect to demerger of the consumer products business of the company.
According to the filing, the board now reconsidered and approved the contours of the proposed demerger and decided to implement a 100 percent demerger of the consumer products business. It meant that the shareholding pattern of the resulting consumer company will mirror the shareholding pattern of Crompton Greaves.
A scheme of arrangement incorporating the above principles will soon be considered by the board of directors, says the company.
The rational behind this demerger decision is to create better growth opportunities for its two large but significantly different businesses – power/industrial systems/automation and consumer products business.
As per the earlier scheme, Crompton would have continued to own a 25 percent stake in the consumer company, while the current shareholders of Crompton would have received three shares of the consumer company for every four held in Crompton.
"Crompton Consumer Products will issue 3 new equity shares to Crompton Greaves shareholders for every four shares they hold in Crompton Greaves. On completion of the demerger, Crompton Greaves' stake will be diluted to 25 percent + 1 share and the remaining stake will be held by Crompton's shareholders," had said the company on October 16, 2014.
Brokerage house Morgan Stanley says this does not alter its stock view and it remains equalweight given limited upside. "While recovery in international margins and a pick up in domestic capex is positive, we see limited risk of EPS revision in the near term," the brokerage adds.
Antique also maintains buy with a target price of Rs 264 on the stock. "Crompton remains one of our top picks among industrials," says the brokerage.
Dhirendra Tiwari, Head of Research, Antique Institutional Equities expects the consumer products business to grow by 20-25 percent over the next two years. Furthermore, he expects the stock to be price at Rs 130 per share post the demerger.
At 11:38 hours IST, the scrip of Crompton Greaves was quoting at Rs 184.95, up Rs 5.80, or 3.24 percent on the Bombay Stock Exchange.
Posted by Sunil Shankar Matkar
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