What next if Avantha Group sells holding in engineering major Crompton Greaves

Gautam Thapar-led Avantha Group is mulling to offload its entire 42.7 per cent equity stake in the flagship company Crompton Greaves, according to a news report by The Economic Times citing sources.

The news report did not give any reason for such a decision but added that Goldman Sachs has been informally assigned the task of finding a foreign buyer. It added that the promoters are looking at a significant premium to the current market price which could value the company around Rs 18,000 crore—almost twice the current market cap.

At this valuation the promoters would encash around Rs 8,000 crore.

Shares of the company rose as much as 6.6 per cent in the early morning trading on the Bombay Stock Exchange following the news and before cooling a bit to end the day at Rs 148.1 a share, up 4.63 per cent on BSE in a weak Mumbai market on Friday.

It would also trigger an open offer for another 26 per cent by the buyer.

If Avantha indeed sells the company, this could be a highly surprising move, considering Crompton Greaves is now the flagship company both in terms of market value and turnover. The Mumbai-headquartered firm has a $1.5 billion market cap and generates over half of group’s $4 billion revenues.

The group had previously been bullish on the company and scaled up the business with a string of global acquisitions and a few unsuccessful bids such as Areva’s transmission and distribution assets.

Avantha also runs India’s largest paper company Ballarpur Industries, the erstwhile flagship group firm, besides energy generation company Avantha Power. It also has several small and medium size companies in processed food, IT, chemicals, etc.

Over the last two years it did sell some other commodity businesses. In 2012, NYSE-listed speciality chemicals and home care products maker Chemtura Corporation acquired the core bromine assets of Avantha Group’s privately held firm Solaris ChemTech, the largest producer of bromine and bromine-related products in India. Last year, Aditya Birla Chemicals (India) Ltd acquired the chlor-alkali & phosphoric acid division (CA&P division) of Solaris ChemTech.

However, selling the flagship company would also take out one of the three business pillars that the group had identified in the past, which included engineering, paper and power.

The group could either look at pumping the money to strike a big deal in the paper sector or bankroll expansion in the capital intensive power business. It could also be looking to enter some new businesses to plough the money generated from sale of Crompton Greaves.

What’s notable is that unlike many other business groups Avantha is not that heavily debt laden.

The group had also tapped the PE route for a few business units, including paper, processed foods and power.

Recently, Avantha Holdings had raised $150 million from Aion Capital, owned jointly by ICICI Venture and Apollo Global Management.

(Edited by Joby Puthuparampil Johnson)

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