The boards of AB Nuvo and Grasim today approved a merger between the two companies. Once the two companies are merged, financial business of Nuvo will be demerged and listed on stock exchanges separately. The merged entity will boost of a strong balance sheet and the debt to EBITDA (earnings before interest, tax, depreciation & amortization) of this entity will be around 0.5 level, says Sushil Agarwal, CFO of Grasim. Speaking to CNBC-TV18, Agarwal says that the revenue of new entity formed is expected to be around Rs 60,000 crore while EBITDA will be near Rs 12,000 crore. While many analysts are of the opinion that the deal will be more negative for Grasim, Agarwal believes that it will give Grasim access to growth business with different verticals as well as exposure to the financial business. Complimentary businesses like chemical and textile will come into Grasim. The promoter shareholding in the company will be 39 percent post the deal. New entity is likely to be called Grasim, he adds. Below is the verbatim transcript of Sushil Agarwal’s to Kritika Saxsena on CNBC-TV18.Q: Take us through the revenues, the EBITDA of the merged entity and the financial services business.A: I think on a merged entity level, we will be broadly around close to Rs 60,000 crore revenue and EBITDA of around Rs 12,000 crore; these are the numbers as of March 2016. Q: The financial services business, what would be the revenue, EBITDA and even if you have the details in terms of the cash flow? A: It is important for you to note that the leverage of the merged entity, it is going to be very healthy for merged balance sheet. On a combined basis, debt to EBITDA would be around 0.5. So, we are going to have a strong balance sheet post merger which can continue to fuel the future growth of the underlying businesses. Financial services business has before tax around just below Rs 1,000 crore profit. Q: The last two to three days, analysts have raised questions about what is in it for Grasim, what is the larger plan for Grasim that you are looking at or what would you tell the shareholders, how will you convince them that this will not reduce the value for shareholders? A: For Grasim particularly, I think shareholders are getting in to growth businesses; that to me is a biggest thing. In the process they are also getting a listed company shares of one of the fastest growing space which is financial services. As I was explaining, the Grasim shareholders who owns 100 shares today, they will continue to hold 100 shares and they will also get 700 shares of financial services. This to me is a big benefit to the shareholders of Grasim. Q: Help us understand the structure that you will create, the fact of the matter is that these are non core areas, Grasim has been very focused on core businesses. Would this not to an extent dilute your core strength? A: May not be the way you are saying. In fact from our point of view, there are complementary business which is coming and kind of getting merged with Grasim. Q: For instance which would be the complementary businesses that you would be able to create some synergies in? A: Just to explain, textile, chemical, we run viscose staple fibre (VSF), we are getting viscose filament yarn (VFY). So, all these businesses are kind of complimentary business in some form. For the Grasim shareholders what we are getting is a growth business and financial services as we know given the demographic of the country and given our positioning, ours is a largest non bank financial services play. We have presence in 12 different line of business activities and we have a leading position in each of those businesses where we have a presence. So, that will be helpful for the Grasim shareholders. Q: Post the merger is completed, could you take us through what would be the overall promoter shareholding and what would be the promoter shareholding in the financial services business as well?A: First at a Grasim level, promoter would own around 39 percent of remaining shares with the public and at a financial services company level, Grasim will own around 57 percent, public will own around 26 percent and promoter will own around 16.5 percent; that is the ownership.Q: Once the merger is completed how much more will you look at investing into Grasim to be able to and you spoke about how there is a good growth roadmap that you are pointing out but how much of funding would be required, would you look at raising funds for specific route you have spoken about it but give me details, what routes are you looking at?A: Broadly if you look at, we will have a combined EBITDA of around close to Rs 3,000 crore. So, it would be a strong cash generating business at standalone level. So, I am sure at this stage we don’t believe that we are actually looking for any specific fund raise because the cash flow itself is very strong. Q: How much is the consolidated cash flow for the merged entity then?A: It is little difficult to answer but if you go back and look at March 2016 number and maybe Q1 results which we just announced for both the companies, I think on a annualised basis if we just kind of annualise those numbers, on cash itself would be post a normal capex and post tax it should be around Rs 1,500 crore kind of.Q: I am going to get your final comments on a concern that analysts have raised with respect to how this is being done to simplify the structure but even now after the two companies are merged, the structure is still complex. Would there be a possibility of further making it more simplified going forward or is this the end of the road? A: This is an ongoing exercise first of all. From our point of view this is a simplified structure. We have got the listed financial services to both sets of shareholders, for Grasim as well as for Nuvo and we have got the growth businesses for Grasim shareholders with a strong balance sheet and giving India a play for all the shareholders. Q: Quick question and a clarification rather, what would be the name of the merged entity, would there be a rebranding exercise that would be required?A: At this stage I don’t have any specific name but Grasim is what we are going to call. Q: So AB Nuvo, that brand will be removed altogether?A: In a restructuring exercise and merger, I think once Nuvo merged into Grasim, Grasim will remain a surviving entity.
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