Grasim to dilute with addition of AB Nuvo's businesses: Singhvi

The AB Nuvo-Grasim deal will further dilute Grasim's businesses and make the whole structure more complicated, says Anil Singhvi, Chairman of Ican Investment Advisors.Grasim, which already has holding shares in textile and cement companies, will get 4-5 more verticals through its deal with AB Nuvo.Grasim is already trading on discount on back of its two businesses - cement and textile and instead of simplifying it, this structure has been complicated, which does not go down well its shareholders, he says. The company's valuation is likely to get discounted (reduce) further with this deal, he says adding that: “the stock will not have any relevance.” The main reason for restructuring was to increase promoter shareholding in Grasim from 32 percent to 39 percent. Below is the verbatim transcript of Anil Singhvi’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.Sonia: There is a lot of discomfort within the investor fraternity of both these stocks. Do you think this deal will pass the muster of shareholders?A: It is difficult to say today but I definitely feel that they have compounded the already complex situation of Grasim Industries and let me explain and allow me two minutes to explain my mind on that. As it is in India we see more often than not that holding companies have huge discount. In case of Grasim Industries it was almost a 30-35 percent discount already trading on what the two businesses it had, textile and cement.Now, on top of that instead of really simplifying the structure this whole merger scheme is making it even more complex and in fact Mr Kumar Mangalam Birla I heard him last night and he said this is a very complex structure.Now, shareholders don't expect promoters to come back and say, oh, you don't understand this is a very complex structure, it will take a while. Now, do you mean to say that shareholders are going to wait and see how this complex structure is not a complex structure.The second point which I have is that Grasim Industries per se was also having just textile and cement business. Now, Grasim Industries will have four or five more businesses coming in. What is then Grasim Industries? Grasim Industries is only a hold company. And if you have all underlying assets which are listed and traded, be it cement, textile or financial services or telecom why would you buy Grasim Industries. It could be only an arbitrage. That means by structure you are creating an arbitrage and saying that, oh, it will be even having a bigger discount, so you will buy it. Then bigger discount will eliminate how. In fact, today also the discount, according to me, will go up, not come down by this restructuring.So, I feel this whole exercise has been done largely, if I read even little more into detail, to increase the promoter holding from 30 to 39 percent. So, 30 percent dilution for minority shareholders does not compensate for the financial services business shares which he will be getting in. So, according to me the whole interest and excitement for Grasim Industries shareholders is completely taken away. So, I don't think this stock will really have any relevance so to speak.Anuj: You talk to a lot of minority shareholders as well, a lot of these institutions. Do you think there is enough agreement among shareholders to prevent this deal from happening in the current form and that it is a matter of time before the Birla Group will have to come out with some modifications?A: Let me now jump the gun here. It is just last evening that announcement was made and I am very surprised, actually shocked and let me speak my mind. This has been making news in last 3-4 days. In fact the Grasim Industries share has started tanking for last four sessions. It has tanked almost 20 percent. So, somebody has definitely leaked this news. I don't want to name it here but at least some constituent of the transaction has leaked this news.The second point which I have here is very clear that minority shareholders today in India are seemed to be little getting edgy of these kind of restructuring and more specifically when promoters are increasing their stakes by having a backdoor situation on this.The third point I have is look at the condition of Grasim Industries board. Forget about the promoters, but independent directors. Were they not really looking this fine print by really putting in those two or three businesses which are completely distant. There is no synergy between telecom and cement and mind you they all are capital intensive businesses. So, what was the Grasim Industries board and independent directors doing in recommending shareholders saying this is a good scheme. Then you look at fair valuations given by all and sundry then you look at the fairness report, this whole exercise to me shows that people just toe the line in India and I think minority shareholders in India are becoming very demanding.I was on your show sometime back on Ricoh India and you have seen what has happened and they have really made the company to reverse all that what has been done. You look at Vedanta and Cairn minority shareholders are becoming very vocal and in this particular case where promoters own just about 30 percent shares and that also because of Hindalco and Pilani Investment, if you take these two listed companies out the promoter holding is only 20 percent. So, it will be very difficult according to me for them to really get minority shareholders on board to get this resolution passed.You touched upon a point whether they will really modify or change it, according to me I will earnestly request that they should just abolish this scheme. This scheme is really not adding value to anyone, except increasing shareholders from 30 to 39 percent for the promoters.Sonia: The other group of investors that are feeling short changed are the ones that are invested into AB Nuvo and the management of Aditya Birla Nuvo is justifying this restructuring by saying that had they de-merged AB Nuvo into AB Financial services before and then merged it would have created a very hollow structure and would have not added any value to shareholders. Would you buy that argument?A: No, I would not buy that argument. To solve one problem you can't create two problems. So, instead of simplifying the structure the financial services, in fact you look at AB Nuvo largely it is telecom and financial services and fashion business. Fashion business and textile business could have been merged with Grasim Industries because Grasim Industries has textile business on that. And you should have really taken on this that given the shares of both Idea and of financial services and listed financial services to AB Nuvo and would have just eliminate AB Nuvo altogether on that because if that was a platform and if you achieve what you wanted to do just abolish it.But let me tell you one thing I don't think today the world is so stupid to say that telecom business also if it is in Grasim Industries or financial services business also on Grasim Industries so I will buy Grasim Industries share. Why would you buy that when all five shares are available to you at a listed space. And there will be very few people who can take a view of at the same time textile, cement, telecom, financial services and say wow, this is the company, all five look good and I want to buy that. That is absurd. I mean then why not even merge Hindalco, why do you keep aluminium business separately. If there is a synergy between telecom and cement there can also be one synergy between aluminium and cement as well.Instead of really working for creating value for Grasim Industries you will be surprised. Grasim Industries' dividend yield is 0.4 percent. When you look at Nifty or Sensex it is almost 2.5 percent. The dividend yield is 0.4 percent and Grasim Industries has been making money. But you don't want to give it to shareholders. So, when you have this kind of an approach I am not saying today alone you feel short changed on this. Grasim Industries has really failed in creating value for shareholders and today is really according to me the last nail in the coffin. The minority shareholders will not take it lying low. I hope and expect.