Shares of HSIL plunged nearly 74 percent intraday as the stock turned ex-date for the demerger of its furniture business. Emkay has downgraded the stock to sell after proposed restructuring.
The stock was quoting at Rs 61.75, down Rs 173.10, or 73.71 percent, with higher volumes on the NSE at 1336 hours IST.
HSIL, after receiving necessary approvals from NCLT-Kolkata bench for its proposed restructuring/demerger, started to trade separately today.
Under the planned scheme, the marketing and distribution of consumer products and retail divisions will be spun off to Somany Home Innovation (SHIL), while the marketing and distribution business of building products division will be transferred to Brilloca, which is a 100 percent SHIL subsidiary.
HSIL will continue to have manufacturing of building/consumer products and packaging products.
After demerger, Somany Home Innovation will issue one share of the company for each share held in HSIL. The shareholding pattern of SHIL will mirror HSIL. The record date for the demerger has been fixed as August 20.
"This demerger would give shareholders an option to remain invested in either: a) the packaging division and manufacturing of Building Products - highly capital intensive and hence, return on capital employed (RoCE) is lower at approximately 4 percent, b) consumer business (grew 5x+ over FY16-19 and turned EBITDA positive in FY19) and the marketing division of building products - RoCE should be at 33.2 percent in FY21," Emkay said.
Based on HSIL's listing price, the brokerage believes that SHIL+ Brilloca with higher RoCE along with the improving profitability of consumer product division provides a better investment option.
"We arrive at a fair value of Rs 43 per share for HSIL and Rs 227 for SHIL. SHIL will get listed in about two months from now," said Emkay which downgraded the rating for stock of HSIL to sell.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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