Astral's chemicals demerger may unlock independent valuation for businesses: Equirus

Astral Ltd.'s proposed demerger of its Chemicals business into Astral Chemie Ltd. is expected to eliminate the conglomerate discount and allow valuation of each demerged business independently, according to Equirus Securities.

Astral, in an exchange filing on Thursday, said its Board has approved a Composite Scheme of Arrangement providing for the demerger and transfer of its Chemicals business undertaking, along with all its related assets and liabilities, into Astral Chemie Ltd. (formerly Astral Coatings Private Limited) on a going concern basis. The scheme also provides for the amalgamation of Al-Aziz Plastics Private Limited with Astral Ltd. There will be no change in the shareholding pattern of the demerged company pursuant to the effectiveness of the scheme. One equity share of Astral Chemie Ltd. of face value Re 1 each, fully paid-up, will be issued for every one equity share of face value Re 1 each, fully paid-up, held in Astral Ltd.

"As per our understanding, the key rationale behind this announcement is that the Chemicals business has reached a level wherein it can chart its own growth strategy and fund its future separately from the Plumbing business. Demerger is expected to become effective after 9-12 months and it should eliminate any conglomerate discount thereby allowing valuation of each demerged business independently," Equirus said.

Post the demerger, the Plumbing business will be valued closer to Plastic pipe peers like Supreme and Finolex while Chemical + Paint business will be valued closer to Adhesive peers like Pidilite.

In FY26, Plumbing business had Revenues/EBITDA of Rs 46.8 billion/Rs 9.2 billion while Adhesive + Paint business had Revenues/EBITDA of Rs 18.9 billion/Rs 1.9 billion.

The turnover of the demerged undertaking's India business for FY26 stood at Rs 12.66 billion.

The filing states that the proposed reorganisation is intended to provide management focus, specialisation and targeted growth, focused capital deployment, unlocking of shareholder, investor and credit value, and customised corporate governance with independent Board oversight.

Astral said the Chemicals business has diversified across adhesives, polyvinyl acetate (PVA), cyanoacrylates, solvent cements, silicone sealants, epoxy resins, construction chemicals, putties and allied products, and has further scaled into specialty chemicals through recent strategic acquisitions, all of which complement the existing paints and coatings business of the resulting company.

It added that the reorganisation will consolidate the Chemicals business with the existing paints and coatings business under a single, dedicated corporate platform managed by a focused leadership team with deep sector-specific expertise. This will enable the respective management teams to independently formulate and execute business plans, undertake capacity expansion, develop new products, enter new markets, pursue focused acquisitions, collaborations and other growth opportunities relevant to their respective businesses.

The filing further states that, as separately listed entities, the resulting company and the demerged company will have the flexibility, subject to applicable laws, to independently access debt and equity capital and attract strategic and financial investors interested in different investment objectives, thereby aligning investment strategies and risk profiles to each business.

Shares of Astral Limited was last trading in BSE at Rs. 1486.30 as compared to the previous close of Rs. 1537.85. The total number of shares traded during the day was 94889 in over 3875 trades.

The stock hit an intraday high of Rs. 1534.15 and intraday low of 1483.70. The net turnover during the day was Rs. 142258813.00.

Source : Equity Bulls

Keywords

Astral INE006I01046 Demerger ChemicalsBusiness AstralChemie