Crompton Greaves approves demerger plan

Also raises investment limit for FIIs, shareholders to get three new shares for every four shares held in Crompton Greaves

Crompton Greaves on Thursday announced the demerger of its consumer products business unit into a separate company and opened the doors for foreign investors by raising the investment limit to 100 per cent of the paid-up equity share capital.

According to sources, the company's promoters are in discussions with international private equity firms to sell a stake in the consumer products businesses and the increase in investment cap will enable foreign investors to pick up the stake.

Separately, the firm has also decided to sell an eight-acre land parcel at Kanjurmarg area in eastern Mumbai to Evie Real Estate for Rs 302 crore.

In July, the Avantha group-owned company had announced it would demerge its consumer products business for "better growth opportunities."

Equity analysts are valuing the company's consumer products business at Rs 5,500-6,500 crore-based on its 2015-16 earning estimates.

The consumer business division's contribution to the company's revenue in FY14 was 21 per cent. The division also contributed as much as half the profit before interest and tax.

About 45 per cent of Crompton Greaves' consolidated revenue comes from foreign operations, but the consumer products division, which manufactures fans and lighting appliances sells only in India. The other businesses comprise power and industrial systems.

In a notification to the BSE, the company said the demerger would be completed by March 2015 and require approval of the Securities and Exchange Board of India and the BSE.

The shares of Crompton Consumer Products will be listed on the stock exchange. The consumer products company will issue three new shares for every four held by investors in the parent company.

On completion of the demerger, Crompton Greaves will hold 25 per cent stake in the consumer products company.

Gautam Thapar-owned Avantha Holdings holds 40.84 per cent of Crompton Greaves and the total shareholding of promoters in the company is 42.67 per cent. Avantha group will own about 32 per cent in the consumer products division and the remaining will held by other investors.

An increase in the investment limit for foreign institutional investors (FIIs) will enable them to make fresh investment in the firm. Currently, FIIs hold 15.9 per cent in the company.

In an investor conference on Thursday, Crompton Greaves' chief executive officer Laurent Demortier said the company's shareholding in the consumer business subsidiary will have a lock-in for three years.

The company's stock was down eight per cent and closed at Rs 188.70 on the BSE on Thursday.