Crompton likely to sell consumer arm at a discount

Advent close to buying 35% stake at $300 mn valuation

Gautam Thapar-owned Crompton Greaves is close to selling 35% stake in its consumer durables business to private equity firm Advent for $300 million. But the valuation of the consumer durable business has alarmed the shareholders and analysts as they were expecting the durables business to be valued higher.

“We value the consumer business at Rs 8,500 crore, at 20 times its FY17 earnings or Rs 131 a share. Anything less than that will be a disappointment,” said an analyst asking not be quoted. 

The transaction with Advent has valued the consumer business at Rs 80 a share though an official announcement from Crompton is still pending.

The FT reported on Wednesday that the company is close to selling 35% stake at $300 million and an announcement will be made soon. 

On Wednesday, Crompton Greaves was trading marginally down at Rs 172 a share. 

The Crompton Greaves board had demerged the consumer business last year for a possible sale. But based on comments received from Sebi, the stock exchanges and from small investors, the Crompton board reconsidered the merger proposal and decided to implement a 100% demerger of the consumer products business, in a manner that the shareholding pattern of the resulting consumer company shall mirror the shareholding pattern of CG. Earlier, Crompton was planning to retain 26% stake in the consumer durable business.

The company will use the proceeds of the sale to retire its debt owned by private equity majors, KKR and Apollo at the holding company level.  

For the fiscal 2014, the revenues of the consumer durable business grew 10% from Rs 2,593 crore in fiscal 2013 to Rs 2,847 crore in fiscal 2014 and became a fit case for demerger. The consumer durable business made a profit before interest and tax (PBIT) of Rs 337 crore, up 21%.