Sundaram-Clayton trades ex-date for scheme of arrangement; stock slumps 19%

The board at its meeting held on February 9, 2022 has approved the Composite Scheme of Arrangement of the company for issue of bonus NCRPS and demerger of manufacturing undertaking.

Shares of Sundaram-Clayton (SCL) tanked 19 per cent to Rs 3,884.60 on the BSE in Friday’s intra-day trade as the stock turned ex-date for scheme of arrangement.

The company had fixed March 24, 2023 as the record date for the purpose of determining the entitlement of shareholders of the company, who will be entitled to receive bonus non-convertible reedemable preference shares (NCRPS) in the ratio of 116 fully paid up NCRPS having face value of Rs 10 each of the company for every 1 equity share of Rs 5 each fully paid up held by such equity shareholder.

The company, inter-alia, is engaged in the business of manufacturing non-ferrous gravity and pressure die castings and holding investments in entities engaged in two-wheeler and three-wheeler auto business.

The board at its meeting held on February 9, 2022 had approved the Composite Scheme of Arrangement of the company for issue of bonus NCRPS and demerger of manufacturing undertaking.

National Company Law Tribunal (NCLT) approved the composite scheme of arrangement on March 6, 2022, following which the aluminium die-casting business (manufacturing operations) in SCL and its subsidiairies, will be demerged into a separate entity, Sundaram Clayton DCD Ltd (SCDCD). The entire process of demerger of manufacturing operations is expected to be completed by June 2023.

CRISIL Ratings has assigned its ‘CRISIL A1+’ rating to Rs 2,347 crore Cumulative Non-Convertible Redeemable Preference Shares of SCL.

The ratings assigned on the cumulative NCRPS factors CRISIL Ratings expectations that, SCL will maintain a healthy credit profile and debt cover, post the ongoing scheme of restructuring and arrangement, which has been approved by the NCLT, following which SCL (excluding its manufacturing operations), will ultimately become mainly a holding company, with 50.26 per cent stake in TVS Motor Company Ltd (TVSM). Once the process of restructuring is completed (expected in short term), the market value of SCL’s stake in TVSM (currently in excess of Rs 26,000 crore), and only moderate debt mainly in form of NCRPS will ensure healthy debt cover.

CRISIL Ratings expects SCL will continue to witness steady improvement in its business performance, supported by healthy off-take especially from domestic automotive original equipment manufacturers for its die-cast components, adequate operating efficiencies, and turnaround of its US operations from next fiscal. Besides, its financial risk profile, will also gradually improve over the medium term, after undergoing temporary moderation in fiscal 2023. CLICK HERE FOR DETAIL RATIONALE.