ABB India shares rose 4 per cent to Rs 1,378 in intra-day trade on the BSE on Friday after its board approved the demerger of the company's power grids (PG) business to ABB Power Products and Systems India (APPSIL).
After the demerger, the minority shareholders will be issued one share of APPSIL, which will be listed on the stock exchanges, for every five shares held in ABB India.
PG business had a turnover of Rs 4,172 crore for the financial year 2018 (FY18). This accounts for 38.4 per cent of total turnover of the company for FY18 and includes revenues from a one-time large order of high-voltage direct current (HVDC) from (Power Grid Corporation of India) PGCIL.
The simplification of the company's business model and structure with the implementation of this new organisation is expected to provide each business with full operational ownership of products, functions, R&D and territories, ABB India said in a BSE filing.
These actions are likely to position the Company with a leadership role in digital solutions, and evolving technologies such as artificial intelligence in India, while allowing APPSIL to independently focus on a likely leadership position in the PG Business with its unique and established market dynamics, it said.
The proposed demerger is expected to assist the current power grids division to independently pursue the business excellence built over a long period in the power infrastructure with its robust and time tested business model, the company said.
According to analysts at JM Financial, continuing operations are likely to trade at a premium due to presence in fast-growth areas of industrial automation, EVs, transportation (metro and railways) and renewable energy, higher share of services and exports (32-35 per cent of sales vs 26-28 per cent earlier) and deteriorating fundamentals of PG division due to completion of RP-800 order (65-70 per cent completed) and declining PGCIL capex.
The demerger is subject to necessary approvals, including from the shareholders and creditors of the company and the National Company Law Tribunal (NCLT).