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BL Research Bureau

Aditya Birla Nuvo’s acquisition of a 56 per cent equity stake in small-sized broking firm - Apollo Sindhoori Capital Investments, may be a long-term positive for the latter, if it remains an independent entity after the takeover.

Integration with the Birla group’s existing financial services business could create new opportunities for Apollo Sindhoori in the marketing of financial products.

The firm’s distribution network may be used to cross-sell insurance as well as fund products already distributed by the Birla group.

The main positives from the takeover for the Birla group may lie in the company’s branch network of about 190 offices (excluding over 500 franchise owned outlets) with a client base of about 1.5 lakh mainly in the Southern states.

Despite all this, the near term upside for the Apollo Sindhoori stock is likely to be limited, after its 21 per cent gain over the past couple of weeks preceding this announcement.

The sale consideration of Rs 198.8 crore to be paid for the 56 per cent stake in Apollo Sindhoori values the firm at about Rs.355 crore.

This is just a 10-11 per cent premium to the firm’s current market value (market cap of Rs 321 crore).

The acquisition is at a valuation a share of about Rs 64, against the stock’s Thursday closing price of Rs 58.

The Aditya Birla group is likely to make an open offer for another 20 per cent stake, once the acquisition formalities with respect to the promoter stake, are completed.

With about a 33.6 per cent stake in Apollo Sindhoori now held by the public, not all investors in the stock will be able to exit at the open offer price, even if it is attractive.

The current shareholding pattern suggests that only six out of every 10 shares tendered to the open offer may be accepted, assuming the offer is for a 20 per cent stake.

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