Mumbai: Pune-based Kirloskar Brothers Ltd, or KBL, which makes water pumps and executes water supply and irrigation contracts, has decided to move its non-manufacturing investments into a separate company, a senior KBL official said.
“We started the process in February 2009, and the new company will house all the company’s investments other than manufacturing,” KBL’s company secretary G.P. Kulkarni said in a phone interview on Friday.
KBL has formed a new company, Kirloskar Brothers Investments Ltd, to transfer some of these investments.
Kulkarni did not divulge the value of its non-manufacturing investments.
The new company will be a mirror image of the parent, with the same shareholding pattern, Kulkarni said.
The Kirloskar family owns 62.32% of KBL, with shares held by 20 entities; public shareholding constitutes 24.28%, while mutual funds, insurance companies and foreign institutional investors hold the remaining 13.40%.
The Kirloskar family owns 62.32% of KBL, with shares held by 20 entities; public shareholding constitutes 24.28%, while mutual funds, insurance companies and foreign institutional investors hold the remaining 13.40%
Once completed, shareholders will get a chance to own shares worth their current investment in both the manufacturing company and investment company, Kulkarni said.
KBL shares on Monday closed 4.95% down at Rs136.90 on the Bombay Stock Exchange (BSE) even as the exchange’s benchmark index Sensex closed 1.35% down at 14,326.22 points.
For the financial year ended March 2008, KBL, which is India’s largest manufacturer and exporter of pumps and the largest infrastructure pumping project contractor in Asia, reported investments of Rs1,278 crore in its listed and unlisted companies. These include Rs293 crore of investments in unlisted subsidiary companies such as Kirloskar Silk Industries Ltd and Kirloskar Constructions and Engineers Ltd.
“There are three reasons why a company demerges its investments,” said a Mumbai-based banker with a foreign investment bank, and who has advised similar transactions.
First, it makes easier for the firm to raise money for its core business as investors will only consider core business and not the investments.
Second, such transaction does not have any tax implications.
Third, traditionally the investment company is valued at a lower price and hence the promoter may want to buy back shares if they are not trading at a premium in the market.
The investment banker declined to be named.
“KBL is unable to find its true value for its investment portfolio and the restructuring will create separate value for each company,” said an independent investment consultant, also on condition of anonymity.
The $2.4 billion (Rs11,664 crore) group has already started similar restructuring in Kirloskar Oil Engines Ltd, or KOEL, that makes power gensets for tractor, agriculture and construction sectors.
KOEL has set up an independent directors panel to examine the merits of restructuring or hiving off its investments into a separate company.
Umesh Karme of Reliance Money, a retail stock broking firm of the Anil Dhirubhai Ambani group, in a January research report on KOEL said that such demerger of investments on the books would be beneficial to investors and would reflect the true value of its core business.