The Board of Tata Chemicals has passed a resolution to increase its stake in Rallis India from 9.4% to 45.2%, by buying out the share of other promoters, at not more than Rs850 per share.
This would be regarded as an inter-promoter transfer and, hence, would not qualify for an open offer.
The other promoter groups consist of Tata Tea (24.5%), Tata Sons (7.5%), Tata Investment Corp (2.4%) and Ewart Investment (1.3%).
We think that this move would be beneficial to Rallis over the long-term period, considering that Tata Chemicals has a strong presence in the fertiliser business.
Over a longer time horizon, we think that fertilisers and agrochemicals can have the same distribution network, as both products are closely related – this would lead to better profitability for Rallis.
At the current market price of Rs737, the stock is trading at 11.9x and 8.9x its FY2010E and FY2011E earnings. We maintain our ACCUMULATE rating on the stock.