Grasim Industries (Grasim) has decided to demerge its cement business with its subsidiary, Samruddhi, as part of a restructuring plan.

Under the restructuring plan, Grasim will transfer its cement business, including related-businesses/ investments, but excluding its investment in UltraTech, to Samruddhi.

As part of the restructuring exercise, Samruddhi would issue one equity share of Rs5 each to Grasim shareholders for every share they hold in Grasim. On completion of the demerger, Samruddhi would be listed on the bourses.

According to Grasim, the restructuring move is designed to ensure the company’s leadership status in the cement business, while simultaneously providing Grasim shareholders direct participation in the pure-play cement company.

On completion of the demerger, Grasim shareholders would directly hold 35% of Samruddhi, and Grasim’s stake would be diluted to 65%.

We believe that this restructuring will not have any major impact on the company’s valuation. The company’s cement business is current valued at US $110 (EV/tonne) on an FY2011E basis, which is in line with the valuations of other frontline companies in the cement space.

Going ahead, we expect the merger of Samruddhi with Ultratech (in which Grasim holds a 55% stake). We maintain a NEUTRAL on Grasim.