Emami trims holding in Zandu to 35.5%

Emami trims holding in Zandu to 35.5%

Kolkata: Emami Infrastructure Ltd, an arm of personal care products maker Emami Ltd, has pared its stake in Zandu Realty Ltd—formerly Zandu Pharmaceutical Works Ltd, a company it acquired in 2008—by more than half to 35.5%, according to latest stock market filings.

Since 23 December, Emami Infrastructure has been selling Zandu’s shares in the market. It has now sold at least 300,000 shares at an average price of around Rs5,500 apiece, raising around Rs110 crore from the sale, Emami group chairman R.S. Agarwal said.

In September, Emami merged with itself Zandu’s herbal healthcare business. Alongside, it spun off its real estate business and its stake in Zandu to Emami Infrastructure.

Zandu is left with only its real estate assets, which, according to Agarwal, are valued at Rs300-350 crore.

At the end of restructuring, Emami held 72.8% of Zandu’s shares.

“Considering the intrinsic value of Zandu’s real estate assets, we thought it was a good idea to sell Zandu’s shares," Agarwal said in an interview.

The cash generated by the sale of Zandu’s shares is going to be ploughed into the group’s realty business, Agarwal added.

On Wednesday, Zandu’s shares closed on the Bombay Stock Exchange at Rs4,399 each, 2.7% higher than Tuesday, while the bourse’s benchmark Sensex index closed 1.25% higher at 16,429 points.

Emami Infrastructure could derive tax advantages from the sale of Zandu’s shares. Emami had paid around Rs750 crore to acquire 72.8% in Zandu, or around Rs12,800 a share.

Though the book value of Zandu’s shares on Emami Infrastructure’s balance sheet isn’t immediately known, it is expected to be considerably higher than the price at which it sold the shares.

This would allow Emami Infrastructure to book capital loss on its investment in Zandu’s shares and pare its tax liabilities on long-term capital gains, or profits from sale of other investments more than one year old.

Though N.H. Bhansali, Emami group’s chief financial officer, refused to divulge the book value of Zandu’s shares on Emami Infrastructure’s balance sheet, he said the firm could derive tax advantages from the share sale. “But we haven’t worked these things out yet," he said.

“It’s a very smart move," said a Kolkata-based stockbroker, who declined to be named. “Emami, it seems, got a good deal... no one knows the intrinsic value of Zandu’s assets better than the Emami management," he added.

Meanwhile, Emami has appointed consultants and lawyers to advise it on how to unlock value from Zandu’s property in Mumbai. Among the options being considered is an outright sale of the property, Agarwal said. “We could also jointly develop it with a local firm," he added.

Emami, which completed a hostile takeover of Zandu some 16 months ago, is again on the prowl for acquisitions. Agarwal said the company could spend up to Rs1,500 crore for “one or more acquisitions in the FMCG (fast-moving consumer goods) business in the foreseeable future".

“We have some firm proposals from within India that we are considering," he said.