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Post restructuring, Jindal Stainless Steelway and Jindal Lifestyle will operate as Indian subsidiaries.
Post restructuring, Jindal Stainless Steelway and Jindal Lifestyle will operate as Indian subsidiaries.

Jindal Stainless merger charting a finer growth path

  • The merger, which will create a mega stainless-steel entity and largest stainless-steel company in India, will also help the firm become one of the the top 10 stainless steel companies in the world

The merger of Jindal Stainless (Hisar) Limited (JSHL) into Jindal Stainless Limited (JSL) is being viewed by the Street in positive light and is leading to upgrades for the shares.

The merger, which will create a mega stainless steel entity and largest stainless steel company in India, will also catapult Jindal Stainless into the club of world's top 10 stainless steel firms.

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“JSL may even enter the top 5 in the next three years as cash flow from JSHL will aid growth at the Jajpur plant," said analysts at Emkay Global Financial Services Ltd in their note to clients.

The merger will not only enhance the company’s product portfolio, it will allow it to serve its customers better.

“In our view, the merger will result in synergies of both scale and scope, besides creating one of the largest stainless-steel companies in the world. A stronger balance sheet and simplified capital structure are expected to be the additional stock driver," said analysts at Edelweiss Securities Ltd.

Being an all-stock deal, there is no cash outflow expected, the merger ratio is also favourable and fair, feel analysts. Shareholders of Jindal Stainless (Hisar) Limited shall be issued equity shares of Jindal Stainless Limited in the ratio of 1: 1.95. This means JSL will issue 195 shares for every 100 shares of JSHL.

“We derive a swap ratio of 280 shares of JSL for every 100 shares of JSHL, valuing the ICL given to JSL and equity holding of JSHL in JSL at a 20% Holdco discount," said analysts at Emkay Global.

The elimination of holding company discounts and intercorporate loans, and borrowing, leading to consolidation of debt is to accrue positives too. The same will mean the consolidated entity will be able to garner better valuations.

Its leverage metrics will become more attractive following the cancellation of inter-company debt of 900 crore, said analysts at Edelweiss Securities Limited.

The company is likely to embark on debt reduction before going for fresh capex feel analysts. Rising demand and better cash-flows are likely to help the company in its debt reduction initiatives.

The company structure will also simplify post-merger, analysts said. As per the proposed structure, the mobility business of JSL Lifestyle Limited, a domestic subsidiary of JSHL, would be merged into JSL. Non-mobility businesses would be carved out as a separate new entity, named Jindal Lifestyle Limited. Post restructuring, Jindal Stainless Steelway Limited and Jindal Lifestyle Limited will operate as Indian subsidiaries, while overseas operational subsidiaries of JSL in Spain and Indonesia will continue to operate as business units of the merged company.

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