Aarti Industries demerger of pharma unit: What it means for investors

Aarti Industries on Thursday announced that its board of directors at a meeting held on August 19 have approved to demerge pharma business to Aarti Pharmalabs Ltd. Shares of Aarti Industries were trading more than 3% lower to ₹927.95 per share on the BSE in the first half of Friday's trading session. 

“The board approved to restructure the business of the Demerged Company by way of a Scheme of Arrangement whereby the Pharma Business and allied activities of Aarti Industries Limited (demerged company) will be demerged into Aarti Pharmalabs Limited (Formerly known as Aarti Organics Limited), a wholly owned subsidiary Company of Aarti Industries Limited (the resulting company),” it said in an exchange filing.

The demerger will result in Aarti Industries and Aarti Pharmalabs achieving operational efficiencies by streamlining of the relevant businesses, the company said while explaining the rationale for demerger. It will result into two dedicated and focused business segments i.e., Speciality Chemical and Pharma without any risk or overlap of one business over the other.

Shareholders of Aarti Industries Limited, pursuant to the demerger, will get equity shares of resultant company for the value of business transferred in the manner set out under this scheme.

Aarti Industries shareholders will get one share of Aarti Pharmalabs for every four shares they hold in Aarti Industries. The record date for the scheme is yet to be announced. 

The shares will be issued by the resulting company in the same proportion (on the basis of Share Entitlement Ratio) in which shareholders hold the shares in the demerged company, subject to receipt of regulatory approvals.

Santosh Meena, Head of Research, Swastika Investmart said that the company is going to unlock value for its shareholders while the ratio is not very encouraging therefore “we saw a muted reaction in the stock price today but its both vertical are doing very well." The pharma business has EBIT margins of 23% and has been growing at a CAGR of 20% for the past 5 years. "The overall view is bullish for both the verticals therefore investors should hold the stock and take benefit of value unlocking,” Meena added.

Technically, 920-900 is a strong demand zone for the counter while 980-1000 is an immediate supply zone; above this, we can expect a rally towards the 1100 level.

The company said it will make an application to the stock exchanges BSE and NSE to list Aarti Pharmalabs post demerger.

Aarti Industries Limited (AIL) is a leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint.