Adhesive manufacturing company Astral's decision to withdraw the proposed demerger of its chemicals business has been welcomed by brokerages, with both Morgan Stanley and Citi saying the move removes a key overhang that had weighed on investor sentiment since the plan was first announced.
The brokerages believe the company is better off revisiting the separation once the chemicals business reaches a larger scale and is financially self-sustaining.
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Brokerages Decode
Morgan Stanley
- Maintained Overweight with a target price of Rs 1,660.
- Said Astral has withdrawn its proposed chemicals business demerger.
- Noted that the initial demerger proposal had been viewed negatively by the Street.
- Believes the withdrawal is a net positive as it removes a key demerger-related overhang from the stock.
Citi
- Maintained Buy with a target price of Rs 1,900.
- Said the chemicals business should be demerged only after it achieves sufficient scale and financial strength to independently fund both organic and inorganic growth.
- Noted that Astral's shares had reacted negatively following the original demerger announcement.
- Believes withdrawing the scheme removes the overhang and is likely to be viewed positively by investors.
What Astral Said
Astral said its board has decided to withdraw the proposed Composite Scheme of Arrangement after conducting a comprehensive review with the help of an independent consultant.
The consultant evaluated the proposed restructuring as well as alternative options and recommended that the company should not proceed with the demerger in its current form, citing the present scale of the chemicals business.
The board said it also considered feedback from shareholders, investors and other market participants, along with the prevailing business environment and the company's long-term strategic objectives, before arriving at its decision.
According to the company, the chemicals business may be considered for a separate listing or demerger at a later stage, once it has achieved sufficient scale and financial strength to independently support its organic and inorganic growth plans.
Astral added that no further steps will be taken under the proposed scheme and reiterated its commitment to enhancing shareholder value while continuing to evaluate strategic initiatives for the long-term growth of its businesses.
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