Crompton was in news in past due to corporate governance issue as pointed out by Rakesh.
Also it would have been better if they would have gone for full demerger.
The reason given by CEO for 75% de-merger doesn’t make any sense at all.
“The company has put enormous efforts to build the consumer business to reach scale and size over long time, we have kept stake to continue to reap the benefits of our efforts.” ???
sounds like non-sense to me
Even if you go for 100% demerger, the SAME shareholders will be holding the shares of the demerged company and the original promoters and shareholders will continue to reap the benefits.
The only reason i can think of is , that this will give existing Promoters greater control over the demerged entity.
If it was 100% demerger - promoter stake will be abt 42 %
for 75% demerger - promoter control - 25% through Parent company + abt 32% = 57 %.
So if the demerged entity gets a better valuation, it will be easier for Promoters to raise funds thru equity dilution or sell their own stake at better valuation and still maintain control over the company.
All this may not happen but looks possible to me.
Also Havells which is a much better brand and company with much better ratios is quoting at abt 2 times sales.
And Bajaj Electricals is quoting at 0.6 times sales.
I dont understand why Crompton should be valued at more than 1 times sales.
We are betting on the turnaround but same cant be taken for granted and cannot be accounted in valuation - Margin of safety ?
Anyways without turnaround even 1 times sales seems on the higher side.