Demergers on the radar

Demerger Update
Update on Detail note and demerger structure of Aarti Industries and its Pharma Division

Bonus Issue
SRF Board is currently in discussion phase for Bonus issue and its Structure

Kindly refer to following post to track other on going demerger and other special situations.

Disclosure: Same as previously mentioned


Detail Presentation on Motherson Sumi Demerger structure from company.

Refer following post for detail list of proposed Demerger.

Disc: No position in Motherson Sumi only for educational purpose.


Interesting Development in Exide to study not a specifically a demerger opportunity as such.

Hdfc Life has given value to Exide Life business is 6687 Cr with cash payout 726 Cr inclusive in it.
Exide will now have a valuable stake in HDFC Life as promoter which will definitely be a long term value to Exide Industries, I believe more such mergers will come in Insurance business as consolidation happens and it was becoming increasingly difficult to compete in Insurance business
Exide can focus more on their storage battery business after merger with Hdfc Life as a group

Now Exide has 1000 Cr PBT and 700 Cr PAT Business with it which trades at 15000 CR - 6687 Cr= 8313 Cr which gives it a multiple of 12 PE to their Battery business while its close competitor Amara Raja trades at multiple of 17
(Note: Amara Raja is growing its topline while Exide is not able to grow its topline i know many people who have shifted from Exide to Amara Raja also it seems that many mechanics push Amara Raja compared to Exide as per my observation but question is at what valuation of Exide is available which compensated all this risk these question can only be answered by investor themselves)
Exide will have 4.1% stake in HDFC Life which most likely will really valuable in future when Insurance Industry go in more mature phase of their cycle.
Battery Storage Division which is available at 12 PE which is 25% ROCE Business (Competitor having 17 PE) but with low growth in topline these sector might get a rerating if tailwinds comes in these sector because of EV (Still in Nascent stage as per me)
Please note following thesis won’t be applicable if merger is not allowed by regulators.

Check following post to track upcoming special situations.

Disclosure: Tracking & No position in Exide and Invested in Hdfc Life. This is not a Buy/Sell recommendation please do your own due diligence not a SEBI register advisor.


Call it a coincidence or wat, I’ve been writing abt this frm Exide perspective on Exide thread : -

I was studying the battery players whn this event happened. IMO, it is a fair decision on part of Exide to sell the insurance business at 2.5x EV. not sure abt HDFC Life bt yes Exide seems undervalued now frm purely valuation perspective.


How do you value exide?What would be the valuations of a market leader in battery segment,if the growth runway is still very long.

If we assume 10 years from now,profits go up three times and valuation multiple goes from 17.4 to 25,then the stock goes up 4.5 times,that too in ten years for about 20 percent annual return.

I feel the appropriate place for this will be the Exide thread & probly the Amara Raja thread. Anyways, I was also looking for some valuation perspectives & approached @harsh.beria93 :grinning: for the Same in case of Amara Raja as below :-

On similar lines, my 2 cents on Exide valuation : -

Earlier case with Exide Life

  • I valued batteries standalone business on earnings multiple basis separately & insurance part as a multiple of embedded value : -

Pretax operating earnings of last 2 yrs. = 974 crs. discounted to 10% CoC minus 2% perpetual growth rate gives 974*12.5 = 12175 crs.

Insurance business at 2 times embedded value i.e - 2711*2 = 5422

Investments conservatively valued minus Insurance business = 1000 crs.

Total = 18597 crs.

Post Exide Life case : -

HDFC paid 2.5x EV; so net that out & rest remains the rough valuation.

My main concern regarding both the battery manufacturers is regrdng thr mgmt & that’s stopping me frm taking the position apart frm the business aspects.

Disclosure :- no investments as of now in Exide or Amara


Spinoff type situation

Optiemus Infracom a company with a market cap of 1800 cr is set to get total revenue of 38000 cr in next 3-5 years because of the strategic partnership with Winstron.
The stock has been in upper circuit since last 9-10 days.
Looks very Interesting.

Disc: Tracking, Not Invested yet


there’s ang life sciences also, really wanted to buy that but the lot is big and it needed a large investment. cld hv made quite a bit thre simply trading it even b4 the move happnd

capital reduction 4 3i capital also

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Now Havells is also in the race to buy eureka Forbes


Godawari Power & Ispat is considering Bonus or Split of Face Value of 10 on 14th September 2021.

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Recently i came across JHS Svendgaard they were planning to demerge some of their business for better management focus. Company is quite small and i personally i am not sure if demerger can happen in foreseeable future as it has been quite some time last update was given on it.

Some Key characteristics:
The entities that are to participate in the business are all part of the JHS group of companies and the transaction is essentially a restructuring of the company to separate their retail business for better and swift management. The parties to the transaction are defined below:

  1. JHS Svendgaard Laboratories Limited (Transferee Company/ Demerged Company)- JHS Svendgaard Laboratories Limited also known as JSLL or henceforth the Transferee Company is engaged in the business of production and selling of oral care products like mouthwash, toothbrushes, toothpaste, and denture tablets among other things. The transferee company is also engaged in offering contract manufacturing partnerships for both national and international markets.
  2. JHS Svendgaard Retail Ventures Private Limited (Resulting Company)- The resulting Company thus formed is tasked with carrying out the sale of the entire range of Patanjali Products, especially at all major airports of the country.
  3. JHS Svendgaard Brands Limited (Transferor Company)- This brand continues to do business by the sale of oral products and under the label of ‘aquawhite’.

Segmental Results:

Scrip is quite illiquid and with reference to sales it seems to have quite less profitability for example last year they did sales of 97Cr from manufacturing business with PBT of only 3 Cr. Concall are not available i think to get more clarity on business and future trajectory. I personally don’t find strong triggers just tracking it once in a while.

Please refer following article for clarity on structure and objectives of business:

Disc: Not a Investment advise please do your own due diligence & not SEBI registered advisor and not invested in last 90 days.


It’s official now.


The news on this has been in circulation for months now, and the stock has more than doubled over past 6 months in anticipation of a deal.

Has anyone analysed this special situation opportunity in depth? A cursory glance at the financials from screener and the latest annual report, makes it pretty clear that Eureka Forbes is really the meat of the Forbes Company business. Rest of the divisions - IT, construction, Engineering and Shipping do not have either the scale or the profitability. Plus the Balance sheet too is in bad shape.

Advent has had good record record with their past acquisitions - Crompton, DFM Foods, so the odds of them making a success out of Eureka Forbes are pretty good.

Other than the risk of regulatory disapproval, or the deal falling off…What are the trade-offs of entering now vs entering directly into Eureka Forbes when it lists separately? If someone has already looked at this, would be very helpful, to get their views.

Ur questions pretty much contained the answers u were seeking… :stuck_out_tongue:

The arbitrage analysis always start with the question - Where is the bet ? - Forbes co. minus the Eureka part, will still be a struggling enterprise. The proceeds from the deal will be for paring the debt & even after that the drag businesses will remain. Thus, very little scope for re-rating. If u wanna consider a comparative case here consider Hinduja Global that have recently sold thr healthcare vertical for 7k+ crs.

The other part - Eureka Forbes which will be sold - Everyone knows that its a great business & thus it is valued accordingly. Advent may have overpaid a bit too bcoz of thr control premium. So, with listing itself, the gains will be capped. You cab try valuation of the business & see how mch u r paying for how mch of a growth scope.
A comparative case study that I’ll suggest here is of GHCL demerger, The co. is decently valued to begin with & the demerged textile biz part seems to be ob the recovery path

Disclosure :- Invested in GHCL. no investments in Hinduja Global.


I was confused whether to take a position in a demerger special situation before/after the listing. My thesis reg. this so far is as follows. Please correct me if I am wrong.
If there is significant institutional shareholding(esp. domestic) in the parent, only then does the smaller demerger company come under selling pressure post listing, else it may not fall sharply (suven pharma, Aarti surfactants fell while meghmani did not). So ghcl should ideally be bought post listing(as it has 30%+ institutional holding of which 20% is dii) while Forbes should have been bought pre listing (as it has no dii holding).


Eureka Forbes valuation according to the deal is around 2x sales. How many consumer businesses trades at 2x sales? Aquaguard has more than 50% market share in water purifires and 70% market share in vaccum cleaners. It also has a good market share in air purifiers market. Symphony which has been struggling to grow their sales trades at 7x sales.

Advent, the new promoter of Eureka Forbes are very good at turning around and scaling business. See what they did to CG consumer after buying it in 2015. They exited CG consumer at 3x profits.

In my view, the promoter change will help in rerating Eureka Forbes and also scaling it and it will be overall positive for minority shareholders of Forbes and co.

Invested and may be biased.


not denying the consumer business at decent valuation theory. Bt in dat case, the narrative changes - thn this will nt fall under the demerger\risk arbitrage situation. If ur analysis hinges on this theory, thn the comparative set, risk analysis etc. everythng changes as a frame of reference.

The purpose of this thread is to uncover pure special situations whr the returns for a specific timeframe, typically 18-24 months can be mathematically calculated on an IRR basis. Hence, my example set was different from the ones u mentioned.

@Shawn_Lopes had put this thread specifically for that purpose & I connected with him to filter out situations based on these calculations. Risk arb as a branch of value investing requires different mindset & set of analysis tools vs. the more of buy-monitor & hold on type of investing. The initial price paid plays a lot more imp role here than the qualitative aspects u mentioned.

To further elaborate my point, let me give an e.g that’s migrated frm risk arb to buy & hold bcoz its a subjectively assessed stronger case. - Meghmani

The risk arbitrageur returns hinged only on calculating rough valuation of the 2 businesses, handicap the odds of demerger going thru & then buying at some discount to the perceived unlocked value. Basically, we bought Meghmani pre-demerger, & sold out whn both the businesses listed separately & reached some standard valuations, say 10X EBITDA.

The buy-&-hold thesis comes now for Meghmani Finechem - Ppl are valuing & paying for business growth, deleveraging, higher future volume growth expected etc. - The Arbitrageur left the table early, but thn his analysis didn’t covered this part to begin with.

Similarly, in this case the question is that how mch IRR will be generated in buying Forbes co. now & waiting till the period Eureka Forbes gets demerged & listed separately.That’s it!!!

If I have to invest in Eureka Forbes ( not Forbes Co. ) thn I’ll probably wait to get it listed, assess the business strength vis-a-vis valuation & my investment timeframe & thn probly buy it.


Could Agree more on @shardhr point of view special situations Arbitrage is nothing but finding one scrip and identifying a comparable scrip in listed space and see if there is significant valuation difference between two of them it will not focus much on fundamentals or any other quality that makes a company really great business to own in long run.
Personally in my experience there are some times some opportunity which are available which becomes long term play after entering them for arbitrage opportunity for recent example Meghmani Finchem, Tips or Forbes.
Main reason should be to have a thesis ready in mindset before buying any scrip for example if you are buying a scrip for just arbitrage play or to enter a scrip which you think is good for long term any by this process you can cut your cost down.
For Example: Buying GHCL for arbitrage play & then exit it or You don’t like to buy a business at 50 PE then special situations can help you buy Tips industries at 20PE and then let it run to rerated and mean while you can hold a high PE company at good margin of safety but most important is to know your reason for entering and not change in between just because scrip has rallied(Just like a good cyclical investor says “If you enter sugar for turnaround play then exit when turnaround happens don’t change in between and stay in them for Ethanol”).

One more important point i will like to point out in GHCL and Forbes is both of them have reached a in final stages of their special situations stage where whole market has clarity about at what date and at what price things are going to happen & hence their arbitrage play gap narrows down really fast. There is premium associated with these scrips if you enter earliest when risk-reward are that favorable.
Example GHCL was 200 when demerger started to get announced then there was large amount of valuation gap now that Gap has narrowed significantly hence it does not have enough IRR for me to enter But now if look at it they have recently announced to add 50% more capacity which will make it cheaper at todays valuation but now it is a growth story and management execution ability ,Soda Ash prices stability ,etc. now entering it as arbitrage opportunity does not make sense and Soda Ash business is out of my circle of competence, hence even if scrip price increase It should not matter to me as it never my bone to eat. For me it is equally important to enter in arbitrage opportunity when there is lack of clarity about event happening and get that premium of uncertainty (Risk-Reward understanding is very important here and this answer every investor can answer to themselves based on their portfolio construction). Aarti Industries is also a similar case where rich valuation and time has reduced arbitrage opportunity it to enter now.

My 2 cents Forbes & Co

Forbes in last 5 years from their main brand of water filter has made a loss as seen in above graph and historically has 1-2% Margins. Coming from Banking Background i have seen how difficult it is for new promoter to change the business and make it profitable and focused and trust me just because a group has history of turnaround companies it does not guarantee success in this case because each and every company has different set of people and different culture and other traditions which cause lot of problems in acquisition.(Study UTI and Axis Bank struggle in their initial phase).
Advent has solved this issue by using a basket approach for example they entered in crompton, DFM Foods and several other and hence even if one fails other cover up for it and it we enter just Forbes on their Brand name and if it fails to turn around our complete portfolio allocation will be affected while for them it will be small subset of portfolio. These are some risk i understand before entering any scrip to have Margin of safety. All things said there are several positive triggers to in this Harvell’s tried to compete and failed to penetrate , Forbes has a very unique approach to sell and manage and I have seen it (Its Local Team Based) that is why I think Havells found it difficult to break in these segment which shows it has Moat.

72.56% for 4400 Cr it puts valuation at roughly 6000 Cr, Now looking at earlier number it should be judged if it actually worth 6000 Crores for loss making or 2% margin business this should be answered by investor themselves. I think right valuation will be close to 4500-5000 Cr for it
Advent has paid 6000 Cr valuation for controlling stake in the firm its basically a premium for it
If we assume valuation at 5000 Cr for Main business what we are left with is other business of Forbes

Except Real estate all other division are loss making now questions is these a worth it business to have at what valuation should be buy it especially where the promoter has history mis capital allocation and since its conglomerate promoter is not going too much focus on these particular business as there are other business to look after. I will leave these question to be answered by investor themselves . From my perspective the way I see it is Forbes had wonderful risk premium associated with it 5-6 Months back now that gap is narrowed down, If I had tracked it it 6-7 months back I would have entered it for arbitrage opportunity on basket level that doesn’t mean there is no opportunity available in it there definitely is more value to unlock but for me I find other better opportunity available for Risk-Reward perspective. Even if Forbes water purifier business does really well from these point it should not affect me (I would prefer to average up Polycab my go to player for FMEG & Goods space where there is stability of promoter as Forbes is out of competence. I strongly believe capital is very scarce and it should be respected & hence should only be given to good long term players i truly resonate with and not distribute it with too many players)
@shivammitra has very fair point in his framework for entering in Forbes and why it should do well every investor should have these reasoning and efficiently allocate capital to business they really believe in and not just mis alloacte capital to any players. I hope these helps some investor in understanding thesis on arbitrage opportunity in market and make well informed business

Attaching GHCL Segmental Report if anyone needs it for reference:

Disclosure: I may or may not have holding in some of scrips mentioned above. please do you due diligence not a recommendation & not SEBI Register advisor.