Demergers on the radar

Anish_Surana · October 16, 2025, 2:25am

Hi Aditya,

Nice Analysis! I have a couple of observations:

For the distribution of mcap between promoters and public, I think the ownership of GSPL and GSPC should be further split between Governor and public as they also have a component of public shareholding. Only the effective Governor shareholding should be considered as the promoter shareholding. As per my calculations, the scheme is, in fact, effectively increasing the Governor’s holding in GGL by ~0.50% than the current effective cumulative holding in GGL.
For the computation of combined mcap, the current total mcap of GSPL cannot be added directly as the market is also valuing GSPL’s holding of GGL shares in the mcap. We can potentially remove the GGL holding value (at some discount, say 60%) from the current market cap and then consider that value in computation of the combined mcap.

Unfortunately, after applying the above two considerations, I have noticed that there is no effective arbitrage in this scheme. There could be value addition through holdco discount removal, synergies, etc. but I guess that is a separate analysis altogether.

Regards,
Anish

Anish_Surana · October 16, 2025, 2:41am

Hi Yeshas,

I agree with the business case. Unfortunately, the companies belonging to this group have historically traded at a discount to their peers due to a slew of concerns with corporate governance. While the opinion on the corporate governance concerns may be subjective, it is unclear if and when the market will fairly value these companies. The professional CEO, CFO and another KMP of the flagship group company resigned this year, so it could potentially further delay the rerating. There is a lack of clarity on how much of the proceeds of the business will actually flow to the minority shareholders and fear of what issues what might crop up in the future (given the historical trend).

One may still chose to play this opportunity, considering the undervaluation, and they might even make handsome returns, but I think the above should be a consideration while deciding the position sizing.

Regards,
Anish

ashwind · October 16, 2025, 4:00am

I agree, GGL seems to be valued at par, after removing the holding company discount. GTL listing might be where the bonus lies.

Refer - GUJARAT GAS Improving outlook on volumes - #89 by ashwind (still a work in progress, will update sheet as work progress)

aditya.lathe · October 16, 2025, 4:25am

Hi Anish, thanks for sharing. If you mean the shareholding of GSPC in GSPL should be split between Governor & public - I didn’t do that because i was more concerned with the listed entities where minority investors can technically buy the entire public float (which still may not be true as there are further Govt. of Gujarat cos. there holding some stock).

The way I am seeing it is no. of shares in combined entity being issued to all the minority shareholders in GSPL where I believe is the arbitrage.

Could you please share your calculation for point 1 for increase in Governor shareholding? I’d like to understand in detail if i have missed something and if indeed there is no arbitrage.

Also, you are right about GGL Mcap already being incorporated in GSPL prices. Hence, the breakup of GSPC Consol. nos. gives a clearer picture of entire group as it will be after merger. If my calculations are correct, I’d be comfortable buying the consol. group at a discount through GSPL minority share purchase.

If you are right, then i stand to lose heavily as I am betting on the arbitrage :). So please do share your calculations also!

aditya.lathe · October 16, 2025, 4:29am

Thanks Ashwin. Look forward to reading your complete work also once it is finished. Again, I was looking at the consol. group instead of each company piecemeal, so i didnt comment on valuation of each individual co. - of which i dont have any idea as well!!

Anish_Surana · October 16, 2025, 5:45am

Hi Aditya,

I have attached a screenshot of my calculations. The columns represent the various company shares and the rows represent the shareholders. The columns headers highlighted in yellow are the GGL shares that should be allocated to GSPC and GSPL shareholders respectively as per swap ratio. The cells highlighted in red are the GGL shares getting cancelled as those were owned by GSPL and GSPC.

You will notice that I have split the red cells further as per GSPL and GSPC’s shareholding to arrive at the number of GGL shares entitlement for the Governor vs the public. At the bottom of the pre scheme table, I have calculated the number of GGL shares that the Governor is entitled to, as per the corporate structure, current shareholding and the swap ratios. The Governor is entitled to ~25.16% but will get ~25.71% post the scheme. There isn’t any arbitrage left for the public shareholders, in fact, their shareholding goes down slightly compared to the ultimate promoter.

Regards,
Anish

Prathamesh_Adhikari · October 16, 2025, 7:31am

you are doing service to the nation :) by publishing these complicated transactions in detail

aditya.lathe · October 16, 2025, 7:33am

Thanks for the detailed response Anish.

I followed you till the column detailing disaggregation of GSPL’s shareholding in GGL into GoG, P1 (Public of GSPC) and P2 (public of GSPL).

I also got the last column detailing disaggregation of GSPC’s shareholding in GSPL, into GOG & P1 - detailed in terms of new GGL shares to be issued

I am sorry, but I couldn’t understand the Governor entitlement part of 25.16% - Could you please explain step by step how you arrived at it?

Anish_Surana · October 16, 2025, 8:03am

The Governor’s entitlement of GGL shares is the total number of shares that they would have received if there was no cancellation of shares.

I have calculated it by summing up their existing ownership (~45M), entitlement through GSPC’s ownership in GSPL (~91M) as well as entitlement through GSPL’s ownership in GGL (~78M). The total is ~214M. Similarly, summing up all the public entitlements through GSPC and GSPL along with the existing public ownership in GGL adds up to 636M.

214 / (214+636) = ~25.16%.

aditya.lathe · October 16, 2025, 10:00am

Ok, thanks for breaking it down. As this got highly technical for me, let me summarize what i understood from this-

Conceptually, you are converting Governor shareholding in each entity in terms of equivalent shares in GGL (through the disclosed swap ratio). Then you are adding up all the governor shareholding and dividing it by the total shareholding, all now converted in terms of GGL shares.

If this is so, I think Governor shareholding directly in GSPC also needs to be added to this, so the final tally should look something like this:

Actual GoG shareholding in combined entity =

GoG share in GSPC (translated in terms of GGL)
+
GoG share in GSPL (translated in terms of GGL)
+
GoG direct share in GGL

Please do let me know if this differs from your method.

Now, I didnt get into breakup of these calculations. What I see is:

Exchanging current value of 11,199 crs in GSPL for 13,822 crs in combined GGL+GSPL+GSPC (as on 30 Sep);

This is because current 35.19% stake in GSPL (current public shareholding) gives me the right to a 28.85% stake in the combined entity. For the two values to be equal, if i reverse calculate the value of Combined Entity - it should be ~38,818 crs (because 28.85% of 38,818 = 11,199 Crs)

Now given the financials of the Combined Entity (Consol nos. of GSPC group), the group at 38,818 crs looks like a bargain.

This might not be a merger arbitrage in the strictest sense, as I need to have absolutely no idea of the value of each individual company. All I need to know is the value of the combined entity, and the equivalent price that I am indirectly paying for it today by buying GSPL (or GGL)

Anish_Surana · October 16, 2025, 3:49pm

Your understanding of my approach is correct. I understand and agree with your approach of converting the public shareholding of GSPL into the combined entity. I also agree that the play here will not be strictly from a merger arbitrage perspective but from how the combined entity will be valued post the transaction.

I can think of the following considerations regarding the combined entity valuation realization play:

Timeline - The gain here will not be immediate post the scheme execution. There will not be an automatic upward share price update by the stock exchange. The market will need to understand the value of the combined entity and actually drive the share price higher for the gain to be realized. That will likely require a full year of clean consolidated financials reporting which may likely be available post FY27. The GTL demerger might further impact this.
The extended timeline of value realization will expose this play to oil and gas commodity price risk.
At 38,818 Cr mcap and GSPC’s consolidated PAT of 2311Cr, the P/E is 16.8. I haven’t dug deep into the valuation of these entities but my initial observation is that it is not undervalued for an Oil & Gas PSU. Gail, Petronet LNG, IGL and MGL trade at 12.1, 11.26, 17.99 and 11.82 PE respectively.
The CAGR gain in this play will be subject to the value realization timeline.
This can become interesting if GSPL’s share price falls significantly compared to GGL’s price (merger arbitrage, currently at 2%)

Regards,
Anish

aditya.lathe · October 16, 2025, 5:02pm

Okay, great to see we have a common ground. I’m ok to hold even for a longer time. I’m even looking at the CFO yield which is at 8% approx. At one point (peak val. last year during Sep mania) ppl were ready to value the group at 55k crs.

So given the cash yield, clean business and one of the larger entities in CGD and transmission, it seems a decent bet. From a longer term perspective, CGD was impacted due to reduction in APM gas allocation from 50% approx to 35% which is further reducing. But with more US and Qatar cap. coming onstream from FY26 onwards, gas prices should stabilize down over medium to long term.

Transmission was impacted bcoz regulator lopped of the price they could charge by almost 40% last year. I dont see any more cuts after that, and the business should stabilize.

So what i see is bad newsflow for both CGD and transmission, along with extra 18-20% discount in the price through merger.

The risk could be some last minute spanner in the deal. Fingers crossed against that!

Anish_Surana · October 17, 2025, 7:24pm

That makes sense. There’s definitely a lot of intrinsic value in these businesses and more will get unlocked with the merger. They seem to have the potential to become quite lucrative as a combined entity especially if the macros are in favour. I need to spend more time in understanding their businesses before forming a view on the expected valuation of the combined entity. Thanks for all your inputs!

santoshsingh · October 28, 2025, 5:52am

WOW. Aditya. vey beautifully explained with the supporting data. Also, there is brain treasure business called “Dhani services”. They are also going thru a Complex corporate structuring. I tried to understand couple of times it still doesn’t make sense what they are doing and how it will eventually evolve. Whenever you have time could you look at Dhani services.? or maybe we can start a new thread for a very good learning.

aditya.lathe · October 28, 2025, 8:22am

Thanks Santosh! Sure, I can take a look. I’d avoided the group due to Corporate Governance issues, but the corporate restructuring even might be interesting from an academic point of view. Will reply on this same thread when I’m done.

Nibin_Issac · October 28, 2025, 11:23pm

Anyone tracking allcargo logistics demerger?

Prathamesh_Adhikari · November 12, 2025, 4:40am

my thesis. can be wrong

Currently there are two listed entities :-
All Cargo Logistics (~3500 Cr Mcap) = Domestics Supply Chain + International Business
All Cargo GGati (~2000 Cr Mcap) = GatiExpress (Surface + Air)

the group is getting restructured; new entities will be
All Cargo (Domestic) = Domestic Supply Chain + Gati (~80 Cr Avg Annual PAT)
All Cargo (International) = International LCL, FCL business (~480 Cr Avg Annual PAT)

1:1 ratio in restructure. Every 1 share of All Cargo Logistics gets 1 Share of Domestic + 1 Share of International business
post demerger, the international business which is their strong business should trade at 10x PE = 5K Cr Mcap
domestic should stay at the current Mcap of ~3.5K Cr
so the upside is 5K Cr valuation on the investment of 3.5K Cr Mcap, hopefully.

record date for eligibility is 12th Nov, so tomorrow is the last day to buy All Cargo. post 12th Nov; International business should get listed hopefully by Dec, and the price discovery will decide the upside then. In my opinion, International business is a long term compounding bet.

P.S. - Better deal was in Gati, the swap there was 63:10; missed it as the record date was 1st Nov

Prathamesh_Adhikari · November 17, 2025, 11:43am

the results of the domestic entity (domestic business + gati) are here, more clarity in the con call may be.

Prathamesh_Adhikari · November 29, 2025, 2:59pm

Darshan_Zanwar · November 30, 2025, 4:01pm

Anyone analysed the Kwality Walls Demerger from HIL?