Value unlocking at Sundaram Clayton

Sundaram Clayton Limited (SCL) is part of the $5 billion TVS group, one of the largest auto components manufacturing and distribution group in India.

SCL is a leading supplier of aluminium die castings to automotive and non-automotive sector. (Rs.808 Crore sales in FY2011)

It has a fully owned subsidiary called Anusha Investments Ltd (AIL)

Now SCL owns 4.2 Crore shares (8.84%) of TVS Motors.AIL owns 23.06 Crore Shares (48.56%) shares of TVS Motors.

So effective ownership of SCL in TVS Motors is 27.26 Crore Shares (57.4%).

As of today 27 March, 2012 at a CMP of Rs.38.75,  this works out to a valuation of Rs.1056.3 Crores

Sundaram Clayton Ltd (SCL) has a current market cap valuation of Rs.580.24 Crores.

So effectively if you were to buy SCL today , you’ll get the SCL business for free as well as Rs. 476 Crores of TVS Motors for free.

Typically, the markets discount holding companies as the value unlocking doesn’t happen.

But in this case, the management seems intent to remove this anomaly.

They have proposed a scheme of arrangement wherein all the non-automotive related businesses of SCL will be transferred to a company called Sundaram Investments Ltd (SIL)

If the scheme gets the necessary approvals, a person holding two shares of existing SCL will get one share of the demerged SCL and one share of SIL.

The only catch is that the promoters don’t intend to list SIL.They intend to provide an “exit option” to public shareholders at a fair value based on a report by a valuer/merchant banker.

The TVS group is known for its integrity.Its unlikely they will screw the minority shareholders.

So , all in all, the scheme should unlock tremendous value.



5 replies on “Value unlocking at Sundaram Clayton”

You have probably missed the announcement that “For Sundaram Investments Ltd– You will get Rs48 per share”… that means Rs 24 per current share (You will get 1 share of SIL for every 2 shares of SCL.

So, the question boils down to– After ex-date, will SCL fall less than 24Rs???
Any views on this?

Thank you very much for pointing this out.

So the scheme works like this:
2 shares of existing Sundaram Clayton gives 1 share of demerged Sundaram Clayton and 1 share of Sundarm Investments

Cost of 2 shares of Sundaram Clayton=Rs. 306
Cost of Sundaram Investments=Rs.48
So will the price of demerged Sundaram Clayton be Rs.306-Rs.48=Rs.258?

The answer is No.

Comparison of SCL with its peers in terms of revenues,earnings and enterprise valuations makes the answer obvious.

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