Marico shares surged over 5 percent to a 52-week high of Rs 238.50 on Tuesday morning, as the street gave a thumbs up to its demerger plans and several analysts advised investors should "buy" the stock.
Marico's board on Monday approved plans to demerge its Kaya Skin Care Solutions business and list it separately as Marico Kaya Enterprises Ltd.
Marico's Consumer Products Business (CPB) and International Business Group (IBG) will now form a unified FMCG business, post the restructuring.
Antique Stock Broking upgraded the stock to "buy" from "hold," saying the demerger was positive for Marico as it would make it a pure consumer play.
"The separation of Kaya Skin care would mean an improvement in return ratios of Marico's pure FMCG business which will now house only the consumer businesses attracting higher profitability and returns. From an estimated RoCE of 21% in FY14, Marico's RoCE would increase to an estimated 23% during the year. Therefore, the separation will not have any impact on the earnings capacity of Marico, however would make its balance sheet size lighter by about 12% (Rs 350 crore)," Antique analysts Abhijeet Kundu and Nupur Parik said.
Analysts say the demerger will also benefit Kaya, which has seen earnings improve this financial year and posted a pre-tax profit in the second quarter. It will be able to attract funds for expansion, they say.
"The demerger of Kaya into a separate entity could potentially lead to better capital utilisation for its expansion," Goldman Sachs said, putting a "buy" rating on the stock.
"Demerger of Kaya into a separate listed entity will lead to price discovery of the business, in our view. We estimated Kaya to report sales of Rs 410 crore and breakeven at the profit after tax level in FY2014," said Amrita Basu and Rohit Chordia of Kotak Institutional Equities.
At 10:15 hrs, Marico shares were up 4 percent at Rs 236.45 on NSE.
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