Astral Share Crash: Shareholders will get 1 new share for 1 share, yet why the stock fell by 8%…

Business Desk – Astral Share Crash: There was a sudden big fall in the shares of Astral on Monday. The company announced demerger of its chemical business into a separate company, after which heavy selling in shares started. At around 11:12 am, Astral shares fell 8.7% to reach the day’s low of Rs 1,357.10.

Interestingly, after the demerger, the existing shareholders will also get one share of the new company Astral Chemi in the ratio of 1:1, yet why did investors start selling shares? After all, what is the reason behind this decision and what could be its effect in the long term?

Why was the decision to demerger taken?

The company said in the information given to the stock exchange that its board has approved the demerger plan after the recommendations of the audit committee and independent directors. Under this, the entire chemical business of Astral Limited will be transferred to the new company Astral Chemi Limited (formerly Astral Coatings Private Limited). Under this plan, merger of Al-Aziz Plastics Private Limited with Astral Limited is also proposed. The company believes that this will allow both businesses to grow independently.

What will shareholders get?

After demerger, existing investors will get additional benefits. The company has clarified that every investor holding one share of Astral Limited will also get one share of Astral Chemi. That means the ratio of shares will be 1:1.

However, before receiving the shares of the new company, it will be necessary to complete the demerger process. After getting all the regulatory approvals, Astral Chemi will also be listed separately in the stock exchange. The entire process may take about 12 months or more.

Still, why did the stock crash?

According to brokerage firm Equirus Securities, at present there will be confusion among investors regarding the different valuations of the two companies. Especially it will not be easy to estimate the actual value of adhesives, paints and coatings business. Due to this uncertainty, the stock may remain under pressure in the near term. However, the brokerage has maintained the target price of Rs 1,980, expressing confidence in the company for the long term.

What did JM Financial say?

Brokerage JM Financial believes that after the demerger, both the companies will be able to focus completely on their respective core businesses. Astral Limited will focus only on plumbing and building material business. The entire business of chemicals, paints and coatings will be operated under Astral Chemi. This will increase the focus of management and the growth of both businesses is likely to accelerate.

What will be the challenges before the new company?

According to the brokerage, the biggest challenge before Astral Chemi will be to raise capital to expand the business, increase profits and face increasing competition. The company has set a target of achieving revenue of Rs 4,500 crore to Rs 5,000 crore in the next four to five years. Also, a plan has been made to increase the EBITDA margin from 14% to 15% by the financial year 2028.

How will value be unlocked for investors?

The company says that with the demerger both the businesses will work independently. This will lead to better utilization of capital, increase focus on business, strengthen corporate governance and provide an opportunity to unlock value for shareholders. Having separate businesses will also make it easier for investors to assess the actual potential of both the companies separately.

Many approvals still remain

Before the demerger plan is implemented, approval from National Company Law Tribunal (NCLT), SEBI, NSE, BSE and other regulatory bodies will be required. Apart from this, approval of shareholders and creditors will also be taken.

What is the contribution of the company’s chemical business?

The turnover of the chemical business to be demerged in the financial year 2025-26 was Rs 1,266.3 crore, which is about 21% of the total turnover of the company. The company has also clarified that there will be no change in the shareholding structure of Astral Limited after the demerger.