Astral shares drop 6% after demerger. What should investors do?

The shares of Astral fell nearly 6% on Monday to the day’s low of Rs 1,389 after the board approved the demerger of its chemicals business into a newly incorporated entity, Astral Chemie, according to an exchange filing.The filing stated: “After considering the recommendations and reports of the Audit Committee and the Committee of Independent Directors, and after due deliberations, the Board has approved the Composite Scheme of Arrangement amongst Astral Limited (‘Demerged Company’/‘Transferee Company’), Astral Chemie Limited (formerly Astral Coatings Private Limited) (‘Resulting Company’), and Al-Aziz Plastics Private Limited (‘Transferor Company’), along with their respective shareholders and creditors, on the stated terms and conditions.”Also Read | Should you switch your mutual funds after a few months?

Expert offers a reality checkAccording to a report by Equirus Securities, the demerger is expected to create a near-term overhang on the stock’s performance as investors assess the valuation multiples each standalone business could command post listing.

The brokerage has set a target price of Rs 1,980.It noted that valuing the adhesives and paints business will be challenging, particularly in terms of the discount it may trade at versus listed peers.

While the business is expected to see strong growth momentum along with a focused profitability improvement drive, including backward integration through the DSS acquisition, its eventual EV/EBITDA multiple remains difficult to estimate given its scale.A report by JM Financial said the demerger will consolidate Astral’s entire chemicals portfolio under Astral Chemie, including the paints and coatings business, while Astral Limited will primarily focus on plumbing and building materials.

Existing Astral shareholders will receive shares of Astral Chemie in a 1:1 ratio, with mirror shareholding.

A separate listing is also proposed for the new entity, subject to regulatory and shareholder approvals, which may take at least 12 months.Post-demerger, the key variables for Astral Chemie will include funding growth plans, improving profitability, and navigating competitive pressures, the report added.

Management has guided for Rs 45-50 billion revenue (implying a CAGR of 20–25%) over the next four to five years, with EBITDA margins potentially reaching 14-15% by FY28E.The demerger rationale includes improved management focus across segments, specialisation and targeted growth, efficient capital allocation, value unlocking for shareholders, and more tailored corporate governance with independent board oversight.The filing further stated that the chemicals business undertaking, along with all related assets and liabilities, will be demerged from Astral Limited and vested into Astral Chemie on a going-concern basis, as outlined in the scheme.Also Read | SIP share of equity AUM at multi-year high, over 29% in May: Franklin Templeton India MF The amalgamation of Al-Aziz Plastics Private Limited into Astral Limited, followed by the dissolution of the transferor company, is subject to approval from the National Company Law Tribunal (Ahmedabad Bench), SEBI, the National Stock Exchange of India, BSE, and other statutory and regulatory authorities, as well as approval from respective shareholders and creditors under applicable law.The turnover of the demerged undertaking for the year ended March 31, 2026 stood at Rs 12,663 million, accounting for 21% of the total turnover of the demerged company for the same period.There will be no change in the shareholding pattern of the demerged company upon the scheme becoming effective.

Further, one fully paid-up equity share of the resulting company with a face value of Re 1 will be issued for every one fully paid-up equity share of Re 1 held in the demerged company.Upon effectiveness of the scheme and receipt of all regulatory approvals, the new shares will be listed on the stock exchanges.

The entire share capital of the transferor company will stand cancelled without any further application, act, or deed, and no shares will be issued by the transferee company pursuant to the amalgamation.(Disclaimer: Recommendations, suggestions, views, and opinions expressed by experts are their own and do not necessarily reflect the views of The Economic Times) ...