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Grasim’s holding discount may widen on further investment in VIL

The brokerage said capital allocation to group companies, especially to the group telecom company, has been a concern and overhang on Grasim’s stock, driving a high holding discount on the stock. This discount has at times exceeded 60% and has come off to 48% in recent weeks but it is still higher than the historical average of 44% since 2011, said Morgan Stanley.

These concerns have come in the wake of Vodafone Idea announcing to the stock exchanges that its board of directors have approved a fundraising plan of a maximum of Rs 25,000 crore, subject to shareholders’ approval. These proposals will be taken for shareholders’ approval on September 30 at Vodafone Idea’s AGM.

“This announcement could also raise similar concerns as during the last fund raising (through rights issue) Grasim contributed its share of 11.55% of the total amount,” said Morgan Stanley.

Vodafone Idea today announced that it will go by the brand name ‘Vi’.

Morgan Stanley said so far Grasim’s board has not received any proposal for evaluation. The company’s management reiterated that its first priority will be to maintain its external credit rating, then to prioritize its own organic capex plan before considering any investment in group companies, said Morgan Stanley.

“Any large-scale investment in the group company appears a low probability event to us although it cannot be ruled out. If Grasim doesn’t contribute any capital, we think it will be construed positively with respect to its capital allocation concerns,” said Morgan Stanley. “.

If Grasim does contribute capital equivalent to its equity stake in the group telecom company, it could lead to an increase in holdco discount, which has narrowed in recent months,” said Morgan Stanley.

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