Aarti Industries to demerge pharma business

The board of Aarti Industries has approved the proposal to demerge the pharma business into a separate entity, Aarti Pharmalabs Ltd. Under the scheme of the arrangement, the pharma business of Aarti Industries and the allied specialty chemicals segment catering to the pharma business will be combined under Aarti Pharma labs.  

The entire deal will be done through a stock swap. While the pharma and allied businesses will be transferred to Aarti Pharmalabs, Aarti Industries will retail the remaining specialty chemicals business. As part of the scheme of the arrangement, shareholders of Aarti Industries will be issued 1 share of Aarti Pharmalabs for every 4 shares of Aarti Industries held. Aarti Pharmalabs was formerly called Aarti Organics and is a 100% subsidiary of Aarti Industries.

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The shares will be issued to shareholders whose names appear on the register of shareholders as on the record date. However, the record date for the demerger transaction is yet to be finalized. The deal is subject to approval by the stock exchanges and the relevant regulatory agencies.

Post the demerger, the segmental overlaps will be removed. The company will have two distinct business lines of pharmaceuticals and specialty chemicals, housed under separate companies. According to the company, this kind of clear demarcation will ensure greater operating efficiencies, better synergies as well ease of raising resources for both companies.

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For Aarti Industries, the pharmaceutical business is a high growth and high margin business. It enjoys EBIT margins of a healthy 23% and has been growing at a CAGR of 20% over the last five years. By demerging from the commoditized specialty chemicals business, it will ensure better valuations for the group as a whole. The stock of Aarti Industries was trading lower at Rs.929, but the stock price has already doubled since October last year.
 

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