On Wednesday, Ashok Leyland announced that HLF will merge with NXTdigital, which has a market capitalisation of around ₹1,500 crore. NXTdigital is a digital delivery platform company providing services via satellite, digital cable and broadband.
A key rationale behind this merger is to turn NXTdigital, a listed shell company, into a non-bank finance company (NBFC). This is subject to regulatory approvals.
In the past, the street had expected that HLF would go public through an initial public offering (IPO). With this merger, the listed company would be able to raise funds through various routes such as qualified institutional placement and fund its growth plans. Higher disclosure of the merged entity will increase its corporate governance. This in turn will smoothen the process of raising funds for the merged entity.
HFL has assets under management of ₹29,000 crore and has a pan-India presence to offer finance for commercial and personal vehicles. HLF is valued between ₹6,500 and ₹7,000 crore based on the price to book multiple of 1.7-1.75 – the valuation benchmark for Shriram Transport Finance, a peer of HLF. Ashok Leyland has 69% holding in HLF. This would mean implied value is around ₹4,700 crore, or about ₹16 per share.
