Chennai-based supply chain managementcompany Redington (India) Ltd will sell non-banking finance arm Easyaccess Financial Services, which the Street viewed as a major overhang, to its promoter Harrow Investment Holding Ltd in a transaction that could fetch it up to Rs 288 crore.
Redington, which among other things distributes AppleiPhone in India, Monday sought shareholder approval for either a 75% stake sale in Easyaccess, for Rs 215 crore, or a 100% sale for Rs 288 crore. In the process, it rejected a lower bid from private equity firm Creador.
In a notice to shareholders posted on the stock exchanges, Redington said it is looking to sell its stake for Rs 18.97 a share.
Reacting to the news, shares of Redington closed up over 5% at Rs 68.50 on the Bombay Stock Exchange.
Harrow Investment Holding (formerly known as Redington Mauritius Ltd, Mauritius), the buying entity, owns just over 21% stake in Redington. Its offer proved sweeter than the one received from private equity firmCreador, which was ready to invest Rs 100 crore, at a pre-money valuation of Rs 250 crore, much below the book value of Rs 286 crore.
Redington had acquired the then-Delhi-based Easyaccess five years back. At that time, the NBFC business helped it meet channel finance needs.
Easyaccess helped offered factoring of receivables while extending short-term loans to channel partners. It also extended loans and corporate trade finance to the non-IT sector. Its book size grew over Rs 390 crore in less than two years of operations.
However fortunes changed in 2011, when the RBI changed the guidelines for factoring services. The regulator's new mandate was that 75% of total assets and 75% of total business needed to come from the factoring business. Redington then decided to shut down the factoring business. As a result, its book size shrunk nearly 45% - to about Rs 380 crore - between 2011 and 2013.
This made the analysts nervous.
Brokerage Ambit Capital in a recent report noted that the NBFC has been an area of concern for Redington in recent years, and that its sale will remove uncertainties. The report said its expectation was that Easyaccess would get a valuation of 0.5 times its book value. It actually got double Ambit's expectation.
ICICI Securities had also noted that the NBFC arm was a key investor concern. It also said that its sale can help reduce the company's consolidated debt level, which is at 1.2 times the equity.
As of March 2013, Redington's investments in the Easyaccess stood at Rs 220 crore. The NBFC had assets of Rs 500 crore and disbursals of Rs 1,370 crore.
Redington had consolidated revenues of Rs 24,000 crore and a net profit of Rs 323 crore in 2012-13.