Citigroup research is bullish on the prospects of Vardhaman Textiles [VART.BO] and ICICI Bank.
Vardhaman Textiles announced plans to de-merge the sewing thread business (14% of FY07E revenues) to its 100% subsidiary Vardhaman Yarns and Threads (VYTL). Additionally, the threads business of another 100% subsidiary, Vardhman Threads, will also be transferred to VYTL. Vardhaman Textiles’ sewing thread division will be transferred as a going concern on a slump-sale basis for Rs.2.6bn; For every 2 shares held in Vardhman Threads, equity holders would get one equity share of VYTL and one share of Vardhaman Threads.
Vardhaman textiles is expected to report a fully diluted EPS of Rs 38.64 for FY08 and Rs 51.54 for FY09. Citi recommends BUY on the stock with a target of Rs 350.
ICICI Bank is in the news after it proposed to demerge and unlock the value of its subsidiaries – mainly Insurance. Citi has recommended a BUY on ICICI Bank with a target price of Rs 1,125.
ICICI Bank will be spinning off its holdings in Life Insurance, General Insurance and Asset Management businesses into a 100%-owned holding company. The transfer – Rs19.5b (9% of capital) of its investment will be at book value. Management suggests a listing time frame of 6-9 months. ICICI is expected to report an EPS of Rs 39 for FY07 and Rs 45 for FY08. However, the re-rating in stock is only due to the listing of its insurance business. BUY on decline.