EPL shares: Blackstone's stake sale to Indorama positive for minority investors, says Nomura

Blackstone's decision to sell 24.9 per cent stake in EPL Ltd ((erstwhile Essel Propack) to Indorama Ltd, a leading chemical producer, is a step in right direction for minority investors, said Nomura India, a day after the EPL stock tumbled 9 per cent amid the broader market selloff.

Blackstone, which owned 51.45 per cent stake in EPL, entered into a definitive agreement, through Epsilon BidCo, to sell 24.9 per cent stake in the company to Indorama Netherlands, a group entity of Indorama Ventures at a price of Rs 240 per share, amounting to a consideration of Rs 1,908 crore at a P/E valuation of 29 times on FY24 EPS. 

The stake sale is expected to be completed in the coming months, subject to approvals.

Nomura India said the overhang of ‘exit of PE investor’ is now behind and it sees the entry of a financial or strategic investor as a long-term positive for minority shareholders. With Blackstone’s investments in EPL crossing five years, Nomura India said there was a rising concern with respect to when and how Blackstone would sell its stake and if the stake sale would increase the stock supply in the market and put further pressure on the share price.

"We believe the stake sale to Indorama and not in the open market addresses this concern and can act as a sentiment positive for the stock," Nomura India said.

After the transaction, Blackstone will hold a 26.55 per cent stake in EPL and will continue as the promoter for EPL. Indorama would be a financial investor as of now and will be entitled to appoint one nominee director on the board of directors of EPL. It will also have customary minority protection in matters such as change in capital structure; merger, demerger, disposition of the assets of the company; discontinuation or cessation of business; and assuming or incurring any borrowings.

"We expect EPL to leverage Indorama’s global reach, market intelligence and relations with key MNC players to further expand its own footprint and business. EPL recently had announced a greenfield expansion in Thailand (1.5 billion tubes market), as it sees potential to grow in the Beauty and Personal Care (BPC) market," Nomura said. 

It also expects to attract new customers from neighboring countries of Indonesia and Malaysia over time. "We expect this journey to get accelerated with Indorama having a sizable stake in EPL," the brokerage said.

Timeline
To recall, Blackstone via its investment vehicle Epsilon Bidco had in April 2019 acquired a 49 per cent stake in EPL from promoter Ashok Kumar Goel and affiliates at Rs 134 per share for Rs 2,070 crore. With this, Goel’s family holding in the company had fallen from 57 per cent to 8 per cent.

Later, in August 2019, pursuant to a mandatory open offer, Blackstone acquired a further
26 per cent stake in EPL at Rs 139.20 per share for Rs 1,140 crore to take its holding to 75 per cent.

In September 2020, Blackstone sold a 23 per cent stake in EPL at Rs 256.50 per share for Rs 1,860 crore, and held a 52 per cent stake.

After the current stake sale of 24.9 per cent at Rs 240 per share, Blackstone’s stake in EPL will reduce to 26.55 per cent from 51.45 per cent.