Rane Group stocks rally; Rane (Madras), Rane Engine, Rane Brake zoom 20%

Shares of Rane Group companies -- Rane (Madras) (Rs 1,320.60), Rane Engine Valve (Rs 518.25), and Rane Brake Lining (Rs 1,197.10) -- were on a roll on Wednesday. The group stocks zoomed 20 per cent on the BSE in the intraday trade in an otherwise subdued market.

Rane Holdings, on the other hand, surged 16 per cent to Rs 2,068.75. All these stocks hit their respective 52-week highs today. In comparison, the BSE Sensex was down 0.01 per cent at 80,796 at 12:05 PM.

Rane Madras (RML) is the flagship company of the Rane group, with the group holding company, Rane Holdings (RHL) having 71.77 per cent stake (none of the shares are pledged) in the company. RML is engaged in the manufacturing of manual steering gears, hydrostatic steering systems, and steering and suspension linkages which, together, account for about 80 per cent of overall revenues.

 

Rane Engine Value (REVL), meanwhile, is into the manufacturing of engine valves, predominantly used in the automotive industry. The company has a diverse presence in both domestic and export markets and has established tie-ups with leading original equipment manufacturers (OEMs).

The board of directors of RML, at their meeting held on February 09, 2024, had approved the proposed scheme of amalgamation of the REVL and Rane Brake Lining (RBL) with and into RML, with effect from April 01, 2024.

As per the Scheme, nine equity shares of RML will be issued for every 20 equity shares held in REVL, and 21 shares will be issued for every 20 equity shares held in RBL.

The proposed Scheme of amalgamation aims to simplify the group structure, align shareholder interests, enhance operational efficiency, and diversify product offerings.

Consolidating under a single listed entity will facilitate coordinated business management, achieve synergies in revenue and costs, optimise resources, and improve access to capital for growth opportunities.

Additionally, it will enable a unified approach in customer engagement, supply chain management, and administration functions, while leveraging combined human capital for improved organisational capability and leadership, RML said.

According to rating agency CRISIL, the merger of the listed operating companies of the Rane group is expected to provide synergistic benefits in the form of common raw material procurement and logistics, better negotiations leading to better procurement strategy, besides streamlining of administration and other cost including insurance premiums for its product warranties.

The merger will also create a larger entity, with better revenue and product diversity, and healthy operating margin of 8-10 per cent. Operating margin will also benefit from sale of the erstwhile loss-making subsidiary, Rane Light Metal Castings, USA Inc (RLMC), it said.

"The balance sheet is also likely to strengthen due to modest debt at REVL, zero debt at RBLL and no further requirement to support RLMC. The combined entity is expected to have a net worth of more than Rs 650 crore, compared to Rs 250 crore estimated (at RML) as on March 31, 2024. Consolidated debt is projected to be Rs 822 crore, resulting in gearing of 1.26 times, compared to 2.8 times estimated (at RML) as on March 31, 2024," the rating agency said in its rationale.

RML has obtained the no-objection certificate (NOC) from all lenders and stock exchanges. The scheme will be filed with NCLT, and the final approval is expected by the end of fiscal 2025. The reorganisation should be able to unlock synergies and optimise support functions to improve efficiency in the Rane group, CRISIL said.

On its part, RML said that the automotive industry is poised for significant growth driven by several key factors.

"Foremost among these is the rapid adoption of new technologies, coupled with robust government support policies. With increasing awareness about environmental issues, there’s a notable shift towards alternative fuel vehicles like compressed natural gas (CNG) and electric vehicles (EVs), which is expected to further boost sector growth," it said in its FY24 Annual Report.