Key highlights : Share swap ratio fixed at 40 shares of AL for every 100 shares of HFL, resulting in dilution of ~2.8% for AL. This would result in increase in promoter’s stake in AL to 51.3% (from 50.4%). 2) AL has invested ~Rs 3.5bn in preference shares (apart from ~7.5% equity interest) on which there were no interest servicing in the past few years. This will get cancelled on the merger. 3) This deal is subject to various approval from regulatory authorities and shareholders.

However given the government’s thrust on the manufacturing sector and the Make-in-India initiative, we believe HFL’s foundry business will gain strong traction and become EPS accretive for AL’s business in long term. This merger will also help to diversify AL’s revenue streams and achieve better operational efficiencies.They will wait for shareholder approval before incorporating HFL’s financial in their estimates.They maintain BUY with a TP of Rs 104 (14.5x on FY18E EPS ex HFL) as expect marginal impact on EPS due to tax shield from accumulated losses at HFL.