(13 April 2006 8:00 pm)

MUMBAI: Hinduja TMT Ltd. is demerging its IT/BPO business into a new company, while simultaneously merging its media and content subsidiary InNetwork Entertainment Ltd (INEL) into the residual entity. Both the companies will be listed on the Bombay Stock Exchange and National Stock Exchange.

HTMT's current shareholders will be allotted shares of both the companies in proportion to the capital employed in the respective businesses. "The appointed date of the demerger would be 1 April," the company said in a release.

In simple terms, all the existing assets of HTMT barring the IT/BPO business will be in the residual entity. This includes IndusInd Media and Communications Ltd (IMCL) which operates cable TV under the Incablenet brand, a cable Hindi movie channel, and the broadband business. What this means is that a media holding company will emerge after the merger of INEL and it will also have under its umbrella IMCL.

Indiantelevision.com had earlier reported that the media business was to be brought under a holding company. The HTMT board, which met today, has granted approval to the demerger.

The telecom holding in Hutch will also reside in the residual entity. HTMT plans to exit from the telecom business by selling its entire stake. It controls an effective stake of 5.11 per cent in Hutch, a leading GSM service provider, through a subsidiary Indusind Telecom Network Ltd. "The company has received offers for purchase thereof which are under consideration. The board has set up a committee of directors to appraise the offers, negotiate and finalise the deal," HTMT said in a release.

The money raised from the sale will, thus, be in the media company. "The board will decide where to make the investments. The name of the residual entity will also be decided later," IMCL executive director, corporate services, Ashok Mansukhani said. The valuation of INEL will also be carried out, he added.

Commenting on the demerger, HTMT chairman Ashok P Hinduja said "the related restructuring will unlock immense shareholder value. While the current market cap is about Rs 22.2 billion, the sum of parts valuation is significantly higher, which could get unlocked. It will also go a long way in speeding up inorganic growth opportunities in both the technology and media/telecom companies, apart from aiding the induction of strategic and/or financial partners. Operational efficiencies in both the resultant companies would also increase".

HTMT's technology business employs over 7000 persons (with over 3000 overseas employees) and ranks among the few BPO companies with a global delivery model with presence in five countries and significant revenues generated overseas. It has domain expertise in healthcare and insurance, financial services, manufacturing, telecom, pharmaceuticals, consumer electronics, household products, energy and utilities.

According to a company statement, the media business is well poised to take advantage of the emerging business opportunities in content and distribution that have recently opened up and is in negotiation with several leading players for collaborations and contracts in these spaces. "It would also continue to be the holding company of IMCL, a leading multi-system operator (MSO) with extensive intra-city fiber networks, with 6000 km of trunk and access HEC networks, 80 per cent of which is 2-way enabled. IMCL has a presence in 14 cities (9 of which are big cities) with over 40 per cent market share in most of these markets," the release added.

HTMT believes the demerger will unlock individual values. "The demerger and related restructuring would enable the full potential of all the diverse businesses to be realized and take the companies to the next level," said Hinduja.

Added Mansukhani: "The cable business has the potential to be a money-spinner in future."