The stock market witnessed a sharp decline on Monday, but one stock attracted particular attention after its share price appeared to plunge nearly 65%. HEG Limited shares, which closed at ₹728.25 on Friday, were trading around ₹258 on Monday.
At first glance, the move looks like a massive crash. However, the sharp change is primarily linked to the company's demerger, rather than a sudden deterioration in its underlying business.
After adjusting for the corporate restructuring, the actual movement in the share price is much smaller.
Why Did HEG Shares Fall 65%?
Trading in HEG shares resumed on Monday on an ex-demerger basis following the separation of the company's graphite electrode business from its advanced materials and energy businesses.
The company had fixed September 7 as the record date to determine which shareholders would be eligible to receive shares in the demerged graphite-electrode business.
Because the value of the businesses has been separated, the market price of the continuing listed entity has been adjusted accordingly.
Therefore, comparing Friday's pre-demerger price of ₹728.25 directly with Monday's post-demerger price of around ₹258 gives a misleading impression of a genuine 65% loss.
What Happened to HEG After the Demerger?
Following the restructuring, the existing listed company has been renamed HEG Advanced Materials Limited.
The company will continue to operate businesses related to advanced materials, battery energy solutions and green power. Bhilwara Energy Limited has also been merged into the continuing company as part of the restructuring.
The graphite electrode business has been transferred to a separate entity, HEG Graphite Limited.
There is a proposal to rename this entity HEG Limited and list it separately as a pure-play graphite electrode company.
HEG Shareholders to Receive New Shares
The demerger provides for eligible shareholders to receive shares in the new graphite business.
Investors who hold shares of HEG Advanced Materials as of the September 7 record date are entitled to receive one fully paid-up share of HEG Graphite for every one share held in HEG Advanced Materials, subject to the scheme's terms.
This means that shareholders are not simply losing the value represented by the graphite business. A corresponding interest is being created in the separately transferred graphite business.
Why Does the ₹728-to-₹258 Comparison Look So Dramatic?
Before the demerger, HEG represented multiple businesses under one listed entity. After the restructuring, those businesses have been separated.
Consequently, the continuing company's market price reflects the value of the businesses remaining within HEG Advanced Materials, while the value attributable to the graphite-electrode business is expected to be reflected separately when the demerged company's shares are listed and begin trading.
This is why the headline fall from ₹728.25 to around ₹258 should not automatically be interpreted as a 65% destruction of shareholder wealth.
What Was HEG's Market Value Before the Demerger?
HEG's market capitalization was above ₹11,500 crore at Friday's close.
After the demerger, the continuing listed entity was valued at more than ₹5,000 crore during Monday morning trading.
The remaining value associated with the graphite-electrode business is expected to be reflected through the separately listed entity once its shares are admitted for trading.
What Should HEG Investors Watch Now?
For existing shareholders, the key development will be the eventual listing and trading of the demerged graphite business.
Investors should therefore evaluate the combined value of:
HEG Advanced Materials
The new HEG Graphite shares
The future market valuation of both businesses
The performance of the underlying graphite-electrode business
The post-demerger price of the continuing company alone does not provide a complete picture of the value received by shareholders.
HEG Share Price: Should Investors Panic?
The apparent 65% fall should be interpreted carefully.
A corporate demerger can result in an adjustment to the traded price because part of the company's business and corresponding economic value has been transferred to another entity.
Therefore, investors should not treat the movement from ₹728.25 to around ₹258 as equivalent to a conventional 65% stock-market crash.
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