Demergers unlock value but outcomes hinge on structure, says InGovern

InGovern study shows India Inc demergers have unlocked shareholder value, though outcomes vary widely depending on structure and execution of corporate restructuring

Corporate demergers by India Inc have largely unlocked significant shareholder value over the past decade by eliminating holding company (holdco) discounts and enabling sharper strategic focus, proxy advisory firm InGovern said in a note.

 

An analysis of 22 demergers between 2016 and 2024 showed that the combined market capitalisation of parent and spun-off entities rose 36 per cent from one month prior to board approval to three months after listing. These returns outpaced the Nifty 50 index by 16 percentage points, underscoring the effectiveness of demergers as a value-unlocking tool, InGovern said.

 

“Recent Indian demergers demonstrate that simplified pure-play structures consistently generate superior shareholder returns by eliminating conglomerate discounts and enabling focused strategies,” InGovern said in a note analysing the proposed merger of UPL Limited. 

The firm cited transactions such as Adani Enterprises (energy, gas), Raymond (lifestyle), Jubilant Pharmova (life sciences), and Siemens (energy) among those that delivered strong value unlocking. 

At the core of the demerger argument lies the so-called holdco discount — the tendency of conglomerates to trade below the sum of their parts due to complexity, concerns around capital allocation, and limited transparency. InGovern’s analysis shows that operating-cum-holding companies trade at an average discount of 32 per cent.

 

However, the study also noted that value creation is not uniform. Some transactions, including Piramal Enterprises, Aarti Industries, Tata Motors, and ITC Hotels, have underperformed the broader market.

 

InGovern’s note comes amid the demerger announcement by agrochemicals major UPL last month. The proposed restructuring, it said, could simplify the company’s corporate structure by creating focused, pure-play businesses.

 

Under the plan, UPL will combine its India crop protection business and its global crop protection platform to create a new entity — UPL Global, while UPL will house the specialty chemicals business, superform manufacturing, and the stake in IPO-bound Advanta Seeds.