Feature

Looks good, but <br> far from scrumptious </br>

Demergers and spin-offs have not always worked wonders

If a bunch of Indian corporates and their financial pundits had their way, the basic mathematics taught at high schools across the world would need an urgent upgrade, given the rate at which the companies are getting key subsidiaries in their businesses listed of late. Take the case of the Bengaluru-based Biocon, which listed its contract research subsidiary Syngene; Gujarat Fluorochemicals, which listed wind power subsidiary Inox Wind; or Gateway Distriparks, which listed its cold-chain logistics arm Snowman Logistics.

And this is not all — a significant number of companies are waiting in the wings. While Kalpataru Power is looking to list its agri-logistics provider Shree Shubham Logistics with the objective of investing in new warehouses, other names such as HCC, Sadbhav Engineering, GMR and Pennar Industries have already filed the prospectus for getting their subsidiaries listed. Many of these subsidiaries and businesses (divisions) were groomed by the parent company and one of the objectives of these listings is purportedly to create value for existing shareholders.

“There is nothing wrong in listing a subsidiary to raise growth capital. It often happens that you feed and groom a particular business for a while and once it matures, it needs to grow independently through listing, which is possibly the best thing to do from a corporate point of view,” says Sanjay Bakshi, professor at MDI.

“Spinning off of businesses is a successful strategy in India for some companies and the reason is that you have a ready platform provided by an established company or a parent company that will not only provide resources but help supply funding and expertise. Take a look at the history of telecom licences handed out in the country. All of them were grabbed by the leading business groups. If you are a part of a leading group, you have the ability to get loans from banks or raise funds through equity,” says Ajay Garg, managing director, Equirus Capital.

Indiabulls and the Adani Group are probably the masters of the spin-offs space. In its 14 years of existence, Indiabulls has spun off six co

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