Do Demergers Actually Work?

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Good morning. In today’s edition — demergers are often not successful, and Indian companies must learn from global failures; Kalyan Jewellers gives Titan Industries a run for its gold; and a grim outlook for India’s economic growth.

DIVERGENT VIEW

Demergers Come With Great Risks, India Inc Must Learn From Global Examples

Even as corporate India witnessed significant growth in mergers and acquisitions (M&As) in 2024, barely a month went by without a company announcing demergers too. The year 2025 started with a bang on this front with the demerger of ITC Hotels from its parent company ITC took effect on 1 January.  

Last year also saw many other companies intending to go down the same path. These included Tata Motors, Raymonds, Reliance Industries, Hindustan Unilever Ltd (HUL), Allcargo Logistics, Vedanta, NIIT, GHCL, Motherson Sumi, Edelweiss Financial and the Shipping Corporation of India. Globally, demergers have been in vogue for many years. Hewlett-Packard, General Electric, Kellogg, GSK, Johnson & Johnson, IBM, DuPont and United Technologies have been some notable ones. 

Typically, demergers or spin-offs offer multiple benefits to a company, but most often there is one major compelling reason. But not all demergers are successful. 

So, why has this strategy become a significant trend in India today?

PODCAST

On Episode 475 of The Core Report, financial journalist Govindraj Ethiraj talks to DK Joshi, Chief Economist at CRISIL.

• Markets pause.

• GDP growth slows, advance estimates show.

• Rupee recovers, rises sharply.

• Car sales and their surprising fall.

• Microsoft to invest $3 billion in data infrastructure in India.

MESSAGE FROM INDIA ENERGY WEEK 2025

India Energy Week 2025 will bring together global energy leaders to explore pressing challenges, showcase India's energy transition, and highlight innovative solutions.

The conference is scheduled from February 11-14, 2025, in New Delhi.

FROM THE PERIPHERY

—📱 Think tank group Global Trade Research Initiative (GTRI) has cautioned against proposed reductions in customs duties on smartphone components in the upcoming budget. GTRI argued that such cuts could undermine India's fast-growing electronics manufacturing ecosystem, deter investments, and lead to job losses. India's smartphone industry which was valued at USD 49.2 billion in the fiscal year 2023-24 exported around $15.6 billion worth of devices. Smartphones are the fourth-largest export category after diesel, aviation fuel, and polished diamonds, GTRI said. It further added that lowering import duties may increase reliance on imported components, hindering the development of domestic manufacturing capabilities.

—🚨 The estimates for gross domestic product (GDP) for the financial year 2024-25 have been maintained at 6.4%, the Ministry of Statistics said on Tuesday. "Real GDP has been estimated to grow by 6.4% in FY 2024-25 as compared to the growth rate of 8.2% in Provisional Estimate (PE) of GDP for FY 2023-24. Nominal GDP has witnessed a growth rate of 9.7% in FY 2024-25 over the growth rate of 9.6% in FY 2023-24," the press release said. This is the slowest growth in the last four years. Not only is this significantly lower than the 8.2% GDP growth recorded in the financial year 2023-24, but it also falls short of the Reserve Bank of India's lowered forecast of 6.6%. The central bank of India announced this last month. 

—✈️ The United States (US) is set to formalise a programme allowing H-1B visa holders to renew their visas domestically, eliminating the need to travel outside the country for the renewal process. This initiative follows a successful pilot program conducted in 2024 and is expected to benefit a significant number of Indian professionals working in specialised occupations across the, US Embassy said in a statement. The relaxations come as a relief to Indian professionals who have consistently secured a significant portion of H-1B visas accounting for 70% of the programme in 2023. The H-1B programme has been a topic of debate in recent times even as the US has been facing a shortage of STEM workers. 

—❌ Credit rating firm India Ratings forecasts a moderation in Indian banks' profitability for the fiscal year 2025-26 (FY26) mainly due to rising delinquencies in unsecured loan segments and increased credit costs. The rating firm adjusted Indian banks’ credit growth projection for FY26 to 13.5%, down from the earlier estimate of 15%, while also projecting a deposit growth of around 13% for the same timeline. This development signals a major shift from the strong financial performance recorded between FY21 and FY24, prompting banks to adopt more prudent lending practices and focus on asset quality management.

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UGHH

Air India lately has been making headlines for either keeping passengers stranded on planes for hours or cancelling flights altogether. Now, it’s back in the spotlight—this time for an hour-delayed flight with 150 passengers that returned mid-air without reaching its destination. On Sunday evening, Flight AI 2820 from Bengaluru to Delhi took off at 7:09 pm, instead of 5:45 pm, only to turn back at 8:10 pm due to technical issues. According to The New Indian Express, after a long wait, it finally departed at 11:47 pm, landing in Delhi at 2:07 am—over five hours late. Fortunately, everyone on board remained safe.

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