India Inc sharpens focus on core segments through divestitures, demergers

In recent months, Hindustan Unilever, Bharti Enterprises, Adani Enterprises, L&T, and the Tata Group, among many others, have been selling off non-core assets to focus on core competencies. It is a trend that industry executives expect will accelerate going forward due to favourable market conditions.

What's driving this trend? Devarajan Nambakam, co-head of India investment banking at Goldman Sachs, said evolving market dynamics, including interest rates remaining high and a desire to unlock value from legacy businesses, is behind the surge. “This is likely to continue in 2025 as companies recalibrate their portfolios to navigate a rapidly changing economic environment and prioritize long-term growth opportunities," he added.

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According to Pramod Kumar, chief executive officer and head of investment banking of Barclays India, these deals are happening because of increasing shareholder expectations—both institutional and promoters—and increasing professionalisation of management.

“Competitive intensity in businesses has increased and there is a greater need to focus management bandwidth on core strengths to remain competitive," Kumar said. “And last but not the least, the valuations are attractive today and there could not be a better time for monetisation".

To be sure, companies tend to move away from the core to diversify their risks, and then move their focus back to the core when market conditions promise value unlocking for shareholders, according to experts.

Monish G. Chatrath, managing partner of risk advisory services firm MGC Global Risk Advisory, points to various factors that persuade companies to move beyond their core as a long-term strategy. These include gaining access to new profit pools, securing long-term growth opportunities outside their industry, diversifying risks and exposure to business cycles within their core industry, gaining a competitive edge for their core business, acquiring skills and capabilities that were lacking in their core business, or acquiring technology or R&D assets to leverage in their core business.

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“These may operate either individually or in cohesion to kickstart the cycle in their decision making," Chatrath said. “Yet one must be mindful of potential significant disparities between the value established and emerging economy that businesses derive from these extracurricular growth initiatives."

Which companies are divesting

Several firms have divested non-core assets in recent months. For example, on 30 December, Adani Enterprises said it will sell its stake in fast-moving consumer goods (FMCG) joint venture Adani Wilmar and use the proceeds from the sale to “turbocharge its investments in core infrastructure platforms in energy & utility, transport & logistics".

On 14 November, Bharti Enterprises sold its stake in food business Del Monte Foods Pvt Ltd to Agro Tech Foods in a share swap deal. Bharti will retain 21% stake in Agro Tech as the second largest shareholder.

In April, Larsen & Toubro (L&T) completed its divestment of its 51% stake in L&T Infrastructure Development Projects (LTIDPL) to Epic Concesiones Pvt Ltd, an investee company of Edelweiss Infrastructure Yield Plus Strategy. LTIDPL was a joint venture between L&T and Canada Pension Plan Investment Board (CPP Investments).

Network services provider Tata Communications sold its ATM business to Transaction Solutions International on 13 November.

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Last July, HUL signed an agreement to sell Pureit, its water purification business in India, to A. O. Smith. “This move is in line with our strategic intent to focus sharply on our core categories," HUL’s CEO and managing director Rohit Jawa said at the time.

Paytm Ltd, too, sold its stake in Japan’s PayPay, which provides electronic payment services, to Softbank Group, and its ticketing business to Zomato in line with its strategy to focus on core competencies.

Meanwhile, both Adani and Bharti group have over the past few months made acquisitions in their core segments as well. Bharti Enterprises hiked its stake in telecom tower business Indus Towers multiple times over 2024, which is now a subsidiary of the parent entity. Last November, it acquired a 24.5% stake for $4 billion in BT Group through Bharti Global, making it the largest shareholder in the British telecom company.

Similarly, Adani Enterprises, through its subsidiary Adani Defence Systems and Technologies, acquired Air Works India Ltd—an aircraft maintenance, repair, and overhaul (MRO) company—in December 2024.

Focus on demergers

Companies are also increasingly enacting demergers—splitting one business into multiple business lines without selling them—citing similar reasons, that is, focused management strategy and the need to unlock shareholder value.

Barclays’ Kumar said demergers allow companies to raise capital for growth into a specific business without having to dilute stake in the whole company. “Institutional investors prefer managing diversity in the portfolio themselves as against expecting companies to run diversified and unrelated businesses, which could lead to investors having suboptimal investment selections," he said.

Raymond Group demerged its subsidiaries into three separate listed entities—Raymond Ltd, Raymond Lifestyle Ltd and Raymond Realty Ltd.—that focus on engineering, lifestyle, and real estate, respectively.

Tata Motors demerged its automobile business into two separate ones for passenger vehicles and commercial vehicles. And Vedanta Ltd demerged itself into six distinct entities—Vedanta Aluminium, Vedanta Oil & Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals, Vedanta Ltd.

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ITC Hotels’ separation from ITC Ltd came into effect on 6 January, although ITC Hotels is expected to list only in mid-February. Then, FMCG major Unilever Ltd is demerging its ice-cream business globally, including in Hindustan Unilever.

According to Gaurav Sood, managing director and head, equity capital markets, Avendus Capital, the demerger trend is expected to remain strong through 2025, particularly as ongoing demergers unfold, and the market becomes more accustomed to this strategy.

He added that sectors such as green energy, consumer technology, SaaS (software as a service), hospitality, and specialized manufacturing are seeing increasing traction in the markets, and companies and conglomerates with high-performing subsidiaries or assets in these areas and other emerging high-performing sectors could look to consider demergers as a means to unlock value.

He added that demergers also offer ample liquidity for newly listed companies, better price discovery and robust institutional demand, making the potential for value unlocking in a bull market significantly greater.

A bull market also has a role to play in demergers. For instance, Raymond shares surged 16.6% to ₹1,664.15 on the BSE after receiving stock exchange approvals for its demerger while shares of Siemens soared 7% after the board approved the demerger of its energy business into a new entity in September.

“Partially, the buoyant stock markets have made it more attractive to list subsidiaries or separate entities, as investor appetite for growth stories is high. The bull run has created a favourable environment for investors to participate in IPOs and invest in newly listed entities," said Sumant Nayak, partner at Desai & Diwanji, adding that the trend of demergers is likely to persist in 2025.

Also read | HUL approves demerger of ice-cream business into separate, listed entity

Avendus’s Sood noted that there have also been numerous instances where companies own subsidiaries operating in sectors that command significantly higher valuations than the parent company. “These elevated valuations are largely fuelled by macroeconomic trends that are propelling these sectors to the forefront. In order to capitalize on these themes, companies increasingly look at demergers as a favourable option."

Devangshu Dutta, chief executive officer of Third Eyesight, a retail consultancy firm, said, “In some cases, a demerger may also be a route to acquiring other smaller or younger businesses that are more directly aligned with the business unit being spun off, including the possibility of doing cash-plus-equity rather than all-cash deals." He added that the trend is likely to continue as management teams will want to soak up liquidity to be able to buffer against economic turmoil and to invest in future growth.