Earlier this month, the ₹9,300 crore Raymond Group announced plans to demerge into three separate entities: Raymond Ltd, Raymond Lifestyle, and Raymond Realty. As part of the demerger plan, the company intends to list all three companies over time.
Demerger has become a popular route for Indian businesses seeking to sharpen strategic focus and unlock shareholder value. Over the past year, about a dozen companies have either announced or completed demergers. This list includes heavyweights like Reliance Industries, Tata Motors, ITC, NIIT, GHCL Ltd, Motherson Sumi, Edelweiss Financial, and the Shipping Corp. of India. The market has responded positively, with rising share values for these demerged entities. Raymond’s demerger appears aligned with this trend, signalling a strategic move in the right direction.
Read this | Merger or demerger—what’s the better route to unlock value?
Another key driver for demergers is the desire to return to core business operations. The late professor C.K. Prahalad introduced the concept of core competency in 1990, but following the liberalization of India’s economy in 1991, companies expanded rapidly into diverse ventures. A decade later, many of these diversifications proved unsuccessful, reinforcing the importance of sticking to core strengths. Similarly, in the past decade, fuelled by both domestic and global growth, Indian conglomerates once again diversified significantly. Now, ten years later, many are realizing the need to refocus, making demerger the right strategic approach.
Beyond these reasons, a lesser-known but significant factor driving demergers is the partitioning of family businesses, often to resolve internal conflicts or as part of succession planning.
The Raymond demerger is especially relevant in this context. Last year, Gautam Hari Singhania, chairman and managing director of the Raymond Group, announced his separation from his wife, Nawaz Modi Singhania, in what became a public feud. Nawaz demanded 75% of Gautam’s $1.4 billion wealth for herself and their two daughters, Niharika and Nisa.
The Raymond Group had already seen family discord earlier, when Gautam locked horns with his father, Vijaypat Singhania, and his brother, Madhupati Singhania, over asset division. This pattern of infighting across two generations of the Singhania family might have been mitigated if the demerger route had been considered earlier.
More here | How Singhania is navigating a 7-year turnaround at Raymond
While dividing family businesses can be challenging due to unequal asset sizes, it offers a more amicable solution when there’s intent to resolve issues. Now in its third generation, the Raymond Group is approaching 80 years in operation, and studies show that most family businesses struggle to survive beyond three generations. For the future of Indian family businesses, demergers offer a clear and definitive way forward.
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Demerger also serves as a tool for succession planning in family businesses. Take Reliance Industries, for instance. Isha Ambani heads Reliance Retail Ventures, while her twin brother, Akash Ambani, chairs Reliance Jio Infocomm, which is reportedly set for a listing as early as next year. Meanwhile, the youngest sibling, Anant Ambani, oversees the energy and materials business, including the company’s growth in renewable and green energy sectors.
The clear demarcation of responsibilities within the Ambani family simplifies the potential for a demerger among the three children when the time is right. Additionally, demergers can help untangle the complex cross-holdings within family business groups, providing a clearer path for future growth and stability.
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