43 fabulous lessons from the book "The Almanack of Naval Ravikant"

 

Building wealth and being happy are skills we can learn.
So, what are these skills, and how do we learn them? What are the principles that should guide our efforts?

Read on...

Five Smart Strategies to come out of debt faster

Debt can weigh down even the best of financial plans. Whether it is a personal loan, credit card balance, or consumer durable EMIs — debt quietly eats into your monthly income and future savings. Getting out of debt faster is not about earning a fortune — it is about using the right techniques and mindset.

In this post, I will share five smart strategies — tailored for Indian readers — that can help you systematically clear your debt and move towards financial freedom.

35 thrilling lessons from the book "The Courage to be Disliked" by 'Ichiro Kishimi' and 'Fumitake Koga'

 

Do you want a refreshing perspective on self-empowerment and happiness?
Do you want to break free from societal expectations and embrace their true selves?

Read on...

Underwriting in Life Insurance

Underwriting in life insurance is one of the most critical parameters based on which the risk and premium of a policy is decided. Understand what it is, and how it works.

46 Thoughtful Lessons from the book "Thinking. Fast and Slow"

 

Is your mind clouded by biases? Well, you may not even be aware of it. There are two different minds working for you - one is fast and biased, the other is slow and thoughtful. Understand the two minds, and you will be able to take more rational decisions in life.

Read on...

Factors impacting Currency Fluctuations

The Indian Rupee (INR) has witnessed dramatic fluctuations against the US Dollar (USD) over the decades. From ₹4.76/USD in 1947 to ₹83.50/USD in 2023, the rupee’s journey reflects India’s economic evolution. But what drives these currency swings? 

Impact on Banks if a Blue-Chip Company Fails

Blue-chip companies are considered the backbone of the economy—large, financially stable, and historically reliable. But what happens when one of these giants fails? 

Capital Gains Harvesting - Equity

 

Investing in the equity market can be highly rewarding, but it also comes with tax implications that can eat into your returns. One strategy to minimize your tax liability and maximize your after-tax returns is Capital Gains Harvesting. 

What is Follow-on Public Offer (FPO)

Investing in the stock market can be both exciting and overwhelming, especially when terms like IPO, FPO, and OFS start popping up. While most of us are familiar with IPOs (Initial Public Offerings), not many understand what an FPO is or how it works. 

In this blog post, we’ll break down the concept of a Follow-on Public Offer (FPO) in simple terms, explain how it works, and provide an example to help you relate better.

Demerger of Companies: Unlocking Value for Shareholders

Demerger is a crucial financial and strategic process in the corporate world. It serves as a mechanism to unlock value, improve focus, and ensure the independent growth of different business verticals. In this blog, we’ll explore the concept of demerger, its significance for companies and investors, a simple Indian example, and much more.

---

Definition

A demerger is a corporate restructuring process where a company splits into two or more separate entities. Each entity operates independently with its own management, goals, and focus areas. This separation allows the individual businesses to flourish, focus on their core competencies, and achieve better operational efficiencies.

In India, demergers are regulated under the Companies Act, 2013, and require the approval of various stakeholders, including the board of directors, shareholders, creditors, and courts.

Detailed Explanation

A demerger can occur in multiple ways, such as:

1. Spin-offs: A parent company creates a new entity, transferring part of its operations or assets to the new company while distributing its shares to existing shareholders.
2. Split-ups: The parent company ceases to exist, dividing itself into multiple independent companies.
3. Equity Carve-outs: The parent company sells a minority stake in the newly created entity through an initial public offering (IPO).

Purpose of a Demerger

• Focus and Specialization: By separating unrelated business divisions, each company can focus on its core operations without distractions.
• Value Creation: A demerger often reveals the true value of individual business units, which might be undervalued when combined.
• Enhanced Operational Efficiency: Smaller, focused entities tend to make quicker decisions and improve operational effectiveness.
• Regulatory Requirements: Sometimes, demergers are mandated by regulators to ensure fair competition in a particular industry.

How is a Demerger Useful for Investors?

For investors, demergers can be highly beneficial in several ways:

1. Unlocking Shareholder Value: A business unit that performs well but is overshadowed within a conglomerate can gain better market recognition after separation.
2. Focused Investments: Investors can decide which specific entity aligns with their goals and invest accordingly.
3. Better Transparency: Post-demerger, each company’s financials and strategies become clearer, aiding in informed decision-making.
4. Tax Benefits: In India, certain demergers qualify as tax-neutral, meaning shareholders are not immediately taxed on shares received from the demerged entity.

A Simple Example in the Indian Context

Let’s consider the demerger of Reliance Industries Limited (RIL), a prominent example in India.

Case Study: Reliance Jio Demerger

In 2019, Reliance Industries separated its telecom tower and fiber optic businesses into two independent entities. This strategic move allowed Jio to focus on its core telecom services while attracting external investors for the infrastructure arms.

How It Benefited Investors:

• Shareholders of RIL received stakes in the new entities.
• Jio could focus on enhancing customer services and network expansion.
• The demerged infrastructure arms attracted investments, unlocking value for shareholders.

This example demonstrates how demergers can align business goals and create opportunities for investors to benefit.

---

Summary

Demerger is a powerful strategy that allows companies to enhance focus, efficiency, and shareholder value. For investors, it provides an opportunity to realign their portfolios and take advantage of better transparency and growth prospects.

While demergers involve complex procedures and legal approvals, their outcomes can be highly rewarding if executed effectively. In the Indian corporate landscape, successful demergers like those of Reliance and Tata have set a benchmark for others.

---

Some Useful Links

What is Smart Beta or Factor Investing?

Delisting of Shares: What It Means for Investors

Switching from Regular to Direct Funds - Tax Implications and Breakeven Point

How are NRIs Taxed in India?

Related Book: The Autobiography of a Stock