Many Indian companies plan to divest businesses: EY

The survey of more than 45 Indian businesses ranging from $250 million to more than a billion dollar in revenues shows that most of the companies are looking at a liquidity event in the near future.

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There is a finite pool of capital, corporates are looking to divest the underperforming businesses and reinvest back the proceeds into the core business,” said a PE fund manager.
Mumbai: An increasing number of Indian companies are looking to divest their businesses over the next two to three years, and the most preferred way of doing this is by carving out non-core businesses or divisions within the group, a study done by global consulting group EY shows.

The survey of more than 45 Indian businesses ranging from $250 million to more than a billion dollar in revenues shows that most of the companies are looking at a liquidity event in the near future.

“One of the major reasons why corporates are looking to divest is that they now want to focus on the core,” said Naveen Tiwari, partner and head, carve-out and integration, EY India.


As per the global study, around 81% of the respondents within India confirmed that they are planning a divestment in the next two years. Of these, 67% of Indian companies expect more large-scale transformational divestments within the next 12 months.

As per data available with ET, 791 transactions resulting in divestments have taken place since 2016, valuing more than $50 billion. Some of the biggest divestments have been Reliance Infra’s sale of power business to Adani Transmission for $2.9 billion, L&T’s sale of electrical business to a clutch of PE investors for $2.8 billion, Jaiprakash Cement selling a part of its cement business to UltraTech Cement for $2.4 billion, and Lafarge selling its entire cement business to Nirma Ltd for $1.4 billion.

“It is a matter of capital allocation.

Because there is a finite pool of capital, corporates are looking to divest the underperforming businesses and reinvest back the proceeds into the core business,” said a PE fund manager.
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At a time when most companies are going through a deleveraging cycle,one fourth of those surveyed said they are looking to raise capital to repay debt. As per an April 2019 joint report by Assocham and Crisil, of the total cases admitted under the Indian Bankruptcy Code that came into effect in 2016, there has been a recovery rate of 43%, resolution for 94 stressed assets has been reached for Rs 75,000 crore as on March 31, 2019 out of Rs 1,75,000 crore total claim of financial creditors admitted under the NCLT.

“This is a good trend. This is happening because borrowing has become rather limited and expensive. Also, companies that have large borrowings or huge debt are not favoured by the stock market...As a result, companies are trying to shrink their debt and focusing on core will help in doing so,” said Arun Duggal, chairman of rating agency ICRA and an eminent independent director.
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