Demerger: Meaning, Definition & Indian Stock Market Examples

Splitting one company into two or more separate listed entities.

Disclaimer: This article is for educational purposes only and does not constitute SEBI-registered investment advice. Consult a SEBI-registered investment advisor before making investment decisions.

What is Demerger?

A demerger (spin-off) is the separation of a business division from the parent company into a new, independent listed company. Existing shareholders of the parent receive shares in the new entity proportional to their holdings. Demergers aim to unlock hidden value when a conglomerate's parts are worth more separately than together.

Demerger — Indian Stock Market Example

Reliance Industries spun off Jio Financial Services (2023) — shareholders received 1 Jio Financial share for every 1 RIL share. ITC is considering demerging its hotels business. Wipro demerged its IT products and consumer care businesses. L&T has demerged multiple subsidiaries (finance, technology services) to unlock value.

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Frequently Asked Questions about Demerger

Are demergers positive for shareholders?

Generally yes — demergers unlock value by giving each business its own market pricing. A high-growth tech division stuck inside a conglomerate may trade at depressed multiples; separated, it commands a premium PE. However, execution risk and the loss of cash flow support between divisions can create short-term volatility around demerger announcements.

How is a demerged company's cost of acquisition calculated for tax?

For tax purposes, the original cost of the parent company's shares is split between parent and demerged entity in the ratio of their net assets on the demerger date. This ratio is typically disclosed in the demerger scheme. Holding period of demerged shares starts from the date of demerger allotment.

Related Terms

Merger & Acquisition

Consolidation of companies through purchase or combination.

Market Capitalisation

Total shares × current price — the total market value of a company.

Earnings Per Share

Net profit divided by total shares — profit attributable to each share.

Promoter Holding

Percentage of shares held by founders/controlling shareholders.

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