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Indian Corporate Carve-Outs: Why Major Companies are Spinning Off to Soar to New Heights!

Photo of Corporate Carve Out

By AltG Research On Behalf Of Poornima Vardhan And Taponeel Mukherjee

Monday kicks off with a flurry of activity in the world of Indian corporations. ITC, a major player in the market, has just greenlit the carve-out of its hotel business, creating a brand-new standalone unit. Meanwhile, Cafe Coffee Day, India's original coffee retailer, faces bankruptcy and gears up to spin off various business divisions to raise much-needed funds.

Even amidst the soaring success of ITC stock, which has surged by a remarkable ~59% in the past year, Indian corporates seem increasingly drawn to the allure of corporate spin-offs.

But what exactly is a carve-out?

In simple terms, carve-out deals occur when a company sells off a specific unit, be it a product line or a service division. These transactions have been witnessing a substantial rise, capturing the attention of large corporations and private equity firms alike. Notable examples include AT&T's headline-making announcement in 2022, where it disclosed plans to spin off WarnerMedia in a massive $43 billion transaction to merge with Discovery Inc. Similarly, international firm EQT made waves with its acquisition of Schülke & Mayr GmbH, a hygiene solutions provider and a subsidiary of Air Liquide S.A.

The driving forces behind these spin-offs are twofold:

  1. Unlocking Shareholder Value: Companies believe that breaking down their business into separate units can unlock hidden value, leading to a higher valuation than when they function as a whole.

  2. Focus on Non-Core Assets: By spinning off certain divisions, businesses can give them the freedom to operate independently, fostering innovation and the creation of additional products. A prime example is ITC's hotel division, which can grow and thrive without being constrained by its parent company's management.

As the BSE reaches unprecedented heights, the trend of spin-offs and carve-outs is expected to soar. Corporates are eyeing the opportunity to capitalize on the current high multiples while shedding divisions that no longer align with their long-term strategies.

The corporate carve-out wave in India is on the rise, and its impact on the business landscape is set to reshape the future for many major players.


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