Jitendra Kumar Gupta's blog

Amid a stock market rally, demergers are a route to fat returns - Moneycontrol.com Jitendra Kumar Gupta Moneycontrol Research A year ago, Crompton Greaves (now known as CG Power and Industrial) was struggling with a slowdown in the industrial and power segment and a related debt burden. The situation was exactly opposite in the case of its consumer electricals business which was churning out cash and earning good margins, making a decent return on equity. The company demerged the two businesses when its shares were trading at around Rs 80. Existing shareholders of the parent company were given one share for one existing share. Today, the combined value of the two shares is Rs 300, which is close to 400 percent return in little over a year. Over the past year we have seen companies demerging their business divisions, and a few more are queueing up to do so (see table). This urge to demerge is driven by the fact that the companies feel their stocks are mispriced des