On Monday, February 16, Kwality Wall’s (India) is scheduled to debut on the public market after the demerger of the ice cream division from Hindustan Unilever Ltd (HUL).
The listing comes after 2,34,95,91,262 equity shares of the recently carved out firm were approved by the BSE and the National Stock Exchange of India (NSE). This marks the conclusion of one of HUL’s most important portfolio restructuring initiatives in recent years.
Instead of using the market price, which fluctuates and can skew the computation, the tax regulations mandate that this split be made using the ratio of their net book values (NBV), which represents the worth of the assets transferred to each business as per the company’s books.
For example, if you invested Rs 1 lakh in ABC Ltd. and, following the demerger, 25% of the net book value moves to the new business XYZ and 75% stays with ABC, the cost of your ABC shares would be Rs 75,000, and the cost of your XYZ shares would be Rs 25,000.
The demerger went into effect on December 1st of last year, and the record date for determining shareholder eligibility was December 5th.
The authorized plan allowed India’s first pure play listed ice cream firm to reach the public markets by giving HUL shareholders one Kwality Wall’s share for each share held as of the record date.
Given the ice cream industry’s seasonality and comparatively poor profit profile, brokers had previously estimated the expected price to be between Rs 50 and Rs 55 per share.
Although it is anticipated that lowering the GST on ice cream from 18% to 5% will increase affordability and demand, the company still faces difficulties with profitability and seasonality.
For the third quarter of FY26, HUL reported a 30% year over year decrease in consolidated net profit from continuing operations, coming in at Rs 2,188 crore as opposed to Rs 3,027 crore during the same time the previous year.
However, the company reported that one time benefits from portfolio transformation initiatives were primarily responsible for the quarter’s overall net profit, which increased 121% year over year to Rs 6,603 crore.
According to a regulatory filing, revenue from continuing operations increased 5.6% year over year to Rs 16,441 crore from Rs 15,556 crore in the same quarter of the prior fiscal year.
EBITDA (earnings before interest, tax, depreciation, and amortization) from ongoing operations was Rs 3,788 crore, a 3% increase over the previous year. On the other hand, the EBITDA margin shrank by 70 basis points to 23.3%. (0.01% is equivalent to one basis point.)
There are no tax ramifications when fresh shares are acquired through a demerger. You must reveal the purchase price of the share you acquired in your demat account.
According to Section 47 of the Income Tax Act, transferring shares through a demerger scheme is not considered a taxable event for shareholders.
This suggests that there is no capital gains tax associated with simply obtaining shares of the new business. Only when the investor sells their shares is tax due.
The base and any carried-over holding time are taken into account when calculating capital gains on the sale of shares. The law remains unchanged throughout a demerger.
The holding time of the parent company’s shares is deemed to be included in the holding period of the new company’s shares, as per Section 2(42A) of the I-T Act.
As a result, both the parent company’s and the new company’s shares will be regarded as long-term if an investor owned the parent shares for more than a year before the demerger.
The proportionate demerged shares are determined by the acquisition date of each lot, even if a parent share was acquired in numerous lots. The main takeaway for individual investors is simple: following a demerger, the age of your shares remains unaltered.
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For instance, the holding period for both the original and new firms starts in 2024 if you bought shares in 2024 and a demerger happened in 2026.
Because it frequently places your gains in the long-term capital gains (LTCG) category, which has a lower tax rate, this is significant.
