In a bid to leverage all the benefits of the goods & services tax (GST) system and to make the holding structure easier, major registered companies like Hindustan Lever, Hindustan foods and Lux Industries have started merging their unlisted businesses within them. This will not only reduce the GST compliance for these firms but also will result in huge profits for their shareholders.
It is a positive trend since all common businesses will now be on a single platform which will simplify the holding structure. This will also have other benefits such as reduction in related-party transactions resulting in lower tax compliance and cost and less disputed between the parties, said Ravi Sardana, EVP at ICICI Securities.
Hindustan Lever, which happens to be the largest consumer goods firm of the country, last month merged its foods & refreshment subsidiary into it. This will help get better benefits of each other’s abilities and the company can focus more on consumers, said a company representative. Orient Refractories, a supplier of high-grade refractory products, has also merged two of its unlisted companies – RHI India and RHI Clasil – in order to simplify the company’s holding structure and improve productivity.
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“Companies, in order to levy GST benefits, are merging their similar product businesses into one,” said Sanjeev Bhasin of IIFL. Last month, Lux Industries had also approved the proposal to merge two of its promoter group companies – JM Hosiery and Ebell fashions – into the parent company with a combined valuation of Rs 861 crore. The deal is expected to benefit the minority shareholders of the company.
Hindustan Foods also recently announced the plans to merge its contract manufacturing business into the parent company.
Experts believe that the step to merge related business into one is definitely a positive one that results in growth for the company as well as for its investors. The best thing is that this also has many GST benefits in terms of less compliance and reduced cost.
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