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India-listed multinational arms outclass parent firms' valuations

By Sundar Sethuraman & Samie Modak
February 28, 2024 19:09 IST
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It’s not only the Indian markets that command a valuation premium over their global peers; shares of subsidiaries of India-listed multinational companies (MNCs) also trade at rich valuations compared to their parent companies.


Illustration: Dominic Xavier/

An analysis of 12-month forward price-to-earnings (P/E) and price-to-book (P/B) multiples of domestically listed MNCs shows that most quotes have a premium ranging from 2.1x to 6x that of their parent.

Similarly, P/B, in most cases, is significantly higher in the domestic market.

Analysts suggest that this trend could encourage more foreign companies to firm up their plans for listing in India.


Additionally, existing players may contemplate monetising stakes to capitalise on the buoyant market sentiment, they add.

Recent news reports indicate that the South Korean automotive giant Hyundai is working on a $3 billion initial public offering (IPO), which would be the largest ever for the Indian market.

Recently, American home appliance maker Whirlpool Corporation offloaded nearly a 24 per cent stake in its Indian arm for Rs 3,881 crore.

Seoul-listed Hyundai Motor Company has a market capitalisation of $38.3 billion, just 5.2x its estimated 12-month forward earnings.

Meanwhile, analysts estimate Hyundai Motor India’s valuation to be between $22 billion and $28 billion.

The country’s second-largest passenger carmaker is expected to post an operating profit of $1.1 billion in 2023-24.

“Hyundai Motor India’s proposed IPO is a positive event for the market and benefits all parties concerned.

"It allows listed market investors to take exposure to a market leader in one of the biggest growth industries.

"Hyu­ndai gets the opportunity to tap into a large investor base and be a part of one of the world’s hottest stock markets.

"This will also drive greater transparency, lifting the profile of the automotive industry.

"Other MNCs should take cue from this,” said Seshadri Sen, head of research at Emkay Global Financial Services.

“Better valuations and availability of larger pool of investors ma­ke India an attractive destination.

"There is a growth premium attached to India, reflecting MNCs listed here,” added Pranjal Srivastava, partner-investment banking, Centrum Capital.

Tokyo-listed Suzuki Motor Corporation trades at a 12-month forward P/E of 11 times, while Maruti Suzuki commands a P/E of 25 times and is also valued at 2x the parent.

Interestingly, Maruti Suzuki India’s market capitalisation was Rs 3.6 trillion (or $43.5 billion) according to its February 20 closing price, which is pointedly higher than Suzuki Motor Corporation at $22 billion.

Considering that the Japanese parent holds a 58.19 per cent stake in the Indian arm, the same is worth over $25 billion.

Furthermore, FMCG giants Hindustan Unilever and Nestlé India command a P/E nearly 3x and 4x that of their parent firms.

To be sure, the Indian MNCs have always traded at a rich valuation multiples to their parents.

However, the valuation premium has widened on account of the sharp rally seen in the domestic markets in the past one year.

Experts say the lofty valuation multiples are due to high growth rates in India.

“In the developed world, earnings growth rates are in single digits, if at all.

"These economies either have a recession or 2-3 per cent growth, considered good growth.

"These firms’ profit or top line growth is in the low single digits. In India, profits are growing at high teens or double-digit numbers.

"Ther­efore, the difference in growth rates has to be factored somewhere.

"That is the reason for high valuations.

"Typically, most MNCs outside their home countries have a tiny market share, whereas, in India, they are a dominant force,” explains U R Bhat, co-founder of Alphaniti Fintech.

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Sundar Sethuraman & Samie Modak
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