MNCs continue to encash lofty valuations at Indian-listed arms

Multinationals are rushing to exploit a runaway rally in the Indian stock markets, with more than a dozen firms paring holdings in their local businesses in the past year, while half a dozen others, including Hyundai and LG, are planning public listings.

GE T&D India is the latest to join a growing list of global companies like Wabco, ITC, Styrenix Performance Materials, Federal-Mogul Goetze, Timken India, Motherson Sumi, GMM Pfaudler, Thomas Cook, and Whirlpool taking advantage of premium valuations in India, which significantly exceed those of their global counterparts.

US-based GE Vernova, formed from the merger and spin-off of General Electric’s energy businesses, has decided to sell up to 11.7% of its stake in its Indian-listed subsidiary, GE T&D India, through an offer for sale on Thursday and Friday. The company has set a floor price of ₹1,400 per share, with the deal expected to fetch the promoter around ₹4,200 crore.

Shares of GE T&D India have surged 1,085% over the past two years, compared to a 46% rise in the Nifty index, and are currently valued at 143 times their 12-month earnings. GE Vernova, meanwhile, reported a loss of $480 million in calendar 2023. The non-retail portion of the GE T&D India OFS was subscribed 2.2 times on Thursday at an indicative price of ₹1,462.44 apiece.

In recent months, other multinationals have similarly reduced their stakes in Indian subsidiaries. In June, Wabco Asia sold a 7.6% stake worth ₹2,287 crore in ZF Commercial Vehicle Control Systems. In March, British American Tobacco (BAT) sold a 3.5% stake in ITC for ₹17,485 crore. Japan’s Sumitomo Wiring Systems, a promoter in Samvardhana Motherson International, sold a 4.42% stake in the company for ₹3,630 crore in March. In February, Whirlpool reduced its stake in its Indian unit from 75% to 51% by selling 24% for ₹3,880 crore.

Indian subsidiaries of global MNCs are consistently outperforming their foreign parents in areas such as revenue growth, profit margins, and market capitalisation. This has triggered premium valuations for the Indian arms compared to their slower-growing parent entities, which are more exposed to low-growth developed markets.

For instance, Hindustan Unilever trades at a price-to-earnings (PE) ratio of 65.4, compared to its parent Unilever PLC’s PE of 33.9. Similarly, Maruti Suzuki trades at a PE of over 26 times, while its parent Suzuki trades at 0.78 times, and Nestle India’s PE is 77, compared to its parent Nestle SA’s PE of 10.

“The impressive performance of local subsidiaries, trading at significant premiums compared to their global parents, has prompted MNCs to capitalise on India’s bullish market rather than pursue delisting at inflated valuations,” said Ravi Sardana, an investment banker.

“As the US and European markets slow down, global companies need capital. With Indian subsidiaries fetching premium valuations and high liquidity in the Indian market, selling stakes here is now much easier compared to a decade ago,” Sardana added.