MNC subsidiaries valued more than parents

By agencies   |   Thursday, 18 August 2005, 07:00 Hrs
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NEW DELHI: Multinational giants are valued more at Dalal Street than Wall Street. The valuations (price to earnings ratio) of prominent multinational companies (MNCs) in India revealed that a majority of them are valued more than their parents. This means that investors perceive more value in the Indian subsidiaries of MNCs compared to their parent, business daily The Economic Times has reported.

Traditionally, this used to be the case in the FMCG sector, given the emerging market profile of India, but now, companies in other sectors like engineering and pharmaceuticals have also joined the list.

One of the factors, which has pushed up valuations in the recent past, is the outsourcing factor from India in the case of manufacturing companies.

For the study, the paper took the trailing P/E ratio, which takes into account the last four quarters’ financial performance against the last financial year. For the parent company, the trailing P/E ratio was taken from its valuation on the New York Stock Exchange (NYSE).

In the case of MNCs, which are not based in the U.S., the American Depository Receipts (ADRs) of the companies listed on NYSE were considered.

Indian subsidiaries of MNCs cutting across consumer goods, pharmaceuticals, tire, engineering etc are reporting such a phenomena.

This list includes names like HLL, P&G, Gillette, 3M, Colgate, Kennametal, Goodyear, Pfizer, Astra Zeneca, Novartis, Timken and Siemens. However, some exceptions to the overall picture include ABB, ICI, Bayer, Wyeth, Merck, Ciba, Syngenta and Monsanto.

The striking thing about the list is that even pharma companies are part of it. In the past, Indian subsidiaries of global pharma companies had lower P/E ratios than their parent.

For instance, in ’01, global companies like Astra Zeneca, Pfizer and Novartis had higher P/E ratios than their domestic units. But now, a number of pharma companies have either higher valuation in India, or the gap has reduced considerably.

However, even now, a majority of companies whose valuations in India are less than abroad fall under the pharma sector. Companies where the valuation gap between the parent company and the Indian subsidiary has come down considerably include Abbott and Merck, the paper said.

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