Indian subsidiaries of multinational companies have historically traded at higher valuations compared to their foreign parent. However, recently, a lot of foreign parent companies have been cashing out from their Indian counterparts at higher valuations.
A recent example of this is Sumitomo Wiring Systems. On March 6, the Japanese parent divested a 4.4 percent stake in Samvardhana Motherson International for Rs 3,633 crore through open market transactions. Sumitomo Wiring Systems held a 14.15 percent stake in Samvardhana Motherson as of December 2023. Samvardhana Motherson is currently trading at 50.29 times its trailing earnings.
Whirlpool Corporation through its wholly-owned subsidiary, Whirlpool Mauritius, sold a 24 percent stake in its India arm, reducing its holding to 51 percent on February 20. The foreign parent sold the stake in the Indian subsidiary for Rs 4,030 crore. Whirlpool India is trading at an expensive valuation of 73.63 times its trailing earnings while its parent is trading at 7.82x.
Also Read: Whirlpool cashing out at juicy valuation in India unit a one-off instance, or an MNC trend?
Thomas Cook's parent-Fairbridge Capital sold 8.5 percent at Rs 550 crore in December 2023. Fairbridge Capital is a private company, but Thomas Cook is trading at 33.2 times.
Moneycontrol had earlier reported that Indian subsidiaries of foreign companies have historically traded at higher valuations.
“India is a high-growth geography so valuations will always be high for Indian subsidiaries compared to the foreign parents,” said Kunal Bhakta, co-founder at First Water Capital Fund, a category-III alternative investment fund.
There is a perception that multinational companies have good corporate governance which straightaway gives a higher valuation multiple to their Indian arms, said Sunny Agarwal, head of fundamental equity research at SBI Securities.
Whirlpool Corp CEO Marc Bitzer created a stir in investing circles in India when he said the reason for selling a stake in the India arm was that it was trading at a high valuation, compared to the parent “We believe in India for the long term… but if we have a business trading at 50 times multiple, and your own company trades a lot lower, it’s basically an asset arbitrage," Bitzer said in an interview to CNBC.
Sunil Singhania, founder of Abakkus Asset Managers, in a post on X (formally Twitter), said, “Foreign parents find Indian multinational subsidiaries valuations so expensive that they are selling their strategic stakes. And Indian investors in the fear of missing out are buying low growth companies at crazy multiples.”
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