Data show that Indian firms outperform parent companies in terms of valuation.
Indian company valuations have grown faster than their foreign parents. To illustrate, Hindustan Unilever’s market capitalization (m-cap) in 2017 was only 28% of that of its Anglo-Dutch parent company Unilever. In 2022, HUL’s m-cap of $70 billion is 71% of Unilever’s ($101 billion). One reason for the higher share in m-cap is that Indian companies command a much higher premium than their MNCs parent. HUL has a price-to-earnings (P/E) multiple of 67, while the parent trades at only 20. Other domestically listed MNCs, such as Colgate-Palmolive, 3M India, ABB India, and Siemens India, perform similarly to HUL. Aside from the valuation disparity, the Indian market is regarded as one of the most important markets for the majority of these MNCs.
Better growth opportunities offered by the Indian market, under-penetrated market segments, and lower per-capita consumption are largely driving the rising contribution.
Byju has raised $250 million from existing investors after announcing plans to lay off 5% of its workforce (approximately 2,500 employees). The top 10 unicorns raised $10.1 billion in funding in 2021, which is three times the amount raised in 2019. Byju’s accounted for 30% of the market.
An examination of Prime Database statistics on shareholding patterns, combined with additional data from data provider Capitaline, reveals that promoter stakes in companies with foreign founders have steadily increased over the last decade. During the same time period, Indian promoters reduced their stakes in the companies they run. Over the ten years to June 2016, promoter holding in local companies fell from 55.78% to 47.56%, a trend that has accelerated in the last three years. However, promoter holdings in foreign or multinational corporations (MNCs) have increased from 46.9% to 50.72%. The overall promoter stake has dropped from 54.99% to 48.03%.
The study included 1,081 companies. The aggregate shareholding of the promoters was calculated. The total market capitalization was divided by the total value of all promoter shares. The government’s divestment program, a low global interest rate regime, and regulatory changes could all have contributed to the shift in shareholding patterns. It could also be influenced by the fact that a unique set of circumstances has made Indian businesses more appealing to foreign promoters than to Indian ones. This comes at a time when several Indian promoters have resorted to staking sales to deal with debt burdens, while others have been forced to reduce their stake due to regulatory requirements.