The valuation of multinational companies is higher than that of the parent company

India is flying its flag across the world with the world's largest population, largest consumer base, largest workforce, fastest growing population. Many multinational companies from many countries are joining this development saga of India. Many MNC companies have invested heavily and expanded their business years ago, banking on India's growth. However, the valuation of units of multinational companies operating in India has now exceeded that of their original parent company.

Not only are the Indian markets overvalued compared to their global peers but the shares of subsidiaries of listed MNCs in India are also trading at expensive valuations compared to their parent companies. An analysis of the trailing 12-month price-to-earnings and price-to-book multiples of listed MNCs in the country shows that most are trading at a premium of between 2.1t and 6t. Similarly in the domestic market the price to book is very high in most cases.

Analysts said this trend could encourage other foreign companies to list in the Indian market. Also, existing companies may consider raising funds by selling their stake so that they can take advantage of the good market sentiment.

Recently there were reports that South Korean auto giant Hyundai is working on a $3 billion IPO of its Indian unit, the largest in India's history. American home appliances maker Whirlpool Corp on Tuesday sold 24 per cent stake in its Indian unit for Rs. 3881 crores have been collected.

Seoul-listed Hyundai Motor has a market capitalization of $38.2 billion, just 5.2 times its expected earnings over the next 12 months. Meanwhile, analysts have estimated the valuation of Hyundai India to be between 22 and 28 billion dollars. The country's second largest passenger car manufacturer is likely to post an operating profit of $1.1 billion in 2024.

Another expert said that high valuations and the availability of a large investor base make India an attractive market. Apart from this, the valuation of listed MNCs in India also reflects the premium growth associated with India.

In India the name of car i.e. Maruti comes first. Tokyo-listed Suzuki Motor Corp, the parent company of the world's largest carmaker Maruti Suzuki India, is trading at a 12-month forward PE of 11t, while Maruti Suzuki's PE is 25t and its valuation is also 2t lower than the parent company's. Interestingly, at Tuesday's closing price, Maruti Suzuki India's market capitalization stood at Rs. 3.6 lakh crore ($43.5 billion), which is much higher than Suzuki Motor Corp's total valuation of $22 billion. Considering that the Japanese parent company holds a 58.19 percent stake in its Indian subsidiary, its value rises to over $25 billion.

In addition, FMCG giants Hindustan Unilever and Nestlé India have a PE ratio of around 3 and 4 times that of their respective parent companies. Experts said the high valuation is due to the high rate of growth in India.

According to expert opinion, the rate of income growth in the developed world is in the single digits. These economies are either in recession or have modest growth of 2-3 percent. Profit or revenue growth of these companies is in single digits and profit growth in India is 13 to 19 percent or even higher. So the difference in growth rate should also be taken into account. This is the reason for the high valuation. Broadly speaking, most multinationals have a very low market share outside their home country, while in India they are present in dominant positions and at high valuations with significant growth.