Mncs

It all started when the parent company of SmithKline Beecham Consumer Healthcare (India) decided to charge a five per cent royalty payment for its health food Horlicks. This meant a direct impact on SmithKline's bottomline of Rs 14 crore, 20 per cent of its pre-tax profits. This was soon followed by SmithKlines decision to transfer its Eno brand to a 100 per cent subsidiary, SmithKline Beecham Asia Ltd (SBAL). Eno contributes 8 per cent to the total sales of SmithKline Beecham Consumer Healthcare (India).

This unilateral decision was clearly against the interests of other shareholders. Both the moves made little sense as was reflected in the falling stock price. The stock lost more than Rs 100 in three weeks to nearly Rs 275.

 

Unfortunately, the episode also created an impression that other MNCs would also follow SmithKline's step. The fear was justified as reports came that Rhone Poulenc India, too, will be paying royalty for technology to its parent company. Since the foreign parent companies have a majority stake in the listed domestic corporates, there is little the minority shareholder can do. The belief that the multi-nationals cared for the minority shareholder has also been shattered. And the only way the market could respond was by punishing the stock price.

So far the impact has been widespread. Besides, poor results from Proctor & Gamble also contributed to the falling scrip prices. It seems the Indian markets are catching up with MNCs tactics. It is felt that most of these MNCs will not be able to keep up the past growth rates as demand is slowing down and interest cost was bound to affect medium-term profitability. Hence, a high price-to-earnings to ratio might not be justifiable.