HUL, Nestle India show why MNCs should list India units: ICICI Sec explains

ICICI Securities says Indian units of global firms like HUL and Nestle India command premium valuations, making domestic listings a value unlocking strategy

Listing Indian subsidiaries in the domestic stock markets is proving to be a profitable strategy for multinational consumer companies, as their India businesses continue to grow faster and command higher valuations than their global parent entities.

  According to a recent report by ICICI Securities, the sustained outperformance of Indian subsidiaries has strengthened the case for global companies to unlock value through Indian listings.

  "Despite a challenging demand environment over the last two years, marked by subdued consumption trends and heightened competitive intensity, Indian subsidiaries of global consumer companies continued to materially outperform their parent companies in both sales and profit growth," ICICI Securities said.

 

  This divergence, it added, reinforces India's position as one of the most attractive structural growth markets globally and strengthens the strategic case for local listing of multinational consumer businesses.

 

Stock winners: HUL, Nestle India, Hyundai Motor India

According to ICICI Securities, companies such as Hindustan Unilever, Nestlé India, United Spirits and United Breweries have recorded sales growth that exceeded their parent companies by more than 10 per cent over the past two years. 

Even relatively slower performers such as Colgate-Palmolive India managed to outpace the growth of their global parent by around 5 per cent during the same period.

  Indian subsidiaries not only grew faster but also delivered stronger profit expansion, highlighting superior operating leverage and market expansion.

  Meanwhile, in the unlisted space, Mondelez, Beiersdorf, and Reckitt have marginally underperformed global growth, but India operations of L'Oreal, Carlsberg, AB InBev, and Pernod Ricard meaningfully outpaced parents' performance.

  "From a long-term perspective (5-year/10-year), both listed and unlisted Indian subsidiaries have consistently delivered higher sales and earnings growth versus global parents," ICICI Securities noted.   

 

'Premium valuations justified'

Given the performance gap between Indian operations and global businesses, analysts at the brokerage noted that there is a significant valuation premium in the domestic market. 

Indian consumer subsidiaries, it noted, trade at a valuation premium of roughly 1.7 to 4.2 times compared with their parent companies.

  This premium, the brokerage said, is structurally justified given India's superior growth outlook relative to mature developed markets.

  "The country's large and expanding middle class, favourable demographic profile, urbanisation trends and rising consumption of premium products continue to support stronger long-term demand," it said.

  In addition, the availability of a deep talent pool and increasing localisation of leadership teams are helping multinational companies execute strategies more effectively in the Indian market. These factors further strengthen the case for India to emerge as a core growth engine for global consumer businesses. 

 

Unlocking value for shareholders

In this backdrop, ICICI Securities' report highlighted that listing Indian subsidiaries could help global companies unlock hidden value. 

It added that the market often values India businesses at far higher earnings multiples than their global parent firms.

  For instance, Unilever trades at around 20 times earnings globally, while its Indian arm Hindustan Unilever commands a valuation of about 53 times earnings. The brokerage noted that excluding the India business could reduce Unilever's implied valuation to roughly 17.5 times, demonstrating how the Indian subsidiary contributes to overall valuation accretion.

  "In contrast, despite ~80x valuation for Nestle India, the impact on Nestle parent's valuation remains limited due to relatively small earnings contribution. Valuation uplift becomes meaningful only when India contributes a larger share of consolidated profits," the report added.

  Nestle India's case, thus, shows that although India's contribution to the revenue and profits of global consumer companies has been gradually increasing, it remains modest for most firms.

  In many cases, the country accounts for only low-to-mid single-digit percentages of consolidated earnings after adjusting for shareholding structures and royalty payments.

  However, the brokerage believes this dynamic could change over time as India's share of global earnings continues to expand.

  "India subsidiaries are transitioning from being incremental growth contributors to becoming core value creators within global consumer portfolios," ICICI Securities said. 

 

Building case for India listing

Against this backdrop, analysts said listing Indian subsidiaries can offer several strategic benefits for multinational companies. These include unlocking India-specific valuation premiums, improving the parent company's sum-of-the-parts valuation, accessing deep domestic capital markets, and creating acquisition currency for local market consolidation.

  Companies with meaningful India exposure that could potentially benefit from such listings include global consumer majors such as Mondelez, L'Oréal, Beiersdorf, Reckitt, Carlsberg and Pernod Ricard.

  With India continuing to outpace many developed markets in consumption growth, analysts believe the country's stock markets could see more multinational subsidiaries tapping domestic investors in the years ahead.      ========================  Disclaimer: View and outlook shared belong to the respective brokerage/analysts and are not endorsed by Business Standard. Readers' discretion is advised.