Delisting buzz: MNC arms valued higher than parents

MUMBAI: Driven by the delisting buzz and higher return on equity, Indian arms of multinationals such as Alfa Laval, Elantas Beck India and Honeywell Automation are quoting at premium valuations in terms of price earnings multiples compared with their foreign parents.

For instance, 3M India, a diversified conglomerate, enjoys a PE of 62, compared with 15 of its foreign parent; Kennametal India commands a PE of 26 against 15 of its parent; and Oracle Financial Services enjoys a PE of 19.6 against 15.7 of parent.

Most of these stocks have rewarded their shareholders handsomely amid delisting expectations. In the past six months, Alfa Laval India has given a whopping 77% return, Elantas Beck 28% and Honeywell Automation 55%.

"Historically, Indian arms of overseas companies have normally not diluted their shareholding or raised funds from Indian markets, depending instead on internal resources for growth capital.

In the past, such companies have also generously rewarded their shareholders, most of the times through attractive delisting price," said Gopal Agrawal, CIO, Mirae Asset.

As per regulations, the global parents will have to reduce promoter stake to below 75% if they fail to delist their Indian units before June 2013.

Expectations have gone up after the delisting of Atlas Copco, while other delisting candidates too are seen offering attractive prices, said a fund manager.

While delisting is the prime driver for most of these stocks, good corporate governance, which rewards shareholders with regular dividends, and high growth opportunities have also drawn investor interest. "High growth expectations in India make investors want to pay more for the Indian operations than for the parent," said Pankaj Pandey, head of research, ICICI Securities.

However, not all are gung-ho on the prospects of delisting. Kartik Mehta, AVP, institutional research, Sushil Financial Services, said caution should be the buzzword since there has been a run-up in these stocks and the theme itself was "quite known" to the market.