Maruti Suzuki, Nestle among MNCs lining up to hike stake in Indian arms

By DK Aggarwal

Thanks to the slowing Indian economy, corporate valuations are taking a severe beating, thus inviting multi-national companies (MNCs) for a shopping spree.

Many multinational companies are planning to increase their stakes or go for a merger or delisting of their Indian arms.

Stake hikes by multinationals gathered pace since June 2010 and also recently when SEBI and RBI modified the rules on minimum public shareholding.

The recent announcement from the Reserve Bank of India (RBI) that foreign promoters can hike stake without taking its nod is a sign of encouragement for parent companies.

The general aim of RBI was not only to increase the dollar flow and discourage dollar outflow from India but also to allow the parent companies to use the amount received from its Indian subsidiaries through dividend and royalty to buy stocks.

There has been a series of announcements of MNC parent companies making open offers to hike their stakes in their subsidiaries. Unilever, the parent company of Hindustan Unilver ( HUL), raised its stake by 14.8% to 67.28% and Glaxosmithkline Pte Ltd, the parent of GlaxoSmithKline Consumer, increased its stake from 43.2% to 72.46% in July 2013 and November 2012, respectively.

Parents firms usually take several factors into consideration before deciding to hike their stakes. Factors such as rupee depreciation, easy availability and lower cost of capital in their home countries provide a good opportunity for them to increase stake in overseas subsidiaries.

However, at a time when Indian companies are stressed with high interest costs and rising debt on their books, most MNCs have little or no debt on their books. Actually, they have huge cash reserves or have access to cheap global credit, which also support them to hike holdings in their Indian subsidiaries.

Sensing that Indian economy is on revival path, many experts are encouraging their multinational clients to up stake in Indian arms or go for more M&As.

Observers believe that the domestic economy has now bottomed out and growth will improve from the current five per cent.

They are bullish on the Indian economy considering the possibility of the stable government post elections, reform measures undertaken by the government and the long-term demand and consumption story.

Some of the companies which may raise stakes in Indian subsidiaries through open offers are Maruti Suzuki, ACC-Ambuja Cements, Nestle, Bosch, Castrol India, Colgate-Palmolive India, Cummins India, Procter & Gamble Hygiene & Health Care and Bosch, to name a few.

(The author is CMD, SMC Investments and Advisors limited. The views and recommendations expressed in this section are the analysts' own and do not represent those of EconomicTimes.com)