Listed MNCs remain immune to coronavirus outbreak as m-cap rises to 15%

Analysts attribute the growing heft of MNCs on the bourses to their strong resilience in the face of a sharp sell-off on Dalal Street over fears of the pandemic-induced economic disruption.
As the economic crisis due to Covid-19 holds dominion over India Inc, listed Indian subsidiaries of multinational companies (MNCs) continue to pull ahead of their domestic peers.

Listed MNCs now account for 14.6 per cent of the combined m-cap of all listed companies in the country. The share is the highest in at least six years and up from 10.9 per cent at the end of March last year.

They accounted for 9.3 per cent of India’s m-cap at the end of March 2014.

With combined m-cap of Rs 13.8 trillion, 74 Indian subsidiaries of global multinationals are now ahead of state-owned listed companies and almost as big as institutionally-owned independent companies such as Housing Development Finance Corporation, HDFC Bank, ICICI Bank, Axis Bank, Larsen & Toubro, and ITC.

If banking and finance companies are removed, multinationals are even more dominant. Hindustan Unilever, Nestlé, Maruti Suzuki, Siemens, Bosch, ACC, and Ambuja Cement, among others, now account for a quarter of the combined m-cap of 813 companies excluding financial firms, up from 18.5 per cent at the end of FY19 and 16.7 per cent at the end of March 2014.
The number of listed MNCs in the financial sector is small and domestic players dominate the sector.

Analysts attribute the growing heft of MNCs to their strong resilience in the face of a sharp sell-off on Dalal Street over fears of the pandemic-induced economic disruption.

“It helps that most listed MNCs are largely in the consumer space such as food, personal care products, and pharmaceuticals. The space is currently preferred by equity investors because it offers steady growth and few downside risks arising from macroeconomic or policy surprises,” said Dhananjay Sinha, head of research and equity strategist, Systematix Group.

MNCs are among the biggest value creators for shareholders even though they remain minnows in terms of revenues, profits and assets (or investments). For example, MNCs accounted for just 3 per cent of the assets of all listed non-financial companies, 7.5 per cent of revenues, and 13.5 per cent of the combined net profits of all listed non-financial companies during FY19.

The analysis is based on a common sample of 898 companies across sectors that are part of the BSE 500, BSE MidCap, and BSE SmallCap indices. Even in the market decline since March last year, the combined m-cap of MNC stocks is down just 5.5 per cent against a 30 per cent decline of the entire sample. In the same period, family-owned firms are down 29 per cent while public-sector undertakings are down 43.6 per cent. Institutionally-owned firms have lost 35 per cent of their m-cap in the period.

The leader of the MNC pack — Hindustan Unilever — is now the country’s third-largest company in terms of m-cap, while Nestle India is the 12th largest, ahead of biggies such as Larsen & Toubro, Wipro, and Sun Pharma.

Investors also like MNCs for their debt-free balance sheet and conservative growth plans. This translates into fewer assets and liabilities on their books and a fair amount of cash reserves to see them through the economic downturn.

Only 5 per cent of MNCs’ assets were funded through debt in FY19, against an average of 43 per cent for all listed non-financial companies. The 72 non-financial MNCs in the Business Standard sample had a combined debt of just Rs 11,600 crore at the end of FY19, backed by an equity or net worth of nearly Rs 2 trillion, translating into a gross debt-to-equity ratio of 0.06. In comparison, all listed non-financial companies were sitting on debt worth Rs 33 trillion at the end of FY19 and net worth of Rs 37.3 trillion, translating into gross debt-to-equity ratio of 0.9. All these translate into premium valuations for multinational stocks in their respective industries. A typical MNC is currently valued at 38 times its trailing 12-month earnings per share against an average earnings multiple of 19.7 times for all companies.

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