MNCs: Punters’ hopes of delisting gains dashed as MNCs opt for stake sales

Mumbai: Various global multinational giants have poured cold water on the expectations of local investors, who mopped up shares of Indian subsidiaries of these entities in anticipation of their delisting from the domestic bourses. With parents of at least eight MNCs choosing to cash out of the domestic arms in the wake of the sharp run-up in their share prices, bets on these companies made with the sole intention of benefiting from higher delisting prices face the risk of backfiring.

Wabco, Styrenix Performance Materials (INEOS Styrolution), Federal-Mogul Goetze, Timken India, GMM Pfaudler, Thomas Cook, Samvardhana Motherson, and Whirlpool are among the companies where global parents have sold their stakes. Large overseas stakeholders in ITC and Novartis too have indicated their intention to sell a stake.

“Previously, many MNCs aimed for full ownership and delisted their shares in India,” said Ravi Sardana, an investment banker. “Investors often accumulated MNC stocks with the anticipation of delisting, which led to these stocks commanding much higher multiples than their Indian counterparts.”

Analysts said premium valuations of Indian arms compared to their global parents have prompted MNCs to cut their stakes rather than pursue delisting at steep valuations.

“As the US and European markets experience a slowdown, global companies require capital. Given the premium valuations of their Indian subsidiaries, they are prompted to capitalise on these rich valuations,” said Dharmesh Shah, MD, DAM Capital. “Additionally, selling stakes in India is much easier now compared to a decade ago, with ample liquidity and domestic investors dominating the market.”

Michigan-based Whirlpool Corporation sold a 24% stake in its Indian arm, Whirlpool of India, through block deals on Tuesday for around ₹3,750 crore. Whirlpool of India is currently trading at a PE multiple of 81 times compared to Whirlpool Corporation’s PE of 8.6 times.Pfaudler Inc, which previously held a nearly 32% stake in GMM Pfaudler, completely divested its holdings in two transactions, one in December 2022 and another in August 2023, raising approximately ₹2,148 crore.Timken, the parent company of Timken India, sold an 8.4% stake in the company in June last year for ₹1,890 crore. As of March 31, 2023, Timken held a 67.8% stake in the Indian firm. A decade ago, the US-based specialised steel company was considering delisting its Indian arm.

“With the stock market and valuations reaching record highs, the likelihood of delisting has become increasingly remote, prompting parent companies to monetize a portion of their investments,” said Sardana.

Early this month, British American Tobacco (BAT) said it has been “actively working” for some time to sell about a 4% stake in ITC. BAT holds a slightly over 29% stake in the Indian conglomerate spanning tobacco-to-hotels. A 4% stake sale would be valued at around ₹21,000 crore at the current market price. ITC is currently trading at 25 times while BAT is at 6 times.

Novartis AG, which holds a 70.68% stake in Novartis India, announced this week that it is evaluating the possibility of selling its stake in the Indian firm.

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