India growth a catalyst, local arms trump MNCs

economictimes.indiatimes.com:

MNCs) are outshining their listed global parents on keenly tracked financial metrics such as rates of top- and bottom-line expansion, profitability and enterprise value, firmly establishing India's world-beating growth credentials. Growth visibility has done enough to burnish the allure of these stocks with investors — both at home and overseas. It is no wonder, therefore, that the India-listed stocks of these MNCs trade at premium valuations relative to their parent entities beset with inevitable growth challenges that mature markets present.

Premium valuations are a feature of companies operating across industries as diverse as restaurants, consumer goods, cars or heavy machinery.Jubilant FoodWorks, the Domino's pizza franchise in India, trades at a premium of more than three times that of the US owner of the global brand, which generates seven times more revenue than the local firm.Hindustan Unilever (HUL), India's biggest consumer goods company, currently trades at a price-to-earnings (PE) ratio of 62. That compares with a PE of 16 for its Anglo-Dutch parent Unilever Plc. HUL's price to book is twice that of Unilever.

On operational parameters, too, HUL outdoes its parent. The company's revenue in India has expanded at a compounded annual growth rate (CAGR) of 11.2% over the past five years, compared with 2.2% for its parent. HUL has a profit margin of 17%, at least 400 basis points higher than that for the parent.

One basis point is 0.01%. Meanwhile, capital goods major ABB reported India revenue expansion at twice the rate than that of its global parent in the past five years. Timken India's revenues expanded at a CAGR of 18% over the past five years, compared with 8.4% for its parent.