Updated – December 2020
In this article, we will cover,
– What are Multi-National corporations?
– A comprehensive and well-researched list of the best MNC stocks in Indian equity market
– Key factors an investor should look at while compiling the list of best MNC stocks in Indian equity market
– A model portfolio to gain optimal exposure to the best MNC stocks in the Indian market
– Portfolio companies
– Key Risks to be considered before investing in the MNC stocks
– A detailed table containing all the essential parameters based on which the MNC stocks are evaluated, weighed and compared to arrive at the list of the best MNC stocks in the Indian equity market
What are Multi-National corporations?
Multi-National corporations (MNCs) are those companies which are operating in many different countries at the same time. In other words, a multi-national corporation has operations and assets in atleast one country other than its home country. There are three types of models in which MNCs operate:
- Centralized model: In this model, the company operates through one centralized headquarter in its home country and then builds its manufacturing facilities in other countries where it is operating. This model helps MNCs to avoid tariffs and other taxes related to imports and especially this model helps to take full advantage of lower production costs.
- Regional model: In this model, the MNC keeps its headquarters in one country which supervises its other subsidiaries and offices located in other countries. All the subsidiaries and affiliates of the MNC report to its headquarters.
- Multinational/Transnational model: In this type of model, the parent company operates independently in its home country and at the same time its subsidiaries and affiliates which are in other countries also operate independently. It is basically a combination of the above two models.
MNCs are those companies in which the foreign shareholding is over 50% and the management control is vested in the foreign company. MNC stocks are known for their good image, strong parentage, strong technological proficiency and asset-light business models. These companies are usually well-capitalized and have low debt exposures and also decent dividend policies. MNCs are present in key sectors of the Indian economy and have played an important role in development of the economy by bringing in latest technologies and know-how.
Summary of Best MNC Stocks in Indian equity market
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||Rating||CMP as of 4th Dec 2020||Industry|
|1||Nestle India||500790||NESTLEIND||5||17,825.9||Packaged Foods|
|2||Hindustan Unilever||500696||HINDUNILVR||5||2,188.20||Personal Products|
|4||Astrazeneca Pharma India||506820||ASTRAZEN||0.5||4,507.5||Pharmaceuticals|
|5||Honeywell Automation||517174||HONAUT||2||30,871.8||Other Elect.Equip./ Prod.|
|6||Mphasis Ltd||526299||MPHASIS||3||1,332.9||IT Consulting & Software|
|7||Oracle Financial Services Software||532466||OFSS||3||3046.0||IT Consulting & Software|
|8||Castrol India||500870||CASTROLIND||5||130.8||Oil Marketing & Distribution|
|9||Bosch Ltd.||500530||BOSCHLTD||3||13,076.9||Auto Parts & Equipment|
|10||Britannia Industries Ltd.||500825||BRITANNIA||4||3,648.2||Packaged Foods|
|11||Abbott India Ltd||500488||ABBOTINDIA||3||15,245.7||Pharmaceuticals|
|12||Maruti Suzuki India Ltd.||532500||MARUTI||3||7,801.9||Cars & Utility Vehicles|
|13||Whirlpool of India Ltd||500238||WHIRLPOOL||4.5||2,132.4||Consumer Electronics|
|14||Colgate Palmolive India Ltd||500830||COLPAL||5||1,541.2||Personal Products|
|15||Ambuja Cement||500425||AMBUJACEM||4||252.7||Cement & Cement Products|
Key factors an investor should look at while compiling the list of the best MNC stocks in Indian equity market:
History of Parent Company:
It is important to know the parent company before investing in its subsidiary registered as an MNC in countries other than the home country. This will give one an idea as to how experienced the parent company is in managing its businesses. Usually MNCs have decades of experience across the world, and have already seen many business cycles across all continents. For example Siemens is the oldest MNC in India with 153 years of experience.
Corporate Governance standards:
One of the major advantages for investing in MNCs is its top notch management quality and high corporate governance standards. Generally MNC stocks are picked on the basis of safety they give to investors about their going concern status, as investors feel more confident about their management as compared to domestic companies. For example old companies like Nestle, Bata have rarely encountered corporate governance issues in their management over the past years.
Top & Bottom Line Growth:
While selecting MNCs you should look at companies which are performing consistently. Apart from the company’s history and corporate governance you should also take a look at the company’s last five years sales and profit growth which should be higher than its domestic peers. For example, Britannia’s sales during the last 5 years have grown at a CAGR of 8.8% and its profits have grown at a CAGR of 19% which is much higher than its peer Marico which has grown at a CAGR growth of 5% (Sales) and 13% (Profits) during the last 5 years.
MNC stocks are well-known to provide high returns. Before investing in any MNC stocks you should check popular return ratios like Return on Equity and Return on Capital Employed. These ratios will give an exact picture if the company’s operational performance is being translated to its bottom line and how it is servicing its equity and debt.
High Dividend Yields:
MNCs are known for rewarding its shareholders with high dividends and as the government in its last budget abolished the controversial DDT tax, MNC companies are going to be the biggest beneficiary of this move. Some MNC companies have already started paying high dividends from the April-June, 2020 quarter.
Elaborating more on the companies selected in our model portfolio-
Nestle India is a leading player in the Indian FMCG industry with an established market position in most of its product categories. The company is a pioneer in the culinary segment with a range of products under the Maggi brand. Nestle stands as a market leader in 85% of its product portfolio like milk products and nutrition (96.5% in Infant Cereals), beverages (Nescafe 51%), prepared dishes (Instant Pasta Maggi -74%) and cooking aids (Nestle EveryDay 44%), and chocolate and confectionery (63%). In these segments, Nestle India benefits from its strong cash generation and well-established brands. The company has leadership position in seven out of eight categories and has been able to maintain its share across categories despite the increasing competition.
Nestle S.A, Switzerland’s (parent company of Nestle India) 46% revenues comes from Americas region, 29% revenues come from European, Middle east and North Africa region, and 26% revenues comes from Asia, Oceania and sub-Sahara region. Nestle India is currently trading at PE of 85.3x which is higher than the Industry PE of 74.7x indicating the company is trading at much premium valuations.
Nestle S.A holds 62.7% stake in the India business and is one of the world’s largest players in the Food and Beverage sector. It enjoys access to its parent’s proprietary technology and strong research and development capabilities which is a big advantage for the brand. The company’s PAT has grown at a CAGR of 10.7% in the last 5 years and has continuously outperformed its peers. It has also been maintaining healthy ROE and ROCE of 40.98% and 61.61% respectively in the last 5 years. Moreover it is virtually debt free with a Debt to Equity ratio of 0.08. It has also been maintaining effective average operating margins of 20.74% in the last 5 years.
Nestle India is exposed to the increasing and fierce competition in the domestic FMCG segment with the entry of new players, including multinationals, in various divisions such as instant noodles, packaged foods, beverages, chocolates and confectionery. The competition is further increasing due to aggressive product launches, evolving consumer preferences and strong marketing strategies adopted by the players. . Nestle has effectively overcome the challenges faced in terms of distribution during the COVID-19 led pandemic and has also announced a Capex of Rs.2,600 cr over the next 3-4 years to expand its manufacturing capacities across India. The demand for In-home consumption remains strong and further uptick in demand in its out-of home consumption categories will help Nestle in maintaining double-digit sales and volume growth.
HUL is one of the largest FMCG companies in India. Five of its brands generate annual turnover of over Rs.2,000 Cr each and 7 brands generate annual turnover of over Rs.1,000 Cr each. With over 40 brands spanning 12 distinct categories such as personal wash, fabric wash, skin care, hair care, oral care, deodorants, colour cosmetics, beverages, ice creams, frozen desserts and water purifiers, HUL is part of the everyday life of millions of consumers across India. The company’s brands hold the top two spots in most categories it is present in, in terms of market share. Its product portfolio includes home care (27% of Profits), Beauty & Personal care products (58% of Profits), Foods and Refreshments (15% of Profits). The company is a subsidiary of Unilever Plc located in the UK that holds a 67% stake in HUL, it’s the world’s largest consumer goods company present across 190 countries.
HUL’s brands have high visibility and have sustained leadership over decades, backed by an extensive distribution network and strong advertising and marketing support. HUL has been leveraging its distribution strengths to adapt its channel strategy for products and market segments.
HUL is the first consumer company to cross Rs.5 lakh Cr Market capitalization making it the highest market cap company in the FMCG sector. The company’s sales have grown at a CAGR of 4.4% and its PAT has grown at a CAGR of 10.25% in the last 5 years. HUL has been maintaining healthy ROE and ROCE of 81.97% and 113.67% respectively over the past 3 years. The company is virtually debt free and has been maintaining adequate liquidity with the current cash levels of around Rs.5,000 Cr. HUL has recently completed the largest merger in the FMCG sector with GlaxoSmithKline Consumer Healthcare ltd acquiring popular brands like Horlicks, Boost to strengthen its Food & Refreshments portfolio.
Apart from HUL’s robust fundamentals, enviable business model and debt-free balance sheet, its extensive distribution network, strong brand equity and vast product mix with a large share of essential products makes the company standout during the times of crisis. Any continuation of downtrend of demand for discretionary space could pose a risk for the company. The company is trading at a PE of 75.6x which looks fairly valued as compared to its industry PE of 74.7x.
Astrazeneca Pharma India Ltd:
Astrazeneca Pharma India Ltd was established in the year 1979 and is headquartered at Bengaluru, Karnataka. It covers manufacturing, sales and marketing activities of the company in India. It is a subsidiary of AstraZeneca Plc, UK. The company has a workforce of over 1400 employees across the country. The company has an innovative portfolio in crucial areas of healthcare including cardiovascular, renal & metabolic diseases, oncology and respiratory related diseases.
Astrazeneca is a global research and innovation driven integrated biopharmaceutical company focusing on the discovery, development & commercialization of prescription medicines in 3 core therapeutic areas namely Cardiometabolism, Oncology and Respiratory & Inflammation, and is also present in the therapeutic areas of Neuroscience and Infection & Vaccines, on an opportunity-driven basis. The company’s key brands include Forxiga, Crestor for cardiovascular related diseases (2% Market share), Tagrisso is its flagship brand in Oncology, and Symbicort in Respiratory related diseases. All the therapeutic areas in which AstraZeneca India is actively operating has recorded growth higher than the market.
These comprise therapeutic areas of Anti-diabetic, Inhaled Respiratory, Cardiovascular, and Oncology, all of which have registered higher growth than the overall market growth of 10.5% for FY 2018-19. Increasing incidence and diagnosis of Non-Communicable diseases (NCDs) as India harbours a high NCD burden. After China, India has the largest diabetic population in the world which provides the company further room to grow. Furthermore, The Oxford-Astrazeneca Vaccine has been proved to be 70-80% effective against COVID-19 as per the final clinical trials conducted. The vaccine requires to be stored at two to eight degrees Celsius which will be easy to transport as compared to Pfizer-BioNTech vaccine which requires to be stored at -70 degrees. Astrazeneca has already made tie-ups with countries like the UK, US, India for mass distribution of the vaccine.
In terms of financials the company has grown its sales and profits at a CAGR of 15% and 66% in the last three years. It has also maintained ROE and ROCE of 18% and 27% over the past three years. Key factors that could serve as a dampener for growth of the company include continuing downward pressure on prices, and effects of ban on irrational Fixed Dose Combinations (FDCs). Uncertainties in government policies, especially surrounding drug prices will continue to pose a risk for the future growth of the company.
Honeywell Automation India Ltd (HAIL):
Honeywell Automation was incorporated in Pune, India. It is a subsidiary of USA based company Honeywell Inc. It provides integrated automation and control systems in India as well as internationally. It offers process control, safety, optimization, and simulation, as well as it provides connected industrial Internet of Things (IOT) and cyber security solutions etc. HAIL was incorporated in Jan 1984 as Tata Process Controls Private Ltd in Maharashtra. The company became as a public limited company in May 1987. Initially the company was promoted by Tata group. Then it was promoted as a 40:40 JV company between Tata group and Honeywell Asia Pacific,USA. In 2004, Tata group decided to sold its 40.62 percent shareholding in favour of its foreign joint venture partner. Now Honeywell Asia Pacific Inc, holds 75 percent of equity shares of the company.
Honeywell has set up an impressive 36,000 square feet state-of-the-art manufacturing, design and engineering facilities in the industrial city of Pune in 1988. It is equipped with system integrated services, testing facilities, systems assembly & staging centre, printed wiring assembly manufacturing facility and a smart technology centre. Manufacturer of electronic systems and components forms 57% of the company’s product portfolio whereas, Repair and maintenance and Trading of machinery, equipment and supplies consist of 29% and 13% respectively. As India is now moving faster towards adoption of automation and digital revolution and Industrial Revolution 4.0 (Industry 4.0) Honeywell Automation and its products will play a key role towards India’s growth story.
HAIL is a leader of integrated automation and software solutions making it the largest Indian Industry IT company. The company has grown its Sales and Profits at a CAGR of 6.5% and 34% respectively during the last five years. Not only that it has given Return on Equity and Return on Capital Employed of 19.5% and 30.6% in the last five years. A prolonged slowdown in the Manufacturing and Automobile sector could impact the company’s growth in the future.
Bata India Limited (BIL):
Bata India has an established track record of over 85 years and a pan-India presence. The company has a diversified product portfolio, and sells through an extensive retail and distributor network. It sells rubber, canvas, leather and plastic footwear through 1550 Bata own and franchisee stores and in thousands of multi-brand footwear dealer stores pan-India. The company has four manufacturing units at Batanagar (Kolkata), Bataganj (Bihar), Peenya (near Bangalore), and Hosur (Tamil Nadu). BIL is a 52.96% subsidiary of Bata (BN) BV, Amsterdam, a Group company which has operations in more than 50 countries.
The company has access to technical research, and innovative programmes implemented by the Bata Group. It receives technical, strategic, and managerial support in its various functions, including purchase, manufacture, training of managers from its Group Company, and in turn, pays technical fees. Over the past several years, BIL has remained debt free and has availed only non-fund based limits from banks. The company also has a significant liquidity cushion with Rs. 964 crore of cash and liquid investments as of March 2020. However, the competition has been intensifying in all product categories as established players have been setting up new manufacturing facilities, besides increasing capacities in their existing plants.
Further, multinational majors like Clarks, Zara, etc. have made inroads into the organised footwear market in India. Also the margins of the company are affected by raw material price fluctuations.
Established in 2000, Mphasis is a mid-sized player catering to the IT / IT enabled Services / BPO industry in various domains such as banking and financial services, communication, insurance, etc. The company has strong domain expertise and offers a wide range of services. Based on its expertise, the company continues to add new logos to its clientele which aided in healthy growth of its top line in recent years.
Given the Blackstone Group’s parentage, Mphasis has access to its investment portfolio and the company has leveraged the same since its acquisition. With Blackstone expanding its assets under management across verticals and geographies, new opportunities for client wins shall continue for Mphasis. It derives 60% of its revenues from top 10 clients signifying moderate customer concentration. However, most of the customers have long-standing association with the company. The company has vast experience of the management, and strong execution track record, presence across business domains with increasing focus on new generation service offerings.
The company’s financial profile remains healthy marked by stable earnings growing at a CAGR of 12.58% over the past 5 years, sizeable networth of Rs.5829 crore, strong liquidity with large cash reserves of over Rs 200 crore, healthy capital structure and favourable debt metrics with debt to equity ratio of close to 0. On the negative front, being in the IT industry the company’s profit margins are susceptible to wage inflation and forex related risks, although hedging mechanisms employed by the company mitigate the same to an extent. Also with 80% of revenues derived from the North American market, the company’s revenues and earnings are exposed to macro environment uncertainties in the USA.
Key Risks to be considered before investing in MNC stocks
The MNCs are controlled by their parent companies and due to high control over its subsidiaries these MNC stocks can be controlled at the whim of their parent companies. The parent company can anytime decide to disinvest or stop funding to their subsidiaries. They can also transfer subsidiaries major components such as research and development, plant and machinery etc.
Royalty refers to the amount which a parent company takes from its subsidiaries across the countries. These charges could be high or low depending upon the capabilities of the company. The parent company may even try to siphon out profits from its subsidiaries through high royalty charges or other fees that can be increased at the desire of parent company.
Watch our video on how to analyse and pick MNC Stocks for investments
In order to get exposure to best MNC stocks, you need a total of Rs. 98,648.7 for the below curated portfolio as of 04th Dec, 2020.
|Company Name||Weightage||CMP as of 4th Dec 2020||Quantity||Total|
|Astrazeneca Pharma India||27%||4,507.5||3||13522.5|
Detailed Overview of the Best MNC stocks to buy:
In order to get exposure to best MNC stocks, you need a total of Rs. 98,584.2 for the below curated portfolio as of 4th Dec, 2020.
|Sr. No||Company Name||BSE Scrip Code||NSE Symbol||Rating||CMP as of 4th Dec 2020||Industry||Market Capitalization (Cr)||P/E Ratio (x)||Price to Sales||Dividend Yield (%)||Debt/Equity Ratio||Current Ratio||Return on Equity (%)||Return on Capital Employed (%)||Operating Profit Margin (%)||3 Years Sales CAGR||3 Years Net Profit CAGR||Inventory Turnover Ratio|
|1||Nestle India||500790||NESTLEIND||5||17,825.9||Packaged Foods||179,192||85.3||13.5||0.88||0.08||1.82||70.3||98.2||23.9||10.6||25.01||4.2|
|2||Hindustan Unilever||500696||HINDUNILVR||5||2,188.2||Personal Products||556,986||75.6||13.2||1.1||0||1.2||85.62||117.09||24.5||6.26||16.95||5.95|
|4||Astrazeneca Pharma India||506820||ASTRAZEN||0.5||4,507.5||Pharmaceuticals||11,051.60||136||13.5||0.06||0.03||1.86||21.66||33.92||14.1||15.23||65.92||2.21|
|5||Honeywell Automation||517174||HONAUT||2||30,871.8||Other Elect.Equip./ Prod.||28,957.90||62.7||9.34||0.24||0.04||2.65||25.05||34.78||19||10.93||42.5||14.65|
|6||Mphasis Ltd||526299||MPHASIS||3||1,332.9||IT Consulting & Software||25,337||20.8||2.7||2.58||0.1||2.15||21.37||26.16||18.68||13.33||13.93||–|
|7||Oracle Financial Services Software||532466||OFSS||3||3,046.0||IT Consulting & Software||26,804.10||16.8||5.4||5.78||0.02||6.1||25.42||39.58||47.6||3.17||6.11||–|
|8||Castrol India||500870||CASTROLIND||5||130.8||Oil Marketing & Distribution||12,489.20||18.7||4.06||4.35||0||2.08||65.37||90.72||29.2||4.78||7.61||4.61|
|9||Bosch Ltd.||500530||BOSCHLTD||4||13,076.9||Auto Parts & Equipment||39,281.40||2574||4.77||0.79||0.01||1.68||12||18.5||10.3||-1.93||-14.11||4.23|
|10||Britannia Industries Ltd.||500825||BRITANNIA||4||3,648.2||Packaged Foods||91,011||50.8||7.12||2.2||0.92||0.93||32.5||37.5||18.5||8.61||16.7||9.33|
|11||Abbott India Ltd||500488||ABBOTINDIA||3||15,245.7||Pharmaceuticals||34,549.40||52.5||8.32||0.66||0.07||3.2||26.7||35.2||20.5||12.06||28.9||4.11|
|12||Maruti Suzuki India Ltd.||532500||MARUTI||2||7,801.9||Cars & Utility Vehicles||235,646.60||58||3.8||0.77||0||0.72||6.76||8.65||7.6||3.58||-17.99||16.5|
|13||Whirlpool of India Ltd||500238||WHIRLPOOL||4||2,132.4||Consumer Electronics||27,659.90||90.6||5.3||0.23||0||2.5||20.27||28.63||8.7||15||15.3||3.54|
|14||Colgate Palmolive India Ltd||500830||COLPAL||5||1,541.20||Personal Products||44,205||50.1||9.64||1.74||0||1.21||53.7||67.41||28.5||4.36||12.24||5.93|
|15||Ambuja Cement||500425||AMBUJACEM||3||252.7||Cement & Cement Products||49,095||17.2||2.03||0.68||0||1.68||12||17.4||19.8||10.5||31||3.72|
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