In this article, we will cover,
- What are Multi-National corporations (MNCs)?
- 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
- A model portfolio to gain optimal exposure to the best MNC stocks in the Indian market
- 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
What are Multi-National corporations (MNCs)?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.
List of Best MNC Stocks in India
|Sr. No||Company Name||CMP – Jan ’23||BSE Scrip Code||NSE Symbol||Rating||Industry|
|1||Nestle India||19,572||500790||NESTLEIND||5||Packaged Foods|
|2||Hindustan Unilever||2,558||500696||HINDUNILVR||5||Personal Products|
|4||Astrazeneca Pharma India||3,366||506820||ASTRAZEN||0.5||Pharmaceuticals|
|5||Honeywell Automation||40,902||517174||HONAUT||2||Other Elect.Equip./ Prod.|
|6||Mphasis Ltd||1,971||526299||MPHASIS||3||IT Consulting & Software|
|7||Oracle Financial Services Software||3,030||532466||OFSS||4||IT Consulting & Software|
|8||Castrol India||125||500870||CASTROLIND||4.5||Oil Marketing & Distribution|
|9||Bosch Ltd||17,180||500530||BOSCHLTD||2||Auto Parts & Equipment|
|10||Britannia Industries Ltd||4,292||500825||BRITANNIA||4||Packaged Foods|
|11||Abbott India Ltd||21,351||500488||ABBOTINDIA||4||Pharmaceuticals|
|12||Maruti Suzuki India Ltd||8,407||532500||MARUTI||2||Cars & Utility Vehicles|
|13||Whirlpool of India Ltd||1,493||500238||WHIRLPOOL||1||Consumer Electronics|
|14||Colgate Palmolive India Ltd||1,521||500830||COLPAL||5||Personal Products|
|15||Ambuja Cement||526||500425||AMBUJACEM||2||Cement & Cement Products|
Key factors an investor should look at while compiling the list of best MNC stocks
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 9% and its profits have grown at a CAGR of 11% which is in line with its peer Marico that has grown at a CAGR growth of 10% (Sales) and 10% (Profits) during the last 5 years.
Return ratios: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 their shareholders with high dividends and as the government in the Budget 2020 abolished the controversial DDT tax, MNC companies were the biggest beneficiary of this move.
Elaborating more on the MNC Stocks in our model portfolio-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.All the therapeutic areas in which AstraZeneca India is actively operating has recorded growth higher than the market. 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.
In terms of financials the company has grown its sales and profits at a CAGR of 3% and 3% respectively in the last three years. The company has ROE and ROCE of 12.7% and 17%, respectively. It has a minimal debt to equity ratio of 0.01, with a very low inventory turnover of 2.13. 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, USFDA approvals especially surrounding drug prices will continue to pose a risk for the future growth of the company.The company has grown its Sales and Profits at a CAGR of 6.82% and 26.7% respectively during the last five years. Not only that it has given Return on Equity and Return on Capital Employed of 20.8% and 30.6% in the last five years. A prolonged slowdown due to COVID-19 and chip shortage issue in the Manufacturing and Automobile sector could impact the company’s growth in the future.
The company has grown its Sales and Profits at a CAGR of 4% and 15% respectively during the last five years. Not only that it has given Return on Equity and Return on Capital Employed of 19.2% and 27.1% in the last five years. A prolonged slowdown due to COVID-19 and chip shortage issue in the Manufacturing and Automobile sector could impact the company’s growth in the future.
MphasisEstablished 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 sales growth at a CAGR of 15% over the past 5 years, sizeable net worth of Rs. 6,977 crores, strong liquidity with large cash reserves of close to Rs.1,000 crore, healthy capital structure and favourable debt metrics with debt to equity ratio of 0.15X. 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
Limited ControlThe 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 concernsRoyalty 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
Model Portfolio:In order to get an exposure to best MNC stocks, you need a total of Rs. 1,45,866/- for the below curated portfolio as of Jan, 2023.
|Company Name||Weightage||CMP – Jan 23||Quantity||Total|
|Astrazeneca Pharma India||16%||3,366||7||23,562|
Detail Table Containing Key Metrics of MNC Stocks
|Sr. No||Company Name||CMP – Jan ’23||BSE Scrip Code||NSE Symbol||Rating||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||19,572||500790||NESTLEIND||5||Packaged Foods||188,774||71.3||11.7||1.01||0.12||1.18||113||147||22.2||9||13||3.75|
|2||Hindustan Unilever||2,558||500696||HINDUNILVR||5||Personal Products||601,448||62.7||10.7||1.32||0.02||1.35||18.4||24.3||23.8||10||13||6.04|
|4||Astrazeneca Pharma India||3,366||506820||ASTRAZEN||0.5||Pharmaceuticals||8,428||89.7||9.17||0.3||0.01||2.19||12.3||16.4||13.5||3||3||1.86|
|5||Honeywell Automation||40,902||517174||HONAUT||2||Other Elect.Equip./ Prod.||36,182||95.3||11.7||0.22||0.02||3.38||12.5||16.8||14.8||-2||-2||16|
|6||Mphasis Ltd||1,971||526299||MPHASIS||3||IT Consulting & Software||37,067||23.3||2.74||2.37||0.15||1.8||21.2||27.4||17.6||16||10||–|
|7||Oracle Financial Services Software||3,030||532466||OFSS||4||IT Consulting & Software||26,190||14.4||4.9||6.33||0.01||5.78||27.1||36||44.2||2||11||–|
|8||Castrol India||125||500870||CASTROLIND||4.5||Oil Marketing & Distribution||12,359||15.2||2.63||2.41||0||2.16||49.6||67.5||24||2||2||4.81|
|9||Bosch Ltd||17,180||500530||BOSCHLTD||2||Auto Parts & Equipment||50,718||39.5||3.74||0.64||0.01||1.76||11.8||14.8||12.3||-1||-9||4.9|
|10||Britannia Industries Ltd||4,292||500825||BRITANNIA||4||Packaged Foods||103,407||67.1||6.94||1.29||1.49||0.97||49.7||41.5||15.1||9||9||7.3|
|11||Abbott India Ltd||21,351||500488||ABBOTINDIA||4||Pharmaceuticals||45,236||52.1||8.9||0.67||0.05||2.48||29.5||38.4||22.8||10||22||3.8|
|12||Maruti Suzuki India Ltd||8,407||532500||MARUTI||2||Cars & Utility Vehicles||253,705||42||2.39||0.71||0.01||1||7.25||8.95||8.15||1||-13||20.3|
|13||Whirlpool of India Ltd||1,493||500238||WHIRLPOOL||1||Consumer Electronics||18,937||73||2.73||0.34||0.01||2.33||9.23||10.7||6.5||5||-11||3.27|
|14||Colgate Palmolive India Ltd||1,521||500830||COLPAL||5||Personal Products||41,365||39.6||8.22||2.56||0.05||1.31||74.4||92||29.9||5||13||4.94|
|15||Ambuja Cement||526||500425||AMBUJACEM||2||Cement & Cement Products||104,534||56.1||3.35||1.22||0.02||1.43||11.8||22.1||13||4||8||4.45|