Hyundai’s IPO may inspire other MNCs to list in India for improved valuation, manufacturing benefits

“Hyundai listing its India unit with such a large issue size is definitely a strong indication of increasing depth and appetite of Indian capital markets with global business groups increasing focus on the country as a market,” said Gaurav Sood, managing director of Equity Capital Markets at Avendus Capital.

Sood said the trend of more MNCs potentially considering listing will continue, driven by factors including a greater ease of doing business and untapped consumption potential in the world’s most populous nation.

Mint spoke to lawyers and investment bankers who also alluded to the rise in MNCs evaluating such options. Besides South Korea’s Hyundai, which is preparing for a record ₹25,000 crore initial public offering, LG Electronics and Italy’s component maker Carraro are looking at similar moves, according to media reports.

However, this is not the first time an MNC has listed in the country. Previous examples include Japanese automaker Suzuki Motor Corporation (unit Maruti Suzuki India Ltd), British consumer goods company Unilever (Hindustan Unilever Ltd), Swiss food and beverage maker Nestle (Nestle India Ltd), and Colgate-Palmolive (India) Ltd, the unit of US oral hygiene company Colgate-Palmolive.

Valuation benefits 

A strong brand recall with Indian consumers, lower cost of capital as opposed to transferring funds from overseas markets, and lower taxes on capital gains after listing for future monetization are crucial benefits for foreign companies to consider listing in the country, said Siddharth Shah, a senior partner at Khaitan & Co.

The Indian markets offer much better valuation than other overseas markets, Shah said. Sood also alluded to the uptick in valuations.

“We have seen Indian-listed subsidiaries of foreign parents generally trading at almost three times the valuation of the parent,” he said, adding that this has encouraged global groups to unlock value in India and ride the “growth story.”

Essentially, different markets have varying dynamics and growth drivers. At times, subsidiary valuations may not get fully reflected in the parent valuation and listing would help unlock this, said BNP Paribas’ Ganeshan Murugaiyan. This could also be a useful currency for funding growth capex or as an acquisition tool in the domestic market, he said.

Experts said the rise in domestic manufacturing fueled by government schemes like production-linked incentives (PLI) has positioned India as a major hub. Global companies with extensive exposure to manufacturing see this as a strong competitive advantage and as a result, may consider listing their Indian subsidiaries, according to them.

Khaitan’s Shah said there are more likely chances for such domestic listings in the manufacturing and consumer sectors. He said the success of the Hyundai IPO will greatly encourage other MNCs to exploit the potential of an Indian listing and expects this trend to continue as a way for them to monetise their investments in India.

“Clearly, for some of these MNCs, India has turned out to be the biggest market in terms of consumption of their products, and listing here would almost come to them as a natural choice… lastly, the PLI scheme of the government may also be driving the growth in the manufacturing space,” Shah said.

Beneficial ownership

Listing in India, though, will have its challenges. Mint reported earlier this week that six unlisted Indian units of MNCs are under the radar of Registrars of Companies (RoCs), which are reviewing company disclosures and publicly available shareholding information of group companies to determine their ownership.

Besides LinkedIn and Samsung, the Indian authorities may expand their ownership checks to the local arms of more MNCs.

Foreign MNCs should expect increased scrutiny and will need to ensure meticulous documentation and timely disclosure of the significant beneficial ownership even when such individuals do not directly hold shares or voting rights in the Indian subsidiary, said Siddharth Mody, a partner at J. Sagar Associates.

While this could complicate corporate governance for MNCs with complex ownership structures, the approach of RoCs will prompt foreign companies to reassess their corporate governance and reporting practices in India.

“This could involve revisiting their reporting channels, financial control mechanisms, and the role of executives in subsidiary operations to mitigate the risk of non-compliance and associated penalties,” Mody said.

With significant beneficial ownership rules applicable to all kinds of companies, foreign companies will have to assess their disclosure obligations in detail while deciding to list in India, he added.