Best MNC Stocks to Buy in India 2024

Updated - Jan 2023

In this article, we will cover,

1. What are Multi-National corporations (MNCs)?
2. List of the best MNC stocks in Indian equity market
3. Key factors an investor should look at while compiling the list of best MNC stocks
4. A model portfolio to gain optimal exposure to the best MNC stocks in the Indian market
5. Key Risks to be considered before investing in the MNC stocks
6. 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.

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.

List of Best MNC Stocks in India

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-

Nestle

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% in Infant Cereals), Beverages (Nescafe 51%), prepared dishes (Instant Pasta Maggi -69%), and cooking aids (Nestle every day 44%), and chocolate and confectionery (63%). In these segments, Nestle benefits from its strong cash-generating and well-established brands. The company has a leadership position in seven out of eight categories and has been able to maintain its share across categories despite the increasing competition. Nestle India also has a very diversified revenue profile, with 41% of revenue generated from milk and nutrition products (dairy products and weaning foods), 10.5% from beverages (instant coffee, iced tea, and other beverage vending mixes), 32.4% from prepared dishes and cooking aids (Maggi range), and 15.9% from chocolates and confectionery (including Kit Kat and Munch). Nestle India is currently trading at PE of 82.8x which is higher than the Industry PE of 62.7x indicating the company is trading at much premium valuations. Nestle S.A holds a 62.7% stake in the India business and is one of the world’s largest players in the Food and Beverage sector. Nestle India 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 18% in the last 5 years. It has also been maintaining a healthy ROE and ROCE of 113% and 147% respectively. Moreover, it is virtually debt free with a Debt to Equity ratio of 0.13. It has also been maintaining effective average operating margins of 22.2%. Nestle India is exposed to 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 The Russia-Ukraine crisis caused concern for the sector. Nestle has taken price hikes in order to mitigate the inflation pressure.  

Hindustan Unilever

Hindustan Unilever Ltd. (HUL) is one of the largest Fast Moving Consumer Goods Companies in India with a heritage of over 80 years. Five of its brands generate an annual turnover of over Rs. 2,000 Crs each and 16 brands generate an annual turnover of over Rs. 1,000 Crs each. HUL caters to a variety of product ranges which includes foods, beverages, cleaning agents, personal care products, and water purifiers. HUL has category leadership in over 85% of businesses. A few famous brands have high visibility and sustained market leadership which is backed by an extensive distribution network and a strong advertising and marketing campaign. HUL has been leveraging its distribution strengths to adapt its channel strategy for its products and market segments which has helped them launch 19 new brands in the last 10 years. HUL’s largest merger in the FMCG sector with GlaxoSmithKline Consumer Healthcare ltd has started showing synergies across its food and beverages brands, by acquiring popular brands like Horlicks, Boost HUL has strengthened its Food & Refreshments portfolio. The business is expanding in the fast growing Health and Well-being with a strategic partnership with Zywie Ventures Private Limited (OZiva) and Nutritionalab Private Limited (Wellbeing Nutrition). On a consolidated basis, the financial risk profile is supported by strong cash flow from operations and minimal debt. 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. HUL is known for its aggressive dividend payout policy which is around 90%. The Indian FMCG industry is corroborated by both organized and unorganized players across segments and products and HUL continues to face stiff competition with the entry of new players including multinationals in all its major segments such as soaps and detergents, personal care products and packaged foods. However, HUL’s strong financial risk profile and its leading position in the domestic FMCG industry would help to maintain its leadership position and tide through any economic slowdown/ crisis. 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 delay in demand recovery of discretionary space could impact the company’s near-term performance.

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. 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.

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 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 sell its 40.62 percent shareholding in favour of its foreign joint venture partner. Now HAIL Mauritius Limites (earlier 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, 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 6.82% 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.

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 50.16% 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 crores of cash and liquid investments as of March 2022. 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. Bata had been affected during the pandemic it concentrates on the formal and fashion segment. As the global economy shut their boundaries and people were in a lockdown, the company financials were impacted. However, with the receding cases, the company is set to get back on the growth track.

Mphasis

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 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 Control

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 concerns

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

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.

Detail Table Containing Key Metrics of MNC Stocks

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