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Suresh Krishnamurthy

CREATION of subsidiaries is often viewed by the stock markets with skepticism given the implications for lower standards of corporate governance. But subsidiaries seem to be delivering the goods for India Inc.

Subsidiaries are now growing in stature and size, often growing faster than their parent companies. For a sample of 245 listed companies, subsidiaries now contribute about 10 per cent of their sales and profits.

The revenue and profit growth of subsidiaries gained significant momentum in FY 2005, continuing the trend of FY 2004. The number of subsidiary companies that are contributing more than 10 per cent of the consolidated profits has now risen to 89 in FY 2005 from 85 in FY 2004. In FY 2005, for 125 companies, subsidiaries reported higher sales growth than the holding company. In FY 2004, sales growth of subsidiaries was higher for 115 companies. Sales growth of subsidiaries of Greaves Cotton, Grasim Industries, Kirloskar Brothers, HCL Infosystems and Tata Motors were higher than that of their parents in FY 2005.

In FY 2005, subsidiaries of i-Flex Holdings, GSFC, Graphite India, Tata Steel, Bajaj Auto and EID Parry reported profit growth of more than100 per cent.

Companies that derive significant contribution from subsidiaries include Bharti Tele-Ventures, ONGC, State Bank of India, Sterlite Industries and Mahindra & Mahindra.

Smaller companies such as Mphasis BFL, Polyplex Corporation, Indiabulls, Unichem Labs and Balmer Lawrie have also built businesses using a `holding company-subsidiary company' model and are growing faster.

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Nurturing of subsidiaries paying off for companies

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