The Hindu Business Line : Subsidiaries growing faster than parent cos

IF you think a subsidiary just adds to the pages of a company's annual report and does little else, think again. An analysis of 200 companies that are part of the S&P 500 index indicated that subsidiaries have grown at a faster pace than the parent company itself in many cases.

Subsidiaries could well turn out to be the earnings growth drivers for the parent company.

The contribution of subsidiaries to the total profits of 200 companies analysed rose from 2.3 per cent in 2003 to 7.4 per cent in 2004.

Some of the companies where the performance of subsidiaries have propped up the consolidated profits are: Crisil, Crompton Greaves, EID Parry, Essel Propack, India Card Clothing, Indian Hotels, M&M, Motherson Sumi, Rico Auto, Siemens, SBI and Tata Tea.

Companies such as Siemens, Cummins India and Carborundum Universal have diversified into other businesses that hold good potential for growth.

However, the growth has not really propped up the bottom-line despite an impressive growth in consolidated revenues.

Barring Siemens, the share of profits accounted for by subsidiaries of these companies declined in 2004 compared with previous year.

For companies such as Tata Tea, Adani Exports, BPCL, Geometric Software, Gujarat Ambuja Cement, Indian Hotels and Hindalco, subsidiaries contribute a substantial share of the consolidated profits.