Last week, Zomato informed exchanges that its wholly-owned subsidiary PT Zomato Media, Indonesia has initiated the process of liquidation. The announcement came just a week after the food delivery and restaurant-discovery platform announced the deregistration of its wholly-owned subsidiary, Zomato NZ Media Pvt Ltd., and closure of its step-down subsidiary Zomato Australia Pty Limited in early June.

However, Zomato is not the only company that has been winding up its overseas operations. In the last six months, over half a dozen Indian companies ranging from food delivery to water technology to the automotive sector have either closed down their international subsidiaries or initiated the process of liquidation. 

Overseas subsidiaries

While Zomato alone closed six overseas subsidiaries (wholly-owned or step-down), Chennai-based water technology company, Va Tech Wabag fully sold its subsidiaries in Switzerland and  Czech Republic. Automobile major Mahindra & Mahindra announced that it has shut its West African and Bangladesh subsidiaries. 

One common thread in these closures is that the operations of most of the closed subsidiaries were not material enough. In other words, their contribution to the overall revenues or net worth was quite negligible. For instance, the contribution of Zomato’s subsidiaries in Indonesia, New Zealand, Australia and Jordan to its total net worth was almost zero. Similar is the case with Mahindra & Mahindra’s subsidiaries in West Africa and Bangladesh. While Va Tech’s Switzerland subsidiary contributed over 1 per cent of its total net worth, its Czech Republic subsidiary contributed less than half a percentage. 

“In the last few years, many Indian companies opened subsidiaries in Europe and in other parts of the world to take advantage of the global growth,” said Kranthi Bathini, Director Research, WealthMills Securities. 

“But with the uncertainty looming over global growth, many of them are now forced to shut shops overseas,” he added.  

Va Tech Wabag sold its Czech Republic subsidiary ‘VA Tech Wabag Brno spol. S.r.o.’ to VCL Group for €1 million and its Switzerland subsidiary Wabag Wassertechnik AG to HFS Aqua Holding AG. In both cases, the company said the move is part of the business strategy to optimise the group’s structure and in line with its strategic focus to reduce its exposure to European geographies. 

Compliance costs

Bathini said despite negligible business, companies need to incur heavy compliance costs and fixed costs as long as their business is operational. “That is also the reason why they are shutting down shops,” he added. 

Companies like United Spirits and TD Power Systems said they are closing down their overseas subsidiaries due to “inoperation”.

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