Conventional wisdom is that foreign subsidiaries drag down India Inc.’s performance. But, in 2012-13, global operations actually helped it deliver better results.
For instance, Tata Motors’ sales (standalone operations) plummeted 17.8 per cent due to slack demand for commercial vehicles and cars in the home market.
But healthy demand for its acquired Jaguar Land Rover business came to the company’s rescue, aiding the 13.8 per cent growth in revenues at the consolidated level.
Similarly, while Sun Pharma’s consolidated revenues grew over 40 per cent, its standalone revenues declined by 6.5 per cent.
Higher sales in overseas markets such as US and emerging markets helped Sun’s growth.
Consolidated numbers
Overall, a comparison of the standalone and consolidated performance of the large companies constituting the Nifty Index showed that consolidated revenues, which take into account both the parent and its subsidiaries, grew faster at 12.5 per cent, compared to 11 per cent growth for the parent alone.
This trend was visible in operating profits too, which at the consolidated level grew at twice the rate of standalone operations.
Three years ago, Indian operations were much more profitable than those overseas.
Therefore, standalone operations of Nifty companies earned operating profit margins that were 6.4 percentage points higher than their consolidated operations.
But the gap has now narrowed to just 2.2 percentage points by 2012-13.
Indian arms
The trend of subsidiaries posting better growth than the parent didn’t hold good for banks with Indian arms though.
SBI, which has smaller subsidiary banks as well as insurance and asset management operations, reported a 20.5 per cent growth in own profits but only a 16.8 per cent growth in consolidated profits.
A similar trend was seen in Kotak Mahindra Bank.
In these cases, nascent businesses such as insurance housed in subsidiaries resulted in poorer aggregate performance.
Other exceptions
There were exceptions to this trend as well.
For instance, strong demand in the domestic market pepped up M&M’s own revenues by 27 per cent compared to the 15.7 per cent rise in its consolidated revenues.
Similarly, for Jindal Steel and Tata Steel, the domestic performance was the saving grace even as their international operations struggled, because of a sharper decline in global commodity prices.