Have a look at three globally listed companies which are also listed in India. All three are applications based solutions providers for global manufacturing industries, and leading players in the sector.

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Of these, two out of the three Indian subsidiaries trade at premium valuations, when compared to their foreign parents. The third company, Linde India, is an interesting case.

Its valuations are lower than those of the Indian arms of Honeywell Automation and 3M Inc. This, when Linde PLC is quoting at a premium to 3M and Honeywell globally.

Linde PLC's premium valuations vis-a-vis peers could be explained by the following factors. It operates in the niche field of medical oxygen, which is a critical product as well as one with recurring demand. This assumes all the more importance in the wake of the COVID-19 pandemic when investors are willing to pay a premium for stocks of companies in the healthcare and related space. Also, the industry in which Linde PLC specialises is a consolidated one, so entry barriers to new players are high. The recent merger with Praxair further strengthens Linde's position.

In addition, Linde also has exposure to domestic manufacturing in both old economy sectors as well as emerging sectors like electronics which includes smart phones.

The India piece

All three below mentioned companies are 75 percent subsidiaries of their US parent. Compared to Linde PLC, Linde India trades at a steep valuation discount to its immediate peers. See table below. EBITDA calculation is for the preceding four quarters.

Q1 performance

In the quarter gone by, all three companies recorded a steep decline in sales, which was the case in pretty much most sectors. However, Linde India reported a decent expansion in margins. Also, for Linde India, this was the first quarter of integration with Praxair India Pvt Ltd and the margin expansion came despite a 50 percent drop in sales.

Linde India prospects could look up in the time to come. One of its strong points is the debt free balance sheet. The challenge will be to sustain the strong margin performance and show to the market that it was no flash in the pan.

A greater emphasis on upgrading medical infrastructure in the country, and the incentives for domestic manufacturing too could work to Linde India's advantage.

Additionally, the global merger with Praxair will bode well for Linde India as was visible during the first quarter of this fiscal. There would be synergies from the integration as Praxair and Linde have been rarely dominant in the same geography.

First Published:Aug 17, 2020 12:31 PM IST