INVEST IN COMPANIES WITH STRONG PARENT-

MAHINDRA & MAHINDRA:

Take M&M , for instance. Over the years, M&M has acted as a holding company for a range of diversification by the Mahindra family. Last year, it listed two of its subsidiaries — Tech Mahindra and Mahindra Financial Services. The management has now indicated its willingness to list Mahindra Holidays & Resorts, Mahindra Systems , its auto components division. All three companies are among leading companies in their respective segments and are expected to get top-dollar valuations. M&M also holds a little over 50% stake in Gesco Mahindra Developers and Musco and 47% in Mahindra Forgings. On the consolidated basis, its five listed companies are estimated to account for as much as 60% of M&M’s current m-cap . The ratio will rise even further if we account for its unlisted subsidiaries. This makes M&M one of the cheapest stocks in the automotive sector.

ICICI BANK& HDFC:

ICICI Bank has managed to place close to 5% of its subsidiary holdings at around Rs 44,600 crore, which is close to half of ICICI Bank’s m-cap . Most of the value in subsidiaries for both HDFC and ICICI Bank comes from their unlisted insurance subsidiaries. These have been witnessing strong growth, with annualised premium equivalent growing at almost 100% YoY, which has created a lot of interest in them. Moreover, strong growth in subsidiaries has also supported higher valuations in these companies. The valuations of subsidiaries comprise around Rs 420 for each share of ICICI Bank. A greater part of this value, which is close to twothirds of the parent company, is on account of ICICI Bank’s insurance subsidiaries, particularly life insurance . ICICI’s life insurance subsidiary is the largest insurer among private insurers and has grown aggressively by over 100% in the past few years. HDFC also has a significant share of subsidiary valuation at around Rs 800 per share. Again, most of the value accrues on account of insurance valuations. Insurance contributes close to Rs 300 per share. The other large contributors include asset management and the 24% stake in HDFC Bank.

RELIANCE COMMUNICATIONS:

The 5% stake sale by RCom values its tower entity Reliance Telecom Infrastructure (RTIL) at Rs 27,000 crore ($6.7 billion). RTIL has close to 14,000 towers under its belt. This means, its enterprise value per tower (EVPT) will be around Rs 2 crore at the current valuation. This is in line with the global trend in telecom tower valuations. In case of RCom, the subsidiary valuation is more than one-fifth of the market capitalisation of the parent company.

L&T:

Its major subsidiaries are L&T Infotech and IDPL. Infotech had recorded a turnover of Rs 1,281 crore last year based on comparable valuations for mid-sized IT companies, the company will be worth Rs 4,000-4,500 crore. IDPL is a holding company for L&T's stakes in infrastructure projects.

SOME VALUATION FIG OF SUBSIDIARIES IN PARENT