Investor’s Guide: Analyzing the Financial Performance of Top MNCs in India

Owing to a large and diverse population, India has been a favorite market for several multinational companies (MNCs). From FMCG, automobiles, and software to consumer durables, e-commerce, and technology, the top MNC companies in India have already made a mark. Others are looking to foray into the growing Indian market.

Take the case of Apple India. According to a reliable news source, the smartphone company registered a whopping 77% increase in net profit to Rs 2,230 crore during FY23. The iPhone maker saw a 48% rise in revenue to Rs 49,322 crore. This increase is indeed laudable, even after the tech company charged a higher iPhone markup in India. The smartphone manufacturer also made significant investments to support its revenue growth in India, such as opening retail outlets in Delhi and Mumbai.

It also contemplates shifting over 18% of its global iPhone production to India by 2025.

It is easy to imagine that most MNCs continue to see India as a lucrative market. Also, the ‘Vision ‘Developed India,’ a survey report compiled last year, affirms India’s potential to attract $475 billion in the next five years. The report was compiled as a collaborative effort between Ernst & Young and the Confederation of Indian Industries.

If this has piqued your interest in MNC stocks, then here is what investors keen to add MNC stocks to their portfolio must do. They must first analyze the performance of MNCs. To begin this exercise, an investor must understand that an MNC has unique dynamics and specific regulations that impact its financial performance. Also, the structure of their operations with an Indian company can affect its financial structure. Given this, it takes considerable expertise to understand an MNC.

Nevertheless, assessing the following key metrics can evaluate whether an MNC is worth investing in.

  • Consistent and sustainable revenue growth indicates a growing market share and, thus, improves the prospects for the company’s products or services.
  • Analyzing the gross profit margin, operating profit, and net profit margin are the key ratios that indicate an MNC’s efficiency in converting revenue into profit.
  • Growth in the MNC’s earnings per share indicates the company’s ability to generate shareholder value.
  • The MNC’s financial leverage ratios indicate how dependent it is on debt. Also, a metric like the interest coverage ratio suggests the company’s ability to service its debt.
  • Operating cash flow analysis enables an investor to analyze their operations’ strength, determining their ability to generate cash.
  • An analysis of current ratios determines its ability to meet short-term obligations with readily available assets.
  • Finally, an investor must compare the MNC’s performance against its peers in the same industry.

Not Just Numbers Always 

  • While the primary assessment of an MNC is made from its fundamentals, an investor must also keep the following qualitative factors in mind. The expertise and strength of the management in driving the growth of the MNC in ordinary and challenging times is a crucial factor that an investor must consider.
  • The investor must also analyze the chosen MNC’s unique selling advantage and competitive edge in the Indian market.
  • Of late, an MNC’s commitment to adhering to corporate governance and sustainability practices is another essential factor to consider.

 Factors for MNCs to Invest in India

The survey findings in the ‘Vision ‘Developed India’ report state that 96% of the respondents are optimistic about India’s growth prospects, with the next 3-5 years poised for even better performance.

As many as 82% of the respondents surveyed support India’s Free Trade Agreement and are optimistic that this will create further trade and investment opportunities.

Some other factors the EY-CII cites are:

  • A significant factor for international companies to invest in India is the considerable improvement in the Ease of Doing Business (EoDB) over the years.
  • India ranks fifth on the list of most significant economies in the world and is poised to rank third by 2027
  • India’s growing consumption base, rising share of the services sector, and growing digital economy and infrastructure are pushing India’s growth.
  • Also, the push to the manufacturing sector through the ‘Make in India’ campaign to increase India’s competitiveness is finally showing results.
  • Besides, there is a demographic dividend that MNCs can leverage in addition to India’s government’s push for infrastructure development.
  • A stable political environment in India, coupled with the boost to the ongoing economic policies, is another crucial factor for MNCs to come to India.
  • The growing thrust on building sustainability in renewable energy, real estate, and logistics is aligned with sustainability-linked investments of MNCs.

When contemplating adding stocks of complex entities such as an MNC, an investor may also consider consulting a reputed stock market advisory such as Research & Ranking. The advisory brings years of expertise in picking stocks and guiding investors to build a resilient portfolio.

Conclusion

The host of measures that the government has been taking to develop and strengthen the country’s fundamentals has gained the confidence of MNCs. The following 3-5 years will likely see MNCs coming to India or shifting their manufacturing to India. Also, the measures are poised to put India in third place after the United States of America and China. It is a massive milestone for India that benefits the economy’s growth.

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