AIBI cites LG India's excess multiples to highlight valuation arbitrage
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The Association of Investment Bankers of India (AIBI), in a white paper released today, highlighted a growing phenomenon in the Indian capital market: sharp valuation arbitrage between multinational parents and their Indian subsidiaries.
A section in the paper, titled “The Curious Case of Valuation Arbitrage in Indian Subsidiaries,” points to how geography, growth narratives, and market sentiment are reshaping investor perceptions.
The paper cites the example of LG Electronics Inc., listed in South Korea, which currently trades at a price-to-earnings (P/E) multiple of approximately 15.5 times and a price-to-book (P/B) multiple of around 0.7 times. These valuations, AIBI notes, are broadly in line with other mature, asset-heavy electronics manufacturers in developed markets, where growth expectations are moderate and capital intensity remains high.
In contrast, the Indian arm is valued at markedly higher levels. The subsidiary commands a P/E multiple of about 47.7 times and a P/B multiple of roughly 17.6 times, reflecting investor expectations of sustained high growth and superior returns on equity.
AIBI attributes these numbers to India’s structural consumption story, where long-term demand growth in consumer electronics, combined with strong brand positioning and operating leverage, allows companies to justify premium valuations.
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The paper explains that such disparities create a form of cross-market valuation arbitrage. In cases where the subsidiary is valued at elevated multiples, the parent company’s ownership stake can represent a disproportionately large share of its overall market capitalization. This, AIBI argues, embeds substantial “hidden value” within the parent that may not be immediately visible to investors focused solely on consolidated financials.
AIBI’s analysis suggests that this hidden value can be unlocked through mechanisms such as listings of Indian subsidiaries, partial stake sales, or a broader re-rating by global investors. Importantly, the paper emphasises that shareholders of the parent can benefit meaningfully from this value realisation even in the absence of dramatic improvements in underlying business performance.