It's a win-win situation for the MNCs. One the parents don't have to bring in additional funds to hike stake in the Indian arm; and two, the stake hike would mean additional cash flows back to their parents in relative terms in the form of dividends and bonus. Further, with a very low equity in most cases, the valuations as a result of further reduction in the equity after the buy-back would changedramatically.

Besides, there are another three more MNCs who have taken shareholders approval. These include Procter and Gamble, Knoll Pharmaceuticals and GKN Invel whose parents already hold majority stake have already taken approval from their shareholders for buy-back. In case these companies go ahead with the buy-back plan, the foreign promoter's stake would would further rise. Once the law is in place, many more foreign-controlled companies will take this route to hike their stake.

The current parent holding of 40 per cent in Smithkline Beecham Pharmaceutical will go up to 42 per cent if the company buys back five per cent of the equity. Further, a ten per cent buy-back would up Beecham Plc's stake beyond the 44 per cent mark.

The company has already taken the requisite approvals to up the parent's stake in the Indian subsidiary. Similarly, in the case of German Remedies, Parke Davis and Monsanto Chemicals the parent's stake will increase from 40 per cent to 42.1 per cent in case the company optsfor a five per cent buy-back of its equity. A five per cent buy-back in the case of Procter & Gamble would increase Procter & Gamble Inc's stake to over 68 per cent and around 72 per cent in case the Indian subsidiary opts for a ten per cent buy-back.

Further, at least two multinational companies have already set aside funds for the purpose and has obtained shareholders' nod. Smithkline Pharma intends to spend not more than Rs 50 crore for buying back its shares. Similarly, Procter & Gamble too has set aside Rs 85 crore for the same. Unlike most Indian companies, MNCs are well placed to take the buy-back route, which will further improve their equity valuations. MNCs have low equity and debt, very high reserves and above all, they are cash rich.

At what price will they buy back?

Smithkilne Pharma could pay as high as Rs 680 per share for buying back its shares, provided the company utilises Rs 50 crore set aside to buy-back five per cent of its equity. Smithkile's current equity is Rs 14.7 croreand a five per cent buy-back would require buying back 7.35 lakh shares from the market. Similarly, Procter & Gamble has already set aside Rs 85 crore for buying back its shares. In case the compnay opts to buy-back five per cent of its equity and utilises the entire amount set aside , the company would be paying Rs 785 a share, which is close to its current market price of Rs 781.

The buy-back in the case of Smithkline is likely at a much higher price to the current market price of Rs 370, which has lost substantial value after going ex-bonus a few months back.Despite frequent reserves capitalisations in the form of bonus, most of the multinational companies have very low equity and seven companies which have already taken shareholder's approval have equity in the range of Monsanto Chemical's Rs 2 crore to Procter & Gambles's Rs 21.64 crore. The buy-back by these MNCs would further reduce the equity and thereyby resulting in much higher EPS and book value per share.