Just found this initiating coverage report by ICICI Securities in public domain. Although its a bit dated (Sept 30, 2020), it might be useful given the dearth of analyst reports on the company.
ICICISecurities _ 3M India IC _ 30.09.20.pdf (897.3 KB)
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3M India has declared a dividend of INR 850 per share today. I think this is the first time the company has declared dividend in India.
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Hi everyone, this is my first time posting on Value Pickr forum. I analysed 3M India…although I may be wrong but their were certain things I observed few things about this company which I feel is important for its investors to know.
I got know about the company when I was randomly searching about the company which makes the Scotch-brite scrub pad. Then I found out that it is actually in diversified business segments and in complex high barrier to entry businesses, I got interested in analysing the company.
Interested by steady performance of the business, I recently studied its parent entity and
found one activity of its parent that I feel the investors in this company should consider as a matter to look for this business.
The Solventum Spin-off:
a. 3M company, USA recently demerged its healthcare division into new separately listed
entity Solventum Corp.
b. The main issue in this whole deal was one observation: post demerger Solventum Corp
issued $8.4 billion debt and thus increased its long term debt-to-equity ratio of 2.43x
because of this fund raise.
c. Here’s the catch, Solventum did not raise this debt for its business purposes but it raised it
rather just to give it out in cash to the parent, 3M company. Of the $8.4 billion debt issued,
~ $600 million was only retained by Solventum and the balance ~$ 7.7 billion was given
away to the parent for nothing in return.
d. All this corporate activity was done to generate some funds for the parent 3M company,
USA which is trading at a debt-to-equity ratio of 3.51x.
e. This left Solventum with loaded debt and 3M even mentioned in its Form-10 spinoff filing
that it will look to offload remaining shares of Solventum within next 5 years
If the parent is demerging and putting its subsidiary into a debt burden. Should we incorporate such kind of risk in the 3M India subsidiary as well? I mean the parent for its benefit could also use its Indian subsidiary to raise debt and take cash from it as well for its own benefit. While such activities are beneficial to the parent. As a investor in subsidiary 3M India…is it an important point to note while investing in this company or am I misinterpreting something in this ?
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Can you pls share the source? I do not think this maybe possible without showing anything in return. There has to be some service, brand name, some kind of contract, loan on some interest etc. Otherwise how can one listed company give out cash for nothing even if its a parent company? They need to report it so not sure if that maybe possible.
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You can refer to page 41 under the “Certain Risks Relating to Solventum’s Indebtedness” section in its form 10 filings - https://d1io3yog0oux5.cloudfront.net/_c0dbf18db18296b0e0138affd84a6db7/3m/files/pages/3m/db/3298/description/Solventum_Form_10.pdf
Thanks for highlighting this!
I am just speculating here. 3M is paying compensation for PFAS (forever chemical) contamination in public water supplies. These are in billions of dollars. Maybe that is the motivation for doing this.
3 year sales CAGR & profit CAGR are at 18% and 53% respectively, and seem to be one-off as the only analyst that covers 3M is ICICI securities are projecting high single digit CAGR of 9% for sales/profit for next 3 years.
The report is very brief and says:
- INR depreciation hurts 3M
- Automotive sector is under pressure and healthcare is growing
What does 3M do in healthcare?
Also why should INR dep hurt 3M unless it is importing raw materials OR paying parent big fee?
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