MyValueResearch

India- going “Transnational” across sizes and sectors

…Liberalization…Communal conflagration…Nuclear detonation…Kargil invasion…Media revolution…Y2Kresolution…Outsourcing nation…Investment destination…Terrorism explosion…Leadership Inaction…60 years completion………India set a remarkable example how she has emerged as 2nd largest growing economy despite of these ups and downs. This growth saga is all about private sector players with global ambitions and Indian Industries encountering global competition with restructuring and technology upgradation.

Today, India’s economy is on the pivot of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves of over US$ 222 billion, a booming capital market with the popular “Sensex” index crossing 15,000 points, the Government estimating FDI flow of US$ 15.7 billion in this fiscal, and a more than 20 % surge in exports and outbound deals through mergers and acquisitions (M&A) crossing US$ 15 billion-mark in 2006.

Resurgent India…The growth story started after nineties with the giant step, called “Liberalization”, taken by Dr. ManMohan Singh as Finance Minister that allowed the boom in service exports and foreign investment inflows. The real big bang came in 2005, when the government allowed 200% of net worth for joint ventures and wholly-owned subsidiaries of Indian entities, to be invested abroad without any permission. Immediately, acquisitions jumped from 46 in 2004 to 130 in 2005. Now RBI has moved up the cap to 300% of net worth. Moreover, hike in the limit on overseas portfolio investment from 25% of their net worth to 35%, allowing Indian residents to remit up to US$ 1,00,000 per financial year, from US$ 50,000 previously, for any current or capital account transaction and allowing mutual funds to invest funds upto US$ 4 billion in overseas avenues, from an earlier cap of US$ 3 billion, boosted the Indian Investment’s abroad.

Foreign jewels in Desi crown!!
Creating a route…While our government fights tariff and non-tariff barriers in US and EU, corporate India has found a parallel route to access global markets through M&A despite of global battles in WTO for market access of exports into developed economies. India Inc. have taken the M&A momentum in global markets by finalising 782 deals in 2006. Most companies have leveraged on the inorganic route for expansion like Bharat Forge, Wockhardt and Ranbaxy which went after special companies in US, Germany and Belgium, to access their markets, and quietly took them over.

Indian Corporates on a “Buyout” rampage…
Corporate India is on an buyout spree powered by the urge to go global, solid market fundamentals and the drive to dish out cost-competitive products. The buyout brigade was led by the Tata group, which made two major acquisitions abroad in 2004: snapping up of Tyco Global Network by Videsh Sanchar Nigam Ltd (VSNL) for Rs.585 cr. and acquiring Singapore-based NatSteel by Tata Steel Ltd for Rs. 1313 cr. And then started buying time for India Inc.
Its Shopping time…
Indian companies are scouring the world for the best buys. Not only the big boys but also the medium-sized companies are leading the set in cherry-picking companies in US and EU - and not just in IT, ITES and pharma, but also in textile, chemicals, health care, gems and jewellery, irrigation technologies and automotives. A little known Dishman Pharmaceuticals and Chemicals will venture to acquire Solutia Inc of US for a whopping sum of $74.5 million (Rs 300 crore) and Jain Irrigation Systems Limited is also acquiring three US companies, spread across agro products, irrigation and manufacturing.
Glenmark Pharmaceuticals acquired South African sales and marketing company Bouwer Bartlett. Tata Motors has two bus body building plants in Africa - in South Africa and Senegal. And in May 2006, Bangalore-based pharma company Strides Arcolab acquired a manufacturing unit in Poland.
With several dozen midcap Indian companies joining the big boys like Tata Tea, ONGC Videsh, Moser Baer, Reliance Infocomm, United Phosphorous and Tata’s Indian Hotels, Indian investment into US pierced the $2 billion mark during 2006-07. Ranbaxy chased up RPG Aventis to acquire a global brand, just as the Tata Tea had done earlier by bagging Tetley. But Suzlon Energy’s priority was to access a vital technology owned by Hanson Transmission of Belgium, very much in line with Reliance Info-comm’s acquisition of Flag Telecom of USA. Some are searching for strategic global positioning in niche markets in their own sectors. Mphasis BFL’s acquisition of Princeton Consulting in UK and Patni Computers’ takeover of Cymbal Corporation in USA fits this mould. But the big boys are targeting global leadership in a specific product category. Wipro’s recent $600 million acquisition in US and Tata’s Corus deal for $12 b. fits this model.Sun Pharma is also set to acquire Israel based Taro Pharma.

Service companies have also joined the M&A game. The taxation practicing company of Mumbai-based RSM Ambit was acquired by PricewaterhouseCoopers. Recently, software company Mastek Ltd acquired 90 per cent stake in the US-based Vector Insurance Services LLC for US$ 9 million and Wipro acquired New Jersey-based outsourcing firm Infocrossing for US$ 600 million.

Acquiring the natural resources…To sustain growth far into the future, companies are moving towards acquiring natural resources. Indian companies are looking Africa for its vast mineral and natural wealth, including iron ore, natural gas and crude petroleum. If we start from 2004, confectionary major Candico (I) Ltd acquired a plant in Tanzania, ONGC Videsh bagged a deal in Nigeria to produce an average 650,000 barrels a day of oil and an equivalent capacity of gas over the next 25 years. Hindalco of Aditya Birla Group gently bagged the Mount Gordon Copper Mines of Australia, while Tata Steel seamlessly acquired Carborough Downs Coal Project in the same country. Gujarat NRE Coke successfully took over Resource Pacific Holdings in Australia as well.

Few strategic reasons…On an average, in the last four years corporate earnings of companies in India have been increasing by 20-25 percent, contributing to enhanced profitability and healthy balance sheets. For such companies, M&As are an effective strategy to expand their businesses and acquire global footprint. Moreover, due to positive regulatory mechanisms, globally accepted business processes, and a robust and optimistic investment climate, benefits like proximity to Clients for IT & BPO sectors, access to a large market and new technology , M&A environment is vibrant.

India-going Global…Kautilya’s Arthashastra, written in 10 BC, talks about how the ruler must hold in one hand the weapon of war (Takeovers and buyouts) and, in the other hand, the peaceful song of cooperative action (growth and expansion). Indian Companies are following the same. Above is not a laundry list of Indian companies’ acquisitions abroad -Rather, it’s about the locations to which they are heading -Poland, Africa and Australia. Less than a decade ago, Indian companies were headed either to western Europe and the US or to south east Asia. but now the scenario has changed. India is going global. The gap between outbound and inbound merger and acquisitions activity in India has never been narrower. This year, Govt. has given capital subsidy of 25 percent on investments for setting up semiconductor and nano-technology manufacturing units. This will probably further fuel cross-border M&A deals in the electronics industry. The increasing engagement of the Indian companies in the world markets is not only an indication of the maturity reached by Indian Industry but also the extent of their participation in the globalisation process. India has become the second-biggest source of new foreign investment into London, behind only the United States.

For Goldman Sachs’ BRIC (Brazil, Russia, India, China) thesis , China and India will become the world’s dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials. It also says that by the year 2050, India is projected to become among the three largest economy in the world, with China and US.

These all give indication that India is becoming an economic powerhouse and emerging as the second largest economy in the world by 2050.

India Inc…good going!! Keep Buying!!