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India Inc goes
shopping
By Indrajit Basu
KOLKATA - Ever heard of companies like
Videocon, Bharat Forge, Matrix Laboratories, or
Amtek Auto? Outside India, few have. But that may
change soon if the merger and acquisitions
(M&A) spree that Indian companies have
unleashed lately to make their presence felt
abroad, is any indication. Driven by strong
profits and revenues, the need to diversify out of
the domestic economy, the country's burgeoning
foreign exchange reserves and most importantly, a
newfound confidence to handle competition in
foreign markets, India Inc is on the prowl again
this year, snapping up assets globally.
According to consultancy firm India
Advisory Partners, in the first half of 2005 until
June, Indian companies made around 40 M&A
deals outside the country, worth US$914 million.
July saw a string of smaller foreign deals worth
$110 million that included auto component maker
Amtek Auto's $34 million acquisition of an auto
parts firm in Germany, Gujarat NRE Coke's $62
joint venture deal for Australian coal mines, and
drug firm Jubilant Organosys' buyout of a US drug
maker for $12 million. However, the cream of July
deals came a few days back, with telecom giant
Videsh Sanchar Nigam entering into an agreement to
acquire Bermuda-based Teleglobe International
Holdings for $239 million. This year's deals,
however, are not a recent trend. Many consider
2004 - which saw 60 foreign takeovers by Indian
companies worth $1.7 billion - a banner year for
India's M&A pursuits, which started with just
28 deals three years ago and crawled up to 49 in
2003.
"It is a part of an evolution that
comes with natural economic growth," said Manish
Chokhani of Mumbai-based Enam Securities, a
financial services and equity research firm.
Carlton Pereira of KPMG India said Indian
companies have realized that they can compete in
the global market and are now scaling up to expand
the market for their products. While earlier it
was mostly the big industrial houses like Tata,
Reliance and Dabur or mega companies like ACC,
ONGC or ITC that dominated the M&A show, now
even medium and smaller-sized companies have
stepped in to fire their global ambitions.
Finally, say experts, India Inc has started
looking at opportunities overseas with as much
fervor as foreign investors are showing in India.
The trigger for this shift, though, was
first laid by the country's liberalization
process, which started in 1991. By removing
licensing and other domestic constraints on
capacity creation, the Indian government since
then has been quietly encouraging Indian companies
to set up overseas operations, acquire foreign
assets and become multinational corporations. Yet
the takeoff was slow, since India Inc spent the
first 10 years of reform overcoming the first
phase of a rampant and mindless capacity expansion
within the country that burdened most of India's
big corporations with huge debts and overcapacity.
But over the least few years, after a successful
restructuring process, Indian companies have now
"emerged with renewed business confidence and
ample funds to look beyond consolidation within
India", said Amit Chandra, joint managing director
of DSP Merrill Lynch.
Going global has
also become imperative. A few like Baba Kalyani,
chairman of Bharat Forge, an aggressive auto
component maker that started its overseas
acquisitions last year and garnished them this
June with a $9.1 million all-cash buyout of
Federal Forge Inc, a Michigan-based auto component
designer and manufacturer, thinks that in a "flat
world", only those that spread out will survive.
He holds that scaling up capabilities and
capacities has become crucial for survival, which
is Indian companies' biggest challenge. Any laxity
in responding to this challenge will only be
capitalized upon by other global players. "Bharat
Forge's acquisitions are not just mere expansions
but also a strategic decision to enhance market
presence and to get a manufacturing base presence
for some of its largest customers," according to
Kalyani.
For some, the imperatives lie
elsewhere. Companies like Gujarat NRE Coke, ONGC,
Tata Steel, the Birlas and Reliance Industries
attribute their acquisitions to shortages of
critical raw materials such as crude oil, coal,
electricity and non-ferrous metals. Hindalco - the
Birla-owned metal company - bought two copper
mines in Australia to tap critical natural
resources, while electrical equipment manufacturer
Havell's India bought out a Sri Lankan and Korean
company purely to bring back their
energy-efficient plants to India. Like the Chinese
companies acquiring overseas assets to overcome
serious challenges of foreign competition at home,
some Indian companies like Videocon, Mahindra and
Mahindra, and Tata Motors are setting up shop
overseas just to beat back foreign competition at
home from the likes of Volvo, Honda, Suzuki,
Hyundai, LG and TCL.
A host of Indian
companies are also focusing on global losers,
confident of turning them around. Prominent
instance of loss-making companies picked up by
Indians this year include Crompton Greaves'
acquisition of Pauwels of Belgium, Bharat Forge's
buyout of Federal Forge, and Videocon's
acquisition of Thomson's picture tube business and
the loss-making Indian operation of Electrolux.
"Manufacturing operations for mass-produced
products is increasingly getting unsustainable in
high-cost economies," said a spokesperson for
Crompton Greaves. "Besides other costs, design and
services also matter and what Crompton Greaves
brings to the table is professional management,
engineering process and a financial restructuring
package."
The government and policymakers
have also started to tango with India Inc in its
global pursuits. Encouraged by last year's M&A
activities, the Manmohan Singh government brought
in a further dose of liberalization early this
year that allowed Indian companies to acquire,
without government permission, overseas companies
up to 200% of their net worth and added that the
government would be willing to consider permission
for proposals even beyond that limit. In a meeting
with financial officers two weeks back, Finance
Minister P Chidambaram even said the government is
considering a preferential tax regime to encourage
Indian companies' plans to investing abroad. "The
government would consider fiscal measures and a
pragmatic set of policies for privately owned
companies to facilitate their overseas
acquisitions further. And these new measures could
be announced in the next few months," he said.
Indrajit Basu is a Kolkata-based
equity-analyst-turned-journalist with more than 12
years of experience in business/finance and
technology journalism. Besides writing for Asia
Times Online, he also writes for US-based
publications, as well as IT companies.
(Copyright 2005 Asia Times Online Ltd. All
rights reserved. Please contact us for information
on sales, syndication and republishing.) |
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