India Inc dreams multinational
With an estimated $8bn spent on overseas mergers, acquisitions and expansion, 2006 turned out to be a year of global consolidation for India Inc and Indian multinationals became a reality. So much so that India — which is itself seeking huge doses of foreign investment — is for the first time witnessing its companies invest more capital abroad this year than the inward flow of overseas investments, placed at around $5bn.
From large business groups such as the Tatas, Reliance Industries and Ranbaxy to smaller firms with turnover as less as $1m, an unprecedented effort was made in 2006 to expand abroad for global integration and economies of scale.
“It is with much enthusiasm that I underscore — Indian industry has grown wings. Globalisation has given a new meaning and dimension to India Inc,” said Commerce Minister Kamal Nath recently, while releasing a book on Indian multinationals.
“Many Indian firms have slowly and surely embarked on the global path, leading to the emergence of Indian multinationals. Indian industry has crossed domestic frontiers and established a credible presence in markets abroad.” It is not that all global acquisitions are large, says a recent joint study by industry chamber the Confederation of Indian Industry (CII) and risk management and financial analysis firm Credit Rating Information and Services Ltd (CRISL).
Both smaller and large companies were on a buying binge, says the study, adding the average size of acquisition for pharmaceutical firms, for example, was $61m — the largest valued at $777m and the smallest at $1.2m. “The government, particularly the regulator — Reserve Bank of India (RBI) — has played a facilitative role in the strategy of internationalisation of the Indian corporate sector,” said D S Brar, chairman of the CII committee on MNCs.
“The build-up of foreign exchange reserves estimated at $140bn helped. But companies themselves saw greater synergies looking outward,” Brar, who fashioned the overseas acquisition drive of pharmaceuticals major Ranbaxy Laboratories in the 1990s, said. In the past three months alone, Indian firms sought to strike some mega deals in the overseas market — the Tatas bid a whopping $18bn for Anglo-Dutch steel-maker Corus, Videocon bid $695m for South Korea’s Daewoo Electronics and ONGC Videsh bid $425m for Omimex de Colombia.
The other big-ticket transactions included Tata Tea’s acquisition of US food and beverage firm Energy Brands for $677m, Aban Loyd’s buyout of Norwegian oil major Sinvest for $425m and Suzlon Energy’s acquisition of Belgium’s Hanson Transmission for $565m.
“India recently displaced Japan as the second-largest investor in the UK,” said the Duke of York, Prince Andrew. “Indian businesses investing in the UK have increased from 19 four years ago, to over 100 today.”
But there was unprecedented consolidation within the country as well. The value of mergers and acquisitions in India jumped to $9.5bn this year from $5.37bn in 2005, according to industry studies. In the process, India’s share in global deals also jumped to 1.30 per cent from 0.72 per cent. In fact, the perception among global entrepreneurs about India’s business environment also improved during the year. “India has improved its position by two places in the Global Competitiveness Index (GCI) rankings for 2006-07 coming in 43rd — well ahead of Brazil (66), China (54) and Russia (62),” said World Economic Forum recently.
The year also saw the information technology sector, which has been the success story for India since the 1990s, continuing to post robust growth of 30 per cent with revenues of $40bn.
Similar growth was witnessed in industries like telecommunications, automobiles, aviation, retail trade, hospitality and transportation.
Overall, the corporate sector continued to show buoyancy - evident from the second quarter results for this fiscal — where profits after tax grew 49.5per cent, against 25.8 per cent in the previous figure, said a CII study. Looking ahead, analysts expect the current trend of consolidation, both within the country and outside, to continue - as has been suggested by rating agency ICRA Ltd.