INDIAN INC SHOPPING ABROAD
Indian companies are in an expansive, acquisitive mood. In the first three quarters of the year Indian companies announced 115 foreign acquisitions, with a total value of $7.4 billion, a huge increase from previous years, and almost as much as foreign firms have invested in Indian purchases. The shopping spree spans industries from information technology and out sourcing to liquor.
For proof, one need look no further than the confirmation from Tata Steel that it is mulling a bid for â€œCorusâ€?, a much larger Anglo-Dutch steel rival. If the deal came off, it would be worth several billion dollars, by far the largest foreign purchase ever made by an Indian firm.
Wipro, for example has this year acquired IT companies in Portugal, Finland and the US. In Pharma Ranbaxy, bought Ethimed of Belgium and Mundogen, the Spanish generics arm of Glaxo SmithKline.
Bharat Forge has since 2004 bought six companies in four countries including the UK, Germany, Sweden and China. Suzlon this year bought Hansen, a Belgian gearboxâ€“maker. And United Breweries has made an unsolicited bid for Whyte & Mackay, a Scottish distiller.
Behind this push overseas lies a combination of forces: a domestic boom; the availability of credit; a rush to achieve global scale; and a new self-confidence about Indian businessâ€™s ability to add managerial value. Indiaâ€™s economy is in its fourth successive year of growth at around 8%. In the first two quarters of this year GDP grew at rates of 9.3% and 8.9% respectively over the same periods in 2005.
Research into 127 firms by a leading broking firm forecast their sales will increase by 27% in Q3 as compared with the same period a year earlier. Profit margins are widening: net profits are predicted to have grown by 39%. This week Infosys, that is one of the first firms to report its quarterly results, actually beat these forecasts. In rupee terms its quarterly net profits had grown by 53% year-on-year. The firm which crossed $1 billion in annual
Revenue only a couple of years back expects to pass $3 billion in this fiscal.
With strong balance sheets, finance is not an obstacle. The stock market has been booming. Rupee interest rates, although they have been edging upwards for the past two years, are still, in real terms, at about half their levels a decade ago.
Despite capital controls that place limits on external borrowings, Indiaâ€™s big companies can raise huge amounts of money abroad. Reliance petroleum raised the largest-ever syndicated loan for India, of $1.5 billion. Tata Steel is reported to have secured financing commitments of $6.5 billion for its bid for Corus.
An Indian firm should even be contemplating borrowing so much for an acquisition shows how much corporate India has matured since the liberalization initiated 15 years ago. That was when the government began to dismantle bureaucratic controls that had curbed the growth of Indian business.
What is noteworthy about many of these companies is that the root of their success is not Indiaâ€™s obvious competitive advantage: its vast, low cost labor force. In the IT and outsourcing industries, lower salaries for college graduates are an important reason behind Indian firmsâ€™ rapid growth. But in manufacturing the stars tend to be experts in automated capital-intensive production.
Bosses who have flourished in such businesses in the country, with its poor infrastructure and still daunting regulatory environment, understandably feel confidence that they have lessons to teach their new purchases in other countries.