India, Inc. is set to take on the world

India Inc is all set to take on the world. The year ’03 saw a sudden spate of overseas acquisitions by Indian companies, newly confident of their engineering and technological skills.
This marks a total reversal of the situation some years ago, when there was a widespead fear that Indian companies would be acquired by cash-rich multinationals.
Among the large acquisitions abroad, there was Reliance Industries’ proposed $211-m acquisition of FLAG Telecom. The AV Birla group acquired copper mines in Australia and a Carbon Black unit in China. Sterlite too took over a copper mine in Australia. ONGC spent over $1bn to pick up a stake in oil fields in Russia and is negotiating with Shell for a stake in an oil field in Angola. Tata Motors, the largest truck maker in the country, acquired a truck plant in South Korea from auto major Daewoo Motors in ’03.
Auto component companies like Bharat Forge, Amtek Auto also made overseas acquisitons during the year. Infosys, Wipro and i-flex acquired small software companes abroad.
According to estimates by analysts, corporate India was sitting on a free cash-flow of Rs 23,000 crore as of March, ’03. This is likely to increase to around Rs 30,000 crore by March ’04. Compare this with a measly Rs 7,500 crore five years back. Analysts say this has been achieved by adopting discipline with regard to capital expenditure, cost-cutting and better working capital management.

They estimate that companies have brought down the debt level, represented by the net gearing, from 45% in the mid-1990s to 15% now. “Thus, we believe companies are well placed to invest in new assets to drive growth,� says the latest note by brokerage Salomon Smith Barney.
Analysts expect cross-border mergers and acquisitions to intensify in areas like pharmaceuticals and software. At the same time, manufacturing sectors like automobiles, engineering, cement, paints and petrochemicals may continue to remain active. Some of the capacity expansion plans announced by large corporates are spread over the next few years, and overseas acquistions may figure as part of these plans.
Anand Mahindra, vice chairman and MD of Mahindra & Mahindra and president of the Confederation of Indian Industry, believes that companies like Bharat Forge and Moser Baer have clearly demonstrated the global competence of India’s manufacturing sector.
The Tata group has made globalisation its theme for ’04. According to sources in the group, every major industry house is looking abroad and the New Year may see more cross-border activity than in ’03.
Reliance Industries has already announced a plan to spend over Rs 5,000 crore annually in various businesses, from petrochemical, oil exploration to telecom. It is set to complete the $211-m acquisition of FLAG Telecom.

Tata Steel has announced a Rs 2,500-crore plan to expand its capacity to five million tonnes from the existing four million tonnes. National Aluminium announced a Rs 4,000-crore-plus capacity expansion plan for alumina refinery and smelter.
Besides this, the Jindal Group is talking about spending over Rs 5,000 crore in steel and other businesses. IndiaOil, the only Fortune 500 company in the country, is set to spend close to Rs 10,000 crore for increasing its refinery and petrochemical capacity. ONGC is set to invest another Rs 11,000 crore annually in oil exploration and production.
Infosys Technologies is sitting on close to Rs 2,500 crore of cash. According to brokerage CLSA Emerging Markets, this is 60% of its balance sheet. It recently acquired a company in Australia for $23m in an all-cash deal, and there is a possibility that it may announce more such deals in ‘04. Analysts do not expect Wipro Technologies, with a Rs 2,000-crore war chest, to stay quiet either.
Bajaj Auto, with a cash and investment portfolio of Rs 2,200 crore, is also expected to make announcements that please its investors.
With the amount of cash corporates have generated over the past few years through financial restructuring, more capacity expansions and acquisitions are expected in ‘04. A head of research at a leading foreign brokerage points out that government restrictions on overseas acquisitions have been eased. At the same time, foreign exchange is no longer a constraint. “The corporate sector is confident of venturing in new places around the world. They went through a phase when they were concerned about the fierce competition being brought up in a protected environment,� the head of research said.

Many believe that ‘03 was just the begining for Indian companies venturing abroad. Rushabh Sheth, head of equities at Kotak Mahindra Mutual Fund, believes that Indian companies will look aggressively at both domestic and international expansion. “Indian companies have restructured significantly and have the necessary balance sheet strength to undertake inorganic growth.�
Companies may also venture abroad to attain the right size in their respective industries. “Indian companies will selectively venture out for inorganic growth opportunities,� said JM Mutual Fund CEO Krishnamurthy Vijayan. “This will be driven largely by the need to attain a certain size in a short period of time, acquisition of certain skillsets, relationships, customers or physical assets.�
N Sethuram, chief investment officer at SBI Mutual Fund, does not believe that acquistions abroad will be a theme for ‘04. He feels that companies are already acquiring sizeable organic growth. They may like to continue the same during ‘04. “While some amount of consolidation and inorganic growth will take place, particularly in sectors like telecom, this may not be a major area of activity in ‘04,� he said.