India Inc goes shopping
By Indrajit Basu

KOLKATA - In mid-October, when India's Reliant Industries acquired the UK-based communications company Flag Telecom for US$207 million, its vice chairman, Anil Ambani, wasn't just ecstatic because he got Flag, once valued at $6 billion, at such a great price. Flag, which owns, develops and operates advanced fibre-optic cable systems, is the only network that covers the entire globe.

"Soon Reliance will be the only telecom service provider [of Indian origin] on a global scale," Ambani said. He has an acolyte. For Venugopal Dhoot, chairman of the white-goods company Videocon International Ltd, which is hoping to acquire Thai CRT, one of the world's largest television picture-tube makers, it isn't enough to be the backbone suppliers of components for consumer durables worldwide. "Just as you find 'Intel Inside' badges on computers, you could soon be seeing 'Videocon Inside' badges on most durables," Dhoot says.

Ambani and Dhoot aren’t the only aggressive Indian industrialists trying out their act for a world stage. Many Indian companies are deciding India isn’t big enough for them. The drug makers Ranbaxy Lab, Wockhardt, and Dr Reddy's Lab, automakers Tata Motors and Mahindra and Mahindra, the consumer goods maker Dabur India, and at least two-dozen other homegrown companies are dreaming of global competitiveness, capacity, revenue, and global market shares.

This is a classic path that has been followed by many other countries as their economies create investors eager to play on a world stage, with more money than the local economy can bear. The most spectacular was Japan in the late 1990s, whose industrialists in rapid succession bought Rockefeller Center in New York, the Pebble Beach Golf Course in Monterey, Columbia Pictures in Hollywood and a multitude of other American assets. At first, super patriots in the United States steamed and screamed, accusing the Japanese of buying up America. Then they discovered that the Japanese had paid outrageous prices for virtually every purchase, making the sellers enormously rich. As the Japanese economy cooled, their investors, pockets shorn, retreated ignominiously.

Nor are the Japanese alone. Several Australian companies including Bond Corp, driven by hubris and full pockets, far overreached in the mid 1980s and went bankrupt. Bond's flamboyant leader ultimately went to jail. Singapore Inc, as it is known, has for years made investment decisions that ended up with lackluster returns. What they have all learned, as have a long list of other multinational purchasers with more money than experience, is that it is difficult for overseas investors not only to price their acquisitions correctly but to understand income streams and the cultural mores that govern them - especially when they are in the sights of sellers who know the territory and how to conceal the weaknesses of the assets they are seeking to dump.

Nonetheless, the Indian multinationals are on a so-far modest but increasing global acquisition spree, aided by a strong rupee, easy access to credit and a newfound confidence in their abilities. The Mergers & Acquisitions Service of the Center for Monitoring Indian Economy reports that until September this year, Indian companies acquired 35 foreign firms for a total of $600 million. On Tuesday, Tata Motors announced today that it will buy South Korea's Daewoo Commercial Vehicle Corp for $118 million, plus pay $40 million of unpaid bills.

Big overseas deals since January 2003 (in US$ million) *Australian $ Source: Center for Monitoring Indian Economy

That pales, of course, against Bank of America’s single purchase of FleetBoston for an estimated US$47 billion in the US at the end of October.

Nonetheless, "the figure is set to go up considerably, with many Indian companies eyeing overseas acquisitions or expansion," said Vijay Kothari, and analyst at LKP Corporate Services. "An equal number of deals have either been dumped or lie stalled, even lost to the opposition."

According to Premal Parekh, partner and head of Mergers & Acquisitions (M&A), Ernst & Young, anyone worth his business school degree is working on some acquisition deal or the other. In fact, M&A experts say that acquisitions for Indian companies have evolved into a trend where every player has started seeking a value proposition, “instead of acquiring just as a fashion,” as says Hemendra Kothari, chairman of DSP Merrill Lynch Limited, one of India's premier investment banking and brokerage companies.

Indeed, in the past 13 years since the Indian government freed up the country’s economy to global forces, Indian companies have been dreaming of going global. But thanks to a suddenly liberalizing economy that was fiercely protected for over five decades, the first 10 years following the opening up process that started in 1990 were spent fighting competition, restructuring and shedding flab, and, "simply overcoming the process of creative destruction," says Munesh Khanna, the managing director of the NM Rothschild, India investment banking organization. "But now, Indian companies have emerged competitive after having learnt the virtues of efficiency both in operations as also resources allocation."

Even the state-owned companies are stretching out. Oil and Natural Gas Corporation (ONGC) recently targeted stakes in Russian oilfields. According to Subir Raha, chairman of ONGC, not only is this a move to gain energy security, but it also signals ONGC's ambitions of becoming global oil major. And, after marketing lubricants in Nepal, the Indian Oil Corporation, another state-owned oil giant, is planning to set up retail outlets in Sri Lanka, while Mahanagar Telephone Nigam Ltd, the state-owned telecom company is tapping Nepal and Mauritius aggressively.

"The progressive liberalization of the government's policies that have given rise to many financing options for more overseas opportunities are also helping Indian companies to spread wings offshore," says Amit Mukherjee, partner at Ambit Corporate Finance. Burgeoning foreign exchange reserves, exceeding $92 billion, and a rising rupee are the other positive factors. "With the rising rupee, Indian companies are required to spend less to acquire an overseas outfit," adds Mukherjee.

The Center for Monitoring Indian Economy feels that since a lot of local companies are sitting on piles of liquidity, which too is a fruit of an open economy, India Inc is going on the global prowl because with few opportunities to invest, the cash reserves have started to raise questions with investors who feel that excess cash destroys value. According to the center, the top 24 privately-owned listed companies had more than $10 billion in cash and equivalents at the end of the current fiscal (March 2003) year. That has grown from $7.6 billion in 2001-02.

However, it is also true that most Indian companies are far smaller in size compared to many global counterparts. Moreover, with limited capital at their disposal compared to global standards and even less experience of international markets, many find it absurd that these companies are trying to go global with a vengeance. Some even argue that the acquisitions so far are low-cost and puny on a global scale and can never fulfill Indian companies' dreams of achieving global status.

Still, "Indian industry is coming out of an extended adolescence where firms are being forced to earn their living on their own," says Tata Sons executive director R Gopalakrishnan. "But most importantly, a small band of Indian companies has figured out a way to compete. For many of them now, the next logical step is to search out opportunities not just in the Indian market - but in the rest of the world as well. And this is a significant development."

Consequently, such analysts as Harvard professors Krishna Palepu and Tarun Khanna wagering that these Indian companies have fundamental strengths that will help them dominate not just their domestic markets, but parts of the global market as well. Dominic Wilson, a Goldman Sachs economist, in a recent report predicts that explosive growth in Brazil, Russia, India and China (collectively referred to as the 'BRIC' countries) will see these countries overshadow the economic might of the seven leading industrialized nations of today.

Already, the Global Competitiveness Report 2003-04 of the World Economic Forum has ranked India several notches above China. In the Business Competitiveness Index, India ranks 37 of 102 countries as against China's 46.

Therefore, according to optimists, India’s corporate sector is experiencing the start of a movement. And, the pioneers, with their spirit of global competitiveness, could soon pave the way for the rest - thus, altering the way home-grown Indian companies have been run. But it is wise to heed the Latin words caveat emptor. Not for nothing have they been in fashion for thousands of years.

Company	Agenda
The Tata Group: "Acquiring to ensure that the Tatas are not dependent on India alone."	Expand markets, acquire assets like Daewoo Motors truck plant and de-risk the group from the Indian cycle.
The AV Birla Group: "To aggressively pursue a global acquisitions plan."	Acquire targets that will enable the group to control prices of raw resources and products and thus leverage leadership position in the global markets.
Wipro Ltd: "The potential for strategic acquisitions is much greater now."	Use opportunistic buyouts to ramp up revenues, seek high-end consulting and bid for large outsourcing orders.
Wockhardt Group: "Acquisitions to leap frog into a new orbit of markets."	Expand markets in Europe and the US to access customers, both for generic and OTC medicine.

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