Sun, Sep 17, 2006 page12

• Companies from India embark on big buying spree

  International lenders now realize that the subcontinent's powerful corporations are credit-worthy and have potential to grow

  • AP
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  When Tata Group, one of India's top business conglomerates, acquired the internationally known tea brand Tetley in March 2000, few thought it would usher in a new trend among Indian businesses.

  But after decades of thriving on government protection, India's companies are going global.

  Working in their favor is a radical change in international perception, especially among investment bankers, that Indian firms are credit-worthy and that many have the potential to become global companies. Changes in government policy, such as easing foreign currency restrictions, have also helped.

  After the Tata deal, cash-rich Indian companies bought stakes in many overseas firms -- a record 130 last year. But the buyouts mostly remained small and involved little-known brands. Some doubted if businesses from this former socialist-style economy would ever make the cut.

  This year, though, is proving the skeptics wrong.

  Indian companies are targeting bigger brands and striking ever-larger takeover deals -- the latest being Tata's move to acquire a 30 percent stake in New York-based Energy Brands Inc., which makes the popular Glaceau brand of flavored waters.

  On Aug. 23, Tata -- which has interests ranging from tea and hotels to steel and automobiles -- said it was paying US$677 million for the controlling stake in the company.

  Several other deals are already in the works and analysts say the scale is only going to get bigger.

  "We have never seen such a strong desire among our businesses to strive for global footprints," said Amit Mitra, the chief executive of Federation of Indian Chambers of Commerce and Industry.

  "They are strategically targeting companies, regions and brands," he said.

  In the past six years, Indian businesses have spent more than US$10 billion on buying stakes in as many as 306 overseas companies, Mitra said.

  Outsourcing firms took the lead, followed by pharmaceutical and automotive companies.

  Consumer goods manufacturers have also joined the race. Last week, Videocon Industries, one of India's leading home appliance makers, was picked as a primary bidder for South Korea's Daewoo Electronics Corp. Daewoo makes televisions, refrigerators and air conditioners. Videocon has reportedly offered close to US$1 billion for the purchase.

  The acquisitions give Indian companies greater access to overseas markets, bring technology and knowledge, add more value to their products and also create more jobs at home, Mitra said.

  There are challenges, though.

  A key concern is how Indian companies, most of which are still family-run, can transform their organizational cultures to meet the standards of global companies. At many companies, the boards are often packed with family members, accounting practices lack transparency and few opt for auditing by international firms.

  Today, many Indian managers "are much more intuitive" in making business decisions, rather than relying on detailed analysis, said Arindam Bhattacharya, a New Delhi-based expert with the consulting firm Boston Consulting Group.

  Few Indian companies have a structured process to make major business decisions, as is done at multinationals, he said.

  "They have to yet build international organizations," he said.

  Indian business leaders say they are aware of the challenges.

  Malvinder Singh, chief executive of Ranbaxy Laboratories, said the ability to deal with cultural and ethnic diversity will be crucial. In addition, companies will have to adopt uniform processes and systems in order to integrate operations across countries, he said.

  Ranbaxy, India's top pharmaceutical company and one of the world's top-10 generic drug manufacturers, has been on the prowl for the past year.

  It bought generic drug manufacturing units in Spain, Italy, Belgium and Romania that have "added to the company's growth momentum," Singh said. Ranbaxy's quarterly earnings jumped 20 percent in the period from April to June, driven by higher sales in Europe and the US.

  Singh sees "the pace of acquisitions by Indian companies intensifying and the ticket size of the deals increasing."

  So far this year, there have been 53 deals. The biggest ones have been Dr Reddy's Laboratories' US$570-million acquisition of German drug maker Betapharm in February, wind-power equipment company Suzlon Energy's US$565-million takeover of Belgium-based Hansen Transmissions in March and the purchase of Romania's leading generic drug manufacturer, Terapia, by Ranbaxy for US$324 million.

  Such deals would have been unthinkable a decade ago, when India had severe restrictions on transactions in foreign currency -- in part because there wasn't much of it -- and few bankers abroad would lend to Indians.

  In a recent study, Boston Consulting listed 100 companies from quickly developing economies that they see as emerging challengers to today's global corporate giants. China topped the list, with 50 candidates and India came in second with 21.

  Today, "all investment bankers know that the buyers are Indians and Chinese. They are willing to partner with them," said Bhattacharya of Boston Consulting.

  "There is clear recognition that Indian and Chinese companies can create value," he said.
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