A mirror to the past, a beacon for the future

Written by MG Arun | Updated: Dec 31 2008, 06:15am hrs
Asked in an interview at the start of this decade whether the economic reforms introduced in 1991 had fundamentally changed corporate culture in India, Ratan N Tata, chairman of the $50-billion Tata Group had said, I think the environment has become more competitive. That has made Indian industry more concerned with its customers, the quality of its products, and its brand image in the marketplace.

Nine years on, these attributes hold true for Indian companies that have made a mark on the global scene, except that a new dimension had been etched onsize and scaleexemplified by Tatas own steel firm, which snapped up the UKs Corus Plc for a whopping $12 billion or Hindalco from the Aditya Birla Group, which bought Canadas Novelis for $6 billion. At a time when Indian IT companies like Infosys, TCS and Wipro were raking in orders from the best multinational corporations with their quick delivery times and cutting edge services, the Indian automotive sector saw the entry and success of a host of foreign players, including Hyundai, Honda, General Motors, DaimlerChrysler and others, peppered with the aggressive growth of home-bred giants including Mahindra & Mahindra, Tata Motors, Ashok Leyland and the hitherto unbeatable Maruti Suzuki.

Meanwhile, Indian pharma sector, learning some tough lessons from the product patent regime that dawned in 2005, was launching a generics offensive in the words top regulated markets, including the US and Europe, eyeing a pie of the multi-billion market of drugs losing patent protection. Business prudence also came to the forefront when Indias largest drug maker Ranbaxy agreed to be sold off to Japans Daiichi Sankyo as copy cat drug business became competitive and new drug development continued to be costly.

A rising middle class with higher disposable income, in the mean time, was driving organised retail growth, fuelling the dreams of the early entrepreneurs in the business like Kishore Biyani. His Big Bazaar and Pantaloon were joined soon by cash rich corporate houses like the Aditya Birla Group, Reliance and Videocon, while Tatas Trent, although an early mover itself, got into the arena with smarter battle gear.

Corporates were also getting into the world of make-believe, and the media and entertainment sector saw fresh funds, a great deal of transparency, off-the-beaten-track themes, a fresh set of professionals who experimented with ideas on screen, the launch of channel after channel as more and more Indians became couch potatoes, then the DTH, IPTV... you name it. India was also becoming one of the fastest growing telecom markets in the world, driven by a wireless revolution kicked off by the undivided Reliance earlier this decade.

What followed saw the democratisation of the communication device, and top executives to fisherfolk and vegetable vendors became connected at the press of a button. Corporates like Bharti, Aditya Birla, Essar and BPL rushed in to catch this opportunity, and despite falling average revenue per user (ARPUs), the rush to amass subscribers continues unabated.

Aviation: the highs and the lows

After the wireless telecom rush, the corporate sector that captured the headlines and the imagination of many a commoner was aviation. With Captain GR Gopinaths Air Deccan was born Indias first low-cost carrier, and with it, a booming air travel industry spurred by several of the middle-class. Although now saddled with high fuel prices, fares and a drop in traffic, the Indian aviation industry became one of the fastest growing aviation industries in the world with a 27% growth rate. Savouring the fruits of liberalisation, the Indian aviation industry has come a long way from being primarily a government-owned industry, and is now dominated by privately owned full-service airlines.

These private airlines account for around 75% share of the domestic aviation market. According to a study by the International Air Transport Association, India will be a driving force behind the worlds civil aviation business that is globally expected to grow from $5.1 billion to $5.6 billion in 2008. Of the 454 airports and airstrips in India, 16 are designated international airports. The last few years also saw privatisation and modernisation of the countrys premier airports in Mumbai and Delhi at an estimated investment of $4 billion over 2006-16.

A greenfield airport is already operational at Bangalore and the one at Hyderabad will be operational soon. The last few years also saw large scale consolidation, with the merger of state run Indian Airlines and Air India, and Jet Airways snapping up Air Sahara for $500 million.

Retail: gold rush

In retail, there has been the emergence of branded modern retailers who have started contributing 7% to 8% to the $351 billion overall retail segment in India. This has been due to growing disposable incomes and nuclear family formats. Even as the emergence of hypermarkets has made life easier for shoppers as all products are being made available under one roof, luxury retail, on the other hand, still has a long way to go due to exorbitant prices at which the products are sold. Analysts opine that it will take a few more years for the actual demand to pick up as economic turmoil and instability in the markets have restricted shoppers from loosening their purse strings. Fashion retail majors feel that its the fluctuation in rentals that have caused turbulence in the segment.

Pharma: chill pill

Indias pharmaceutical industry came to the limelight in 2001, when domestic major Cipla offered a cocktail of AIDS drugs to African countries at one-fourth the price of the drug supplied in the US. The US companies have since been arguing that this was possible owing to the loose patent rules in the country, but helped ignite a global debate on the necessity to lower the price of medicines. The new product patent regime in 2005 meant that companies can no longer copy drugs of multinationals and sell them cheap in the market. This re-oriented the industry, which now focuses on drugs that are developed in-house and contract research and manufacturing services (CRAMS) for primarily the western markets.

Real estate: reality bites

Yet another sector that was to see a lot of action in the last decade is real estate. Spurred by an increasing demand for commercial and residential space, the sector is expected to grow at 30% over the next decade, wooing foreign investments worth $50 billion. According to certain reports, the double-digit growth will be owing to Indias booming off-shore business, including high-end technology consulting, call centres and software businesses. The IT and ITeS sector is expected to require 150 million sq ft of office space across urban India by 2010.

Another aspect driving real estate is organised retail, which is likely to require an additional 220 million sq ft by 2010. Moreover, growth is not restricted to a few towns and cities but is pan-India, covering nearly all tier-I and tier-II cities, says an India Brand Equity report. Moreover, according to the Tenth Five-Year-Plan, there is a shortage of 22.4 million dwelling units.

Over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be constructed, with most of them catering to middle and lower income groups. The boom in the real estate industry has also attracted a large number of realty funds to tap this market. Recently, IL&FS Investment Managers (IIML), the private equity investment arm of Infrastructure Leasing & Financial Services (IL&FS), announced the closure of a real estate fund at about $895 million, exceeding its target of $750 million. A report by global realty consultants, Cushman & Wakefield, titled The Metamorphosis: Changing dynamics of the Indian Realty Sector said that PE funds struck 79 deals in the country during August 2007-August 2008 amounting to $6 billion, a rise of 100% over the same period a year ago. The sector, thrown open in 2004-05, saw foreign direct investment (FDI) rising to $2.18 billion in 2007-08, and is expected to receive $25 billion as FDI in the next 10 years, according to an Assocham study.

In 2008, as the global economy slowed down, demand dropped, and real estate companies began to face an unprecedented liquidity crunch. Companies now expect the recent measures taken by the countrys central bank as well as the stimulus package announced by the government will help it tide over the crisis.

Automotive: rollercoaster ride

The automobile industry got off to a zooming start with the unveiling of the peoples carNanofrom the Tata Motors stable. Eyebrows were raised when the company acquired British iconic brands Jaguar and Land Rover, the funding of which is still dogging it. The pace the industry gathered could not be maintained as a slew of roadblocks punctured the growth path of the industry. To begin with, Singur in West Bengalwhere the Nano was to be manufacturedwas caught in land acquisition issues and politics, which later saw the project being shifted to Gujarat. Not to mention the cascading effects of high interest rates, credit crunch and high input costs that lead to price increases and falling demand. While the first six months were not that impacted, the major impact started showing in the latter half of the year when the major economies went into the recession.

Steel: stealing the show

While Tata Steels buy-out of Corus has brought the old economy steel sector to the fore, the 1991 reforms had helped boost the industry. In 1992, India produced 14.33 million tonne of finished carbon steel and 1.59 million tonne of pig iron. However, in 2008, India produced nearly 46.58 million tonne of finished steel and 4.39 million tonne of pig iron. Total domestic steel consumption also shot up to 43.925 million tonne in 2008 as compared to 14.84 million tonne in 1992. Experts say steel consumption will continue to grow at 16% annually till 2012, fuelled by demand from construction projects worth $1 trillion.

IT/ITES: blue eyed boys still

Meanwhile, according to IT industry apex body Nasscom, the Indian IT-BPO sector grew by 33% in FY 2008 to reach $64 billion in aggregate revenues (including hardware). Of this, the software and services segment accounted for $52 billion, growing by 28% over FY 2007.

The banking, financial services and insurance (BFSI) remained the largest vertical market for Indian IT-BPO exports, followed by high-technology and telecom. These sectors together accounted for nearly 60% of the Indian IT-BPO exports in FY 2007, according to reports. The efforts of the IT firms were capped later this year with HCL Tech acquiring the UK-based Axon Group for $658 million, the largest buyout by an Indian IT firm. The acquisition also makes HCL one of the top-10 players in SAP worldwide. While the latest episode of Satyam trying to pick up other, unrelated family run firms has dented the companys image on the good governance front, the general impression is that Indian companies will be able to get over the present stigma.

Cement: firm foundation

India is the second largest producer of cement in the world after China with an installed capacity of 206.46 million tonne per annum. The sector, in the last ten years, has recorded a compound annual growth rate (CAGR) of 8%, with demand-supply position improving over the years and growth in demand outstripping growth in creation of capacity. A booming housing sector, global demand and increased activity in infrastructure development have led the Indian cement industry to ramp up production capacity in India. Twenty years ago, the Indian cement industry was obsolete and inefficient but today, it has not only surpassed that of developed countries but also attracted the top cement companies in the world, such as Lafarge, Holcim, Heidelberg and Italcementi among others, and sparked a spate of mergers and acquisitions to take advantage of growth in demand.

Holcim entered the Indian cement market in January 2006 and within six months, became the number one player in terms of capacity exceeding the AV Birla group. ACC Ltd and Ambuja Cement Ltd (in which Holcim has stake) plans to expand capacity to 30.4 mtpa and 25 mtpa respectively by 2010. Similarly, Aditya Birla Groups Grasim, including UltraTech, plans 48.8 mtpa by 2010. These top four cement manufacturers together hold about 39% market share in the country.

The presence of international companies has benefited the industry as a whole, with better market practices and technological processes in the coming years. With demand surpassing supply, the price of cement has climbed from Rs 130-135 for a 50 kg bag to Rs 245-255 as of today. Experts believe the next decade is a critical one for India in terms of infrastructure, with the national highway project being just one example of a huge infrastructure initiative.

Reliance: divide and grow

The year 2005 saw one the largest family break-up in India, with the Reliance empire being split up between the two brothers, Mukesh and Anil Ambani. As per the family settlement plan, which drew curtains on a murky feud between the two brothers that dented their image in the public and took a toll on the groups performance in the stock markets, Mukesh Ambani would have responsibility for RIL and Indian Petrochemicals Corporation Ltd (IPCL), while Anil Ambani would handle Reliance Infocomm, Reliance Energy and Reliance Capital. But far from crippling the group, the split up actually helped it grow, with the brothers entering new businesses and pumping in much investment and vigour into existing ones.

Reliance Industries, meanwhile, also started oil and gas production at the KG D6 oil field, promising the country self sufficiency in hydrocarbons over the next few years.

As India enters the new year 2009, the challenges before corporate are manifold. Over and above the general economic slowdown has been the recent terror attacks, which, more than anything else, has hit the countrys hospitality segment. Food and beverage (F&B) business in most large hotels in India has dipped 15% to 40%, thanks to the attacks, coupled with the recession. The industry expects to bounce back next year. So does corporate India, as the world prepares to welcome new opportunities as well as daunting challenges in the coming year.

Mona Mehta, Smita Joshi and Shweta Bhanot also contributed to the story