Hindujas stick to power, infra sectors

Written by Baiju Kalesh | MG Arun | Mumbai | Updated: Nov 29 2011, 09:28am hrs
London-based Hinduja group, flush with cash from its overseas business, will not invest heavily in manufacturing but stick to its core business of banking, commodities trading and build power plants, roads and airports in India, a senior company official said. The family (Hinduja) DNA is trading, banking and investments, says Abin K Das, director, Hinduja Group India. We will continue to hold on to this vision.

The group, which earns roughly 15% of its $12 billion revenues from India, had earlier planned to hike this to 35% by 2014, but has now scaled it down as economic slowdown hurts demand for trucks and higher interest rates weaken investments in roads, ports, airports and power plants.

India is a priority investment destination, but the political stability and economic growth are concerns, says Das, who has been with the group for over 20 years. A spate of corruption scandals and the governments lack of push to build infrastructure have deterred Indian businessmen to invest.

The group, which owns Hinduja Bank headquartered in Geneva, will make large investments to build power plants, make armoured vehicles for Indian army, look to build airports in non metros, develop real estate and supply parts to aerospace missions.

The immediate plans are to invest R6,000 crore to build a 1,040 mw coal fired plant in Andhra Pradesh, and develop 15,000 acres of land in Bangalore, Chennai and Hyderabad.

We will develop commercial, residential buildings and will build hospitals, says Das, who is known within the group as Hindujas fifth brother.

The group, owned by four brothers Srichand, Gopichand, Prakash and Ashok has short-listed roughly 18 strategic investors to hawk its 49% stake in the power plant. The target set by the group is to build 10,000 mw in a few years.

The Hindujas have sold similar investments in the past. In July 2006, the group sold its entire 5.11% stake in Hutchison Essar to Hutchison Telecommunications (India) for $450 million in an all-cash deal.

Consultants say groups like Hinduja should look at Indias growth opportunities, including the manufacturing sector. They will reap much better returns by looking at India as a long-term destination, says Sanjay Ghosal, director at consulting firm Avenir.

But the NRI businessmen are investing in their flagship company Ashok Leyland (ALL), Indias largest truck and bus maker behind rival and leader Tata Motors in market share for decades. The company is changing track under Gopichands son Dheeraj Hinduja, its new chairman. ALL, which lacked light commercial vehicles in its portfolio, has launched Dost in partnership with Nissan Motor Company and has acquired a light commercial vehicle company in Europe.

Irrespective of sectors, they look to make investments, wherever they can get good return, says a senior executive who worked with the group for many years. The reason why they have only a small portion of revenues coming from India is that they get more opportunities to invest abroad.

This month, ALL signed an equal partnership agreement with American tractor maker John Deere to make construction equipment and market under Leyland Deere brand. We have no plans for passenger cars at the moment, says Das. Hindujas, who invest from the groups global resources, has set eyes on new sectors for future growth.

In February this year, Ashok Leyland Defence Systems and Krauss-Maffei Wegmann, Germany, agreed to jointly develop armoured vehicles, artillery and combat systems for the Indian army. Indian government allows foreign defence equipment makers to invest in Indian companies up to 26%.

Analysts say the new business within automotive will de-risk the dependence on one product. We believe the management has realised the potential risk of higher competition in the medium and heavy commercial or M&HCV vehicles space, analysts Chirag Shah and Siddhartha Bera at domestic brokerage Emkay Global wrote in a report released on September 2011.

It is reducing its dependence on the cyclical M&HCV business by diversifying the revenue stream to encompass exports, entry into the light commercial vehicles segment and defence and engine sales.

The group will benefit from its earlier investments like IndusInd Media, a cable television operator, as the government has made it mandatory to digitise television services or distribution of broadcasting signals through the digital medium, across all urban areas by 2014.

Although in the initial round of digitisation, MSOs will need to invest heavily in set top boxes, billing systems and call centres, in the later phases, they will benefit. For subscribers, this will improve the quality of services they get, while for broadcasters, it means more revenues from subscriptions.

Consultants say digitisation of television services will curb tax evasion and under-declaration of subscribers by local cable operators.

Through the addressable digitisation announced by the government, multi-system operators or MSOs, who beam across signals to local cable operators, will be able to identify the final customer in the distribution chain, says Devendra Parulekar, partner and segment champion, distribution services at consultant Ernst & Young India.

This will give MSOs better control over the cable operators, and boost their revenues, since a major chunk of revenues now goes undeclared. His comments are not specific to the Hindujas.