Blue-chip MNCs - Holding their own
Anusha Subramanian November 27, 2007
Till not very long ago, multinationals were considered the elite among companies in India: They paid the best salaries, posted the biggest profits and their scrips were the darlings of the stock markets. But with the unfurling of the India growth story over the past decade or so, most of them have been overtaken by their home-grown counterparts that have wowed the world by their scorching growth and expansion and creation of phenomenal wealth for their promoters and shareholders in just a few years.
How have these MNCs managed to do that and what would be their strategy going forward as India targets a growth rate of 9 per cent over the next five years and will need to furiously build its infrastructure like rail, roadways, power and communications to sustain that kind of growth? Let’s find out:
Until recently, peter loscher had heard aplenty about India but never got the chance to see it. But when work presented him with the opportunity—he was recently elevated to the position of president and CEO of German engineering giant Siemens AG—he came calling with a definite purpose and mission: to set new goal posts for his company’s India operations.
He not only unveiled plans to double Siemens India sales but also let everybody who needed to know how important India was in the company’s global growth strategy: On par with China.
Siemens has a sizeable presence in the country. With 18 manufacturing plants and three under construction and 18 subsidiary companies, Siemens India is a leading infrastructure and industry solutions provider with total sales of Rs 9,000 crore. It is pretty confident about growing two-fold in the next three years and believes this will come from the 9 per cent growth India is aiming for in the next five years and the concomitant activities in the public transport, power, infrastructure and healthcare sectors.In fact, Siemens India will soon finalise a ‘triple strategy’ for growth. As per this strategy, the company will first tap the domestic market by penetrating into newer sectors and geographies. Secondly, it will explore additional avenues of growth in the export market and further leverage on India’s competitive advantages by sourcing products and services for the global markets.
Endorsing the global CEO’s vision for Siemens India, J. Schubert, Managing Director of Siemens India, explains: “In the last few years, the company has deployed local strategy to move ahead of our competitors. Our strategy has largely been local R&D, local products and local manufacturing.” The Indian market is different from the European market, he points out, explaining: “The Indian market demands price sensitive, quality and robust products with basic features. Thus, having the right product for the right market has led to the development of local products for local markets.”
Siemens, Schubert says, intends to also ramp up exports from India to Sri Lanka, Bangladesh, West Asia and African countries. Currently, 35 per cent of Siemens India’s revenue comes from exports.
The company has posted robust growth over the past couple of years. For the year ended September 30, 2007, Siemens India had revenues of Rs 7,726.80 crore, up 71 per cent over 2006. The net profit recorded during this year was Rs 596.5 crore. However, data on the company’s order intake and order backlog for the year ended September 30 was not available.
Siemens reported an order intake of Rs 8,800 crore for the nine months ending FY07, resulting in an order backlog of Rs 10,800 crore. The company’s financial calendar runs from October to September.
Besides, the company is debt free and in the last four years, its market capitalisation has zoomed 16 times. The market capitalisation of Siemens India, as of November 19, 2007, was Rs 34,918.84 crore. Since April 2007, the market capitalisation of Siemens India has increased more than 100 per cent.
Focus on infrastructure
How does the future look for the company? Schubert is clear when he says that infrastructure will be the focus area to achieve the doubling of growth. The $500 billion investment in infrastructure in the next five years by the government clearly supports Siemens India’s portfolio offerings.
The company sees potential in infrastructure solutions for megacities, customised solutions for industries in various market clusters such as steel, cement, oil and gas or airports and also specific products and solutions for the smaller entrepreneurs.
The company is also looking at mergers and acquisitions and suitable alliances possibilities wherever it fits its portfolio. To this effect Schubert explains: “Our investment programme is well on track and has started yielding positive returns. We recently acquired 77 per cent stake in iMetrix Technologies, a strong player in the domains of electronic security and fire safety solutions.”
A recent report by Edelweiss Research says: “Strong tailwinds in core businesses (power and automation) are likely to drive Siemens India’s growth in the future.” While Schubert did not divulge details on investments, he informed that the company has outlined an ‘investmentled growth strategy’ with thrust on organic growth to increase their value added structure. “We see a lot of potential in doing more of ‘local value adds’ while at the same time, targeting the global markets with the goods made here,” says Schubert.
After all, 10 per cent of Siemens’ global development happens out of India at present.
It’s no ordinary MNC. ABB India’s pedigree is matched by its position as one of the leading players in power and automation technologies. It’s hardly surprising then that ABB India is all set to be one of the key purveyors of the parent, Switzerland-based ABB Group’s global plans.
The Indian operations are strategically important to the parent for two reasons: India is a fast growing domestic power market as well as a low-cost manufacturing base. ABB follows a global sourcing model in which India acts as a global factory for high and medium voltage circuit breakers and other sub-assembly components.
Biplab Majumder, Country Manager & Managing Director, ABB India, explains: “The ABB Group views India as a ‘high focus’ country, both as a market and as an important regional and global resource base.
In line with its global footprint approach, ABB is increasingly leveraging India as a resource base for products, projects, services and also for global engineering and R&D.”
As part of ABB’s regional approach, India has also been designated as the hub for the South Asia Pacific region, which includes countries ranging from Afghanistan, Pakistan, Singapore, Indonesia, Malaysia, Thailand, The Philippines and Vietnam to even Australia and New Zealand.
With business volumes in excess of Rs 4,000 crore and a market capitalisation of over Rs 30,000 crore, ABB has clocked a CAGR of 40 per cent per annum during the past few years, growing ahead of the market. "While we focus on top-line growth, we have continued to leverage operational efficiencies and are committed to managing growth in a profitable and sustainable way," says Majumder.
According to Majumder, India's economic growth supported by double-digit industrial growth and the building of its power infrastructure are key drivers for the MNC's growth.Capacity additions (both brownfield and greenfield) are underway across sectors with metals, paper, cement, and construction leading the charge. Other encouraging trends include industry's increased focus on efficiency, productivity and quality improvements, global ambitions of Indian industry, higher scale of thinking, all driving home the need to leverage automation technologies, he says. There is also an increasing realisation of the huge demand-supply gap and need for quality power.
This in turn is leading to a renewed focus on power sector investments across generation, transmission and distribution both in the form of new capacities and improvement of existing assets, he adds.
ABB India maintained its revenue growth momentum with cumulative revenues of Rs 4,136.6 crore for the nine months ending September 2007, which is 42 per cent higher than the same period last year. Third quarter revenues at Rs 1,393.3 crore registered a 27 per cent increase over 2006 Q3. The company also continued its profitable growth march, with a net profit for the nine months ended September 2007 of Rs 310 crore compared with Rs 205.3 crore during the same period last year, registering a robust growth of 51 per cent.
ABB India's current order backlog is over Rs 5,000 crore. Over the last seven quarters, the order backlog has swelled 83 per cent on the back of strong power demand environment and accelerated industrial growth.
"We believe business momentum is likely to stay intact, forecasting order intake CAGR of 27 per cent over calendar year '08-'09," says the latest Edelweiss report on the company.