India takes on the World

Monday, Nov. 20, 2006 By SIMON ROBINSON | BOMBAY
TOTALLY TUBULAR: Workers at the Arista Tubes factory in Stevenage, England. Arista is owned by Indian company Essel Propack, the largest tubemaker in the world
KALPESH LATHIGRA FOR TIME
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You have probably never heard of Essel Propack but there's a fair chance you have squeezed one of its products. The Bombay company is the largest manufacturer of laminated tubes in the world. Most toothpaste these days is packaged in such tubes and one-third of global supply comes from Essel Propack's 20 factories in 13 countries across Africa, Asia, Europe, and North and South America. The company also churns out tubes for cosmetics, pharmaceutical creams, hair-care products and food. It may not be the sexiest industry, but the business is growing fast and Essel is determined to be its biggest player. "We definitely see an opportunity to move further into the global space," says R. Chandrasekhar, Essel Propack's president. "India always had a global outlook in the past but we became very inward-looking after independence. Now we're back."

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Glance through the business news these days and it quickly becomes apparent Chandrasekhar is right. As international business leaders prepare to arrive in New Delhi for the World Economic Forum's annual India Economic Summit, India is ending decades of isolation. Indian companies have returned to global commerce. Indian-born business executives are climbing the corporate ladders at well-known multinationals, some to the highest rungs. Meanwhile, Indian companies, flush with cash from a booming domestic economy, are prowling for overseas acquisitions to expand their footprints. The most recent headline grabber was last month's $8.1 billion bid by Tata Steel for Anglo-Dutch steel manufacturer Corus, and there have been many smaller deals as well. In February, Hyderabad-based drugmaker Dr. Reddy's acquired German-based rival Betapharm for $572 million. A few months later, construction major Punj Lloyd bought Singapore-based SembCorp Engineers and Constructors for $22.5 million. And now electronics manufacturer Videocon is the lead player in a consortium that has offered more than $700 million to buy Korean electronics giant Daewoo Electronics.

In the first 10 months of 2006, Indian companies cut more than $10 billion worth of cross-border deals, up from about $1 billion in all of 2000. According to Dealogic, which tracks global M&A activity, Indian companies this year have spent twice as much on overseas acquisitions as foreign companies have invested in India. "There is a real bullishness" among the leaders of Indian industry, says Sabeer Bhatia, the Indian-born co-founder of Hotmail, the Web-based e-mail system acquired by Microsoft in 1997. "Every single Indian CEO is looking outwards to see how he or she can expand their own base and expand into newer markets."

One reason Indian companies are suddenly going abroad is that they can. For years, government controls and restrictions?the infamous "license Raj"?shielded Indian businesses from foreign competition, isolating them and stifling innovation. But in the early 1990s, the government began to slowly open up the economy. Anticipating an eventual onslaught from outsiders, the country's more far-sighted industrialists decided to modernize their operations. As a result, the most efficient businesses were able to reap outsized profits as India's economic growth began to accelerate, explains Delphine Cavalier, a Paris-based economist at BNP Paribas, which has advised Indian companies on M&A activity in Europe. "Today, with competition now mounting in India, those same groups are seeking to protect that profitability by taking their activity abroad, knowing that continued economic growth in India will provide a strong base for years to come," Cavalier says.

New Delhi also helped clear the way for the recent buying spree. Last year, the government doubled the cap on how much Indian companies can annually invest abroad to 200% of a company's net worth. Thanks to the boom at home?India's GDP growth has averaged 8% a year over the past three years?many companies are financially stronger than ever before. Net profits are up nearly 40% this year, according to a recent report from Motilal Oswal Securities, which surveyed 127 publicly traded companies from various sectors. Besides having deep pockets, many Indian companies have been around for decades; they've got experienced managers who are confident in their ability to run large, complex organizations. "They're not like start-ups," says Bhatia, "so they say, 'you know, our balance sheet is actually stronger than some of our counterparts in London, or Europe, or America. We might as well buy these brands and make use of our low-cost manufacturing base to branch out into other markets outside of India.'"