India Inc struggles to rub out bottomline blotches

As 2012 nears its weary end, corporate India is witnessing the departures of two industry stalwarts -- Keshub Mahindra and Ratan Tata -- after being in their respective companies for nearly 50 years.

Both have passed on the baton to their chosen successors Anand Mahindra and Cyrus Mistry respectively, while ensuring that their groups are safe hands.

Even as the global economic slowdown took its toll on industry bottomlines and titans came and went, India Inc went for the big-ticket deals to consolidate and expand its turf into new markets. However, cautious spending took precedence when it came to acquisition strategies.

During the January-December 15 period, India Inc signed merger and acquisition (M&A) deals worth $48.7 billion, compared to $53.4 billion in the corresponding period of 2011 and $56 billion in 2010, according to research and consultancy firm Grant Thornton’s Dealtracker report.

A total of 973 deals were inked during the period, lesser than during the same period of 2011, but more than 2010, the report pointed out. With the exception of sectors like healthcare, commercial real estate and education, M&A and private equity deal-making witnessed deceleration in 2012 amid domestic and global economic worries.

All the same, a few major cross-border deals made us sit up and take notice like ONGC’s acquisition of a 8.4 per cent stake in the Kashagan oilfield in Kazakhstan for $5 billion and UK-based Diageo PLC’s acquisition of a controlling stake in Vijay Mallya-promoted United Breweries Ltd for $2 billion. This was followed by Hong Kong and Shanghai Banking Corporation (HSBC)’s acquisition of the commercial and retail banking businesses of The Royal Bank of Scotland in India for $1.9 billion and ONGC Videsh’s stake buy in an Azerbaijan-based oil and gas field for $1 billion.

GMR Group’s $598-million reverse merger with Singapore-listed United Fiber and Infosys’ acquisition of Switzerland-based Lodestone for $349 million, besides Grasim Industries’ $360 million buyout of Canada-based Terrace Bay Pulp, boosted the M&A tally in 2012.

Wheels of Disinvestment

The Rs 30,000-crore disinvestment programme of the UPA-led government received a boost towards the end of the year giving rise to hopes that the Centre would nudge closer to the ambitious target within the next three months of the current fiscal. For one, notwithstanding several failed attempts, a government under pressure from industry and investors for progress in the reforms process, finally moved to offload its shares in Hindustan Copper in November. This was the first disinvestment exercise of fiscal 2013, fetching the government Rs 808 crore, even as a bulk of the equity was purchased by the state-run banks and LIC. In April, the initial public offer (IPO) of NBCC helped the government mop up Rs 154 crore.

The big one was the NMDC stake sale in December, which yielded Rs 6,000 crore, and piqued the interest of foreign investors. Consequently, banks and FIs did not have to bail out the PSU stake sale programme of the government on this occasion. Yet, the pipeline for disinvestment is still lengthy and includes over 10 blue chip companies like NTPC, BHEL, SAIL, MMTC and Oil India. Even as the year 2012 began with the offloading of ONGC shares by the government, -- with the exception of some action in November and December -- retail and institutional investors stayed away from the disinvestment bidding process citing high prices.

Sectoral performance

Although the automobile sector began the year with excitement against the backdrop of a big bang Auto Expo in New Delhi where major car makers showcased their new launches, the year saw some product recalls by Toyota, Honda and Ford which dampened the general mood of the industry.

Sales were to decline in most segments, forcing industry body Society of Indian Automobile Manufacturers (SIAM) to revise growth projections twice in the last nine months of calendar 2012. SIAM lowered its car sales growth forecast to just 1-3 per cent for the fiscal, from the 9-11 per cent announced in July.

To top off a lacklustre year, the industry witnessed its worst ever scenes of violence on the Manesar premises of Maruti Suzuki, the country's largest car maker by sales. Violence by angry workers against the management of the Manesar plant left a senior company executive dead and nearly 100 others injured, resulting production losses of 77,000 vehicles.

The pharmaceutical industry witnessed strong traction as the government cleared its new drug price control policy, bringing under price control 348 medicines included in the National List of Essential Medicines (NLEM) – accounting for 60 per cent of the total domestic pharma market - amounting to nearly Rs 29,000 crore.

This apart, another issue that the government dwelt on was the takeover of domestic pharma firms by multinationals and its impact on the availability of affordable medicine. As differences between various ministries caused delays, the Prime Minister's Office eventually intervened to set the rule that any level of foreign direct investment in an existing domestic pharma company is to be approved by the Foreign Investment Promotion Board. Hence, under the new rule, whoever acquires an Indian firm producing essential drugs will have to continue to manufacture them till the Competition Commission of India is empowered to take a view on such mergers and acquisitions.

Year 2012 also marked India cracking down on patents held by multinational firms.
So much so that the government invoked compulsory licensing in March to allow Hyderabad-based Natco Pharma to manufacture and sell cancer treatment drug Nexavar at a price over 30 times lower than what Bayer charged for its patented Nexavar drug.
Consequently, Natco was allowed to sell the generic copy of the drug at Rs 8,880 for a pack of 120 tablets required for a month's treatment as compared to a whopping Rs 2.80 lakh per month by Bayer.

Macro economy-wise, India’s ranking fell three places to 59th position in the WEF Global Competitiveness Index 2012-2013 owing to “disappointing performance” on the basic factors underpinning competitiveness.

India was once ahead of Brazil and South Africa, but now trails them by about 10 places and lags behind China by 30 positions. Not wanting to appear unduly pessimistic, these rankings still give sufficient pointers to the road ahead for Corporate India in 2013.