Investing in Indian Multinational Giants

Investing in Indian Multinational Giants

The list of companies being called Indian Multinational Giants is growing rapidly. Investing in Indian multinational giants has its own set of challenges.

The last decade has been an important period for India as we have seen dramatic change in social, economic and technological capabilities. Some of the key developments include:-

  • India emerging as an Information Technology & Knowledge Superpower.
  • Infrastructure Developments such as National Highways, Metro Rail projects in several cities, are getting implemented.
  • Expanding Consumption power due to favorable demographics

This list can further be expanded to include various achievements and laurels. This means there should be several good investment opportunities for investors across various sectors and industries. A big plus of having global platform is access to the best technology and management practices as well as new markets. Higher volumes also spread the cost of development of new products.

There are a number of reasons why the multinational companies are coming down to India and investing in Indian Multinational Giants.  India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India.

Bidding Goodbye to a Bad Year

This is true however; the year 2011 was pretty bad for most investors. Sensex collapsed by 24.8% and rupee was down by 19.2% making things worse. There were plenty of challenges to deal with including higher interest rate, higher commodity/raw material prices, slowdown in growth, etc.

These were also driven by global economic developments in US and Europe, but in 2011 there were more problems within India to deal with. However, bad times can also be opportunities to pick good names at discounted prices, so investors can put in their smart money at this stage gradually.

Investing in Indian Multinational Giants – Where to Invest?

This is a question that crosses everyone’s mind. One of the solutions lies in identifying companies which are

  • Leaders in their markets
  • Minimal debt or debt free
  • Strong Balance Sheet/Financial Position
  • High Quality of  Management
  • Better Governance
  • Having presence in markets abroad

The last point is gaining significance today because we are seeing Indian companies expanding to new markets by setting up their centers or acquiring assets or companies abroad.

Emergence of Indian Multinational Giants

In October 2006 Tata Steel acquired Corus for $7.6 billion and moved to the global top ten league in steel industry. Further, Tata Motors acquired the iconic Jaguar and LandRover brands, while Mahindra & Mahindra purchased South Korean SUV maker Ssangyong Motors for $463mn. In addition there were several large acquisitions such as Tata Global Beverages (formerly Tata Tea) acquiring the UK based Tetley and becoming the second largest non-alcoholic beverage behemoth.

These large Indian companies have already attained leadership and success in India, but looking for more pastures abroad to tap new sources of revenue, diversify their business as well as to make a mark in the global market place. Today these Indian MNC giants are earning more revenues outside India as shown below.

Over 60% of Tata Motors’ revenues come from overseas, 70% in the case of Hindalco, 74% for Tata Steel, 79% for Ranbaxy—Bharti Airtel is still at 26% (Financial Express Dec 31, 2011)

Why Go Global?

There are several reasons why the Indian Corporate Giants are looking for opportunities beyond India.

  • New Growth and Diversification Opportunities
  • Favorable conditions in certain countries/economies
  • Gain presence in global market place
  • Leveraging India as a Knowledge/Manufacturing/Technology Hub
  • Tapping in to export markets for better foreign exchange earnings

Investing in Indian Multinational Giants

Source/Courtesy: Financial Express Jan 2011 (Financial Express)

Disclaimer: The website and the author are not recommending any investment per se in this article, so the information here is purely meant for sharing knowledge. Readers are advised to use their own discretion and judgment before making investment decisions.

Suggested Investment Picks

There are a few stocks or companies which I believe will be excellent picks in the long run. They may not be available at a cheap price and may not provide dazzling returns, but these are fundamentally sound companies to keep in your portfolio. These are not in the order of ranking or best performance. Its just a small list of names that have or can make it to the top league globally.

Tata Motors

The Company is the world’s fourth largest truck manufacturer, and the world’s third largest bus manufacturer. Tata Motors has presence in multiple segments including passenger cars, SUVs, vans, commercial vehicles (all sizes), tempos, etc, which makes it a diversified automobile player. They had acquired iconic Jaguar and Land Rover brands from Ford in 2007 making an entry in to UK, Europe and other international markets.

The company’s commercial and passenger vehicles are already being marketed in several countries in Europe, Africa, the Middle East, South East Asia, South Asia, CIS, Russia and South America. It has franchisee/joint venture assembly operations in Bangladesh, Ukraine, and Senegal. With roughly 60% of revenues coming from abroad its already international and might be on par with global brands at some stage.

Tata Global Beverages

Tata Global Beverages (TGB) is one of the leading beverage companies in the world. It is the second largest global tea marketing company, with brands like Tata Tea, Kanan Devan and Tetley, and is the third largest player in the branded coffee market in the US, with brands like Eight O’Clock Coffee.

People living abroad consuming these products may not know that the company producing and selling it is from the house of Tatas. In addition to this TGB has tie up with PepsiCo India to develop non-carbonated, ready-to-drink beverages focusing on health and wellness.

Hindalco

Hindalco Industries Limited, the metals flagship company of the Aditya Birla Group is the world’s largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia. Its copper smelter is the world’s largest custom smelter at a single location. The company’s current estimated consolidated turnover of USD 15.85 billion (Rs. 72,078 crore) places it in the Fortune 500 league. In 2007, the landmark acquisition of Novelis Inc., the world’s largest aluminium rolling company, placed Hindalco’s footprint across the globe (around 13 countries).

Larsen & Toubro (L&T)

Larsen & Toubro Limited (L&T) is India’s leading technology, engineering, construction and manufacturing company. The company has independent subsidiaries handling each sector or industry, thereby providing diverse streams of revenues.

The company has manufacturing facilities in India, China, Oman and Saudi Arabia. Customers include global majors in over 30 countries. Interestingly the company also has some presence in financial services, information technology and other areas.

Gulf of course will remain a huge focus for the company in the near future. Mr Naik said that “We are trying a lot in the Gulf, We are today doing USD 1.2 billion (INR 6,324 crore) there. Next year, we are planning to exceed USD 2 billion (INR 10,540 crore).” (Source: Business Standard).

The company also plans is ramping up the opening of offices and hiring in international locations like Jeddah in Saudi Arabia and Perth in Australia. L&T also likes to de-risk itself from the risk in Indian projects such as execution delays, regulatory hurdles, lack of infrastructure thrust, rising inflation, etc.

Other Companies

These are not the second rung but companies which are comparable to the list above. These include Tata Steel (which is in top 10 steel producers), Bharti Airtel and Hero Motor Corp . to name a few. Some of the most prominent names in India like ICICI Bank, Bajaj Auto, Ranbaxy are also tapping opportunities abroad.

Leading public sector players that are known to be conservative – i.e the likes of ONGC, SAIL and Coal India are looking at international locations for sourcing materials, setting up sales/marketing centers or for setting up manufacturing facilities.

Conclusion – Investing in Indian Multinational Giants

The world is truly becoming a global village, except for the fact that we have physical boundaries or borders separating countries, states, cities, etc for regulatory or security reasons. Companies or stocks that have a presence on a pan India level as well as abroad with strong management team, good governance, leadership position in their respective markets are good places to invest for regular income or dividend as well as good capital appreciation with relatively lower risk.

There are examples of investors investing in Indian multinational giants who have gradually built a Million Rupee portfolio over time. But this requires tremendous patience and discipline to tide over market cycles and volatility.

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About the Author

Sridhar is a financial analyst and his work experience spans areas of financial analysis, modeling, valuation and research on companies, specific sectors, etc. Sridhar is an MBA graduate with Finance major from Maharishi Institute of Management.

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