The third time is the hardest. Even in a country like India, where the economy is currently, despite some concerns over the impact of rising oil and commodity prices, on a roll, it isn't easy to pick companies to watch, 20 of them, year after year (after year, actually). Which is what makes this listing, the third of its kind, unique. For the record, most companies picked by this magazine in 2002 and 2003 have turned out pick-worthy, although there have been some high-profile (and embarrassing) flame-outs, an equal number of quiet failures, and a few cases of companies that, while still looking extremely promising, are neither better off nor worse than they were in 2002 and 2003. Like always, this listing of 20 Companies to Watch in 2005 is a balanced mix of the big and the small, the sexy and the ordinary and the listed and the unlisted across a range of sectors. Like always, it was put together by BT's team of reporters and editors across cities after interviews with executives, consultants, bankers and venture capitalists and private equity investors. Read it, remember these companies (at least those of them you have not heard of yet), and, if you like what you see in the gatefold How The 20 Companies To Watch In 2003 And 2004 Have Performed (we think you just might) go ahead and invest in them. We'll watch them for you.

APPLABS
Sashi Reddi/Founder & CEO
Test Case

Not too long ago, when software companies wished to put code-jocks out to pasture they just moved them to testing. That, IT emerges, is no longer the case. Testing has become a $3 billion (Rs 13,500 crore) a year market and both service providers and customers are increasingly displaying a preference for third-party testing. Thus, if a customer signs an application development contract with IBM or Infosys, it is likely to give the task of testing the result to a third party. Pitching for a chance to be at the vanguard of this trend is a Philadelphia- and Hyderabad-based company, Applabs Technologies.

"We hope to be the biggest in terms of size and among the top three in terms of revenues," says Sashi Reddi, a Wharton alum who founded the company in 1998, adding that Applabs is the only software testing company in the world assessed at level 5 of the Capability Maturity Model, a software quality standard. Venture Capital firm WestBridge Capital Partners thinks so too; in September this year, it invested $7 million (Rs 31.5 crore) in the company. "This investment will provide us the financial strength to go out and acquire the talent and the testing companies we need to become the market leader in the software testing space," says Reddi, explaining that he hopes to achieve this distinction in the next two years. For a company that has closed the first half of this year with an estimated Rs 13 crore in revenues that will take some doing. Still, Applabs is at the vanguard of a trend and that counts for something.

-E. Kumar Sharma

BHARTI TELE-VENTURES
Sunil Mittal/CEO
Wireless Wonder

As this sentence is being written, India has over 45 million mobile telephony subscribers. One company, Bharti Tele-Ventures, has over 9 million of these. Only Reliance Infocomm has more subscribers, but not by much (its telecom play was one reason why it was part of the first companies to watch list this magazine put out in late 2003), and the business is yet to return net profits. Bharti, for the record, is profitable: it returned a net profit of Rs 620 crore on revenues of Rs 5,000 crore in 2003-04, and in the first half of this year, it has returned a net profit of Rs 630 crore on revenues of Rs 3,565 crore. With the competitive topography of the telecommunications market more or less defined, it would be reasonable to expect Bharti to retain its marketshare. That would mean the company can expect to have 20 million subscribers in the next two years, and if India touches the 200 million mobile subscribers mark in the next five years as Bharti CEO Sunil Mittal expects it to, 40 million subscribers by 2010. "I see no reason why Airtel (the company's service brand) should stop growing," says Mittal.

With everything from network installation and management to it outsourced to companies that should know these businesses well (think Ericsson, Nokia, Siemens and IBM), Bharti can afford to focus its efforts on marketing and service. Better still, the network-outsourcing model allows the company to grow its operations with almost no capital expenditure. "The deal with Ericsson, Nokia and Siemens means that we only pay for air-line usage and whenever the network starts getting congested, they invest in additional hardware," says Jai Menon, Corporate Director and Joint President, Bharti Tele-Ventures. While the competition is sceptical of the network outsourcing arrangement-a senior exec at a large mobile telephony company dismisses it as financial window dressing-analysts such as Rahul Singh, who covers telecommunications for Mumbai-brokerage SSKI, cannot stop singing its praise. "This will allow Bharti to scale up very quickly," he says. "And concentrate on understanding the consumer." Indeed, with its mind off operational issues, Bharti has been quick to forge an alliance with rim and launch Blackberry, arguably the world's most successful email-through-wireless solution, in India, a move that should help it narrow rival Hutch's lead in the value-added services area. And Menon has been busy wrestling with technological decisions involving Wi-Max, a sort of Wi-Fi on steroids. Far more importantly, Bharti's business model is focussed on minimising operating costs. "On costs, I think Bharti is unbeatable," says Singh. Which is why the company is here.

-Kushan Mitra

BHARAT BIOTECH INTERNATIONAL
Krishna M. Ella/Chairman and Managing Director
Biotech Opportunist

Circa 1986, Krishna E. Ella was a technical officer at Bayer's Indian operations. Today, he is one of India's foremost biotech entrepreneurs. And in the 18 years separating the two dates, he has been a scholar at the University of Hawaii, served as a research professor at the Medical University of South Carolina, completed a PhD from the University of Wisconsin, Madison, sold all personal assets and relocated to India at the suggestion of his wife Suchitra, and, along with her, co-founded Bharat Biotech in Hyderabad. The last was in 1996 and in the eight years since then, with Krishna in charge of technology and Suchitra, marketing and communication, Bharat Biotech has grown into a Rs 31-crore, multi-product biotech company. Since 1998, the company, which hopes to touch Rs 500 crore in revenues by 2008, has launched two vaccines (its best-known is Rev-AC-B, a recombinant vaccine for Hepatitis B), a probiotic yeast, and a recombinant streptokinase used in the treatment of myocardial infraction. On the anvil is Regen-D, a recombinant epidermal growth factor (think: the answer to burns). Products, however, can only take the company so far; most biotech analysts see Bharat Biotech's future in contract research and manufacturing. Krishna is aware of this: the company has been involved in the manufacture of Hibtiter (Haemophilus Influenzae b Conjugate Vaccine, and it prevents a kind of meningitis) for Wyeth Lederle, the first instance of the vaccine being made outside the us and is manufacturing Recombinant Human Lactoferrin for American firm Agennix Ltd. That's a start.

-E. Kumar Sharma

BHEL
A.K. Puri/Chairman and Managing Director
Power Play

We cannot smile easily," says A.K. Puri, chairman and managing Director of Bharat Heavy Electricals Limited (BHEL), explaining away his inability to smile for the camera. "We are in a serious business." Serious it is, and booming to boot: Puri has orders in hand for some Rs 30,000 crore, all of which have to be completed by March 31, 2007. "This is our highest order-book (position) ever," gushes Puri. The reason? A boom in the power sector with 80 per cent of the capacity addition (in terms of power generation) envisaged in the Tenth Five Year Plan (2002-07), work in progress, as compared to a corresponding proportion of 50 per cent for the Ninth Five Year Plan. And with BHEL's equipment powering 64 per cent of India's total installed capacity of 1,12,058 mw and the government proposing an addition of 1,00,000 mw in the eleventh and twelfth plans, the public sector company that bags between seven and eight out of every 10 projects it bids for, and which is increasingly stretching its reach to Africa and West Asia looks to be on firm ground. Fears over the erosion of margins loom large, especially with the entry of Chinese firms such as Dongfang Electric (it outbid BHEL recently in two projects), and Kaustav Mukherjee, Principal, at Kearney warns that this, "can cause a slippage in margins". Still, Puri is confident that a company that has been competing with the likes of GE, Siemens, Mitsubishi and Hitachi will prevail.

-Sahad P.V.

COGNIZANT TECHNOLOGY SOLUTIONS
Lakshmi Narayanan/President & CEO
The India Story

No company exemplifies the great Indian out-shoring story as much as us-and-India-based-Cognizant. Beginning life as a JV between Satyam Computer and Dun & Bradstreet in 1994, Cognizant emerged in its present form in the US in 1998, and promptly went public (CTSH on NASDAQ, and the stock currently trades at $36.64, Rs 1,649), becoming the first us company with a strong India focus; others such as IBM, Accenture, even EDs did not look at India seriously till much later. Then, that was only to be expected of a company that was founded to leverage the India-opportunity. The front-end in the us, back-end in India model (one that even the India-based it heavyweights are trying to move to) seems to be working: over each of the past eight quarters, Cognizant has grown revenues by 50 per cent. For the record, it hopes to close this year (December 31, 2004) with revenues of $581 million (Rs 2,614.5 crore), an estimated net profit of over $85 million (Rs 382.5 crore), and a headcount of 15,000. The growth, says R. Chandrasekaran, MD and head of Indian operations, stems from "a conscious decision to maintain operating margins in the 19-20 per cent range and reinvest everything else in the business", something that the man claims has helped "strengthen relationships and excellence in execution, resulting in faster growth and deep differentiation". That may explain Cognizant's low operating margins (Infosys' is 28.4 per cent, TCS' 27.3 per cent, and Wipro's 21 per cent). It could also explain the 10-20 per cent premium (in terms of Price-Earnings multiple) its stock boasts over Infosys' on NASDAQ although that could change after the latter's second ads listing (see story Infosys Inc.). There are areas of concern. "Cognizant's challenge is to become a leader through differentiation, rather than being a follower in commodity-based categories of service," says Frances Karamouzis, Research Director, Gartner, a technology consultancy. Still, the company is sanguine about its chances of crossing the $1-billion-in-revenues-mark in the next six to eight quarters. For a latecomer to India's it party, that's something.

-Nitya Varadarajan

ECLERX
Priyadarshan Mundhra/Co-founder
The New New Job

Forget the name with plebeian associations for a moment. eClerx is a business process outsourcing (BPO) firm, a minnow (it expects to end 2004 with $6 million, Rs 27 crore in revenues) in an industry dominated by some really big firms. Only, its business model doesn't revolve around transferring a process to India. "We devise processes that did not even exist for our clients," says Priyadarshan Mundhra, a Citibank (India) alum who teamed up with Wharton classmate Anjan Mallik (a former Lehman Brothers employee) to found eClerx in late 2000-the year probably explains the name. "So, it is not just a question of shifting jobs offshore, but about creating altogether new jobs." These new jobs have to do with high-end analytics, from risk management systems for derivatives trading to price benchmarking services for retailers. eClerx currently serves seven clients, including some Wall Street biggies, and expects to grow by 60-80 per cent over the next three years. "The aggregate revenues of our existing customers is in excess of $200 billion (Rs 9 lakh crore)," says Mallik. "Assuming even a 15 per cent operating expenditure, which is low, you are talking about $30 billion (Rs 1,35,000 crore) of spend of which an increasing proportion will be to players like us. Add to that, the additional fillip of the overall migration of work to India and we should anticipate growth well in excess of the market." Barring some concerns over that old bugbear, scalability, eClerx does look like the new new thing.

-Priya Srinivasan

GOKALDAS EXPORTS
Dinesh Hinduja/Executive Director
A quota of success

Bangalore's largest employer is neither of the city's tech glimmer twins Infosys and Wipro. That distinction goes to a low-profile garment exporter that employs 32,000 across the 42 factories it runs in the city.

With the quota regime (effectively something that put a ceiling on the volume of exports from a particular country) in apparel set to expire on January 1, 2005, this company, Gokaldas Exports, is poised on the brink of a great opportunity. It supplies everything from jackets and parkas to night dresses and underwear to customers such as gap, Old Navy, Nike, Adidas, Reebok, Fruit of the Loom, Tommy Hilfiger, Abercrombie and Fitch, Mexx, Polo and Puma. "We have been around ever since quotas came into play in 1976," smiles Dinesh Hinduja, Executive Director, Gokaldas Exports. "With an open regime, we hope to grow faster and have been making substantial capital investments in anticipation."

In 2003-04, Gokaldas Exports registered revenues of $140 million (Rs 630 crore) making it the country's largest garment exporter; it hopes to grow by a modest 20 per cent this year although it could, according to Hinduja, have very well grown at 30. " We want to make sure that our systems and process are robust enough to handle such growth." This, at a time when prices in the international apparel market have been in a free fall in anticipation of the end of quotas, a trend that Hinduja expects to see off in the next 12 months. Next step: factories in Sri Lanka and Bangladesh that compete with India as centres of the international apparel trade; and an emphasis on value-added offerings such as outerwear (think jackets with tape-seamed waterproofing). The Chinese do not worry Hinduja. What does, is a demand supply imbalance in bias of the former that he fears will set off a mad rush by the opportunistic to enter the business, and end with (following their inability to meet international standards of quality and delivery) an erosion of India's brand equity. And what does is the Indian labour regime that makes it difficult for companies to up or reduce workforce and poor infrastructure.

-Venkatesha Babu

HICAL MAGNETICS
Sashikiran Mullur/Managing Director
The Litmus

Its business is un-sexy, esoteric even; its revenues have remained stagnant at around Rs 76 crore for the past two years; a planned base in Shanghai remains just that, a plan; at a time when several Indian companies are eyeing global markets, this one-time export oriented unit (EOU) is suddenly focussing on the domestic market with a vengeance (and suffering at the hands of Chinese competitors). So, just why is Hical on this list? Simple, the company's fate could be indicative of that of the Indian manufacturing sector, at least that part of it that is under threat from the Chinese.

Bangalore-based Hical makes magnetic components that go into everything, mobile phones, base stations, telecom rectifiers, inverters and ups devices, medical equipment, even seat belt control systems in cars. Not too many companies have the expertise required to succeed in this market and until recently, Hical was on velvet, catering to customers such as Nokia, Siemens, Thomson, Ericsson and GE Medical Systems. Then, over the past 18 months, several customers moved their manufacturing operations to China; factors related to logistics and local market knowledge (even proximity) gave Hical's Chinese rivals an edge. Hical considered investing in a facility in China, then chose to go down another route. "We had to decide whether to spread our sparse investable resources too thin or do something else," says Sashikiran Mullur, Managing Director, Hical.

The something else turns out to be engineering design. The ability to design innovative products, says Mullur, allows the company supply 25-30 parts to customers, as opposed to two or three earlier. And the booming telecommunications market in India has attracted at least three companies that are investing in mobile handset manufacturing facilities in the country, allowing Hical an opportunity to pay the Chinese back in kind. "While our focus will be on leveraging our long-standing relationships with marquee customers, the domestic market has become very bullish and we want to be both in the high volume and high value game," says Mullur. Everyone's watching.

-Venkatesha Babu

HUGHES SOFTWARE SYSTEMS
Arun Kumar/Managing Director
Software Inside

It may be Hughes' acquisition of Bangalore-based Tenet Technologies and of the GSM support business of Lucent Technologies in Germany that helped turn around the company's fortunes as Arun Kumar, its Managing Director claims, but in a year that saw the ownership of the company change twice-Rupert Murdoch's News Corporation acquired it in December 2003 when it bought Hughes Network System and later sold it to Singapore-based Flextronics in June 2004-it is the fact that it is now part of Flextronics (the company owns 70 per cent of Hughes following an open offer) that makes it a shoo-in for this listing.

Flextronics (Revenues of $14.5 billion or Rs 66,700 crore in 2003 and an anticipated $17.4 billion or Rs 78,300 crore in 2004) is the world's largest electronics manufacturing services (EMS) company. Shorn of jargon, that means the company manufactures and ships hardware for almost every hardware brand in the world. Hardware manufacturing is a low-margin business-Ever wonder why the pc you bought two months ago costs almost 20 per cent less now?-and companies such as Flextronics survive by reaping the benefits of scale. The Hughes acquisition, however, should help the company offer not just hardware but the software embedded in this (as any analyst will vouch, the quantity of software in hardware has been steadily increasing) thereby increasing profit margins; software, after all, is where the money is. "We will be the software engine for Flextronics worldwide," says Kumar. "The (Flextronics) deal will get larger and better clients for Hughes," adds Gurunath Mudlapur, Head (Research), Khandwala Securities, a Mumbai brokerage. There!

-Supriya Shrinate

ICICI BANK
K.V. Kamath/Managing Director
Universal Marketer

We cannot do an ICICI Bank; it can roll out a retail branch in five days." That was what the CEO of a new bank told this magazine recently as he was preparing to open for business. This magazine found out it took the company slightly longer-30 days from the time it decides to put down a branch to the time the said branch opens its doors; see Up In Five Days, Business Today, December 7, 2003-but the aggression the quote implies is very much part of ICICI Bank's DNA. From retail banking to home and car loans, to credit cards, the company is among the market leaders in virtually every possible business related to banking, and speed is a common thread that runs through everything. "Eighteen months back we had no international presence worth speaking of," says Kalpana Morparia, Deputy Managing Director, ICICI Bank, contrasting that with its present reach, nine countries across five continents.

Its financial institution (FI) provenance-ICICI reverse merged with ICICI Bank in March 2002-has meant the bank has a traditional advantage in corporate banking. Now, says Vikram Sengupta, a banking analyst with Mumbai brokerage Khandwala Securities, "with the impending credit boom and huge capital expenditure plans of companies, ICICI Bank has an edge". Non-performing assets, which seemed a matter of concern at the time of the merger (they stood at 4.8 per cent of net advances, as compared to under a per cent for rivals such as HDFC Bank), are now down to 2.6 per cent, but the FI heritage has saddled the company with a higher average cost of borrowings (4.4 per cent) than it would like. That, though, should change and knowing ICICI Bank's track record, very soon.

-Abir Pal

ITC
Yogi Deveshwar/Chairman and Managing Director
Village Voice

The last mile... in these jargon-ridden times, these three words mean different things to different people. To the top brass at ITC, the Kolkata-headquartered tobacco-to-FMCG-to-hotels-and-lots-more giant, they mean opportunity, growth and profit, not necessarily in that order. There is no organised marketing and distribution in 87 per cent of India's villages, home to 50 per cent of the rural population. Low population density and poor infrastructure pose daunting logistical challenges, rendering the costs of customer acquisition prohibitively expensive. This is where ITC's e-choupal initiative-it started life as an information-enabled wired rural community aimed at doing away with the middleman in the agricultural commodity business, but has since morphed into something much much bigger-can potentially make it the champion of "the last mile". The agri-business, of which e-choupal is a part, contributed Rs 47.56 crore to ITC's bottomline during the quarter ended September 30, 2004, on sales of Rs 403.01 crore. This will grow significantly as e-choupal expands. Chairman Y.C. (Yogi) Deveshwar expects revenues from this initiative to overtake revenues from cigarettes in a decade. It is this promise of being a retailer to the masses (the real masses) that makes ITC truly hot, not its reasonable, but by no means staggering success in businesses as varied as packaged ready-to-eat foods, hospitality (read: hotels) and apparel. All the non-tobacco businesses put together accounted for 28 per cent of ITC's sales in the first half of 2004-05, only slightly more than the 25 per cent it did in the corresponding period last year. And while the FMCG (largely confectionery and foods, although the company has just announced a diversification into personal care products) business and hospitality have what it takes to drive growth, it is e-choupal everyone has their eyes on.

-Arnab Mitra

LARSEN & TOUBRO
A.M. Naik/Managing Director
Core Builder

All through the 1990s and early 2000s, when India Inc was busy getting the most out of existing capacities rather than investing in new ones, and when the government's emphasis on infrastructure had more to do with words than action, L&T flourished. Now, given the all-too-real (and imperative) focus on infrastructure and the coming investment boom-Mumbai-based brokerage ICICI Securities estimates the total investment between 2004 and 2006 at $51 billion, Rs 2,29,500 crore-the company should do even better. Engineering and construction have always been the mainstay of L&T; now, following the June 2003 sale of its cement business to Grasim, they account for over 80 per cent of the company's revenues. The Engineering, Contracts, and Construction division, popularly abbreviated as l&t ecc is the engine driving this; it hopes to close this year with Rs 6,500 crore in revenues (L&T itself, hopes to do Rs 12,000 crore) and boasts orders in hand of the magnitude of some Rs 10,000 crore. "We make the things that make India proud," laughs A. Ramakrishna, President and Joint Managing Director, L&T ECC, repeating the company's advertising-line, a reference to the 40 fertiliser plants, 70 power plants, several car factories and airports, the Lotus Temple in New Delhi, and a new sports stadium (completed in a mere 260 days) in Chennai, all built by L&T ECC. Pride is one thing, performance another, and although L&T's net profit margin (in 2003-04) was a healthy 8-9 per cent, analysts believe it could have been much higher if the company had focussed exclusively on large projects. "In five years, we will have an overseas subsidiary with full-fledged operations," adds A.M. Naik, Managing Director, L&T, explaining that the company plans to parlay recent opportunities in construction in Africa, Russia, West Asia and Malaysia into a global presence. Until then, however, the company will have its hands full dealing with the infrastructure-boom.

-Nitya Varadarajan

MATRIX LABORATORIES
Nimmagadda Prasad/Chairman and CEO
Reloaded. Revolutions To Come

"I need an ID when I travel abroad," smiles Nimmagada Prasad, Chairman and CEO, Matrix Laboratories. The 42-year-old six-footer is explaining his recent acquisition of an international driver's licence; the id is a pre-requisite for entry into technology parks in other parts of the world, several of which Prasad visits regularly. He is unlikely to face a similar problem in India: most people know him. As they would a CEO who took a company with a negative net worth and transformed it into one with a net worth of Rs 650 crore in four years. As one would expect it to, D-street has reacted ecstatically to the turnaround: the Matrix stock quotes at around Rs 1,800 today, up from just around Rs 30 two years ago.

Matrix's success hinges on its ability to convince the world at large-the universe includes hard-nosed private equity investors from Newbridge India Investment Limited and Temasek-that it can make a go of its API (Active Pharmaceutical Ingredients; bulk drugs in layspeak) model. So, the company is into contract manufacturing of formulations, contract research (of New Chemical Entities) and the supply of bulk drugs, but it does not play directly in the booming (and intensely competitive) generics (read: drugs that have just gone off patent) market, choosing instead to work as a facilitator and partner for generics companies. The result is a promising revenue stream of APIs (such as Citalopram, which once accounted for 50 per cent of the company's sales and now accounts for 27 per cent), contract manufacturing opportunities, and ARVs (anti-retroviral, used in the manufacture of aids drugs). Interestingly, this helps balance net profit margins between a low of 15 per cent for the ARVs to a high of 50 per cent for select APIs. "We are now increasing our ability to deliver value by looking at contract manufacturing of finished dosages," says C. Ramakrishna, former CFO and now an advisor to the company. Analysts believe all this warrants a valuation as high as Rs 2,542 crore. It well may.

-E. Kumar Sharma

PANTALOON RETAIL
Kishore Biyani/Managing Director
India's Wal-Mart

IIn 1987, Kishore Biyani was a small trouser manufacturer; today, he is India's Mr. Retail. Others, notably Sanjiv Goenka of the RPG Group, have staked claim to that title in the past, but with Biyani's Pantaloon Retail planning to quadruple its retail reach, spanning three formats and even more brands, Big Bazaar, Pantaloon, Food Bazaar and Central from 1.3 million square feet to 5 million square feet over the next two years, the man, more than anyone else, has the opportunity to build India's Wal-Mart. "To continue opening stores at the rate at which he is doing without being exhausted, is something most players in this sector have not been able to manage," says Harminder Sahni, Principal Partner, ksa Technopak, a retail consultancy. Sahni is right, scalability has been the Nemesis of most Indian retailers, but Biyani has managed to consolidate operations and grow them, all at once. "Making sure we stay ahead of competition is my present job," laughs Biyani. Well, he is proving to be adept at that.

-Priyanka Sangani

PRICOL
Vijay Mohan/Vice Chairman and Managing Director
Instrument Of Success

Circa 2004, the Indian auto-components sector is replete with fairy-tales. Some have to do with the Deming Medal, the Oscar-equivalent for the quality-conscious. Others have to do with superior financial performance. And still others, with a foray into the international domain, not merely through exports but through a foreign acquisition or greenfield venture. Coimbatore-based Pricol has achieved a measure of success on all three parameters, although not of the same magnitude as, say, a Bharat Forge. If there's something going for the 30-year-old company that boasts a 50 per cent-plus share of the automotive-instrumentation and sensors (think speedometers, tachometers, fuel injection sensors) market, it is its focus on a profitable niche of the auto-components market (in part brought about by a rash Rs 50 crore investment in an agri-products diversification that went nowhere and seems to have taught Pricol a lesson) and the fact that it is fast approaching a point of inflection. Pricol will close this year with revenues of Rs 450 crore; exports will account for 13 per cent of its turnover; and it is considering an overseas base or two (Pricol already exports to Suzuki and Piaggio). These, combined with an outsourcing drive and complemented by investments in R&D (to the tune of 3.5 per cent of revenues each year for the past 10), should help the company graduate into the next league. "We have been too vertically integrated from the beginning," says Vijay Mohan, Vice Chairman and Managing Director, Pricol. "We make all we require, from tooling machines to components." The outsourcing drive, Mohan reckons, will allow him to redeploy a chunk of the company's workforce of 4,000 into "newer innovative product lines". That, in turn, could result in a happy-ever-after story in 2005.

-Nitya Varadarajan

SOLECTRON CENTUM
Apparao Mallavarapu/Managing Director
Made In India

Hardware is definitely in (see India's Rs 75,000 crore Hardware Opportunity, Business Today, February 29, 2004). Ergo, companies such as Solectron Centum must be in too. Like Flextronics (see Software Inside on page 64), Solectron is an electronics manufacturing services (EMS) company (a $12-billion, Rs 54,000-crore one) and Solectron Centum is its Indian arm. EMS is the future of hardware and any booming hardware market (India is on its way to becoming one, remember?) is fair game for companies such as Solectron. One reason for that is the unique characteristic of hardware markets around the world: steep obsolescence curves, continual reduction in prices and large volumes. The other is an increasing trend among hot product start-ups (Apparao Mallavarapu, Managing Director, Solectron Centum, lists Tejas Networks and Exalted) to "focus on their core strengths of research and development and completely outsource manufacturing". A few months ago, Solectron shut its Harlow plant in the UK and moved the equipment to Bangalore. With revenues of Rs 35.72 crore and a net profit of Rs 8.23 crore last year (Rs 20.68 crore and Rs 7.47 crore in the first six months of this year), Solectron Centum is yet to arrive. When the hardware boom intensifies, it surely will.

-Venkatesha Babu

SUZLON ENERGY
Tulsi Tanti/Chairman
Money From Thin Air

As a businessman running a smallish textile company Tulsi Tanti, Chairman, Suzlon Energy would often gripe about power- and capital-costs. In 1995, after some serious research into alternative sources of energy, he decided that wind-power was just the thing. Reason? It was one form of energy whose production-costs would remain the same year after year (thermal energy has an in-built escalation of around 5 per cent a year). The capital costs involved-the technology required is far more sophisticated than the burn-and-sell logic of thermal energy, for instance-are higher, but Tanti is certain that over time, wind energy will cost far less than thermal energy. The 400 mw of energy Suzlon will produce this year, for companies such as Bajaj Auto, Jindal Steel and Tata Power (it resells this to customers) and entire industry clusters such as Tirupur, will cost almost the same as thermal energy, but over the next five years, claims Tanti, it will be 15 per cent less expensive. Suzlon's business model is simple: companies buy wind energy turbines from it largely driven by the desire to reap the benefits of depreciation (they are allowed to depreciate their investments by 80 per cent in the first year); Suzlon, manages the capacity and charges a maintenance plus operations fee; over time, this fee will come down as the company becomes more efficient at managing the operation; ergo, the cost of wind-energy will reduce. This model has worked well enough for the company to target Rs 2,000 crore in revenues this year (it did around Rs 900 crore last year) and attract investments from Citicorp International and ChrysCapital. Competition in the business is pretty intense-there are some five wind-energy companies operating in India-and there are concerns in some quarters that Suzlon's wind-energy turbines (a capacity of 350 KW and higher) are far too powerful given the low wind density in India, but as long as the company can manage its costs and tax laws allow the depreciation-benefit, the company should sail smoothly on.

-Priya Srinivasan

TATA POWER
Firdose Vandrevala/Managing Director
Charge Of The Light Brigade

It is the difference between a prosperous farmer contentedly tilling his fields and a hunter, going out, fighting and gathering food," says Firdose Vandrevala, Managing Director, Tata Power. The man is referring to the transformation in the company, once best known for the quality of power supply in Mumbai, its first foray into retail distribution (today, the company also distributes power in parts of Delhi). If 2003's Electricity Act was expected to jump-start private investment in the power sector, then Tata Power's plans are proof that this has indeed happened. Over the next five years, the company will double its power generation capacity from the existing 2,200 mw. The transmission (Tata Power recently bagged a $32-million or Rs 144-crore contract from the Power Grid Corporation of Bangladesh to construct a 187-km power line) and distribution business serves as an ideal buffer for the generation one, where tariffs have recently dropped, a fact manifested in the company's lower revenues and net profits for the first half of this year (Rs 2,027 crore as opposed to Rs 2,143 crore last year and Rs 240 crore as compared to Rs 270 crore). And although regulation can play spoilsport anytime-for instance, the Government could decide to reduce the assured return on equity promised to private producers of power from the existing 16 per cent-analysts are sanguine about Tata Power's prospects. "The company is conservative with its plans, does not rush into projects and is very thorough in what it does," says Sameer Ranade, an analyst at Mumbai brokerage Pioneer Intermediaries. And it pays to be a long distance runner in the power sector.

-Abir Pal

TATA CONSULTANCY SERVICES
S. Ramadorai/CEO & MD
#1

TCS was an obvious choice for the 2003 and 2004 listings. If it didn't feature in either, it was because it was yet to become a company. Today, however, TCS isn't just any company; it is the second most valuable Indian private sector company (BT 500, see Business Today, November 7, 2004), the largest software company in the country, and the first among equals in what Sandeep Shenoy, a strategist at Mumbai brokerage Pioneer Intermediaries, terms "the golden trio of the industry", TCS, Wipro and Infosys.

There's a lot going for the company that employs 36,000 (from 30 nationalities if you must know), boasts 151 sales offices spanning 32 countries, and 31 delivery centres, spanning 10. Attrition, for the year ended 2003-04 was low, at 7.9 per cent, on par with industry gold standard Infosys'; around 12 per cent of the company's revenues came from the domestic market, serving as a buffer against the vagaries of the global marketplace; its recent acquisition of Phoenix Global gives it a toehold in the booming business process outsourcing (BPO) market; and it has just come off a successful, very successful IPO (The Rs 5,420-crore issue was subscribed 7.7 times over). "We are strengthening our global presence not just in it services but in infrastructure, it-enabled engineering, consulting and packaged software," says S. Ramadorai, CEO and Managing Director, TCS.

Nothing much can really go wrong for a company operating with revenues of around $2 billion dollars (Rs 9,000 crore), which is what TCS hopes to close 2004-05 with in a market growing by over 30 per cent. Still, TCS must prove that its management processes and people policies are at least on par with its two closest peers. This, its first year in the public eye, is the time of reckoning.

-Abir Pal

VSNL
N. Srinath/Director (Operations)
A Giant Leap

VSNL literally bought its way into this listing, and only just. If the company had not acquired Tyco Global Network on November 1, 2004, for $130 million (Rs 585 crore), it is likely that it wouldn't have figured in the 20 Companies to Watch in 2005. Ever since the Tata Group acquired VSNL in February 2002, the company, and the group have consistently made the headlines on the strength of strategic- and operational-inertia. First, there was the fact that VSNL just sat on the domestic long-distance telephony licence it had acquired gratis, compensation of sorts for the premature end of its monopoly on international long distance telephony. Then, the Tata Group took its time rolling out its CDMA-based mobile service across the eight circles for which it had licences (even today, it boasts a mere 6.57 lakh subscribers, well behind Reliance Infocomm, which boasts 83.87 lakh). As a result of its inability to originate and terminate traffic, the company lost out on a portion of tariffs that would have otherwise been its. The Tyco deal should change all that. In one swoop, the company has acquired 60,000 kilometres of undersea cable, connecting around 25 of the world's biggest cities (including several in the us). The acquisition also comes at a time when VSNL is finally becoming aggressive, selling its offerings to corporate customers; several it and IT-enabled services companies, for instance, need bandwidth to pipe data to the US and the Tyco submarine cable will help VSNL do just that. Better still, the company's 25,000-km long domestic long distance network is in the process of being lit. The last-mile is still a point of concern but even Tata Indicom, the group's CDMA service, has been far more proactive this year than it was in the past. "Our aim will be to leverage the telecom, it and vertical domain strengths within the Tata Group to offer managed telecom services to customers," says N. Srinath, Director (Operations), VSNL. This is definitely a company whose time has (ah! finally) come.

-Roshni Jayakar