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There's something irresistably heady about growth. It is the stuff that dreams are made of. It's the stuff that pumps the adrenalin. It's the stuff that makes analysts sit up. It's the stuff that demands two big questions answered. One: what's going on? Two: is it going to keep going on? We have some details for you on India's 21 Fastest Growing Companies to help you decipher answers for yourself. Asahi India Glass 'Glass is the new Concrete', Asahi has proclaimed. It makes Sanjay Labroo, its chief in India, pat himself on the back every time he sees a new corporate construction headed skywards. In the old days, architects recommended loads of concrete sun-barriers for Indian buildings, given the country's heat surplus and energy deficit. Now the corporate world, a lot richer and a lot more AC-bill-happy, is keen on giving itself the gleam that defines the landscape imagery of developed cities across the planet. To catch a glimpse of this, visit Gurgaon, near Delhi, where Asahi India Glass Ltd is located. The company is at the forefront of India's glassification, and has made a net profit of Rs 17.5 crore (vis-à-vis Rs 3.4 crore last year, but that was before the merger with Floatglass India) for the quarter ended December 2003. Automobiles is the other success arena for Asahi. If you drive a recently bought Indian-made car, there is a 90 per cent chance that you spend considerable time looking through Asahi glass. Notice the lower left or right hand corner of your windscreen---a little 'AIS' logo, for Asahi India Safety Glass. That was the name of the company that was advised by its Japanese JV partner, Asahi Corp, to take over the loss-making Floatglass India, in which the partner also had a substantial share. "At first," recalls Labroo, "we did doubt how we would make it work. But on further analysis, we thought that this acquisition might work well because we would enter a fast-growing segment (architectural glass), thus diversifying our business into two cycles instead of one." Since the formal takeover in August last year, Labroo's team has turned the company around. Yield, production and margins have all seen massive improvements. Of course, the construction revival has helped. "The number of glass-fronted buildings coming up is amazing, and we have not entered the value-added (processed) architectural glass segment as yet," says Labroo, indicating that the company is studying the possibility of market potential in double-glazed and reflective glass, the kind that third-party manufacturers are already into (though they're using floatglass made by players such as Asahi and Saint-Gobain. If all goes well, a plant may be up in 3 years or so. There is also a second factory for automotive glass coming up near Chennai, to service the burgeoning demand in the region. The first phase will be onstream by November this year, and when the plant is completed by 2009, Asahi would have more than doubled capacity from the current figure of 1.2 million sets (a set is a complete set of glass for a car). As of now, Asahi expects the auto glass market to grow at an annual 10-12 per cent and housing at around 18-20 per cent. Beyond that, there's the export opportunity---once capacities are augmented. "After all," boasts Labroo, "we are a low-cost, high-skill and high-scale production base." Anything that makes the growth story brittle? Well, nothing other than the overall risks of implosion the Indian economy faces on account of big picture deepening of cracks. It is a derived demand business. Other than that, a surge of competition, perhaps. As a brand, Saint-Gobain has been building an emotional pathway with the retail consumer, while Asahi's transparency pitch needs to get serious. Tata Motors Tata Motors is suddenly the pride of the Tata Group again (remember those heart-stopping losses some three years ago?). The launch of its Indigo sedan-which it is, actually---has marked a sudden surge in the company's fortunes, helping it pull ahead of Hyundai as the No 2 car marketer in India. And challenger-in-chief to Maruti's claim to the mantle of 'leader'. In the period from April to December 2003, Tata sold 97,219 cars, up 42 per cent on the same period of 2002. Spoil yourself? You certainly would have, had you bet on this sort of eye-popping growth when things looked so gloomy back in 2002. The economic resurgence of 2003-04 has helped its commercial vehicles business, too. In the April-December 2003 period, sales of Tata's commercial vehicles surged by 44.5 per cent---to touch 104,675 units. Its market share in the trucks segment, particularly, has risen from 66 two years ago to 70 per cent now. The share of pick-up vans has spurted from just 6-7 per cent two years ago to 37 per cent---a huge gain. On the whole, Tata credits its own management with the success. "This growth is a result of drive over the past three years to bring a slew of new products into the market," says Praveen Kadle, Executive Director, Finance, Tata Motors, "Over the past 18 months, we must have brought 15 products (including variants) to market." Backing the new launches was a revamp of the marketing and distribution network, a broadening of the export base, new global alliances (such as the one with Rover in the UK) and a revisit of diesel-happy tropical export markets in South Asia and Africa. Diesel, as the company once indicated, remains technologically under-invested because it tends to freeze in subzero temperature conditions, which puts off rich-world auto players. Meanwhile in India, Tata is finally showing signs of market savviness that it was once accused of lacking almost entirely (fuelling jokes of executives bewildered by Hindi film titles). Indica, especially the V2, has done remarkably well. The Indigo too has become a priority pick for many well-educated and well-off Indians, to the surprise of a few auto analysts who keep their tech-spec heads under bonnets rather than the intangible depths of consumer preference. Tata's market share has about doubled from 9 per cent three years ago to 17 per cent now. Will the good times for Tata Motors continue? Assume for a moment that Tata's proposed sub-Rs 1 lakh car will be at drawing-board stage for some time yet. Competition wise, Tata faces few immediate threats, though it may need to sharpen its brand appeal if it is to swing more favour away from Hyundai. As for the economy---the same conditions apply as to any other company, alongwith the uncertainties no company wants to talk about. Moser Baer If you see America's $30 DVD players headed for India soon, you might do well to track the fortunes of a company betting big on this digital storage-device format. Moser Baer. The peculiar name has its origins in a Swiss timing-device expert with which the Indian company once had a JV (reduced since to a loose alliance). The company specializes in picking a data-storage format at a non-pioneering stage of its product life cycle, once the finer technicals have proliferated and capital costs have crashed, and then turning it out in vast numbers to sell super-cheap, globally. Its current high is on account of Compact Discs (CDs). If a blank CD-R costs only Rs 10 (20 cents), you have the company to thank for it. Of course, whether it's a floppy disc or compact disc, rapid obsolescence is always an issue. And Ratul Puri, Executive Director, Moser Baer, admits wholeheartedly that his company has enjoyed some luck in the recent past. Getting in just when the cost and price equation suited its operations. At the moment, the company is ramping itself up in optical media and multiplying its numbers frantically to satisfy exploding demand. Other factors have played a role in its success too, as Puri asserts. It has drawn on local cost-reengineering R&D to crush manufacturing costs, even while maintaining the quality standards required to be recognized as a trustworthy international brand in the data supply chain (trust, indeed, is the brand's current advertising thrust). Success, however, is about global competitiveness---on cost, mostly. The global market has undergone consolidation in search of scale, and the other four players are based in Taiwan and Japan. Moser Baer's global market share? An impressive 18 per cent in the last quarter. According to Puri, another reason for the company's success has been its operating independence--- seen in its steadfast refusal to undertake long-term contract manufacturing jobs. It has focused, instead, on being a manufacturing outsourcer. "People believe that the contract manufacturing model is a low-risk, low-return model," he says, "however, I believe that the model carries the same risks as our model with far lower returns." With a 40 per cent gross margin on every disc, which translates into a 20 per cent net margin, the company enjoys an ROI of 20-25 per cent. Doesn't sound much like a regular 'commodity' business, now does it? Indeed, the growth numbers are even more stunning. But the company is currently riding the crest of a CD wave that isn't likely to rise again once it subsides. Ah, says Puri, the capacities are "fungible" and can switch to the next big format---DVD---that has barely begun its ascent. "Just like the huge installed base of almost a billion CD players and writers has driven the sales of blank CD-Rs," he smiles, "as DVD players get cheaper, blank DVD sales can only go up." The company estimates that the global market for blank media will go from $2.5 billion in 2002-03 to about $7.5 billion by 2008-09. Entertainment software is moving from public arenas to private rooms in the US at a rapid pace. Hollywood now depends twice as much on home movie rentals and disc purchases than on the box office for its revenues. This trend could go global (though India's entertainment dynamics differ). There's clearly a lot of money to be made by a competitive player ready to ride this wave. Any potential speed breakers? Well, the constant wrangling in the industry over standards could be a minor one (the plus and minus imbroglio). "You would have thought the industry would have learnt after VHS and Beta, but that's wishful thinking," Puri muses. Indeed, the battle for standards is often where vast fortunes are decided. Another thing Puri might do well to watch carefully--- the intellectual property owners' attitude to disc-less internet transmission. A disc is just a piece of plastic. Remember, Sony decided to go for Columbia only after discovering the power exerted on the standards business by the world's creative resources. Saw what has happened recently, post-Napster, in the music business? Even while you read this, Apple's Steve Jobs might well be talking to Sony, even as Disney worries about its future. Tata Telecom To morph from a retailer of small exchanges (PBXs) to a successful provider of converged communication solutions cannot have been easy. Tata Telecom -- a joint venture of the Tata group and the Lucent spin-off, Avaya -- saw and seized the opportunity for marketing such 'convergence' solutions ahead of its competitors. Today, the company strides over half of the burgeoning contact centre market (BPO segment), which also accounts for half of its annual revenue of Rs 325 crore. The balance comes from Video-conferencing, virtual private networks and Voice over Internet Protocol (VoIP) solutions for the non-BPO segment. "We have all the basics right, and are limited only by our own imagination and ability to draw on the organisational and individual competencies that we possess," says the vice-chairman of Tata Telecom Niru Mehta, who is also the managing director and vice-president of Avaya India. He came from US in 1997 for a 18 month stint in the country to transfer (PBX) technology to the Indian team and has stayed on to lead the company into the convergence era. The future looks good, given the explosion in communication infrastructure. Revenues are projected to maintain the annual growth rate of 25 per cent even as new sources of growth -- markets outside India and acquisitions -- are tapped. The downside? There could be a question mark on the future of the joint venture. In Mehta's own words, however, the venture has worked well for all the stakeholders -- the partners, the customers, employers and shareholders. Why change the winning formula? Point taken. The revenue path seems clear. But what about the state of competition? Telecom per se is a mega-field now. It is still in flux, and is a game of scale as much as technological finesse. That's why the field has such ambitious players as Reliance, a company that wants to create a huge mega-grid of its own and possibly dictate the very backbone of the country's communication set up. Would this reduce Tata Telecom's role to that of a relative lightweight? Hughes Software Hughes was known as a software product developer once. Now, it is better known for business process outsourcing (BPO) services and legacy software maintenance. It almost seems to justify the notion prevalent in the US that China is its chief contender for 21st century technology leadership---given the standard-setting power of its mass market---while India will meekly content itself with jobs the US has outgrown. But hold on. Growth is growth, you could argue, however it is achieved. And rapid growth is one among many elements in achieving market force in the decades ahead. Hughes, for its part, is setting a scorching pace for itself. In the last quarter (October-December), the company reported a 70 per cent increase in revenue and a 110-per cent increase in profit. "Hughes Software Systems continues to beat all expectations on revenue growth, margins and earnings growth," says a gushy report from Prabhudas Lilladher. Beginning with a team of 20 in December 1991, the company has a 2,357 strong workforce today that generated an income of Rs 220 crore and a profit of Rs 37 crore in 2003. Critical to the company's success is the high 10 per cent spend on R&D which was maintained through the downturn. "We took prudent decisions then without sacrificing the future," says Arun Kumar, president and managing director. The multi-million outsourcing contract it bagged from Lucent (market estimates put it at $30 million) last year against global competition, was a major morale boost. "Success breeds more success," says Kumar, who is confident of crossing the $100 million mark by 2005, riding on the upturn in the telecom business and the move to 3G networks. With plans to add 1,000 people over the next 12 months, there are few growth pangs visible here. Yes, 'outsourcing' is under heated debate in the US, but trust that country's political system with one thing---knowing what's best for its economy. It's a reasonable assumption that whether it is a Republican or Democrat White House next year, outsourcing will continue because America Inc is achieving efficiencies through it. Protectionism has been recognized as a danger. Expect a surge in data exchange across the globe. Polaris Software Polaris Software Labs is the sixth largest offshore vendor in the financial services, and among the top 20 software exporters from India. The company had gone through trying times since the announcement of its merger with Orbitech last year. But according to analysts, the worst is over. Cost benefits have started to flow in, on account of communication cost optimisation, vendor rationalisation and other general and administration expenses. While offering services that piggyback on a product portfolio, Polaris will grow its revenues at over 20 per cent CAGR. This, along with the savings accrued, could help an overall earnings growth that could exceed peers such as Satyam, according to a Deutsche Bank Securities report published in December. Polaris' product strategy, unlike other product players (like Temenos and i-flex) is more interlinked to offerings on the services side. Globally, large banks use inhouse developed software platforms (instead of installed solutions), and IT service vendors continue to be used for developing new modules as also for customisation and maintenance of these solutions. Figures from IDC and Gartner suggest that the market for these is 5 times that of pure play product offerings, so Polaris stands to benefit, though of course it must incur recurring manpower costs that the classic product model doesn't have to. For the nine months ended December 2003, Polaris has seen its revenues grow 75 per cent to Rs 476.11 crore, up from Rs 272.35 crore in the previous corresponding period. Net profits grew by 47.9 per cent to Rs 61.36 crore, up from Rs 41.51 crore. Average collection time came down to 94 days from 112 days, and 8 new clients were added in the last quarter. Manpower too was added substantially. Repeat business contributed to 85 per cent of revenues. According to Polaris' Chairman and Managing Director and CEO Arun Jain, speaking after the 9-month results, "We decided to approach Tier-1 banks before Tier-2, and this focus helped us get customers like Deutsche Leasing in Europe, Shinsei Bank in Asia and an American bank. Orbione (the framework offering from Polaris) has been validated as a next generation architecture offering.'' Other than that, "Packaging the product with service offerings will help Polaris grow from a mere `utility' business to an `enhancement' business before the third level of expertise - which is transforming businesses." Risks? The same as applicable to all other software exporters. Polaris' peculiar product-service hybrid model needs to be watched for flexibility either way. Call it mid-risk, mid-return. Software product marketers, worldwide, are high-risk, high-return. They are so interesting because they can reap big-time profits on account of multiplying revenues on a fixed development base. Few Indian companies have dared move in that direction (iFlex, notably, has with its FlexCube banking package), given the market expertise needed and risks involved. If Polaris is to actually make the break, it will need a much stronger sense of brand appeal. If it decides to move back towards services, then it's a different story. Orchid Chemicals and Pharmaceuticals Like software, chemicals and pharma expertise could range from the primitive to the highly sophisticated. Orchid has been inching up the value chain, and has been recording marvelous growth along the way. One of the prime drivers of growth in the current year according to Managing Director K Raghavendra Rao is the shift from unregulated to regulated markets. This is a global phenomenon. And though the company's strategy was drafted in 2002, the various approvals - US FDA and COS from Europe --- have started materializing only recently. Some five products have become COS-certified and two blocks have got US FDA approval. The remaining (17 more products), in the 'bulk actives' category, would be certified by 2005. Rao is also planning to gain FDA compliance for the higher value-added product formulations. According to an SSKI report, increased sales to regulated markets would result in 28 per cent CAGR over 2002-03 to 2006-07. Over 60 per cent incremental sales would come from regulated markets. Orchid has struck a tie-up with Apotex for distributing its products, and this represents a market worth of $ 1.6 billion. The report expects net profit to grow 88 per cent CAGR over the aforementioned period. Debt is likely to fall as free cash generation shoots up, and the return ratios are likely to rise from single digits (5-6 per cent) to 20 per cent in FY 2006. Orchid's top and bottomline growth figures have been consistent through all quarters this past fiscal, compared to previous corresponding quarters. The turnover for the nine months ended December 2003 was Rs 505.66 crore, an increase of 46 per cent over the previous year's figure of Rs 346.45 crore. Likewise, net profit jumped to Rs 23.27 crore from Rs 9.52 crore. But Q4 is expected to turn out the best thanks to the acquisition of Mano Pharma, a formulations company. This is expected to push growth in the formulations division, particularly since the company has gained access to the segments of cardiovascular, anti-diabetes, central nervous system treatment. Orchid has always held its own in inflammation and anti-infectives. In another three years, according to Rao, Orchid will become a "discovery-to-delivery" company with its research initiatives bearing fruit. That, of course, is the plan. But pharma is perhaps the world's most difficult high-risk high-return game, and once the 2005 global patents regime kicks in---only the very best Indian companies will be able to hold steady as global players. While Orchid certainly has a strategy of sorts, this last attempt to break into a high-value-added business depends too much on the promise of chemicals still in test-tubes. Elgi Equipments Pneumatic power doesn't excite too many people. Neither do compressors. But if they're part of a growth story, it pays to pay attention. Elgi Equipments, an engineering and capital goods company, has been supplying assorted engineering inputs to industry for quite a while, and to a diverse clientele - ranging from auto manufacturers and some component players to the tea industry, paints, engineering and cement (some names include ABB, Reliance Petro, Indian Railways and Bajaj). This year has been notable for its export thrust. In September this fiscal, Elgi received a certification from the Association of American Railroads (AAR)M-1003 that qualifies it to become a supplier to the association. It has also entered into a collaborative manufacturing initiative - a business partnership with a US Fortune 500 company, the largest compressor manufacturer in the US. While the initial requirements are upwards of 45,000 compressors (business worth Rs 15 crore), the other good news is that it may want to expand its range with its products. "Elgi will benefit from building volume based competencies into our manufacturing processes," says Dr Jairam Varadaraj, Managing Director. As of now, India represents only 1 per cent of the market for compressors, in which Elgi has about 35 per cent market share on a consolidated basis. "This means that global market share is only 0.35 per cent," admits L.G. Varadarajulu, chairman, who is keen on the global opportunity now. While the future thrust of the company is evident, Elgi has improved its sales performance in the domestic segment both in terms of volumes and price realisation. The focus on certain spare parts has yielded good results in profitability and growth. The company also made significant gains in such segments as waterwell drilling, after the recent drought. Elgi's domestic competitors are Atlas Copco, Ingersoll Rand and Kirloskar Pneumatics, and the company's market share ranges from 30 per cent to 80 per cent, depending on the segment. The present order book is around Rs 90 crore and the nature of its businesses is such that it does not have a large backlog. In the current year, it has invested Rs 12 crore and there will be "continued investments in balancing capacities to squeeze productive capacity out of investments'', in Varadaraj's words. Sales for the nine month ended December 2003 stood at Rs 244 crore (against Rs 174.7 crore last year). Profit after tax stood at Rs 25.3 crore, against Rs 11.1 crore. Will the story continue? On current trends, very likely. Sona Kayo Surinder Kapur had his son Sunjay's pictures splashed all across the tabloids after the young man married Bollywood star Karisma Kapoor. But there are things on his mind other than starry fame, for he runs one of India's largest automotive component manufacturers, Sona Koyo Steering Systems Limited. With the auto industry in boom, and his largest client Maruti cranking out record sets of wheels, Sona Koyo is in good shape. "This year (fiscal 2004) we expect revenues to touch the Rs 270 crore mark (vis-à-vis Rs 220 crore last fiscal), but the target is to hit Rs 450 crore in revenues by 2007," says Kapur. One way would be to get heavy on exports. "By 2007," he continues, "we should have Rs 100 crore in exports and we have already booked 70 per cent of that sum (thanks to the long gestation period of automobile manufacture). In fact, we should start full-fledged exports by August this year." However, Kapur admits that Sona Koyo's export plans have one hitch. The company is an Indo-Jap JV. "We are not going to compete with our joint-venture partner (Koyo Steering Systems). After all, they are the largest steering manufacturer in the world. We will be providing steering sub-assemblies to them and they recognise that Sona Koyo is one of their lowest-cost suppliers. However, we will enter areas where Koyo does not manufacture products, like golf carts." As of now, Sona Koyo is looking at investing Rs 80 crore in plant modernisation. Cost cutting is the other major initative. "Like Maruti Udyog just restructured their employee base, we will have to do the same. Cutting down our people costs is an important way for us to improve our margins," says Kapur. In addition, Sona is also in the midst of undertaking a massive localisation drive. Sona enjoys a 48 per cent market share in volume terms in India. However, the value share is just 32 per cent, and Kapur aims to boost it. Will it happen? The auto industry might slow a bit from its currently torrid pace. The company expects the auto industry to grow at a CAGR of 10-12 per cent over the next five years. In volume terms, Kapur estimates that India will have annual automobile sales of 1.75 million units in 2009. "People keep on talking about India becoming a automotive component export hub, I really do not see that happening for some time. India currently has only 0.8 per cent of the global component market, to become a 'hub' we would need to make at least 5-10 per cent of all the components in the globe. That would entail a quantum leap," says Kapur, looking out of his posh Gurgaon office window at the work underway on the new eight-lane Delhi-Gurgaon expressway. What is he thinking? The project is proceeding at some sort of quasi-cyclical cosmic pace---with time stretched to infinity. Yes, it could make a snail look like a turbo-charged creature. But then, so long as Indians continue to buy cars... Pantaloon Retail From being just a strange English-Hindi hybrid word, Pantaloon has become a retail player setting a zippy pace for itself. In 1999, it was a Rs 102 crore company, managing all of 0.6 million sq.ft. of retail space. By 2005, Pantaloon Retail plans to achieve a turnover of Rs 1,000 crore, managing 2 million sq.ft. of retail space. The organized retail market in India, currently pegged at a miserly 2 per cent of total retail sales, is growing at around 20 per cent, annually. However, the Rs 445 crore company grew by 56 per cent in 2002-03, registering a net profit of Rs 11.41 crore, a growth of 62 per cent. A large part of this growth has been fuelled by its foray into the hypermarket format with Big Bazaar, a chain of low-priced products, which has just taken off and is drawing swarms of people even in upscale localities such as DLF Gurgaon. "While 2003 was the year for growth in our value-business," says Kishore Biyani, Managing Director, Panatloon Retail, "this year we will be concentrating on the lifestyle business." The company is experimenting with a new format along the lines of Selfridges. Under the banner Central, Biyani will lease out retail space on a commission basis and will house almost every consumer product under one roof. The first one, covering 1.25 lakh sq.ft., will be launched in Bangalore in March 2004, followed by a 2.36 lakh sq.ft. mall at Hyderabad in August 2004 and in Gurgaon in 2005. Understandably, even his competitors are awed by the pace of growth. Says Raghu Pillai, CEO, RPG Retail, "Kishore is certainly setting a blistering pace as far as expanding his group's retail footprint is concerned. It will be interesting to see how the different initiatives across his various formats pan out, and handle Phase II, once the big bang expansion phase is over. Very clearly, on current evidence and presence, we certainly see this group emerging as a significant player in the retail sector over the next two to three years." In 2003, Pantaloon invested Rs 45 crore in expansion. Over the next two years, Pantaloon intends to invest another Rs 150 crore. Of this, around Rs 50 crore will be raised through debt, which will change his debt-equity ratio to 1.46, up from 0.77 in 1999. Not surprisingly, a Fitch Ratings report points out "high financial risk profile reflected in high gearing and low EBIT cover" as a key area of concern. But R Jayakumar, Director, Fitch Ratings explains, "The pace of growth has made Pantaloon fall back on debt to fund a part of its expansion plans. However, the earnings of the company have also kept pace in the last few years," and adds, "Though the company has had high leveraging, we believe its inherent strengths will enable the company to sustain the debt." Could anything else go wrong? Retailing remains regulated (protected, rather) in strange ways, and changes in policy could result in a different competitive landscape. It's a scale business, and foreign players have huge advantages built over the years across the globe. Indian players would need access to a much larger market to get anywhere close in terms of cost competitiveness. In the immediate future, overcapacity in organized retailing, per se, could put pressure on margins-especially in fast-crowding zones such as Gurgaon's DLF City. In moving beyond the metros and their satellites, locating areas with high-income concentrations would not be easy at all. Given the top-of-the-pyramid profile of the current consumption boom, the large-format retail business could find growth tapering after its initial high. India isn't turning into a China-style transformation story just yet, even if rarefied samples of glitzy imagery convey that impression. Mercator Lines This is a name associated with the famous projection of a world map onto a flat surface. In India, it is also a shipping firm incorporated in 1983 and taken over five years later by HK Mittal, the current Chairman and Managing Director. Mercator Lines has grown over the years through a conservative strategy of acquiring second-hand carriers at rock bottom prices and deploying them mainly on charter with the Mumbai Port and other leading Indian and foreign corporates. The country's fourth largest shipping company, its revenues grew 296 per cent in the last quarter. Net profit grew by 700 per cent. It has been a sudden burst of business (and of course carriage capacity). With the opening up of the transportation of crude oil to private companies in 2001, the company has been roaring away. During April and November 2003, the company bought four second-hand Aframax tankers (mid-sized with a carrying capacity of around 90,000 tones) for a total investment of $31 million. The immediate provocation for this was two contracts it won from MRPL (valued at Rs 1 billion) and IOC (Rs 600 million). For the current financial year, it will be handling 4.5 million tonnes of crude, almost 20 per cent of the private companies' share in India. Says Mittal, "There is significant undersupply in our industry, and more importantly, shipping markets like China-- which is growing at 22 per cent---are opening up new opportunities for us." Mittal is now looking at overseas markets, and might even acquire a VLCC (Very Large Crude Carrier) with a capacity of 2-3.5 lakh tonnes soon. Thus, from a company with a tonnage of 8,725 tonnes in 1998, it has grown to 461,657 tonnes currently. With budgetary sops for the shipping industry in the recent interim budget, and Warburg's Indiaman Fund picking up a 8.2 per cent stake through a preferential allotment, Mercator is not looking back. A debt-equity ratio of 2.57 may be a cause for worry, but Jamshed Desai, Head of Research, TAIB Securities says, "They have a high debt-equity ratio, but once the cash flow improves, it will cease to be a concern," and adds, "the management is fairly ambitious and they have tasted success. Unless they bite more than they can chew, they will be able to sustain their growth rates." Man Industries Man Industries, peculiar as the name is, has an established production capacity of 5,000 tonnes per annum for aluminum extrusions, and 135,000 tonnes per anum for SAW (Submerged Arc Welded) pipes. It is also growing like nobody's business. Man Industries is riding on the wave of oil and gas pipelines being set up across India. The company is busy supplying its pipes to various pipeline projects by GAIL, IOC and ONGC for about 1,500 km. It is also expecting further orders worth Rs 650 crore from ONGC and GAIL in 2004-05. Not just that, Man is also one of India's major exporters of pipeline infrastructure, and caters to several projects in West Asia, including Iraq, where rebuilding activity is struggling its way forward. In 2001, the company started working on adding an expander and coating plant to its facility in Pitahmpur in Madhya Pradesh; it has since boosted its capacity utilization substantially, with the gains reflected in its top and bottomlines. In the last three quarters of the current fiscal Man has posted 122 per cent growth in sales, and its net profit is up by 296 per cent, to Rs 36.53 crore. With an investment of Rs 140 crore, the company is setting up Greenfield projects at Anjar, Gujarat, for the manufacture of 200,000 tonnes of saw pipes. Says RC Mansukhani, Chairman, Man Industries, "The dismantling of the administered price mechanism, gas discovery, latent gas demand and thrust on LNG imports is leading to a growing demand for gas transportation. Looking at the future demand of pipes we foresee a share of about 5000-6000 km pipeline orders in the next five years." Agrees Jigar Shah, Vice President, KR Choksey Shares & Securities Ltd, "There is a huge demand for pipelines and there is a significant backlog of orders in the domestic market, while in international market, Indian companies have been able to price themselves attractively. At least for the next 18-24 months high rates of growth are quite sustainable." After that, of course, much will depend on how other projects are shaping up. The point is to think of the energy efficiency India can achieve through an intelligent network of pipelines. That's the potential. A gas pipeline from Iran, for example, or some other Central Asian country, could do wonders. But that requires genuine peace on the subcontinent. Flat Products Equipments Flat Products India Ltd (FPIL) is a manufacturer of cold rolling (CR) mills, galvanising lines and associated equipment. Over the last couple of years, the company has collaborated with T. Sendzimir Inc, USA, for cold rolling mills; Achenbach Buschutten GMBH, Germany for Aluminium strip and foil mills; Bliss-Slaem Inc, USA, for four Hi-CR mills for Mild Steel; Redex, France for Stretch Levelling Equipment; and Durmech Engineering Ltd, UK, for Paint Coating Lines. That flurry of alliance-making has helped FPIL get technology that meets international quality expectations. A large chunk of its orders also come from international markets, and has currently orders worth over Rs 600 crore. This includes a $35-million order from Union Steel, China, and similar orders from companies in Taiwan, Indonesia, Egypt and Korea. "Over the last several years," says TR Mehta, Managing Director, Flat Products Equipments (India) Ltd, "we have been working extensively in the export market with the steel industry all over the world, and showing them various plants installed by us in India. As a result, we have succeeded in getting substantial export orders, which we have completed to the satisfaction of various clients. This has resulted in us being recognized as supplier of international quality equipment at a very competitive price, thereby resulting in large export orders." During the quarter ended September 2003, the sales of FPEI increased by 265.7 per cent to Rs 91.75 crore from Rs 25.09 crore during the same period last year. With this, the sales for the first half of 2003-04 stands at Rs 151.66 crore, compared to Rs 52.74 crore during first half of 2002-03. Analysts point out that the company has a strong management, TR Mehta himself being a noted metallurgist. Says Jigar Shah, Vice President, KR Choksey Shares & Securities Ltd, "The company is riding on the steel boom and has a competitive edge over major players like Hitachi, and that has helped it to carve out a niche for itself in a highly specialized industry." It seems to be going well, and the steel upturn isn't petering out any time soon. Chinese demand, in itself, is quite a story. Except that the global steel business isn't exactly an undistorted one at the moment. Recent action taken by the US has altered the dynamics, and China also needs to be watched for its own policy on steel. Hindustan Zinc The shine under its new, private sector owner is obvious. Hindustan Zinc, a one-time PSU engaged in mining and refining ore to produce non-ferrous metals like zinc, lead and silver, has been working wonders with its topline as well as bottomline. For the nine months ended December 2003, net profit and turnover were Rs 318.7 crore and Rs 1,324.3 crore, respectively, as against Rs 95.3 crore and Rs 910.3 crore in the corresponding period of the previous year. It was in April 2002 that Anil Agarwal's Sterlite Industries acquired a 26-per cent stake in this PSU under the government's privatization programme (a more than just partial success), and the stake was increased to 65 per cent in August 2003. Since acquiring the smelting and refining operations, the Sterlite management has been aggressively focused on operating costs and efficiency. Says Kuldeep Kaura, managing director, "Increase in productivity through debottlenecking of plants and cost controls has helped us grow faster." Power costs have been brought down, and so have manpower costs----by reducing the workforce by 25 per cent to 6,000. The purchasing system was redrafted to grant the supply chain efficiency. Sure, the change in the company's fortunes has been aided by the rising prices of Zinc on the London Metals Exchange (up about 20 per cent over the past year). Add to that the current deficit in India's own market for zinc--- estimated at 100,000 tonnes---- and the demand force of growing markets, and Hindustan Zinc (62 per cent market share) looks set for some sustained growth through this economic cycle. Agrees Jigar Shah, analyst, K R Choksey Securities, "The long term cycle for non-ferrous metals has turned positive." The company is undertaking a major
expansion, backed by an inhouse power plant. For a former state-run company, that makes perfect sense. After all, it's not secret that vast amounts of value in Indian industry can be unlocked if PSUs are put to the test of global competition---as profit-seeking firms rather than patronage tools of the government. The 'market' in India remains under-empowered, still. IVRL You may know very little about Eragam Sudhir Reddy. It may help to know that he gets as many as eight newspapers at home. One of them is for reading, and the rest for tearing. "I start my day by tearing the tender notices that appear in newspapers. It's been a habit with me and I do not hesitate to do this in the aircraft also," says Reddy, clearing the smoke around him from the cigarette he has just put down. What will help, most of all, is knowing that the 43-year-old vice chairman and managing director of IVRCL Infrastructure & Projects Limited, is making fast money. Tender notices matter so much to him because, as you guessed, he is in the construction business. His company, which is executing a project for the much tom-tommed Golden Quadrilateral, among others, has been piling up the cash. "We have had a CAGR of over 50 per cent," boasts Reddy, "and hope to close this year with total sales of Rs 700 crore." For the three quarters ended December 31, 2003, the company posted a profit after tax of Rs 21 crore, on total income of Rs 560 crore. Compare this with a net profit of Rs 15.5 crore on an income of Rs 441 crore last year (ending March 31, 2003) and net profit of Rs 13 crore on income of Rs 393 crore the year before that. Some of the major projects that the company has bagged last year include a Rs 315.5 crore Chennai Water Supply and Augmentation Project, Rs 55 crore Gujarat Water Supply and Sewerage Board project and a Rs 40 crore Narmada Water Supply and Water Resources Department project. Water projects distringuishes the company, according to Hem Kumar, Manager, Sharekhan, Hyderabad. "One of the strengths of the company has been the water projects, where typically there is less competition than, say, roads,'' he says. Of course, highway construction is a major part of the growth story. Will the construction boom and IVRL's run continue? Depends on how you look at it. The company is confident of its cost credentials. It has set for itself stiff targets to be achieved by 2005, and these include a turnover of Rs 1,000 crore, a net worth of Rs 250 crore (currently Rs 130 crore), manpower strength of 2,000 (1,250 at the moment) and even total equipment (things like crushers /hotmix/ blades) worth Rs 150 crore (Rs 110 crore at present). "By 2005, we want to be a company that can offer its expertise and take up jobs outsourced for design and use of equipment," says Reddy. Cummins India Cummins India, the engine maker, hasn't shown any signs of flagging yet. "We, along with our subsidiaries, should be able to notch up a billion dollars in sales by 2007," says a confident Joint Managing director, Vinod Dasari. A pickup in capital goods, aggressive cost cutting and new product launches are the primary drivers of this optimism. But the star performer clearly were exports, which contributed over 20 per cent (Rs 180 crore) of the firm's Rs 800 crore turnover. The company now expects exports to grow annually by at least 30 per cent, helped by outsourcing orders from its parent--- the $5.9-billion Cummins Inc, USA. "We shall now be meeting the entire global requirements for V28 and K38 engines from right here in India," declares Dasari, proudly. Keeping with its strategy of maximizing volume and minimizing volatility, the Pune-based engine maker has decided to focus all its energies on a few key engines and components. And such sharply-focused thinking is evident in its new range of products--- N14, and C and X series. Specially engineered after extensive feedback from key clients, they are expected to help achieve the 10 per cent domestic growth target. Says Nirjhar Handa, Analyst ,Parag Parikh Financial services, "The pickup in backup power systems and gensets has definitely helped, but there is no doubt that the culture is becoming more service oriented with the opening up of service centres or Suraksha shops for servicing trucks and automobiles." A belt-tightening initiative launched last year to trim off Rs 100 crore over three years has already yielded Rs 25 crore in savings. Not surprisingly, the company's mood is upbeat. "We are selling engines faster than we can churn them out," says a pleased Dasari. Sterling Biotech With the acquisition of a 2,200-tonnes-per-annum gelatin business from Rallis India in January 2004, Sterling Biotech has become Asia's leading gelatin maker in. Surprised? It's a growth story. The company entered the gelatin market in 1997, and six years later, has nearly 3 per cent of the global 270,000 tonnes gelatin market to itself. The gelatins manufactured by the company are used in the pharmaceutical industry, for such applications as hard and soft shell capsules. Gelatin is also used in several other medical applications such as blood plasma expander or arthritis treatment. The domestic market in India for gelatin is relatively small, and the company is pitted against global players like Sobel and PB Gelatin. However, Sterling Biotech has used its quality credentials to strike relationships with large healthcare companies across the world. Nearly 50 per cent of its turnover comes from developed markets such as the US, UK and Japan. Its key customers include Cardinal Health Inc, US, General Nutritional Company, US, Kenko Corporation, Japan, and Soft Gel Technologies, US. Says Jamshed Desai, head of research, Taib Securities, "The low cost structure is driving the growth and profits of this company." Sterling boasts of a cost advantage in procuring raw materials like bovine bones and lime, and with revenue going up, its net profits have been rising quite nicely. In the second quarter of 2003-04, net profit grew by 187 per cent over the corresponding period of the previous year. The company is undertaking a Rs 236-crore expansion, and this could spur growth. Unless there are radical changes in Sterling's operating environment, it should be able to maintain its performance. Saw Pipes Prithvi Jindal knows that pipes are not what one would term a 'sexy' industry. But sitting in his office in New Delhi's Bhikaiji Cama Place, he is not complaining about that, as his company Saw Pipes Limited has been growing at a frantic pace. Revenues have grown from Rs 313.4 crore in 1999-00 to Rs 807 crore in 2002-03. And with the oil and gas sector picking up speed, things are looking rather good. "You know something," says Jindal, "if I had Rs 1,000 crore to invest today, I would invest it in the pipeline business, not making the pipes but operating the pipelines---it is extremely profitable." Of course, this hasn't escaped too may players in India, and work is underway at a pace that could only be described as 'dizzying' by the country's otherwise lethargic standards. The broader logic is simple. Pipes are a safer (and greener) way of transporting energy resources than the ramshackle criss-cross network of trucks that must amble along 'highways' that look more like obstacle courses than anything even remotely efficiency-oriented (though some improvements have certainly been made, of late). Neeraj Kumar, Chief Fiancial Operator of Saw Pipes, sees the potential so huge that he expects the company to become a billion dollar one in the next five years. "We are headed for very exciting times," he believes, "not just in India but in the entire geographical footprint (South-East Asia to Africa) that we service." Grant the man his optimism. West and Central Asia could be readying for a mammoth increase in pipeline connectivity, as energy needs burgeon across the world (China and India alone are expected to soak up insane quantities). In the immediate future, Jindal sees Iraq as the honey-pot. "The oil infrastructure has to be rebuilt, and we can provide world-class value-added products to the people undertaking the reconstruction." The billion-dollar dream hinges, of course, depends on many things. Jindal says it's an issue of rejecting complacence. "A sign of a good company is one that is always looking forward and not being satisfied about where we are," he says. Internal changes include a push for efficiency. "Asset utilisation has improved, orders are being placed better, financial management has improved and our liabilities have come down quite a bit," according to a spokesperson. Investments? The most significant one is a Rs 250 crore investment in a new 'Ductile Iron, Cast Iron' plant near the company's existing facilities in Mundra, which will manufacture small-diameter pipes for water and other non-corrosive uses (petroleum products are highly corrosive). A Rs 40-crore investment has also been made in its Nasik plant---to strengthen the company's 'value-added' proposition in pipes. "We want to be a total pipe solutions company," says Jindal, "and pipes run the fluid which run the world. We make pipes in all shapes and sizes from two millimetres to 108 inches (nine feet) across, and people will always need pipes, and we will be there." All very good. But globally, pipelines entail risk, and the operating environment needs to be conducive to any rapid expansion of energy networks. Jindal and his well-wishers would do well to watch West, Central and South Asian developments carefully. Much is at stake. Karur Vysya Bank Karur Vysya Bank (KVB) is another strong growth story. Its income for the 9 months ended December 2003 increased by 16.4 per cent to touch Rs 552.08 crore. The net profit of the bank too increased to Rs 120.40 crore, up from Rs 87.36 crore (38 per cent jump). Improved performance on the profit front has pushed the capital adequacy ratio to a healthy 20.26 per cent of risk-weighted assets, up from 18.19 per cent a year ago. One of the reasons claimed by KVB for its fast growth is that it has been innovative, and has been able to tap opportunities as they emerge. "In the last two years, for example, we grabbed opportunities thrown up by PSUs and have been lending to them," says P T Kuppuswamy, chairman. Likewise, in 2002-03, advances increased by nearly Rs 1,000 crore; he had anticipated that income from treasury operations would recede. "The bank is able to leverage the opportunities in wholesale banking, while remaining focussed in traditional retail products," claims Kuppuswamy, proud of the headway made amonst corporates on account of the technology thrust and fine financials. G. Sarangan, former director of KVB, attributes KVB's growth to "continuous vigilance and monitoring of performance and events". Chairman Kuppuswmay, he says, "has been swift in diversifying activities, launching branches in strategic locations, reducing cost of funds and ensuring better spread." The board too, has been working in unison. KVB's strengths lie in lending to medium and small industries and nurturing entrepreneurship, often acting as a sort of partner. Its relationships are its treasure, to a large extent. Other than that, the bank claims advantages in flexibility, which when combined with a sharp understanding of business needs, can go a long way in earning sustained customer loyalty. This has helped the bank do well in Gujarat, for example, where it already has five branches and expects to put up some more. Gujarat Ambuja Exports The Rs 612-crore Gujarat Ambuja Exports is a growth story alright, but has had less to do with cement than you would guess. In fact, the growth driver has been agri-product exports. This Ahmedabad-based company manufactures and exports cotton yarn, oilseed extractions, edible oils, starch and wheat products. The company's net profit has more than doubled to Rs 16.97 crore in the first nine months of 2003-04, up from Rs 6.50 crore in the corresponding period of the previous year. Starting off as a textile processing unit, the company has done well to enter the agro-processing sector. In 1993-94, the company undertook a major expansion in cotton yarn spinning and maize-based starch. It also set up huge capacities in solvent extraction, and has made a go of its vertical integration project with edible oils refinery and vanaspati ghee. Says Vijay Kumar Gupta, chairman and managing director, "We have been expanding our plant capacities for the last couple of years." The capacity of its cotton yarn export-oriented-unit has been increased to 30 tonnes per day. Edible oil refining capacity has risen from 450 to 900 tonnes per day. The soyabean processing plants have a capacity of 1,500 tonnes per day, the third largest in the country. Enthused by the response to its products, the company expects to raise its capacity for production of cotton yarn to 34 tonnes per day, and maize crushing capacity to 500 tonnes per day. The company has set up a wholly-owned subsidiary in Singapore, and promoted a vanaspati and oil refinery project in Sri Lanka. What next? Turnover is set to cross the Rs 1,000-crore mark in the current year, and Gupta is keen to point out that only 10 per cent of the turnover comes from trading while the rest is from manufacturing operations, giving the company an edge. Yet, all said and one, Gujarat Ambuja Exports is in a series of commodity businesses. These are cyclical, and growth sustainability needs to be viewed in that perspective.
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