India
9 OCTOBER, 2011
THE GROWTH STORY
In association with
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THE SUNDAY TIMES thesundaytimes.co.uk
09.10.11
09.10.11
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All eyes on the prize Population 1.2 billion 50%
65%
under 25 years old
70% 70%
under 35 years old
50%
live in rural villages
The population has more than quadrupled since 1901
Money 55 dollar billionaires (Forbes) Breakdown of household wealth
Middle class
Rich
income of £22,000+ per year: 1.3% (16m people)
£5,000 to £22,000 per year: 13% (160m)
Aspiring
£2,250 to £5,000 per year: 30% (359m)
Deprived
Below $3,500 per year: 57% (684m) Source: National Council for Applied Economic Research, 2011 Census, UNESCO, UN 2010
India offers investors huge potential, but not without risks, writes Nicola Smith
I
t was not without good reason that prime minister David Cameron chose to visit India in a diplomatic tour de force almost immediately after taking office in May last year. Flanked by his foreign secretary William Hague, his chancellor of the exchequer George Osborne and a high-powered business delegation, Cameron sent a clear message to one of the world’s fastest growing economies: India is now as important a trading partner for Britain as America and a “second special relationship” has to be formed. Since embracing sweeping liberalisation and financial reforms in the 1990s, the Indian economy has quadrupled and it shows little sign of slowing down, with current projections catapulting the country of 1.2 billion people to the position of third largest global economy by 2030. Foreign direct investment in India has surged from virtually nothing in 1990 to a peak of £23 billion in 2009, followed by £16 billion in 2010. As Anil Shrikhande, president of Rolls-Royce India, points out: “Even given the current global economic crisis, the Indian economy is very consumption-driven [unlike export-led China]. So to a large extent India is
insulated from external economic shocks. Even if you say the growth rates are moderating in India, they’re still talking about 7.5% to 8% for the coming financial year.” For British firms turning to the subcontinent, the combination of a shared history and common legal and parliamentary systems with a huge domestic consumer and jobs market, plus a burgeoning middle class of 160m people, offers lucrative opportunities across a range of industrial sectors. These historical and cultural links give India an edge over China, whose economic growth is on a par with its neighbour and whose infrastructure is arguably better. The fact that between 70% and 80% of Indian investment into the European Union comes to the UK is a telling sign that the two countries simply do business well together. John Mayes, director of the Indian branch of the global recruitment firm Michael Page International, says the company, which set up in New Delhi in January this year, felt that in the current economic climate it could not neglect the prospects India offered. “I do not believe any global company can afford to ignore the potential that a market with one fifth of the world’s
population offers, regardless of industry,” he says. “We’re here because we see a thriving economy.” In recent years, British companies BP, Vodafone, JCB, BT and Marks & Spencer have all made high-profile ventures into the Indian market. In July, the Indian cabinet approved BP’s purchase of a 30% share in an oil and gas venture with Reliance Industries, which at $7.2 billion (£4.6 billion) represents one of the largest examples of foreign direct investment since India began to open its economy. Yet to sugar-coat the tricky nature of doing business in India would be misleading. Mark Runacres from the British
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Business Group in Delhi strikes a note of caution. “It remains a very complicated place to make out what’s going on. There’s a challenge for British companies in that so many people they meet speak English, so they feel they understand the legal situation and recognise the politics,” he said. But it is corruption that British business leaders and government officials openly concede is one of the biggest challenges facing foreign investors in India. India has been rocked by corruption scandals that have sent big-name politicians, officials and business figures to jail and opened the government up to accusations of being weak and rudderless. The spate of recent controversies began in October last year amid allegations of multiple kick-backs and fraud surrounding Delhi’s hosting of the Commonwealth Games. Many British and foreign companies became entangled in the fallout, had equipment confiscated and are still awaiting payment. A few months later, news broke of the flawed 2008 auction of 2G spectrum licences, a telecoms scam estimated to have cost India up to £25 billion in lost revenue and which saw leading business figures including billionaire Anil Ambani forced to testify in court. But it is the everyday corruption — such as bribes expected for crucial paperwork or land acquisition, or political interference from bureaucrats — that businesses frequently complain
about, and British firms have been warned not to fall foul of new UK legislation that can have them charged with corruption abroad. Indian business leaders have expressed concern that corruption will deter foreign investment. In January, the billionaire industrialist Adi Godrej (see page 6) was a signatory to a public letter to the Indian prime minister Manmohan Singh, warning that recent scandals had “negatively affected” India’s image and could dilute the country’s growth potential. But many believe the tide has turned. Godrej is now optimistic that there is a real will to tackle the problem. “There are also many Indian companies who are very clear that they don’t give bribes and whilst they may not get special favours and things may get slow at times, they are reasonably successful,” he says. “So there is already a change happening, and more changes will come.” Deepankar Sanwalka, head of risk and compliance at the consulting firm KPMG, believes the prizes at stake will outweigh the doubts for many international companies looking at investment potential. “I do hold the view that India is an investment destination,” he says. “Every country has its challenges and we have ours, and you know the reality is that, despite everything, can you afford to stay out of the country?” Additional reporting and research for this supplement by Alan Copps and Tim Wigmore
THE GROWTH STORY
Key personnel: Sameer Gehlaut, chairman and founder, pioneered online financial services in India after taking a degree in mechanical engineering in Delhi. Established Indiabulls Foundation to promote rural development. Results: Year ending March 2011: real estate, net profit of £26.8m on sales of £201.7m; financial services, net profit of £100m on sales of £334m; securities, net profit of £5m on sales of £48m (converted from the rupee figures of separate companies).
Towering ambition
S
ameer Gehlaut thinks the rapid pace of Indian economic growth is “slower than a few years back”. But the 37-year-old founder of the Mumbai-based Indiabulls conglomerate is not dismayed. “My feeling is that things will be back on track.” On track, to Gehlaut, means growth of 8% and more. “The most pessimistic people are talking about 7%.” We are in his vast penthouse office (acres of marble floor and, on the wall facing his desk, a lamp burning on a shrine to the Hindu elephant god Ganesh) in one of the Indiabulls towers that are becoming a feature of the Mumbai skyline. We have a clear view of another of his office blocks and a mixed-use tower he has under construction. From its beginnings in online brokerage, Indiabulls now encompasses financial services, property development and power generation. For Gehlaut, who describes himself as a “first-generation entrepreneur”, this progress across the sectors had an irresistible logic. He tells how, in 12 years, he has become one of the kings of the Mumbai business scene. “We started with
the brokerage, then launched the mortgage business. We run a book of $5.5 billion, with more than 1m customers.” Television ads for Indiabulls mortgages boast rates of 10.75%. “Our intention was to be in a business that could scale significantly over time, suiting the internal dynamics of the country. The number of people with mortgages here is less than 10%. In any developed economy it’s 60-70%. There’s a huge potential to grow.” And given that “India is an inflationary economy — close to 10% — with asset values going up, and our loan-to-value set at 60%, I don’t think [a sub-prime bubble like America’s] is even remotely possible.” The mortgage business showed him the demand for property. “People from the lower classes are becoming middle class. And people are getting purchasing power in their early 30s; it used to be mid-40s.” His own driver’s wages have quadrupled over the five years he has worked for him, he notes. “So we started building homes.” Recently, in an auction of 11 bidders, Gehlaut acquired for $450m “the last parcel left in south Mumbai, as prime as it gets”: an old textile mill site a block from the sea near the Four
Energy 8%
35% of India’s
of consumption is renewable energy
commercial energy needs are imported
Sushil Kumar Shinde Shinde, 69, is cabinet minister for power in the Manmohan Singh government. In a recent speech to the India Investment Forum in New York, Shinde said that nearly 80,000 MW of new power capacity is under construction, which would increase the total generation capacity in India by nearly 40%. Shinde also said that India uses only 20% of its potential hydro power, and the country needs an investment of $15 billion in energy efficiency initiatives
Seasons, for a mixed-use development. As Indiabulls started building commercial and residential developments, another factor on the Indian scene grew in significance: serious electricity shortages leading to erratic supply and regular power cuts. Gehlaut’s solution? Start generating. He raised investment in India and overseas, and acquired two sites, in Amravati and Nasik in the state of Maharashtra, central India, to create coal-fired power stations capable of supplying 5,400 megawatts, or “enough
Gas
Power sources
48
Oil
186
Hydro Nuclear
12
17
India's power requirements are projected to grow at 6.4% per year and are anticipated to reach 1600-1800 terawatt hours by 2020 Coal
283 Total
546
(million Gas tonnes of oil17 equivalent)
Source: Renewable energy world, 2011 India Energy Handbook
for two Mumbais”. The Amravati plant should be operational by May next year. The energetic expansion of Indiabulls, Gehlaut says, creates many opportunities. “We have started outsourcing to foreign architects, structural engineers, lighting and landscaping experts.” He reckons that 50-60% of the office space in the Indiabulls tower we can see through the window is let to small and medium-size overseas enterprises. India is not without its drawbacks
business and is on the brink of financial collapse, private carriers have boomed. Several, including Jet Airways, Kingfisher, IndiGo and SpiceJet, have grown far beyond the domestic market and now operate popular international routes. But the paradox of Indian carriers is that, despite the headline-grabbing passenger figures, underlying market demand and a strong economic environment, there are still serious financial woes in the industry. High fuel prices and fare discounting in the domestic market by the struggling Air India have combined to weaken financial performance. According to the Centre for Asia Pacific Aviation (Capa), which provides independent intelligence on the sector, Jet, Kingfisher and SpiceJet all reported losses during the traditionally strong first quarter. If these trends continue, the private airlines could lose $450m to $550m in the 12 months to March 2012, while Air India’s losses could reach $1.75 billion. Vijay Mallya, the flamboyant billionaire chairman of Kingfisher, India’s largest private airline, was dealt a blow in September by the company’s own auditor, BK Ramadhyani, which raised doubts over its viability as a business. Mallya — chairman of UB Group and co-owner of Formula One team Force India and the Indian Premier League cricket team Bangalore Royal Challengers — established his airline in 2006. It now connects 32 cities. Nikos Kardassis, chief executive of Jet, sees rapid growth in the sector as inevitable. “Look at the dynamics: 70% of the population are 35 or younger, 50% are 25 or younger, universities and colleges are graduating four to five million a year — all potential customers.” Jet currently serves 52 cities in India, and Kardassis wants to add 22 more in the next three years. He is reliant on central and state government collaboration to get the airports built or upgraded. “It is good for our business, but it’s necessary — they need aviation, it’s critical to the growth of India,” he says.
JETAIRWAYS as a business environment, Gehlaut readily concedes. Along with just about every other entrepreneur in the country, he bemoans the “challenges” posed by the country’s creaking infrastructure, and the creeping pace of bureaucracy when it comes to planning decisions and permits. However, he says: “All my businesses are growing and that’s the bottom line. And the fact that outsiders are coming in is an indication that they must be finding it interesting and profitable.”
India has 48 cities with a population of a million or more and 126 civil airports rts
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T
he staggering expansion of the domestic airline industry is yet another of India’s impressive business success stories. The number of domestic passengers is expected to grow by 9-10% annually, from the current 50m to 150m by 2020, rendering India one of the three largest markets in the world. The unbridled growth of air routes, connecting the 126 domestic airports controlled by the Airports Authority of India, will not only make doing business in India easier, but will throw up new opportunities for both domestic and international investors. “The infrastructure investment is going to be huge in the next 15 to 20 years,” says Anil Shrikhande, president of Rolls-Royce India. “India is going to add a lot of airplanes. On the commercial side, both the Boeing and Airbus forecasts call for some 1,300 planes, worth some $150 billion over the next 20 years. We’re talking big numbers here.” The growth is accelerating. In July this year, India’s airlines carried 5m passengers — a rise of 22.3% on the previous July. This followed an 18% expansion in the first half of 2011. Many of the domestic routes service “tier-two” cities, emerging centres that have not yet reached the development standards of the sprawling metropolises of Delhi and Mumbai, but which still offer a gateway to lucrative business opportunities for overseas clients. India is projected to have 68 cities with a population of more than 1m by 2030, as against 42 today. It is expected that the number of tier-two cities, with a population of between 1m and 4m, will grow from the current 33 to 55. Since 2009, trade officials at the British High Commission have been scouring over 20 of these cities, including Chandigarh, Jaipur, Cochin and Coimbatore, engaging with about 2,000 businesses to look for potential link-ups between Britain and India. Meanwhile, airlines are also looking for new opportunities. Although state-owned Air India is losing
Air traffic
INTERNATIONAL AND DOMESTIC FLIGHTS airline by readers of Condé Nast Traveler magazine in the United States. Flagships, 10 Boeing 777-300 ER and 12 Airbus A330-200 aircraft.
Profile: Founded in 1993 in Mumbai; now serves 75 destinations including Abu Dhabi, Bangkok, Brussels, Hong Kong, Johannesburg, London and New York. More than 170 internal flights per day including no-frills carrier Jet Lite. Carried 14.7m passengers in year to March 2011.
Key personnel: Nikos Kardassis, chief executive since 2009, formerly of Merrill Lynch.
Showpieces: Only Indian airline to fly to India with private suites in first class. Voted world’s second-best
Results: Pre-tax profit in year to March 2011 of £6.2m on gross sales of £330m (up 19% on 2010).
A
Showpieces: The Sky Suites in south Mumbai include what are described as the city’s ‘most extravagant residences’. Other developments include an 80-acre township in New Mumbai, residential areas in Chennai, Hyderabad and Ahmedabad and a new ‘Mega Mall’ at Kota. More than 170 branches offering home and commercial loans across India. Coal-fired power stations under construction in Amravati and Nasik.
The remarkable boom enjoyed by the nation’s young airlines shows no signs of slowing down, writes Nicola Smith
T
Profile: Founded in 1999 to offer online brokerage services, went public in 2004, started offering consumer loans, then expanded into property after buying a derelict mill site in Mumbai. Power business was added in 2007. Four divisions: real estate, financial services, securities and power are listed separately on Indian Stock Exchange.
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FINANCIAL SERVICES, PROPERTY, AND POWER GENERATION AND TRANSMISSION
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INDIABULLS
5
New stars in the sky Delhi
Population 23.3 million
K
Dhiraj Singh
Power surge: Sameer Gehlaut has driven Indiabulls’ expansion
Sameer Gehlaut tackles the problem of electricity shortages by building his own power stations, writes Karen Robinson
09.10.11
thesundaytimes.co.uk
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India
P
4
Kanpur
C
N E P A L
H
I
N
A
3.5m
I
Ahmedabad
6.2m
N
D
I
BANGLADESH
A
Kolkata
4.3m
Surat
7.8m
Mumbai Pune
16.3m
Hyderabad
5.2m
8.6m
23m
Bangalore
Chennai
B a y
o f
B e n g a l
8.8m Source: TH Brinkhoff, The Principal Agglomerations of the World
Notwithstanding this rapid boom in domestic routes, Jet is also positioning itself as a key global player, with 50% of its revenue from international business. Kardassis is looking for more routes westward into Europe — currently Jet flies only to Milan, Brussels and London — and east to Vietnam, Shanghai, Jakarta, Melbourne and Sydney. Jet, he admits, came late to online booking and check-in, but it is constantly “forced to find solutions” to keeping costs competitive. The Jet board is also evaluating the low-cost model of airlines such as Air Asia, but asking “how does that fit into an airline known for service?” In addition to the airlines’ financial losses, the rate of growth in the aviation sector has brought challenges as both infrastructure and manpower struggle to keep pace. The number of pilots employed by India’s airlines has more than doubled in the past five years, from 2,000 to 4,500, leading to concerns that, in the rush to recruit, lax scrutiny has let through pilots who are neither qualified nor suitable for the job. A scandal earlier this year saw
several pilots from a number of airlines fired after it was discovered that they had faked their qualifications. In one of the most terrifying cases, IndiGo pilot Parminder Kaur Gulati endangered passengers by touching down at Goa airport on the plane’s nose wheel rather than using the rear landing gear. An inquiry revealed that she had previously landed aircraft incorrectly on between 10 and 15 occasions.
Kapil Kaul, chief executive of Capa South Asia, attributed the problem to “mistakes that airlines are making in the growth phase due to a shortage of manpower, where just about anyone is being picked up”. India’s flight regulatory body, the Directorate General of Civil Aviation, has assured passengers that it is taking all necessary steps to ensure their safety.
KINGFISHERAIRLINES
INTERNATIONAL AND DOMESTIC FLIGHTS Bangkok, Dubai, Kathmandu, Colombo, Dhaka and Singapore.
Profile: India’s largest private airline by capacity and market share, offers more than 350 flights per day and carried 12m passengers last year. Recently merged with Air Deccan. Part of UB Group, which also includes brewing, engineering, property and chemicals interests.
Key personnel: Vijay Mallya, group chairman, took over in 1983 after the death of father Vittal. Rationalised the business and launched Kingfisher Airlines in 2005.
Showpieces: Flagship aircraft are five Airbus A330 and eight A321. Routes to London, Hong Kong,
Results: Year ending March 2011, Kingfisher Airlines recorded a net loss of £137m on sales of £849m.
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India
THE GROWTH STORY
thesundaytimes.co.uk
09.10.11
7
Family values ru le for the richest Dhiraj Singh
ASHOK AND GP HINDUJA
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he name Hinduja means big money in any language. In the Sunday Times Rich List, GP and SP Hinduja, the two Londonbased brothers of the four who between them command their global business empire from India, Switzerland and the UK, are ranked number 9. The pair’s joint wealth is “cautiously” valued at £6 billion. Building on the work of their father, the brothers have built the Hinduja group into a colossal concern, and it would be a lot quicker to list the areas of commerce they are not involved in than to enumerate all their interests, which, broadly, involve industry, new technology, services and finance. They employ more than 40,000 people. Karen Robinson met two of the brothers, Ashok, 60, and GP, 71, in their offices in Mumbai. The conversation took some illuminating directions. Influence A letter from GP to prime minister Manmohan Singh had come to light in the Indian press, in which he complains of setbacks in the development of a power station. “Our interest of developing a total of 10,000 megawatt power projects over the next 10 years has been somewhat dampened by various obstacles ...” he writes. Among the problems listed were the shortfall in committed coal supplies to power projects at competitive prices, delays in approvals from various ministries, and the lack of co-ordination between central and state governments on developing infrastructure. This state of affairs, GP warns, “will send a wrong signal to investors ”. So did the letter make a difference? How much influence do the Hindujas have over the government? Ashok takes the long way round the question. “We have been sending these letters to successive prime ministers, informing
ADI GODREJ
India on track to be the world’s largest economy: Adi Godrej
them of what the results would be from reform. We had to fight with the ‘Bombay club’, our own brother industrialists here, who were worried that if reforms come in, how will they be able to compete? If there is more transparency, if the international world comes in, how will they be able to match their qualities? “And we always used to tell them that the sooner there is transparency in reforms, everything will keep on upgrading. Today, you can compare India with the international world. If you came here in 1985, what would you find on the street? Hindustans [modelled on the Morris Oxford] had about 80% of the market. Now look at the Ferraris, the Mercedes-Benzes. “So,” he smiles. “Now you get the influence, whether we have it or we don’t.” Corruption “I think what is happening [the corruption scandals] is a blessing in disguise — automatically it is taking us towards the best practices,” says Ashok. “I have a very good friend, he told me whenever he used to go to the court to get anything registered or to file an application, the junior officers used to get a ‘fee’, baksheesh. But now they are not accepted.” “Well,” counters GP, “in one night they will not go. But the percentage is reducing.” Entrepreneurship “The DNA of an Indian is basically inbuilt entrepreneurship. So many are uneducated, or just to school level, but if he goes on to a job, or engineering training, he becomes one of the experts,” says GP. Education Ashok says: “All the entrepreneurs who have gone and got educated abroad are aided professionally. Acceptability in
PRASHANT RUIA
P
the western world comes with qualifications. They come back home, they get better salaries. “You will soon find the best universities in the world here in India, joining hands with the local universities. In the last two years, practically all the heads of the best western universities have visited. Why? Because they see development opportunities. “And then there will be no need for our Indian children to go abroad.” Growth areas Where do they think today’s young entrepreneurs should be looking for opportunities? For Ashok, “the best sectors today in the country are health, education, infrastructure, retail, consumer items and food. And I’ll tell you, Britain has technology. This can play a very important role in the growth of these sectors. They will find difficulty in entering, but look at Unilever’s success, isn’t it a good story? [Hindustan Unilever Ltd, owned by European company Unilever, is one of India’s largest consumer goods companies. Its personal care, food and household products are available in nearly 80% of the country’s retail outlets.] “There are many [international] companies based here, and I think that not only has their market share in the world improved because of their success in India, but they have taken a lot of knowledge from here.” Defence “The other big market is defence,” adds GP. “India is now spending a huge amount — part of the economic growth is there. The world is looking towards India to see how India should now grow. So defence is the sector, and internal security systems — this will have a great market.
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di Godrej’s grandfather was a lawyer-turned-inventor who in 1897 founded the dynasty’s business empire when he began manufacturing locks and security equipment. The Godrej Group is still 75% family-owned, with Adi, 69, as chairman. It employs 25,000 people, has a presence in 60 countries and interests ranging from precision engineering (components for India’s space programme), construction, property and agriculture to the food, household goods and appliances that have made the brand one of the most familiar in India. “Five hundred million Indians use our products every day,” Godrej says, adding mildly that “statistics and numbers are always huge in India”. His customers shop at almost 9m retail outlets, mostly small shops, stalls and booths — China, he points out, has
rashant Ruia is CEO of the Essar Group, a family-run conglomerate headquartered in Mumbai, which has operations in 25 countries and employs 75,000 people in the st steel, energy, power, communications, por ports and logistics sectors. It has annual revenues of $17 billion. an Ruia was managing director of Essar St Steel from 2003 to 2006, and later pl played a crucial role in structuring a pa partnership between Essar and the UK’s Vodafone to create India’s second UK la largest cellular service company. The de deal, which created a mobile subscriber ba base of 90m, brought significant capital to the group and, according to Ruia, helped give it a “global footprint.” he The company has also seen recent su successes in the acquisition of Algoma St Steel in Canada and a 14% stake in In Indus Towers, the world’s largest te telecom tower company. A business graduate of Mumbai Un University, Ruia has chalked up an
Entrepreneurship in the Indian DNA: GP, left, and Ashok Hinduja
“And the government has modified its policy on public-private partnership to allow more in those sectors.” The Hindujas themselves are in discussions with UK-based Chemring Group to set up a defence joint venture in India, which will manufacture products for military and internal security. Under the current regulations, foreign companies are allowed to invest up to 26% in such projects.
only 4.5m outlets. Godrej has “layers of entrepreneurs” organising distribution through this vast network to the hundreds of millions of consumers at the bottom of India’s pyramid. “Most rural folk are paid by the day, there’s not much in their pocket, so we provide products in small doses,” he explains. One of these is the popular raven-black hair dye much favoured by Indian men, which sells as a powder to mix with water. But the market for more expensive hair colouring creams will grow fast, Godrej says, and his brand will be there to provide the latest consumer products — liquid handwash instead of bars of soap, for example — to an increasingly affluent population. His analysis is clear and confident. “India will become a developed country. By 2050 it will be the largest economy in the world,” he insists. “The
Loadsamoney India is awash with tax-free cash, says Ashok — and not just in the cities. Small farmers selling land for development are also getting rich. “I was in Hyderabad in a Toyota showroom, and a farmer in a dhoti came in asking the prices,” recounts Ashok. The salesman was a bit snooty, but the farmer persisted, and having announced that he would take one of
demography is good [50% of India’s population is under 20] and China’s isn’t, and this will create an impetus. And momentum will be strong because we have a vibrant democracy putting pressure on the politicians to perform.” After stagnation under the rule of “Indians who were educated in terms of Fabian socialism in England,” he says, “the economy has opened up and entrepreneurship has flourished.” There has been tax reform, but Godrej believes that more is needed: the indirect taxation system is “all over the place” with national, state and city taxes overlapping, and lorries queuing to pay the archaic “octroi” levy in Mumbai. A new goods and services tax scheduled for introduction in April 2012 to simplify this mess should add 1.5% to 2% to India’s GDP, Godrej reckons. If the lorries could move faster between all those tiny shops, efficiency
each of the five models, had the “gunny bag brought in from the back seat of his truck. They counted the cash out: the equivalent of £110,000. We have a parallel economy, and because money is available we must provide for the demand. If products are not available, the prices will go up.” One unanswered question: what was one of the world’s richest men doing hanging around a provincial Toyota dealership?
would improve and costs would come down — and that, says Godrej, means the government must improve infrastructure. For instance, the 900-mile journey between India’s two main cities, Mumbai and Delhi, would take half the time in most other countries. “The only reason we manage efficiently is because we are IT connected,” he says. “This creates an entry barrier which makes it difficult for new players, though some multinationals here do quite well.” Retail chains and shopping malls have increased their market share to about 7%, growing most rapidly in clothing and footwear. Meanwhile, Godrej Industries reported net profits of £39m on total income of £615m for the year ended March 2011, an increase of 44% on the previous year. The Godrej Group brand was valued at $3bn earlier this year. KR
impressive line of board memberships, including the International Iron and Steel Institute, and the chairmanship of the National Committee on Hydrocarbon and Petroleum. Essar plans to raise about $750m by floating its infrastructure assets on the London stock exchange next year.
ANAND MAHINDRA
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s managing director and vice-chairman of Mahindra & Mahindra, Anand Mahindra has transformed India’s leading utility vehicle manufacturer into a $1 billion multinational group with $12.5 more mo than 137,000 employees in 100 co countries, producing passenger cars, co commercial vehicles, pick-up trucks an two-wheelers. Its tractors are sold and on six continents and it has plants in China, Ch the UK and the US. A graduate of Harvard Business Sc School, where he is on the board of de dean’s advisers, Mumbai-based Ma Mahindra, 56, has seen the company’s st stock price rise by 995% since he took ch charge. High-profile acquisitions in include Satyam Computer Services in 20 and Reva Electric Vehicles and 2009, Ss Ssangyong Motor Company in 2010. One of the Mahindra group’s suc successes has been the entry of its SUV, th Scorpio (known as the Goa in the Eu Europe) into the global market in 2002.
MUKESH AMBANI
B
illionaire Mukesh Ambani is the second richest man in Asia and the ninth richest man on the planet, worth $26.7 billion. In 2010, he was named among the most powerful people in th the world by Forbes. The basis of Ambani’s success lies in Reliance Industries, the largest private Rel sector enterprise in India, with an se an annual turnover of $58.5 billion, in wh which Ambani in 200 has a 48% stake, an and which represents 3.6% of India’s gross domestic product. gr Pe Petrochemicals, oil and gas-related op operations form its core business, but it is also active in textiles, retail, te telecommunications, financial services and special economic zone an de development. Ambani embarked on an open feud wi with his younger brother Anil about th the future of the company after their fa father’s death in 2002. The brothers fina finally settled a legal dispute over the di division of the business last year.
LAKSHMI MITTAL
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Last month the company launched its latest model, the XUV 500, aimed at cementing its reputation globally. The company was founded by KC Mahindra, Anand’s grandfather, as a steel trader in 1945, and launched India’s first utility vehicle two years later.
ondon-based steel magnate Lakshmi Mittal has topped the Sunday Times Rich List for seven years, although he has taken huge losses on the stock market in recent weeks, his sta stake in ArcelorMittal down to $10.3 bi billion from a 2008 high of $65 billion. The tycoon, born in Rajasthan in 19 1950, acquired his vast wealth as chief ex executive officer of ArcelorMittal, the wo world’s largest steelmaking company. He also has a string of directorships, in including an independent role at Go Goldman Sachs, and is on the board of th the European Aeronautic Defence and Sp Space Company and World Steel As Association. He created ArcelorMittal in 2006 in a ¤2 ¤26.9 billion ($36 billion) takeover of Lu Luxembourg-based Arcelor. The co company was hit by the 2008 financial cr crisis and slow recovery in Europe and th the US, where it has most of its plants. It has also lost market share, largely be because of competition from China.
tyres. It also has interests in telecoms, financial services and retailing. As the fourth-generation heir of the business dynasty from Rajasthan, Birla took over the group in 1995 after his father Aditya Vikram died suddenly at the age of 51. The group was then India-centric and generating $2 billion in revenues. Birla, a graduate of London Business School, turned the company into a multinational operation, making 22 acquisitions, and now operating in 33
countries. About 60% of its revenue is generated overseas. Last month Birla announced a further $17 billion global expansion aiming to almost double the group’s revenues to $65 billion by 2015. Birla, 44, said $10 billion would go to developing greenfield projects at its aluminium and cement companies, and to securing key resources such as copper and coal. The remaining $7 billion will go into its mobile phone and fibres units.
KUMAR BIRLA
K
umar Mangalam Birla is chairman of the Aditya Birla group, one of the largest conglomerate corporations in India, which generates $35 billion in annual revenue, and clocks cl $5.1 billion in operating profits. The group is among the world’s top ten te producers of cement and al aluminium, and this year acquired Columbian Co Chemicals of the US for $875m $8 to become the world’s biggest maker ma of carbon black, used in car
He also raised eyebrows after he constructed one of the world’s most expensive homes, overlooking the slums of Mumbai. The 27-storey building holds a 50-seat movie theatre, a spa and has a rooftop helipad, all for six inhabitants: Ambani, his wife, three children and his mother.
“I think we’ve done an excellent job in managing our way through the recession,” Mittal says. “When a real recovery takes place we will be in a good position to take advantage of it.” The billionaire, who is known for his flamboyant lifestyle, has a £57m home in London’s Kensington.
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THE GROWTH STORY
thesundaytimes.co.uk
Key government figures
ENGINEERING, CONSTRUCTION, PROPERTY AND EDUCATION
ANAND SHARMA
PRANAB MUKHERJEE Finance minister Pranab Mukherjee, a renowned economist, has crucial reforms on his agenda, aiming to expand foreign direct investment in the insurance and retail sectors. “Discussions are under way to further liberalise the FDI policy,” he recently told a conference of senior customs officials in New Delhi. Mukherjee has called for foreign investment in the insurance sector to be increased from 26% to 49%, and a bill is pending in parliament. The controversial liberalisation of the retail sector is moving more slowly, lacking the support of the opposition Bharatiya Janata party over fears that it would destroy smaller retailers. But an influential cabinet committee recently cleared a proposal to set the FDI cap in this sector to 51%, marking a big step towards the entry of multinational retailers such as Walmart, Carrefour and Tesco which have been eyeing the nearly $600 billion (£380 billion) Indian retail market. Mukherjee, 76, backs liberalisation as a way of tackling India’s marginally falling growth rates. Overall economic growth in the first quarter was at an 18-month low of 7.7%, against 8.8% the previous year. He remains positive about India’s growth prospects, perhaps drawing his optimism from previous reform successes. He was deputy planning commission chairman in 1991 when current prime minister Manmohan Singh was finance minister and unshackled Indian businesses.
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JAYPEEGROUP
MANMOHAN SINGH The foundations of India’s booming economy were laid by the current prime minister, Manmohan Singh, as finance minister in Narasimha Rao’s government during the 1990s. Often referred to as the “Father of Indian reforms”, he liberalised the nation’s economy, radically transforming the corporate climate and changing the lives of millions of middle-class Indians. Singh, 79, is an economist who served for many years as a bureaucrat and is a former governor of the Reserve Bank of India. When he became finance minister in 1991, India was on the verge of bankruptcy with an unsustainable fiscal deficit of close to 8.5% of GDP and a huge balance of payments deficit. Singh began restructuring the economy through deep institutional changes rather than just tightening the country’s belt. He simplified and rationalised the tax system, eased controls on industry and boosted entrepreneurship. The result was a huge increase in productivity. A series of corruption scandals has eroded the credibility of Singh’s ruling Congress party in the past year. While Singh personally has not been accused of corruption, his leadership through the crisis has been viewed as weak. In spite of the setbacks, Singh publicly has remained confident about India’s growth prospects. “Despite this sobering environment, we should aim at 9% growth,” he said.
Commerce and industry minister Anand Sharma has a battle on his hands as he attempts to lay down the building blocks to transform the manufacturing sector by 2025. Sharma, 58, is negotiating a national policy that aims to increase the sector’s share of GDP to 25% within a decade, creating 100m jobs in the process. Its focus is to improve the business environment by providing small and medium-sized enterprises with access to capital and enhancing the role of the private sector in skills development. The plans also seek to minimise the role of government and create an environment of self-regulation. Despite hitting a few hurdles with other ministries, Sharma remains confident. He has secured an agreement for a $90 billion project to create new investment zones in the states of Uttar Pradesh, Delhi, Haryana, Rajasthan, Gujarat and Maharashtra. This will “help unlock the true potential of manufacturing in India”, said Sharma, who took up his post in May 2009. He has also pledged to establish four or five national manufacturing and investment zones as “greenfield integrated industrial townships with world-class infrastructure” to attract good investment.
09.10.11
Delhi revs up on the starting grid
first Formula One Grand Prix this month.
Profile: Founded by Jaiprakash Gaur in 1958 producing cement and undertaking civil engineering contracts. Jaiprakash Associates, holding company, started in 1979 and expanded internationally, first in Iraq. Rapidly became India’s leader in hydro-electric power and has diversified into coal and wind projects. Owns six luxury hotels and several townships and commercial centres.
Key personnel: Jaiprakash Gaur, 80, was succeeded by eldest son Manoj in 2006 as holding company chairman. Retains a close interest, especially in its educational branch, which runs 22 schools, three universities and some colleges. His son Sameer is managing director of JP Sports International, responsible for the F1 venture.
Showpiece: Built Buddh International Circuit at Noida, which hosts India’s
Results: Group net profit, £239m on income of £1.55 billion.
Simon de Trey-White
High hopes: Force India will race at the Buddh circuit
Jaypee’s new F1 circuit shows the nation’s ambition, says Karen Robinson
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n motor racing, track record matters. So when Formula One boss Bernie Ecclestone and his chief circuit designer Hermann Tilke were looking to create a grand prix venue in India, Sameer Gaur used the Jaypee Group’s achievements to steal the deal for Delhi from potential rivals in Kolkata and Mumbai. The Jaypee consortium, founded by his revered grandfather Jaiprakash, and which employs 70,000 people in 11 states, has built hydro-electric dams
and power stations all over India — “huge works, this [the circuit] was small in comparison, so our strength was there,” says Gaur, 41. “And we had a civil engineering company — and the land.” This was a site in Noida, Uttar Pradesh, part of Delhi’s endlessly sprawling National Capital Region. The contract was signed in 2007, Jaypee built the $400m Buddh International Circuit (total cost $500m if you count the value of the land), and on Sunday, October 30 it will host the inaugural Indian Grand Prix.
For his part, Ecclestone is clearly excited about the new addition to his global F1 empire. “I had heard about India, one of the fastest growing countries in the world,” he says. “I thought that is where we should be. We should have been here before.” “Our track is compact at 5.14km (3.2 miles), but it has a natural elevation to 14m with a dramatic drop to two,” says Gaur. “And there’s an innovative 20m-wide corner — four cars can go round it at one time.” The circuit has a 21,00-capacity
grandstand with a 50m cantilevered steel roof, a paddock with all-glass walls for 6,000 fans, grassy elevated seating areas and total spectator capacity of 110,000. Race-day comes at the end of India’s Diwali celebrations. “From the Festival of Lights to the festival of speed,” says Gaur happily. “It’s going to be a rocking seven days. Entire Bollywood is dying to be here.” Jaypee has an initial contract to run the F1 race for five years, and will host other sports and entertainments at the
circuit. Gaur is proud that, unlike the other new F1 circuits in Asia and the Middle East, Buddh has been built with no government subsidy. JPSI, Jaypee’s sports division, is also building a new 100,000-seat cricket stadium in Noida, scheduled for completion in 2013. The aim is to supersede Delhi’s existing cathedral of cricket, the 60,000-capacity Feroz Shah Kotla ground, as the showcase for the nation’s favourite sport. Together, they form part of Jaypee Sports City, a combination of sporting facilities and homes catering for the growing middle-
class market — which might also like its golf course and shopping malls. “India’s population used to look like an explosion 20 years back,” he says. “It’s an asset now.” Gaur has also overseen Jaypee’s construction of the Yamuna Expressway, a 100-mile, eight-lane, concrete toll road which will cut the journey time from Noida to Agra, site of the iconic Taj Mahal, from five hours to two. “We won the project from the government of Uttar Pradesh over outside overseas bidders,” says Gaur. Under its public-private partnership
Drive: Sameer Gaur is behind India’s new F1 grand prix circuit
model, the developer bears all the costs and has toll rights for 36 years. It should be open by the end of this year, though the tariffs are still to be decided in consultation with the government.
Jaypee has acquired land along the expressway, a total of 2,500 hectares for mixed-use development. The company has broken ground and begun marketing. Demand, says Gaur, is “okay”.
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THE GROWTH STORY
thesundaytimes.co.uk
The Tata group has an impressive array ay of companies, sayss Karen Robinson
The local calls that rang up big numbers Mobile phones 607
million subscribers in May 2010
840
million subscribers in May 2011
59% of Indian
internet users only access the web on their mobiles In touch: Acme has kept mobile phone networks running
Source: mobithinking
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massive interactive map of India is projected on to a wall in the offices of Acme, a telecoms and infrastructure firm based in Gurgaon, greater Delhi. It tracks the energy used by each of the mobile phone towers the company runs for its telecoms provider clients. “We can even tell if the diesel[that runs the generators] is stolen,” says Sandeep Sethi, Acme’s CEO. He explains that this “global energy management centre” also functions as a call centre for 40,000 customer calls a month. “And we can track our 1,300 technicians by GPS, as they make 2,000 site visits a day throughout India.” The system has been in place for nine months. “We are running sites more efficiently, and customer
satisfaction has shot up,” says Sethi, 41. Solving customers’ problems has been at the heart of Acme from the start. In 2003, its founder and chairman, Manoj Kumar Upadhyay, asked Airtel, India’s biggest mobile phone company, what its “pain points” were. “They wanted to expand to remote areas, but there was no electricity, or it was not reliable — power surges could destroy electrical equipment. And diesel generators were expensive.” Upadhyay, 41, devised a technology for phone masts to lower diesel consumption in their generators, and another that “conditioned” raw power from the utilities companies to smooth out surges. This meant Airtel was able to expand mobile phone usage beyond areas of reliable electricity supply. “We helped take cell phones to remotest India,” says Sethi. Within five
Bling: Ratan Tata with a jewel-encrusted version of the Nano car
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total population
years of providing these and other technical and business solutions to the telecoms providers driving the huge growth in mobile phone usage, Acme had a turnover of half a billion dollars. The infrastructure that supports the country’s 840m phone users is now for the most part built, and the $20 billion spent on government-auctioned 3G licences has left the industry “cash-strapped”, says Sethi. The sector is waiting for “clarity and resolution on government telecoms policy. The main issues are licensing and spectrum, and there will be consolidation and licence cancellations.” Acme is looking for new ways to get turnover back to $500m. Moving from selling products to selling services, using the interactive management centre, has been working well. The firm is expanding into Africa, where take-up rates for mobile phones mirror India’s a few years ago, says Sethi. And it is getting into solar power generation, with plants in Rajasthan and Gujarat using US technology. “What we’ve done to make affordable telecoms, we want to do the same with energy,” says Sethi, who is looking for investment partners.
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atan Tata, the chairman of the Tata group, obviously has a neat sense of irony. Last month in Mumbai the Indian business titan unveiled an extravagantlyy blinging version of the Nano car, made by Tata Motors, one of the conglomerate’s many Indian divisions. This one-off monument to ostentation, created to commemorate the 5,000th year of jewellery designing in India, is made from 80kg of 22 carat gold, 15kg of to silver, and gemstones too numerous to count. An amusing way to celebrate the world’s cheapest car, priced from around £1,800, which has been sellingg thousands a month since its launch in 2009. Revolutionising affordable cars for the Indian market (and giving them serious green credentials: the twocylinder 623cc engine pumps out less CO2 than many motorcycles) is just part of what the mighty Tata conglomerate does.
1.2 billion
There is a lull in the mobile phone industry’s phenomenal growth. What happens now, asks Karen Robinson
09.10.11
The phone giants of India
BHARTIAIRTEL
RELIANCE
TELECOMMUNICATIONS
TELECOMMUNICATIONS, POWER AND INFRASTRUCTURE
Profile: Rated the world’s fifth largest mobile carrier by subscribers. Operates in 19 countries across Asia and Africa, with mobile, fixed-line, high-speed broadband, TV and data services. Launched by Bharti group in 1995, it has more than 170m subscribers in India.
Profile: The largest private-sector enterprise in India, the main supplier of telecoms and IT, with more than 130m subscribers. The telecoms side was started in 1999 but the large investment required has left it heavily indebted.
Showpieces: India’s largest mobile service provider by number of customers. Sponsor of India’s first F1 Grand Prix on October 30.
Showpiece: The building of a 190,000km optical fibre network to provide broadband connections for India’s industries and consumers.
Key personnel: Sunil Mittal, founder chairman, started out selling bicycle parts in Ludhiana.
Key personnel: Anil Ambani, chairman and son of the founder, has been with the company since 1983.
Results: Year ending March 2011, net profit of £863m on sales of £8.5 billion.
Results: Year ending March 2011, net profit of £196m on sales of £3.4 billion.
Elite squad To find the key to Tata’s successful involvement in so many different sectors and territories, the seeker after business wisdom might be well advised to study the Tata Administrative Services, an elite leadership training school run by the group. Krishna Kumar, 73, a director of Tata Sons and Ratan Tata’s right-hand man, was in one of the first intakes when he joined the company in 1963. In 1998, Brotin Banerjee, 37, won one of 12 places on the fiercely competitive scheme straight out of his masters degree at Jawaharlal Nehru University in New Delhi. He says the intake — from India’s top universities — is up to around 30 a year now. They will be the elite Tata cadre that leads an enterprise currently employing around 350,000 people. (Tata, incidentally, is the UK’s biggest industrial employer, with 45,000 staff working mainly in its steel business and Jaguar Land Rover). “It’s rigorous, and includes social service, going into villages, working with NGOs to understand what rural India is,” says Banerjee. “It’s very grounding.” Banerjee’s Tata career has taken him through group HR, chemicals and running Barista, a chain of 140 coffee shops in which the group had a stake. Property challenge In 2006, Krishna Kumar summoned him from the land of latte to revitalise a moribund corner of the empire. Tata Housing had been set up in the 1980s, but conditions had not suited the Tata way of working. “If you think the rules are opaque today, imagine it back then: cash transactions and no proper corporate governance.” But new rules on FDI (foreign direct investment) opened up the sector in the mid 2000s. “I didn’t want another typical real estate company,” explains Banerjee. “I have seen other industries at close quarters, and real estate is more difficult. All the usual business challenges were there, plus anarchic rules and regulations, and difficulties with land acquisition and clear title. “The industry had been a ‘mom and pop’ show, city or small regional
Golden touch behind long-term success operators, and never pan-Indian. Professionalism was not high, compared to the steel and motor sectors.” He recruited a young team from the property industry and other sectors. Their first project was Zylon, an IT park with energy-saving and water-saving features, the first Leed (Leadership in Energy and Environmental Design) gold-rated building in Bangalore. Since then, he says, “all our projects are environmentally sustainable, though it’s still not mandatory under Indian law”. Meanwhile, his team were carrying out research into consumer needs, and
Top gear Last year, India reached the 20m mark in car ownership, an annual growth of 8.9%
Almost 80% of cars sold in India last year were subcompact or smaller
More than 2m miles of highways – one of the world’s largest networks Over 135,000 road fatalities in 2009 – more than anywhere else in the world Sources: World Health Organisation; CIA World Factbook; Green Answers
affordable housing came out top of the list. Tata started building family apartments in “townships”, with schools, retail and healthcare, priced at about $9,000 (£5,800), and aimed at buyers earning around $3,500 a year. “Today we are making 1,500 such homes in India — in Mumbai, Pune, Chennai, Bangalore — and we are making money at this,” claims Banerjee. Buyers on 500,000-750,000 rupees (£6,550-£9,200) a year can buy a Tata home for $25,000-$40,000, and there is something in the portfolio for the aspirational rupee billionaire class, with luxurious $3m houses in a hill station two hours from Mumbai (“the second-home concept”) and even villas in the Maldives. Although he says high interest rates have dampened the market a bit, Banerjee is pressing ahead with the 45m sq ft he currently has under development. Underpinning it all are principles imbibed in the Tata Administrative Services: professionalism, setting safety and quality standards, benchmarking, investing in proper market research and “improving the quality of life in all areas we are present in”. Voice of industry B Muthuraman (his assistant claimed even she didn’t know his first name, which is Balasubramanian), 66, has
TATAGROUP
ENGINEERING, MATERIALS, COMMUNICATIONS AND IT, CHEMICALS, SERVICES AND ENERGY Profile: Founded in 1868 by Jamsetji Tata, it embraces more than 90 operating companies working in more than 80 countries. More than 57% of revenue is generated outside India. Listed among the top 50 global brands. Interests include tea, power generation and satellite TV. Showpieces: Bought Jaguar Land Rover from Ford in 2008: has since returned to profit. Tata Motors makes the Nano, said to be the world’s cheapest car. A sub-£4,000 European version is expected soon. The steelmaker Corus, bought in
been with Tata for 45 years. He is vice-chairman of Tata Steel and chairman of Tata International (which has businesses in Africa), and as president of the Confederation of Indian Industry is well placed to give an overview of the Indian scene. “Industry has slowed down in the past few months,” he says. “But when I say ‘slowdown’ it is not in the same sense as one would use in the United
2007, has been rebranded as Tata Steel Europe. Tata Global Beverages, the world’s second largest teamaker, owns Tetley. Taj hotels (see separate story) is part of the group. Key personnel: Ratan Naval Tata, chairman since 1991. Has seen revenues grow twelve-fold. Studied architecture at Cornell University; went to Harvard Business School. Returned to India to join family firm. Results: Year ending March 2011, post-tax profit of £3.8 billion on sales of £54 billion.
States. And the slowdown is also deliberate. With inflation at 10%, partly due to the increased global cost of raw materials, the Bank of India is hiking interest rates every three months to contain it. “The long-term growth story is intact,” he adds. “There are plenty of opportunities in India. Infrastructure is getting built. Nothing seems to be sufficient, though.”
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Simon de Trey-White
From pharma to pizza
JUBILANT BHARTIAGROUP
PHARMACEUTICALS AND LIFE SCIENCES, FOOD AND AGRICULTURE, OIL AND GAS AND INDUSTRIAL CONSULTING Profile: Has more than 20,000 employees worldwide with 1,400 in the US. Strong global presence through partnerships with established companies. Includes largest food service company in India, leading drug development centre, fertiliser manufacture, hypermarkets, aircraft sales and maintenance and oil and gas in India and Australia. Jubilant Energy listed on AIM in London last year. Showpieces: Manufacturing facilities in India and in the US expanding fast to meet growing worldwide demand for generic drugs, which contributed 78% to revenues of life science division. Team of scientists at HQ in Noida, Uttar Pradesh, engaged on research and collaborative drug trials across globe. Key personnel: Brothers Shyam Bhartia, chairman and managing director, and Hari Bhartia, co-chairman and managing director, of Jubilant Life Sciences, have overseen change from traditional chemical company to drug and research-focused unit, with agricultural interests spun off to separate division last year. Results: Year ending March 2011, pharmaceuticals and life sciences made net profit of £30.4m on revenues of £445m; agricultural and polymers made net profit of £3.8m on revenues of £73.4m; energy a net loss of £26.7m; foodworks net profit of £9.5m on revenues of £90m.
Global: Shyam Bhartia is bringing fast food to India
Jubilant is a key link in the global medical supply chain, says Karen Robinson
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hyam Bhartia has a business strategy that can be applied across any sector: pizza delivery, pharmaceuticals and gas extraction, to name a few of Jubilant Bhartia group’s enterprises. “Our basic philosophy is to create more opportunities for the group,” he says. “And to be leaders in any industry where we are present.”
Following that creed has made the life sciences company founded by Bhartia, 59, an accountant, and his chemical engineer brother Hari into India’s largest CRAMS (custom research and manufacturing service) firm in India, number six in the United Nations’ ranking of the world’s top 10 pharma outsourcers. Bhartia Life Sciences provides a global supply chain of vital ingredients and research for big pharma, covering
products, ingredients and services for oncology, metabolic diseases, allergies and disorders in the central nervous system. Research labs employing 1,200 people in Delhi and Bangalore are carrying out “most exciting” work, especially on diabetes. “India has the largest diabetic population in the world, in numbers and by percentage,” Bhartia says. Causes are both genetic and lifestyle-driven. However, he points out that his market is far wider than India — the research and development focus at Jubilant is on global diseases, not local health issues. The company is also pioneering hospitals for “people at the bottom of the pyramid who need healthcare at reasonable cost.” Given that India only
spends 1% of GDP on healthcare, “the government alone cannot provide for the unmet needs,” he says. His hospitals receive no subsidy, though Jubilant is going into various publicprivate partnerships with local authorites to bring their hospitals “more efficient management, better medical practice and good quality staff”. The scheme, he says, is giving “outstanding” Indian doctors a reason to return from overseas. The brothers did not stop at life sciences, and Jubilant now has a raft of divisions, from agricultural polymers, oil and gas to food and retail. Which brings us to the pizza delivery. Jubilant is master franchiser for Domino’s pizzas, with branches in
80 cities, appealing to the aspirations of a young market with disposable income in its pockets. A pizza costs 60 rupees, or 80p. “The QSR [quick service restaurant] franchise is only 2-3% of the total food market, but we never imagined it would grow so much,” says Bhartia, who is about to launch Dunkin Donuts on the subcontinent. Our meeting has taken place at Jubilant HQ in the Delhi satellite town of Noida — on a Saturday morning. Many employees are at their desks. Success in India’s corporate world is obviously being won as much by sheer hard work as strategy and vision. As I take my leave, the lunchtime pizzas are being delivered for the staff. Ordered from Domino’s, of course.
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Making city life work Unclogging the urban streets is a priority, finds Karen Robinson
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n India’s Century, his lively and optimistic analysis of the economic power and potential of his country, Kamal Nath writes: “India’s future cannot be extrapolated from its past. Rather, it is the present on which our vision of India in the 2020s must be based.” Today’s India is already racing ahead to that future, setting challenges that are “unprecedented in scale and significance” for political veteran Nath, a cabinet minister who holds the urban development portfolio. The charismatic and controversial politician points out that India’s urban centres contribute about 60% of GDP and within the next decade that is predicted to increase to 75%, and involve more than 40% of the population or 500m people. India now has almost 50 cities with a population of at least 1m (more than than the whole of Europe, Nath observes), and two of its mega-cities, Delhi and Mumbai, are among the five largest on earth. “We have a young and highly mobile population,” he says, “so managing urbanisation and planning suburbanisation is a huge challenge. We’re democratic, we can’t control the movement of people.” It’s going to cost a lot of
money, with the government having to invest the equivalent of $1.2 trillion in the next 20 years, more than half for improved urban transport systems. That, he says, is the “basic issue for my ministry. We need dispersal and suburbanisation to stop overcrowding — better transportation so people don’t
“URBANISATION IS A CHALLENGE. WE CAN’T CONTROL THE MOVEMENT OF PEOPLE”
Kamil Nath
stay here —” he gestures through his office window to indicate central Delhi, a magnet, like all India’s city centres, for people looking to claim some of India’s new vigour and prosperity for themselves. Bids from all over the world are sought for metro systems in cities including Hyderabad and Bangalore. “EWS [economically weaker sector] housing will be a public cost,” he adds. “There are opportunities for private enterprise in the middle and high end, but low-income housing has got to be government funded. There are huge slums in India already, we don’t want them to increase.” Nath and his ministry will also play the role of “key facilitator” in the urbanisation process. As well as streamlining land registration and planning laws and encouraging rainwater harvesting in all new projects, he is looking for investment in public-private partnership (PPP) models for drinking water, waste management and utilities projects. And for the 1,000-mile, $100 billion Delhi-Mumbai Industrial Corridor (DMIC), a vast enterprise zone linking the two main cities via six states, Nath says “we will have to encourage foreign investment”. The DMIC is expected to double employment, triple industrial output and quadruple exports in it first five years. “I see many opportunities,” Nath says. “UK companies are already strong here, and the UK is a major finance centre, it could put together packages.”
New middle class invest in bricks and mortar
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s the son and nephew of the co-founders of Innovative, a Delhi-based infrastructure company, Amit Bansal was destined for the family business, a fast-growing infrastructure company, with projects including housing, shops, office space, industrial complexes, schools, colleges and hotels as well as finance and importexport. But he had to make sure he had what it took to run its property side and to take full advantage of the boom in demand for commercial and residential property. So after business studies in the United States and stints working for Time Warner and Dodge, Bansal relocated to India and worked for a property company in Gujarat before
joining Innovative, a private limited company that does not publish its financial results. Bansal, 37, says the previous generation had created a land bank for him to develop, though land acquisition is still a priority. “Farmers are asking high prices, but sometimes you get lucky,” he says. More often, it is a case of negotiating with groups of small owners to consolidate viable plots for development. Innovative has projects in Shimla, Jaipur, Mumbai and other parts of India. Its showpiece is in Gurgaon, officially the second largest city in the state of Haryana but to all intents and purposes a seamless extension of Delhi, as part of the national capital region, and a rapidly growing boilerhouse of commerce and industry. Innovative’s Legend Heights, at Gurgaon, close to the airport,
is a spectacular complex with two 12-storey office towers rising above a luxury retail centre and a business hotel to be run by Hyatt. The development is due to be finished in March. There are also plans for Gurgaon to have a multi-storey housing project in 14 acres of landscaped grounds, an industrial estate, and a 110-acre golf township with homes, swimming pools, a gym, hospital, school and shopping mall on site. The residential element is for the “middle-class market”, says Bansal, though he can’t be pinned down on prices. “It would be 3,200 rupees (£42) per sq ft, but will go higher because of inflation. And labour in India, skilled and the unskilled, who carry bricks on their head, is not cheap any more. But in India there is a huge scarcity of property to buy. It is considered a safe investment.” KR
Mumbai: the new sea link toll bridge eases traffic congestion
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THE GROWTH STORY
thesundaytimes.co.uk
Hotels poised for growth
Follow the opportunities
Business travellers are a driving force, says Karen Robinson
Chanda Kochhar, who heads ICICI bank, talks to The Sunday Times about women, money and the global crisis Congratulations on your inclusion in both Bloomberg’s ‘50 most influential in global finance’ and the Forbes list of the world’s most powerful women. Why do you think you are there? My inclusion in these lists is a recognition of the achievements of the entire team at the ICICI Group. This team has successfully executed the strategy that we articulated two years ago, building a strong foundation for growth. Is it working because you’re operating in an economy — India — with massive potential for growth? Or because your way of running the bank is the right response to global and Indian financial conditions? As a group, we participate in every area of financial services in India with a vision of partnering India in its growth. India has established itself as one of the world’s fastest growing economies. Our substantial demographic advantage, which will continue for the next few decades, is a major factor behind this growth, as it provides a large and growing working population leading to increasing household incomes and prosperity. At the same time, the existing infrastructure deficit in India means that there is huge potential for viable investment in infrastructure. These two major factors are driving growth and creating opportunities for Indian businesses, including banks. At ICICI Group, we have always capitalised on the opportunities in the Indian economy. We started life as a project finance lender and have been leaders in this space for many years. With the emergence of consumption as a growth driver, we capitalised on the opportunity by building a large retail business. As Indian corporates went global, we created our international network to support our clients in executing their strategies outside India. We have successfully aligned our strategy to the needs of the environment. Over the past two years, we have rebalanced our asset and liability profile, improved asset quality and enhanced operating efficiencies — thereby building a strong foundation for profitable growth. We have also maintained a very strong capital position. What impact has the global economic crisis had on the Indian financial sector? The Indian financial sector has been very resilient in the face of the global financial crisis. There are two main reasons for this. One, Indian banks have focused mainly on the Indian market and their international
strategies have also been linked to business opportunities with Indian companies going global, or Indians residing in other countries. Thus they have had limited exposure to global risks. Second, India is known for having a prudent regulatory framework, which has helped to ensure that Indian banks do not take undue risks or reward imprudent risk taking for short-term profits.
lending segment, given the higher risk associated with these products. Even in these products, we are stepping up business with our existing deposit customers as well as loan customers who have a track record with us. The share of retail loans has also reduced over the last two years because of the substantial growth opportunity on the corporate side, as India entered a new investment cycle. But we do continue to see retail banking as a big opportunity and have substantially invested in our branch network to tap this opportunity.
What are your growth targets for ICICI? Our strategy is closely aligned to India’s growth. India’s economic fundamentals should support a real GDP growth rate of about 8% over the medium term. Bank credit typically grows by 2.5 to 3 times real GDP. Similarly, in other segments of financial services like insurance, we can expect robust growth given the underlying economic growth, household income growth and existing underpenetration of these products.
On the commercial side, which sectors in India are currently looking for finance? And which sectors are you most keen to get involved with? India is one of the fastest growing economies, with focused investment towards improving the core infrastructure of the economy such as roads, ports and power. There is demand for commercial banking products and services across other sectors as well, such as capital goods.
What is your strategy for achieving those targets? Our strategy is to leverage these growth opportunities as they arise. We have strong corporate relationships and a large retail distribution network, which would enable us to capitalise on growth in both corporate and retail segments. In addition, we have leadership positions in insurance and asset management. You have cut the bank’s retail activities as a proportion of the business (from 60% to 37%). Given the huge numbers of Indians who will soon become eligible to enter the personal banking system, including car loans and mortgages, why have you done this? We continue to be very focused on products like mortgages and vehicle loans. The only segment where we have consciously cut down our exposure is the unsecured retail
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Are there signs of a slowdown in corporate India? Currently, the corporations are implementing the projects that they have on hand but not many have talked about their next big investment plans three years from now. To that extent, yes, there is moderation in terms of deciding the next set of investment plans.
Woman in a man’s world: ICICI’s Chanda Kochhar
ICICIBANK
CORPORATE AND RETAIL PRIVATE BANKING includes offices in China, USA and UK. Rapidly expanding in insurance market.
Profile: Set up in 1955 with the aim of providing development funds, launched retail arm in 2000 and now has 2,535 branches and 6,800 ATMs, alongside interests in insurance, venture capital and securities trading. First Indian banking company to list on New York Stock Exchange in 2000. Badly hit by global financial crisis. Now recovering after period of retrenchment, but faces regulatory pressures in UK and Canada.
Key personnel: Chanda Kochhar, 49, managing director and chief executive since 2009, is one of India’s leading businesswomen and has recently outlined her strategy for returning to growth and expanding to become one of world’s top 20 banks.
Showpieces: Big internet presence in India, one of the pioneers of online banking. Worldwide representation
Results: Year ending March 2011, net profit £812m, 30% increase on 2010. Net assets £54 billion.
Would you like to see more women in positions like yours in India? How can that be achieved? Are you grooming new female talent for the top at ICICI? Women have certainly come a long way in recent years, and we have many women in leadership positions in the corporate sector now. I am sure this trend will further strengthen in the years to come. As for whether this helps one stand out in a man’s world — I think an individual, whether man or woman, is ultimately judged by his or her performance and achievements. I don’t think the fact that you are a woman gets you any extra points! At ICICI Bank, we treat our female employees the same way as our male employees, give them the same opportunities and evaluate them against the same performance standards. This has enabled women to rise and do well in the organisation, and we continue with this philosophy.
I
ndia’s hoteliers are racing to keep up with demand from business travellers. “There are 130,000 hotel rooms in this country — we need 70,000 more and a third of those should be at the luxury level,” claims Captain C P Krishnan Nair, the dapper 88-year-old chairman of the Leela Palaces, Hotels and Resorts Group, which has seven hotels in India’s leading business centres. A new 400-bedder is about to open in Chennai, where he says the manufacturing sector is going from strength to strength. But the former Indian Army officer and textile exporter concedes it is not always easy. It was a “race against time” to complete the group’s new flagship Leela Palace in New Delhi, as the company had to compete for builders with the 2010 Commonwealth Games contracts. In August, Leela announced it was selling its establishment in Kovalam. Nair says: “This will help free up valuable capital to selectively expand our operations and focus on what we are known for doing best: treating our guests like gods” — a classic piece of showmanship from the man who commissioned a £2m sculpture of a traditional Indian goddess for the garden of the sumptuous Leela Palace New Delhi. Nair’s strategy is to build new hotels that combine “the authentic romance of India with world-class hospitality standards”. Leela Palace has a branch of New York’s Le Cirque restaurant and the stylish Japanese sushi specialist Megu.
The Taj Mahal Palace, Mumbai; Captain C P Krishnan Nair, inset
Nair says he is “poised for increased tourist arrivals”, but the demanding business traveller is the key target. Taj Hotels Resorts and Palaces has a similar group in its sights, but has extended its target market through “a new brand architecture”, explains Deepa Harris, marketing vice-president. “We realised that India is a vast country and needed an economy segment.” In 2004, Taj launched Ginger, 28 no-frills hotels at $25-$30 a night. Twenty-seven “upscale” Gateways followed in 2008, and since 2010 the “upper upscale” customer has been able to stay at one of 25 Vivanta by Taj hotels, equivalent, Harris says, to a Westin, Sheraton or Hyatt. At the pinnacle is the Taj brand, providing the “pure luxury” of designer bedrooms and stately public areas, gourmet cuisine, superattentive service and complimentary high tea, happy hour, and brandy and
chocolates at bedtime. Queen of the 19 Taj establishments is Mumbai’s Taj Mahal Palace, which opened in 1903 as Asia’s original luxury hotel, and reopened in 2010 after a £25m refit following the 2008 terrorist attack that left more than 170 people dead. “Growth is fuelled largely by business travel. The demand in India is growing at 15-17%,” Harris says. Taj is not relying solely on India, and has a global portfolio of luxury hotels in the USA and resorts and spas in Asia and the Middle East. But the way some top hotels, including Leela and Taj, levy a supplementary daily charge for wi-fi is perplexing when the white-gloved room butler is thrown in for free. It’s a legacy from contracts made with suppliers before online access changed from amenity to basic utility. A discreet word with the management will probably ensure it doesn’t appear on your bill, advises Harris.
TAJHOTELS
LEELAHOTELS
Profile: Part of the Tata empire. Taj includes the upmarket Gateway and Ginger budget hotels. Taj also owns 16 international hotels.
Profile: Specialist in ultra-luxury hotels with five-star ratings in major cities and holiday resorts. A new hotel to open soon in Chennai, followed by others in Agra and Ashtamudi.
HOTELS, RESORTS AND TRAVEL SERVICES
Showpieces: The Taj Mahal Palace in Mumbai. The group runs Taj Air, a luxury private airline, Taj Yachts and Taj Safaris.
HOTELS AND RESORTS
Showpieces: Leela Palace New Delhi and Leela Palace Bangalore.
Key personnel: Ratan Tata, chairman; Raymond Bickson, MD and CEO; Abhijit Mukerji, executive director, hotel operations.
Key personnel: Captain C P Krishnan Nair, chairman; Vivek Nair, vice-chairman and managing director; Dinesh Nair, joint MD.
Results: Year ending March 2011: post-tax profit of £18.8m on sales of £220m.
Results: Year ending March 2011: post-tax profit of £5m on sales of £72.8m.
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09.10.11