Remember the Dilbert t-shirt that screamed: ''change is good. Let it happen to somebody else.'' Chances are you won't, because those pieces can't be selling too well these days. For the change happening these days isn't exactly ''good''. And it may be ''happening to somebody else'', but not before leaving its indelible mark on you. The more things change these days they hardly remain the same (in this case, not even the cliché).
| TOP TEN |
| 1. WIPRO
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Stripped off the figures of speech, what we're trying to say is that India Inc-and the entire global corporate landscape for that matter-has been brought back, rudely, to terra firma. Bravado, courtesy of hype, valuations and projections, have made way for sobriety. That's change at its worst-quick and unpleasant. As consumers and investors go into their shells, economies slow down and stockmarkets find new lows, CEOs are realising that the honeymoon with the myths of the new economy is well and truly over. If Information was considered god yesterday, well, today Assets are once again vying for that lofty perch. Services might have been the new mantra in the Internet Age, but don't underestimate the power of Products. And Revenues and Profits (or rather losses) do, after all exist, along with Market Capitalisation.
Hang on, did we say market capitalisation? Well, sure enough, there's plenty that's gone out the window, but as long as providing value to shareholders remains the buzzword for companies, marketcap will continue to be considered the holy grail. After all, that's the most visible, and simple, reflection of how well a company is treating the people who've bought into it. And that's why our BT 500 assumes plenty of significance, arguably even more relevance, in such bearish times. For fads may come and go, markets may spurt or tank, but the shareholder is there to stay-and to be rewarded. Nobody cares about how respected a company is, if it doesn't respect its minority stakeholders.
| THEN AND NOW | ||
| Top 10 Old Economy Companies Market Capitalisation (Rs crore) | ||
| Company | Average 2000-01 | On Sep.20, 01 |
| HLL | 49,525.0 | 46,224 |
| Reliance Ind | 36,633.3 | 25,353 |
| Reliance Petro | 24,058.4 | 13,784 |
| ITC | 18,872.3 | 15,765 |
| Ranbaxy | 7,491.1 | 7,419 |
| HDFC | 6,084.3 | 7,721 |
| HDFC Bank | 5,860.0 | 6,153 |
| Hindalco | 5,752.4 | 4,172 |
| Cipla | 5,500.5 | 7,100 |
| Nirma | 5,436.1 | 2,358 |
| Top 10 New Economy Companies Market Capitalisation (Rs crore) | ||
| Company | Average 2000-01 | On Sep.20, 01 |
| Wipro | 61,714.0 | 21,910 |
| Infosys | 46,915.6 | 16,285 |
| HCL Tech | 17,019.1 | 4,643 |
| Zee | 16,536.0 | 4,042 |
| Satyam | 13,079.1 | 3,951 |
| HFCL | 8,855.7 | 246 |
| NIIT | 6,374.7 | 365 |
| Sterlite | 4,425.6 | 593 |
| Global Tele | 4,411.0 | 386 |
| HSS | 3,852.1 | 689 |
''At Reliance, maximising shareholder value and returns is central to all our decisions and strategies. It is our endeavour to consistently maximise overall shareholder value through profitable operations and efficient deployment of capital for superior returns,'' points out Anil Ambani, Managing Director, Reliance Industries. The Ambanis should know: Reliance Industries and Reliance Petroleum occupy fourth and fifth slot respectively in the BT 500. That's not exactly a surprise, considering that the stock of Reliance Industries has appreciated 111 per cent in three years, 157 per cent in five years, and 192 per cent in 10.
Indeed, that's why corporations in the top rung of the BT 500 are embracing shareholder value like never before. Take the case of Hindustan Lever (No. 2 on the BT 500), which is chasing growth in a market that's stagnant. ''It's not just growth, but sustained, profitable growth that Lever is pursuing. That's our key priority, along with efficient use of capital, which together will ensure that we deliver value to our shareholders,'' explains Manvinder Singh Banga, Chairman, Hindustan Lever.
Scan the BT 500 list, and your first reaction is bound to be: ''Oh, it contains the usual suspects.'' True enough, as the ranking is based on the average market capitalisation for fiscal 2000-2001. But for the slight shuffle at the top-it's Wipro at pole position this time round, although it's marketcap is down by half from 1999-2000 levels-there's not much to differentiate the BT 500 from the previous year's list.
What's more, the TMT (technology, media, telecom) sector still dominates, with six of the Top 10 being such companies. We're now just about half-way through the current fiscal, and the past six months have witnessed a carnage on the markets, and to a fair extent make a mockery of our list. Over this period, technology stocks have been beaten down by as much as 95 per cent.
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| No 1: WIPRO
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The it stocks that are down by 70 per cent are the luckier ones. Consider: as per our rankings, Wipro's marketcap stands at close to Rs 62,000 crore (remember this is the average for the whole of last year). That figure, as of September 17, was down to a little over Rs 25,000 crore. Infosys, doesn't fare much better, its market cap crashing from just under Rs 47,000 crore to Rs 17,350 crore.
The non-it companies haven't got burned, although they're down too, with Reliance Industries slipping from Rs 36,600 crore to Rs 27,500 crore, ITC (No. 6) inching down from Rs 18,800 crore to 15,200 crore, and Hindustan Lever losing 20 per cent of its marketcap in that period.
Then, there are those stocks that make you rub your eyes in disbelief and wonder how did they ever get to the top of the BT 500-or alternatively, how did they manage to hit rock bottom so fast. Consider Zee Telefilms which, at No. 8, came in with a marketcap of Rs 16,500 crore. These days, that figure is barely over Rs 3,000 crore. But the real shocker is HFCL (No. 10), which is plumbing the depths at a little over Rs 200 crore from last year's average high of-hold your breath-Rs 8,855 crore.
That's the flip side of the endeavour toward value creation: stock prices that were totally out of whack with fundamentals. And in that quest for valuations, every trick (many of them out of the book) was resorted to. But that's history. Now that the dust has settled, the good news for most of these companies is that things can't get any worse.
As Manoj Tirodkar, Chairman & CEO of Global Tele-systems (No. 22), which has seen its marketcap eroded from Rs 4,400 crore to Rs 330 crore, says: ''My stock price can't go to -5. This is the best time to rework my strategy with a long-term perspective in mind.''
To be sure, when at rock-bottom, there's only way to go: up. And companies of all hues, right from the so-called old economy ones (wonder why that phrase isn't used too much these days?) to the infotech giants, have a job on their hands: to grow even as recessionary conditions ravage the economy. And for the pretenders, it's sheer survival that's at stake.
CAN THE OLD STRIKE BACK?
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| No 2. HINDUSTAN LEVER
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The challenge is two-fold: one, slash costs in a bid to ensure growth even if markets are flat; and two, foray into sunrise areas that will broadbase the company's opportunity for growth over the longer term. Says Sanjay Jain, Partner, Accenture, " Most companies have sharpened the focus on the top line. One would think companies would look to reduce costs. But a lot of companies have been focusing on their sales and marketing to drive top line growth."
Reliance Industries, for instance, has been able to counter a sluggish global petrochem industry-it notched up a 4 per cent growth in sales and 14 per cent in profits in the first quarter of this year-thanks to higher capacity-utilisation rates, productivity improvements, and cost-reduction exercises. ''Also, our continued focus on speciality grades results in premium pricing, and contributes to higher margins, thereby insulating us from the commodity downcycle to an extent,'' explains Ambani.
Also dealing with sluggish markets is FMCG major, Hindustan Lever. The strategy of focusing on 30 power brands is showing positive results: for instance, in the first half of the current year (January-June), the power brands-which account for 100 per cent of Lever's profits, registered a growth rate of 4.8 per cent, as against just a 1.5 per cent total sales growth. ''We're getting good results, and are on the right track,'' says Banga.
Amalgamations and divestitures are also part of the Lever game plan, with International Best Foods and Lakme Lever being merged into the company, and the animal feeds business being sold off.
Meantime, ITC too is using the merger route-by integrating with sister company ITC Bhadrachalam-to boost value. ''We are committed to being the No. 1 player in every category we are in the domestic market,'' says chairman Yogi Deveshwar. Adds K. Vaidyanath, Finance Director: ''Not only will the net profit of Bhadrachalam strengthen our bottomline, but there will be substantial tax benefits as well, given the accumulated losses of Bhadrachalam in the mid-nineties.''
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| No 3. INFOSYS TECHNOLOGIES
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Reliance for its part has trained its sights on the disinvestments process, evincing interest in IBP and VSNL. But the buzzword here too is value. ''Reliance's decisions to build or buy assets and businesses will depend on the available value propositions,'' says Ambani.
But the most exciting buzz emanating from these companies is related to the new ventures they have on their plate. After announcing its investment of a whopping Rs 25,000 crore in the infocom business (voice, data, and value-added services), Reliance is now, perhaps inevitably, blueprinting its next big foray: into biotech. Lever's Banga points out that his company has identified ''four-five'' new businesses, as part of its ''Project Millennium'' exercise; and last fortnight, he was preparing to take one of his new forays-into confectionery, under the brand Max-national, after testing the product in Tamil Nadu.
The Lakme beauty salons venture too is on song. As of today, Lever has some 25 salons, which will go up to 200 in two years. And ITC is hedging its flagship tobacco business by spreading its wings. As Sanjive Keshava, Chief Executive of the Lifestyle Retailing Business Division, points out: ''We are aggressively growing this business by setting up a network of 100 stores across the country over the next two years.'' The intention is to position Wills Sport and Wills Lifestyle as premium Indian brands.
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| NO 4. RELIANCE INDUSTRIES
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If there's one sector that's least touched by the bearish conditions prevailing, it's pharmaceuticals. And that's why we can expect much more in future rankings from this year's toppers-Ranbaxy (No. 11), Cipla (No. 16) and Dr Reddy's (No. 24)-all of which are heavily focused on research and the global markets. Ranbaxy CEO D.S. Brar, for instance, wants to touch revenues of $1 billion by 2004 by making Ranbaxy a ''truly global company''.
That's not going to be the easiest of tasks for this Rs 1,746 crore company, given that growth in the domestic market is sluggish, and that Ranbaxy has to take on the multinationals when it comes to drug discovery. However, Brar, who hopes to end the current year with sales of $600 million (Rs 2,880 crore), says he's well on course. Much of that expected growth will have to come from the US market, which accounts for 47 per cent of the global pharma pie. Currently, the US contributes only 16 per cent to Ranbaxy's revenues. In the short term, that may prove beneficial to the company, considering the uncertainty in that part of the world.
In that light, Ranbaxy's strategy to focus on other world markets like Brazil, China, Germany and the UK, and to strike supply agreements with companies in Portugal, France, Belgium, Spain, and Germany makes even more sense today.
WHAT'S IN STORE FOR INFOTECH?
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| No 6. ITC
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The billion dollar question for the Indian software industry today of course is how much have the bombings of the World Trade Centre, and their fallout, further set the sector back by.
Nandan Nilekani, President, Managing Director & Chief Operating Officer, Infosys, says it's too early to comment on the business implications, and whether Infosys will be able to achieve a 35-40 per cent growth rate by the year-end. ''Our focus at the moment is on offering all support to affected employees and customers.'' Suresh Senapathy, CFO, Wipro, adds that while the short-term and medium-term impact can't be predicted, ''in the long term the value-proposition of India-based off-shore service providers is strong.''
The National Association of Software Services Companies (NASSCOM) has conceded that earnings for the second quarter, as well as growth for the entire year, will suffer in the wake of the terrorist attacks on the US. NASSCOM now feels that the software sector will now grow by 30 per cent (a worst-case scenario) as against the earlier projected 40 per cent.
Yet, a 30 per cent growth in such cataclysmic conditions should be considered excellent. But analysts wonder whether NASSCOM's optimism is fuelled by too much of octane. After all, with the US in retaliatory mode, the scenario can't get any better. Don't forget that the US accounts for 60 per cent of India's software exports. And take a look at individual companies.
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| No 7. HCL TECHNOLOGIES
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NIIT (No. 12 on the BT 500) has close to half of its revenues of Rs 1,237 crore coming from the US. It's not exactly been a smooth ride for this training and software company so far. Profits for the quarter ended June had dipped by 93 per cent-and that's why NIIT thought it prudent to issue a profit warning way back in March.
Also in the wars is Hughes Software (No 23)-60 per cent of whose revenues come from the US-which issued a profit warning last fortnight.
Hughes has lowered its profit growth forecast for the current year to 25-35 per cent as opposed to the earlier estimate of 60 per cent. ''Communication companies worldwide have continued to announce downsizing and lower revised business forecasts,'' says Arun Kumar, President & Managing Director, Hughes Software Systems. ''Decision-making has slowed down significantly with decisions being increasingly moved indefinitely to the future. The visibility on restoration of our customers' confidence and the sector's turnaround is unclear. All these factors have impacted our business in the last two months and caused us to present this new guidance.''
However bad the scenario, the IT majors aren't in a mood to go down. The growth strategies aren't novel, but cost-cutting, acquisitions, and moving up the value-chain are the clear favourites at India it Inc. Infosys, for instance, has slashed costs where IT hurts (the company) most: salaries.
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| No 8. ZEE TELEFILMS
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''The largest element of cost for Infosys is salaries. This year, the salary hikes for employees has been moderated against the typical 25 per cent to 30 per cent annual hikes. We have given a hike of 15 per cent and out of that 15 per cent, 10.5 per cent, that is 70 per cent, is given based upon revenues,'' explains Nilekani.
Adds Narayan K. Seshadri, Country Head (Business Consulting), Arthur Andersen, "The smarter companies are cost conscious; they maintain flexible cost structures and have enough slack to cut in a downturn. That way, they don't throw the baby out with the bathwater".
Acquisitions too are high on the priority list. Nilekani adds that Infosys is looking at acquiring companies that can ''give competency in new and desired technology areas''. Then, NIIT has set aside $100 million (Rs 480 crore) for M&A, in a bid to achieve its audacious target of a turnover of Rs 10,000 crore by 2005.
And note: There's no scale back. ''We intend to surpass the Rs 10,000 crore turnover in the second half of this new decade,'' declares Rajendra S. Pawar, Chairman, NIIT. There are two ways of getting there. One, by growing at an organic compounded annual growth rate of 44 per cent, and relying on the rest of the growth from acquisitions. But if the takeovers don't materialise, NIIT will have to grow at a compounded growth rate of just 52 per cent annual. Sounds absurd, given the current recessionary conditions.
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| No 9. SATYAM COMPUTER SERVICES
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Perhaps the pressure for the Indian it sector to move up the value chain has never been higher. Says Ramalinga Raju, Chairman, Satyam Computer Services: ''We have adopted a two-pronged strategy to move up the value chain of the customer. One part of the strategy is customer centric and focussed more on building long term relationships and offering end-to-end it solutions. The second part of our strategy is inward looking and focuses on our organisation structure. Last year we completed the restructuring exercise where the business units were organised into verticals (business domains) and horizontals (technology). This allows us get closer to the customers, grow our expertise in each domain and provide more and more value-added services to the customer.'' And Infosys is relying on its consulting practice to enable it to move into high value services.
Wipro too has targeted the consulting space, but more on it and technology strategy than business consulting. And HCL Technologies (No. 7) is focusing on higher value-added businesses like technology development services (which already account for 50 per cent of revenues), and entering into long-term collaborative relationships with clients at its 35 client-dedicated offshore development facilities. ''HCL Technologies has defined an elaborate business strategy in order to retain its position at the top,'' says Shiv Nadar, Chairman, President & CEO, HCL Technologies.
SO WHAT HAPPENS IN CRASHLAND?
The it majors like Wipro, Infosys, Satyam and HCL can still hope for 30-35 per cent growth, but what happens to the second-rung and third-rung it companies? And what happens to yesterday's ''momentum'' stocks-the favourites of punters, who took them up to dizzying heights on the bourse, but who eventually had to let go and send them crashing down?
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| No 10. HFCL
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There's Zee Telefilms, for instance, which other than taking a hiding in the broadcasting arena, also came under a cloud for its lending to companies of tainted broker, Ketan Parekh. Then there's HFCL, whose grand ambitions of foraying into software, e-commerce and media have come to naught. Global Tele's Tirodkar is now readying for quarters of feeble growth.
For such companies, the objectives are two-fold. One, get back the trust of the investor, who has lost faith in the stock, because of their opaque policies. Two, get back to the businesses you know best. If the Reliances, Infosys and ITCs of the world are talking about acquisitions and new projects, the Zees, HFCLs and Globals have to think rationalisation.
Zee recently announced that it would halve the number of its subsidiaries to 10-12, and focus on its core strengths of content, access and broadcasting. HFCL Chairman Vinay Maloo too has abandoned his grandiose e-commerce and media plans, and says he will focus on telecom equipment and projects. Ditto with Global; Tirodkar says he's getting rid of seven to eight ''sub-businesses'', and he's even willing to take a hit of Rs 100 crore in this exercise (which however could be covered up in part if some new orders in the core businesses of software and enterprise network services do materialise).
"Success in reducing stock price volatility can deliver tremendous strategic benefits to companies." says Rajeev Gupta, Executive Vice President (M&As), DSP Merrill Lynch. Gupta goes on to list market communication and "deciphering the embedded assumptions of the market with regard to the future performance of the company," as the two things companies can do to achieve this.
Clearly, few CEOs would have expected for the business scenario to change so much, so fast. But then, as someone said, all things change, and we change with them. Time will tell if the companies that don't adapt fall by the wayside. Well, what's for sure is that many of them won't be able to hold on to their high rankings in the next few BT 500s.
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