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Business Research

Indian Companies’ Global Strategy

June 12, 2007

Evalueserve Business Research

Study on Select Indian Companies

Contents

Introductory Chapter ....................................................................................1 1 Dr. Reddy’s Laboratories Limited .........................................................4

1.1 Company Overview....................................................................................... 4 1.2 Shareholding Pattern .................................................................................... 4 1.3 History and Key Milestones .......................................................................... 4 1.4 Overall Growth Strategy, ............................................................................... 5

1.4.1 Strengths and Weaknesses ....................................................................................................5 1.5 Product Lines and Key Financials ................................................................ 6

1.5.1 Key Products...........................................................................................................................6 1.5.2 Key Financials.........................................................................................................................6

1.6 Global Strategy ............................................................................................. 7 1.7 Expansion in the World Market ..................................................................... 8 1.8 Key Takeaways............................................................................................. 8

2 Ranbaxy Laboratories Limited ..............................................................9 2.1 Company Overview....................................................................................... 9 2.2 Shareholding Pattern .................................................................................... 9 2.3 History and Key Milestones ........................................................................ 10 2.4 Overall Growth Strategy.............................................................................. 10

2.4.1 Focusing on Enhancing R&D Capabilities ............................................................................10 2.4.2 Focusing on the Pharmaceuticals Business .........................................................................11

2.5 Product Lines and Key Financials .............................................................. 11 2.5.1 Key Products.........................................................................................................................11 2.5.2 Key Financials, ......................................................................................................................11

2.6 Global Strategy ........................................................................................... 12 2.6.1 Focusing on the Generics Business......................................................................................12 2.6.2 Focusing on Capacity Expansion and Modernization ...........................................................12

2.7 Expansion in the World Market ................................................................... 13 2.8 Key Takeaways........................................................................................... 13

3 Wockhardt Limited ...............................................................................15 3.1 Company Overview..................................................................................... 15 3.2 Shareholding Pattern .................................................................................. 15 3.3 History and Key Milestones ........................................................................ 16 3.4 Overall Growth Strategy.............................................................................. 16

3.4.1 Research and Development..................................................................................................17 3.5 Product Lines and Sales Trends................................................................. 17

3.5.1 Key Business Segments .......................................................................................................17 3.5.2 Brand Basket of the Company in India..................................................................................17 3.5.3 Key Financials.......................................................................................................................18

3.6 Global Strategy ........................................................................................... 18 3.6.1 List of Global Locations.........................................................................................................19


4 Tata Chemicals Limited........................................................................20 4.1 Company Overview..................................................................................... 20 4.2 Shareholding Pattern .................................................................................. 20 4.3 Key Milestones............................................................................................ 21 4.4 Overall Growth Strategy.............................................................................. 21

4.4.1 To Optimize Processes .........................................................................................................21

Evalueserve Ashish Gupta [email protected] Tel: +91 124 415 4000 Fax: +91 124 406 3430 India Ajay Varshney [email protected] Tel: +91 124 415 4000 Fax: +91 124 406 3430 India India Team Abhinav Purohit Akash Kumar Jain Amita Kalra China Team Edward A. Adamski Carrie Hrysyzen Jenny Wu

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4.4.2 To Strengthen R&D...............................................................................................................21 4.4.3 SWOT Analysis .....................................................................................................................21

4.5 Key Product Lines and Financials .............................................................. 22 4.5.1 Key Products.........................................................................................................................22 4.5.2 Key Financials.......................................................................................................................22

4.6 Global Strategy ........................................................................................... 24 4.7 Expansion in the World Market ................................................................... 24 4.8 Key Takeaways........................................................................................... 24

5 Tata Steel Limited.................................................................................25 5.1 Company Overview..................................................................................... 25 5.2 Shareholding Pattern .................................................................................. 25 5.3 History and Key Milestones ........................................................................ 25 5.4 Overall Growth Strategy.............................................................................. 26

5.4.1 Strategy.................................................................................................................................26 5.4.2 Research and Development..................................................................................................26 5.4.3 SWOT Analysis .....................................................................................................................27

5.5 Product Lines and Key Financials .............................................................. 28 5.5.1 Key Products and Business Units .........................................................................................28 5.5.2 Key Financials.......................................................................................................................28

5.6 Global Strategy ........................................................................................... 28 5.6.1 De-integrated Production Strategy........................................................................................28 5.6.2 Vertical Integration ................................................................................................................29 5.6.3 Other Expansion Plans .........................................................................................................29 5.6.4 List of Global Locations.........................................................................................................29


6 Bharat Forge Limited............................................................................31 6.1 Company Overview..................................................................................... 31 6.2 Shareholding Pattern .................................................................................. 31 6.3 History and Key Milestones ........................................................................ 31 6.4 Overall Growth Strategy.............................................................................. 32

6.4.1 Full Service Supply Capability...............................................................................................32 6.4.2 Key Customers......................................................................................................................33 6.4.3 SWOT Analysis .....................................................................................................................33

6.5 Product Lines and Key Financials .............................................................. 33 6.5.1 Key Products.........................................................................................................................33 6.5.2 Key Financials.......................................................................................................................34

6.6 Global Strategy ........................................................................................... 34 6.6.1 Multiple Manufacturing Locations for Key Components........................................................34


7 Hindalco Industries Limited.................................................................37 7.1 Company Overview..................................................................................... 37 7.2 Shareholding Pattern .................................................................................. 37 7.3 History and Key Milestones ........................................................................ 38 7.4 Growth Strategy .......................................................................................... 38

7.4.1 SWOT Analysis .....................................................................................................................38 7.5 Key Financials............................................................................................. 39

7.5.1 Key Products.........................................................................................................................39 7.5.2 Key Financials.......................................................................................................................39

7.6 Global Strategy ........................................................................................... 40 7.7 Global Expansion........................................................................................ 41 7.8 Key Takeaways........................................................................................... 41

8 Tata Motors Limited..............................................................................42




8.1 Company Overview..................................................................................... 42 8.2 Shareholding Pattern .................................................................................. 42 8.3 History and Key Milestones ........................................................................ 42 8.4 Overall Growth Strategy.............................................................................. 43

8.4.2 SWOT Analysis .....................................................................................................................44 8.5 Product Lines and Key Financials .............................................................. 45

8.5.1 Key Products.........................................................................................................................45 8.5.2 Key Financials.......................................................................................................................45

8.6 Global Strategy ........................................................................................... 46 8.7 Expansion in the World Market ................................................................... 47 8.8 Key Takeaways........................................................................................... 47

9 Mahindra & Mahindra Limited .............................................................48 9.1 Company Overview..................................................................................... 48 9.2 Shareholding Pattern .................................................................................. 48 9.3 History and Key Milestones ........................................................................ 49 9.4 Overall Growth Strategy.............................................................................. 49

9.4.1 Overview ...............................................................................................................................49 9.4.2 Key Indian Alliances..............................................................................................................49 9.4.3 SWOT Analysis .....................................................................................................................50

9.5 Service Lines and Key Financials ............................................................... 51 9.5.1 Key Business Segments .......................................................................................................51 9.5.2 Key Financials.......................................................................................................................51

9.6 Global Strategy ........................................................................................... 52 9.6.1 Automobiles ..........................................................................................................................52 9.6.2 Farm Equipments..................................................................................................................52


10 Larsen & Toubro Limited..................................................................54 10.1 Company Overview ................................................................................. 54 10.2 Shareholding Pattern............................................................................... 54 10.3 History and Key Milestones..................................................................... 55 10.4 Overall Growth Strategy .......................................................................... 55

10.4.1 Key Projects and Alliances ...............................................................................................55 10.4.2 SWOT Analysis.................................................................................................................56

10.5 Service Lines and Key Financials ........................................................... 56 10.5.1 Key Services.....................................................................................................................56 10.5.2 Key Financials ..................................................................................................................57

10.6 Global Strategy........................................................................................ 57 10.6.1 Expansion Focus in the Middle East ................................................................................57 10.6.2 Expansion Focus in China................................................................................................58 10.6.3 Key International Projects.................................................................................................58 10.6.4 List of Global Locations ....................................................................................................59

10.7 Expansion in the World Market ............................................................... 59 10.8 Key Takeaways ....................................................................................... 59

11 Videocon Industries Limited ............................................................60 11.1 Company Overview ................................................................................. 60 11.2 Shareholding Pattern............................................................................... 60 11.3 History and Key Milestones..................................................................... 61 11.4 Overall Growth Strategy .......................................................................... 61

11.4.1 Diversification Strategy.....................................................................................................61 11.4.2 Multi-Branding Strategy ....................................................................................................62 11.4.3 Brand Basket of the Company..........................................................................................62 11.4.4 Research and Development (R&D) ..................................................................................62 11.4.5 SWOT Analysis.................................................................................................................63




11.5 Product Lines and Key Financials........................................................... 64 11.5.1 Key Products ....................................................................................................................64 11.5.2 Key Financials ..................................................................................................................64

11.6 Global Strategy........................................................................................ 65 11.6.1 Overview...........................................................................................................................65 11.6.2 Global Expansion..............................................................................................................65 11.6.3 List of Global Locations ....................................................................................................66


12 Videsh Sanchar Nigam Limited........................................................68 12.1 Company Overview ................................................................................. 68 12.2 Shareholding Pattern............................................................................... 68 12.3 Key Milestones ........................................................................................ 69 12.4 Domestic Growth Strategy ...................................................................... 69

12.4.1 Key Domestic Strategic Initiatives ....................................................................................69 12.4.2 SWOT Analysis.................................................................................................................70

12.5 Key Product Lines and Financials........................................................... 70 12.5.1 Key Business Segments...................................................................................................70 12.5.2 Key Financials ..................................................................................................................71

12.6 Global Strategy........................................................................................ 71 12.6.1 Summary of Global Operations ........................................................................................71 12.6.2 Acquisitions – Drivers for Global Growth..........................................................................71

12.7 Global Expansion .................................................................................... 72 12.8 Key Takeaways ....................................................................................... 72

13 Crompton Greaves Limited ..............................................................73 13.1 Company Overview ................................................................................. 73 13.2 Shareholding Pattern............................................................................... 73 13.3 Key Milestones ........................................................................................ 74 13.4 Overall Growth Strategy .......................................................................... 74

13.4.1 Cost Reduction .................................................................................................................74 13.4.2 Research and Development (R&D) ..................................................................................74 13.4.3 Strengths and Weaknesses..............................................................................................75

13.5 Business Lines and Key Financials......................................................... 75 13.5.1 Key Business Segments...................................................................................................75 13.5.2 Key Financials ..................................................................................................................75

13.6 Global Strategy........................................................................................ 76 13.6.1 Inorganic Growth ..............................................................................................................76


14 Tata Tea Limited ................................................................................78 14.1 Company Overview ................................................................................. 78 14.2 Shareholding Pattern............................................................................... 78 14.3 Key Milestones ........................................................................................ 79 14.4 Overall Growth Strategy .......................................................................... 79

14.4.1 Summary of Domestic Operations....................................................................................79 14.4.2 Key Domestic Strategic Initiatives ....................................................................................79 14.4.3 SWOT Analysis.................................................................................................................80

14.5 Key Product Lines and Financials........................................................... 80 14.5.1 Key Business Segments...................................................................................................80 14.5.2 Key Financials ..................................................................................................................81

14.6 Global Strategy........................................................................................ 81 14.6.1 Acquisition of Tetley Group Limited..................................................................................81 14.6.2 Geographic Overview – 2005-06......................................................................................81

14.7 Global Expansion .................................................................................... 83 14.8 Key Takeaways ....................................................................................... 83




15 The Indian Hotels Company Limited ...............................................84 15.1 Company Overview ................................................................................. 84 15.2 Shareholding Pattern............................................................................... 84 15.3 History and Key Milestones..................................................................... 85 15.4 Overall Growth Strategy .......................................................................... 85

15.4.1 Renovation of Existing Properties ....................................................................................85 15.4.2 Enhancement of Product Portfolio ....................................................................................85 15.4.3 Tapping the Opportunity in the Economy Segment..........................................................85 15.4.4 SWOT Analysis.................................................................................................................85

15.5 Product Lines and Key Financials........................................................... 86 15.5.1 Key Products ....................................................................................................................86 15.5.2 Key Financials ..................................................................................................................86

15.6 Global Strategy........................................................................................ 87 15.6.1 Establishing Global Alliances ...........................................................................................87 15.6.2 Expanding International Operations .................................................................................87


16 Appendix ............................................................................................89 16.1 Company Name Abbreviations................................................................ 89 16.2 Other Abbreviations................................................................................. 89 16.3 Glossary of Financial Terms.................................................................... 89

17 Evalueserve Disclaimer ....................................................................90

This research report was conduct by Evalueserve at the request of Japan External Trade Organization (JETRO, http://www.jetro.go.jp). JETRO has planned the research and Evalueserve followed the research framework presented by JETRO.



2008, JETRO. All Rights Reserved Page 1

Introductory Chapter

That the Indian industry has registered significant growth in the last one decade is a well acknowledged fact. In this connection, the Indian IT and IT enabled Services (ITeS) industry’s role in transforming the country into an outsourcing hub cannot be overlooked. In the past, Indian companies failed to compete with top firms at a global level mainly because they lacked a global presence. However, this scenario is fast changing, with Indian companies now trying to establish a strong foothold in the global arena. To achieve this, they are no longer only pursuing an organic growth path but are also pursuing the path of mergers and acquisitions (M&As). The number of overseas M&As forged by Indian companies has increased from about 40 in 2002 to an estimated 180 in 20061. The size of the deals has also been steadily increasing. Previously, the biggest international takeover by an Indian company was that of Tata Tea acquiring the UK-based Tetley Group Limited for USD 430 million in 2000. However, the acquisition of the Corus Group by Tata Steel for USD 11.3 billion in 2007 is currently the largest overseas acquisition made by an Indian company. During the 1995-August 2006 period, North America had been the preferred M&A destination for Indian companies, with this region accounting for around one-third of all the deals made during this period. As depicted in Exhibit A, Europe and Asia followed closely behind as the other preferred M&A destinations. During the same period, the consumer goods and services industry accounted for nearly one-fourth of all the international M&A deals, as depicted in Exhibit B.

Exhibit A: Geographic Break-up of International M&As Deals by Indian Companies (1995 – August 2006)

Exhibit B: Industry-wise Break-up of International M&As Deals by Indian Companies (1995 – August 2006)

South America

2%

Middle East4%Pacific

5%

Africa6%

North America

32%

Europe29%

Asia22%

Others24%

Automotive5%Energy

6%Metals and

Mining7%

Pharma and Healthcare

10%

Consumer Goods and Services

22%

Electronic and High

Technology15%

IT Services11%

Source: India Goes Global – Accenture – November 2006

The following are the primary reasons that have encouraged Indian companies to undertake global expansions2: 1. To Increase Customer Base – Indian firms are acquiring companies overseas to gain access to global

markets, thereby expanding their existing customer base; for example, in 2002, vMoksha Technologies acquired Challenger Systems and X media in the US to leverage their respective customer bases, thereby expanding its presence in the US market.

2. To Gain Technological Benefits – Access to advanced technology has been the chief driver for domestic firms engaging in global M&As; for example, in 2005, Videocon Industries acquired the French Thomson SA’s color picture tube manufacturing business, giving the company control over an R&D facility in Agnani, Italy.

1 Source: India Goes Global – Accenture – November 2006, CII 2 Source: Express Computer Online, Business World, Tata Tea Limited, Financial Express, Bharat Forge Limited, Time Magazine

http://www.presidencia.pt/archive/doc/India_Goes_Global.pdf�




3. To Expand Product Portfolio – A few Indian companies tread the M&A route to expand their product portfolios; for example, in 2006, Tata Tea acquired the Eight O' Clock Coffee Company to include branded coffee in its US product offerings.

4. To Access Raw Materials – Indian firms scouting for raw materials have also undertaken M&A activities overseas; for example, in 2007, Tata Steel acquired a 35-percent stake in Riversdale Mining Limited’s Mozambique coal project to supply coal for its Corus facilities in the UK and Europe.

5. To Realize Economies of Scale and Scope – Indian companies are aiming to achieve long-term cost advantages through realizing scale economies. A case in this point is Bharat Forge establishing various manufacturing locations for all of its key components. Typically, one of these manufacturing locations is located in the vicinity of its customers, such as in Europe, and the other is located in a low-cost geography, such as India. The company has undertaken inorganic expansion to set up some of these locations.

6. To Sustain High Growth Rates – Affected by the corrupt bureaucracy, steep taxation norms, and outdated transportation and power systems prevailing in India, domestic firms are forced to venture overseas to sustain their high growth rates.

Various other factors have also fueled the recent trend of M&As by Indian companies. Most notably, over the past three years, the Indian economy has been growing at a rate of more than 8 percent annually. This growth has enabled Indian companies to gain financial stability. As compared to 2005, average net profits increased by more than 40 percent in 2006. Declining interest rates witnessed in the past few years have also contributed to this growth. During the 1998 -2003 period, real interest rates fell by 500 basis points. This enabled domestic firms to settle most of their debts, with the average debt-to-equity ratio falling from 0.9 to 0.4. Also, the amount of capital that firms maintain as a percentage of their total assets has increased from 6 to 12 percent. This strategy has significantly increased opportunities for companies to raise capital form the market3. Another reason that facilitates the entry of Indian firms into the global market is India’s liberal foreign investment policies. To encourage outward FDI from India, the government has been liberalizing its foreign investment policies regularly. An example is the latest regulation in 2003-04, which announced an increase in the maximum limit set on foreign investment by domestic firms from USD 100 million to 200 percent of the firm’s net worth. This has further aided Indian firms in undertaking large-scale global M&As4. India’s emergence as an Asian outsourcing hub has also worked to India’s advantage in the M&A arena as domestic firms have been exposed to foreign management practices. English, the global business language, has already established firm roots in India, making it easier for Indians to carry out business abroad5. All these factors have combined together to make the business environment conducive for domestic firms to gain a global presence. The global M&A arena has witnessed the participation of almost all industries, with, the pharmaceutical, steel, and automobile industries playing a particularly active role the recent past. This trend is expected to continue in the future also. Since 2000, Indian pharmaceutical companies have completed over 60 acquisitions globally, transforming Indian firms from being merely low-cost providers of APIs (active pharmaceutical ingredients) to organizations with a global scope. In fact, the acquisition drive within the industry is not only limited to the leading players, but is also common among the small firms. These companies have utilized their low-cost manufacturing bases and developed R&D facilities to gain leadership positions in major markets globally. M&As have also helped companies gain manufacturing facilities in foreign locations that comply with local regulatory norms. Aurobindo Pharma’s 2006 acquisition of the UK-based Milpharm Limited was a step in this direction6. Among the recent notable acquisitions is the 2006 takeover of Betapharm Arzneimittel (betapharm), Germany’s fourth-largest generics business, by Dr Reddy's Laboratories (DRL). Thanks to the deal, which was worth EUR 480 million, DRL established a strong presence in the German generics market, the second-largest generic drugs

3 Source: Time Magazine, Knowledge@Wharton Online Business Journal, Money Week Website 4 Source: Indian Government Website 5 Source: Time Magazine, Knowledge@Wharton Online Business Journal 6 Source: FICCI, Aurobindo Pharma Company Website




market globally 7. betapharm has a 3.5-percent market share in the EUR 27-billion German pharmaceutical industry. The deal was aimed at making DRL a global mid-sized firm with its footprint across all major markets8. Along with the pharmaceutical industry, another Indian industry playing a significant role in the global M&A arena has been the steel industry. The steel industry is experiencing a trend of consolidation globally. The best example of such a consolidation involves the EUR 26-billion merger of Arcelor SA with Mittal Steel Company in 2006 to create ArcelorMittal, the largest steel company globally with a 10-percent market share9. In line with the global consolidation trend, Indian companies have been involved in the international acquisition fray since a few years. One of the main reasons driving this trend is the government’s reduction of import duty on steel, exposing the domestic industry to foreign competitors 10. This has forced firms to scout for lucrative international markets, an example being the USD 25-million acquisition of the Indonesian cold roller firm, Mapsion Stainless Steel PT, by Jindal Stainless Limited in 200411. The most significant international deal in the Indian steel industry has been the 2007 acquisition of the Anglo-Dutch steel company, Corus Group Plc., by Tata Steel for USD 11.3 billion. This gave Tata Steel access to the steel markets in the West and a network of finishing mills in Europe, thereby enhancing the competitiveness of both the companies. The deal, the biggest ever acquisition by an Indian company, made Tata Steel the fifth-largest steel producer in the world in terms of revenues, with operations in 45 countries and a capacity to produce of 27 million tons of steel in 2007 alone12. The country’s automobile industry has also contributed in a major way to the Indian global acquisition drive. This industry has already established a niche as a low-cost manufacturing base with superior engineering capabilities. This has helped attract top global players and OEMs, such as GM, Toyota, Honda, BMW, and Nissan, to set up operations in India. India has developed into a preferred hub for automobiles and auto components exports. Passenger car exports from India are expected to touch the 1 million unit mark by 201013. Indian firms’ global acquisition drive has also been mainly targeted at transforming themselves as the largest low-cost producers. Indian firms are seeking better technology and access to new markets through the acquisition route. Companies taking this course include firms such as Amtek Auto, Tata Motors, and Bharat Forge14. In the automotive components segment, Amtek Auto in 2006 acquired a 70-percent stake in Zelter GmbH, one of the top three turbochargers housing manufacturers globally. The deal, with an enterprise value of EUR 28 million, allowed Amtek to consolidate its foothold in mainland Europe. Earlier in 2004, Bharat Forge had acquired Carl Dan Peddinghaus GmbH, one of the largest German forging companies, for EUR 29 million, making Bharat Forge the world’s second-largest forging company15. Other industries expected to drive the global M&A market include the telecommunications, consumer goods and services, IT and outsourcing, and energy industries. This initiative will not only help a firm to undertake an M&A individually, but is also likely to collectively place Indian companies at a competitive position globally, fit to take on the very best in the business. The growing M&A trend is a clear indication of the significant role that is expected to be played by Indian companies in the global arena in the future.

7 Source: ICFAI 8 Source: Hindu Business Line 9 Source: International Business Times 10 Source: Equity Master 11 Source: The Indian Steel Industry – Directorate for Science, Technology and Industry 12 Source: Hoover’s, International Business Times 13 Source: IBEF 14 Source: Steering Indian Automobile Industry – Science Tech – April 2007 15 Source: Hindu Business Line




1 Dr. Reddy’s Laboratories Limited

1.1 Company Overview Dr. Reddy’s Laboratories Limited (DRL) was established in 1984 by Dr. K. Anji Reddy, and today, it has a presence in more than 100 countries worldwide. It is the second-largest pharmaceutical company in India (as of FY 2005-06).

Exhibit: 1-1 Brief Snapshot – Dr. Reddy’s Laboratories Limited

DETAILS DESCRIPTION COMPANY NAME Dr. Reddy’s Laboratories Limited (DRL) ADDRESS 7-1-27, Ameerpet, Hyderabad, Andhra Pradesh, India – 500 016 PHONE NUMBER +91-40-2373-1946 FAX NUMBER +91-40-2373-1955 URL www.drreddys.com CHAIRMAN Dr. K. Anji Reddy ESTABLISHED 1984

Shareholders’ Fund: USD 468.81 million FINANCIAL ASSETS AND CAPITAL16

Total Assets: USD 1,434.31 million EMPLOYEES STRENGTH Around 6,120

Source: Company Website, Annual Report – 2005-06

1.2 Shareholding Pattern The shareholding pattern of the company is shown in the Exhibit below.

Exhibit: 1-2 Shareholding Pattern – Dr Reddy’s Laboratories Limited (as on March 31, 2006)

SHAREHOLDER CATEGORY NUMBER OF SHARES HELD

PERCENTAGE HOLDING AS A % OF (A+B)

Promoter's Holding

Indian Promoters (A)(1) 21,125,787 27.55Sub Total of Promoter’s Holding (A) = (A)(1) 21,125,787 27.55Non Promoter's Holding

Institutional Investors (B)(1) 29,069,984 37.90Others (B)(2) 26,498,799 34.55

Sub Total of Non Promoter's Holding (B)= (B)(1) + (B)(2) 55,568,783 72.45

Grand Total (A) + (B) 76,694,570 100.00Source: Bombay Stock Exchange

1.3 History and Key Milestones

Exhibit: 1-3 History and Milestones – Dr. Reddy’s Laboratories Limited

YEAR DESCRIPTION 1984 • DRL was founded by Dr. Anji Reddy.

1986 • DRL forayed into overseas markets in this year.

1987 • The company commenced its formulations operations.

1987 • DRL got the US FDA approval for Ibuprofen active pharmaceutical ingredients (API).

1993 • The company’s Research Foundation was established.

• The company’s drug discovery program started.

16 Note: Exchange Rate: INR 44.13063 = 1 USD (for the financial year ended March 31, 2006)

http://www.drreddys.com/�

http://www.drreddys.com/investors/pdf/annualreport2006.pdf�

http://www.bseindia.com/shareholding/shareholding.asp?scripcd=500124�




1997 • DRL became the first Indian pharmaceutical company to license out a molecule; it licensed out DRF 2593 (Balaglitazone), an anti-diabetic molecule, to Novo Nordisk.

1998 • The company licensed out the anti-diabetic molecule, DRF 2725 (Ragaglitazar), to Novo Nordisk.

1999 • DRL acquired American Remedies Limited, an Indian pharmaceutical company.

2000 • DRL merged with Cheminor Drugs Limited.

2001 • The company’s first generic product, Ranitidine, was launched in the US market.

2001 • DRL got listed on the NYSE.

2001 • The company obtained 180-day exclusive marketing rights for a generic drug in the US market, the first Indian pharmaceutical company to do so.

2005 • Perlecan Pharma, an integrated drug development company, was formed.

2006 • DRL became a billion-dollar revenue company. Source: Company Website

1.4 Overall Growth Strategy17,18 The manufacturing facilities of DRL in India are located at Baddi, Himachal Pradesh; Ameerpet, Hyderabad; and Srikakulam District, Andhra Pradesh. The company increased its plant capacities for generics and CPS in FY 2005-06 because of growing demand. It plans to further increase the production capacity of active pharmaceutical ingredients (API) and finished dosages in the future. Over the years, DRL’s strategy has been to graduate itself from the API and intermediates business, which lies at the bottom of the value chain pyramid, to innovation-led businesses – specialty pharmaceuticals and drug discovery. For instance, in 2004, the company acquired Trigenesis Therapeutics Inc., a specialty pharmaceuticals business (dermatology)19 in the US. DRL thereby gained access to some of the products and drug delivery technology platforms. This acquisition was also significant considering the fact that the US dermatology prescription drugs’ market in the US was worth around USD 6 billion in 200420, as compared to the global market of USD 8 billion in 200321, clearly suggesting that the US market has a majority share of the global market. Another focus area for the company is the biologics segment; it is trying to develop a bio-generics portfolio and has already developed a bio-generic, Grafeel, in India. DRL has spent around 14 percent of its total revenue on R&D in FY 2004-05, its R&D expenditure reduced to just 9 percent of the total revenue in FY 2005-06. Since the risks involved and the costs incurred on R&D by a pharmaceutical company (this includes the cost of clinical trials and product development) are high, DRL is looking towards forging meaningful alliances with different pharmaceutical companies, CROs, and venture capital firms, so as to de-risk its R&D expenditure. For instance, DRL partnered with ICICI Venture Funds Management Co. in 2005 for commercializing most of DRL’s US ANDAs (in the generics segment), which were filed during the period 2004-06. ICICI Venture was supposed to fund the related development, registration, and legal costs. In return, DRL was supposed to pay ICICI Venture a royalty amount on the net sales, for five years, for each of the successfully commercialized generics.

1.4.1 Strengths and Weaknesses

1.4.1.1 Strengths

• Operations across the Value Chain and Strong Global Presence – DRL operates across the complete pharmaceutical value chain, from generics and API, to formulations and custom pharma services. Its products are currently marketed in 100+ countries. This means that the company is at a lower risk from threats arising out of factors, such as increased competition. For instance, as a result of the increasing competition in the US generics market, companies are facing pricing pressures. DRL managed to offset this because of higher sales

17 Source: Annual Report – FY 2004-05 18 Source: Annual Report – FY 2005-06 19 Source: The Hindu Business Line: Dr Reddy's buys US skincare co Trigenesis 20 Source: CollaGenex Pharmaceuticals – Annual Report 2004 21 Source: BioSpace

http://www.drreddys.com/coverview/keymilestones.htm�




of branded formulations in Russia, CIS, and India; higher API sales; and a combined growth of over 80 percent in the generics segment in the European markets22.

• Strong Drug Discovery Pipeline – DRL has around nine molecules under development at different stages of the development cycle. These molecules are being developed for the treatment of various diseases, including atherosclerosis, diabetes, dyslipidemia, obesity, and solid tumors23.

1.4.1.2 Weaknesses

• Revenue Dependence on the API, Branded Formulations and Generics Businesses – These three businesses currently contribute almost 90 percent of the company’s revenue. The other businesses, such as specialty pharmaceuticals and CPS, are still at a nascent stage. This weakness is highlighted from the fact that the company’s revenue fell by around 3 percent in FY 2004-05 as against the revenue in FY 2003-04, for the first time since the company’s inception24.

1.5 Product Lines and Key Financials

1.5.1 Key Products DRL’s product portfolio consists of products under the following segments: • Active Pharmaceutical Ingredients – DRL has 100+ bulk actives and a large number of intermediates under

this segment. • Generics25 – DRL markets 10 products under the “Dr. Reddy’s” label in the US. It markets over 30 products in

the combined UK and the EU markets (as of June 27, 2006). Also, the company’s portfolio for the German market consists of around 140 drugs under the ‘beta’ brand, which it gained after acquiring betapharm.

• Biologics – GRAFEEL, a recombinant protein, is used for the treatment of cancer patients suffering from chemotherapy-induced neutropenia.

• Branded Formulations – There are more than 150 commercialized brands across various regions of operation. The major global brands of the company in this segment include Omez (Omeprazole), Nise (Nimesulide), Ciprolet (Ciprofloxacin), Enam (Enalapril), and Ketorol (Keterolac Tromethamine).

The next Exhibit lists the drug molecules being developed by DRL for treating various diseases.

Exhibit: 1-4 Drug Molecules under Development – Dr. Reddy’s Laboratories Limited

MOLECULE DISEASE DEVELOPMENT STAGE RUS 3108 Atherosclerosis Phase I DRL 16805 Atherosclerosis GLP Tox26 DRF 2593 Diabetes Phase II DRL 16536 Diabetes GLP Tox DRF 10945 Dyslipidemia Phase II DRL 12424 Dyslipidemia GLP Tox DRL 11605 Obesity Phase I DRL 15725 Rheumatoid Arthritis GLP Tox DRF 1042 Solid Tumors Phase II

Source: Company Website

1.5.2 Key Financials The following Exhibit presents the company’s consolidated revenue by its business segments. The company posted consolidated revenue of USD 549.89 million in FY 2005-06 as against USD 434.31 million in FY 2004-05, growing by over 24 percent during the period27.

22 Source: Annual Report – FY 2005-06 23 Source: Company Website 24 Source: Annual Report – FY 2004-05 25 Source: Company Website – Product Portfolio 26 GLP Tox: GLP Tox are preclinical toxicology studies and are conducted prior to Phase I clinical trials. GLP stands for good laboratory practices.

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Exhibit: 1-5 Consolidated Revenue by Business Segment – Dr. Reddy’s Laboratories Limited

FY 2004-05

40.08%

35.60%

18.30%

1.72% 1.60%2.70%

Branded Formulations APIsGenerics Critical Care and BiotechOthers CPS

FY 2005-06

40.90%

0.10%5.50%

2.85%

16.70%

33.95%

Branded Formulations APIsGenerics CPSCritical Care and Biotech Others

Source: Annual Report 2006

The Exhibit below presents the company’s consolidated revenue by geography.

Exhibit: 1-6 Consolidated Revenue by Geography – Dr. Reddy’s Laboratories Limited

FY 2004-05

34%

22%

18%

11%

15%

IndiaNorth AmericaOthersRussia + other countries of the former Soviet UnionEurope

FY 2005-06

34%

18%

16%

11%

21%IndiaOthersRussia + other countries of the former Soviet UnionNorth AmericaEurope


1.6 Global Strategy28 DRL has a significant presence globally in the form of subsidiaries, joint ventures, representative offices, and manufacturing facilities. The company has two manufacturing locations outside India – the first one at Jiutepec, Morelos, in Mexico and the second in Kunshan City, in China, through its joint venture, Kunshan Rotam Reddy Pharmaceutical Co., Ltd. (KRRP). The other joint venture partners are the Rotam Group of Canada and Kunshan Double Crane Pharmaceutical Co., Ltd. of China. The joint venture has a presence in the following segments – dermatology, gastroenterology and endocrinology – across China. It is also very active in R&D in the areas of pharmacology, toxicology, and product development. Product development covers therapeutics in segments such as cardiovascular and dermatological. DRL has its second joint venture in South Africa. DRL has a large number of representative offices worldwide except Australia. It has five subsidiaries in different European markets and seven other subsidiaries across North America, Latin America, Russia, and Asia. Of the

27 Note: Exchange Rate: INR 44.13063 = 1 USD (for the financial year ended March 31, 2006); INR 44.94271 = 1 USD (for the financial year ended March 31, 2005) 28 Source: Company Websites, Annual Report – FY 2004-05, Annual Report – FY 2005-06






five business segments in which DRL operates, it is not present in the branded formulations, oncology, and biologics segments in the North American and EU markets while it is not present in the generics segments in the remaining markets. The international market accounted for around 66 percent of the company’s revenue in FY 2004-05. The US market, the largest pharmaceutical market in the world, has been the focus area of the company, with its presence growing significantly over the years. The company entered this market by forging product partnerships, but later it started marketing products under the “Dr. Reddy’s” label. Its US team, which earlier comprised only 6 members, has grown to become a team of more than 60 members. To expand its geographical reach, DRL is looking toward forging product development and marketing alliances internationally. For instance, it partnered with a European pharmaceutical company, Pliva, for developing and marketing oncology products in the European markets. This was significant from the point of view that Pliva has a strong presence in a number of European markets. Similarly, in 2006, DRL partnered with Rheoscience A/S for developing balaglitazone (DRF 2593), which the company expects will subsequently move to Phase III clinical trials. DRL has also made a few key acquisitions internationally as part of its global expansion strategy. It acquired Roche’s API business, including its manufacturing facility at Cuernavaca, Mexico, in 2005. Through this acquisition, DRL hopes to consolidate its position in the CPS segment and wants to emerge as a “partner of choice” for innovation companies worldwide (within the pharmaceutical sector) for their outsourcing requirements. During this year, it also acquired the fourth-largest generics business in Germany, betapharm, giving DRL a strong presence in the German generics market with an access to betapharm’s strong portfolio of around 145 products.

1.7 Expansion in the World Market

Exhibit: 1-7 Key Milestones Global Expansion History – Dr. Reddy’s Laboratories Limited

YEAR DESCRIPTION 1986 • The company forayed into the global market with exports of Methyldopa.

1990 • DRL became the first company in India to export Norfloxacin and Ciprofloxacin to Europe and the Far East.

1991 • The company began the exports of formulations to Russia.

1995 • DRL set up a joint venture in Russia.

2000 • DRL established a wholly owned subsidiary, Reddy US Therapeutics, at Atlanta, USA.

2002 • The company acquired BMS Laboratories Limited and Meridian Healthcare in the UK.

2004 • DRL acquired Trigenesis Therapeutics Inc., a dermatology company based in the US.

2005 • DRL acquired the active pharmaceutical ingredients business of Roche at its manufacturing site in Mexico.

2006 • The company acquired the fourth-largest generics company of Germany, betapharm.

2006 • DRL became an authorized partner of Merck to market the generic versions of Proscar® and Zocor® in the US.


1.8 Key Takeaways • DRL has in the past focused on enhancing its presence in certain key pharmaceutical markets through

acquisitions, joint ventures, and other partnerships. It is expected that the company will continue to do so in the future.

• Though the API, branded formulations, and generics segments contribute around 90 percent of the company’s revenue, DRL is moving toward specialty pharmaceuticals and drug discovery. It already has a number of drug molecules under development.

• North America and Europe are the key global markets for DRL. The company is expanding its presence in these geographies through acquisitions.

http://www.drreddys.com/coverview/keymilestones.htm�




2 Ranbaxy Laboratories Limited

2.1 Company Overview29 Ranbaxy Laboratories Limited is a multinational pharmaceutical company with its headquarters in India. The company was incorporated in 1961. Its manufacturing plants are located in nine countries and its products are available in 125 countries.

Exhibit: 2-1 Brief Snapshot – Ranbaxy Laboratories Limited

DETAILS DESCRIPTION COMPANY NAME Ranbaxy Laboratories Limited PHYSICAL ADDRESS Plot 90, Sector 32, Gurgaon – 122001, Haryana, India SWITCHBOARD +91-124-4135000 FAX NUMBER +91-124-4135001 WEBSITE http://www.ranbaxy.com/ CEO Mr. Malvinder Mohan Singh YEAR OF ESTABLISHMENT 1961


Total Assets: USD 1,414.15 million EMPLOYEE STRENGTH NA

Source: Company Website, Annual Report 2005


Exhibit: 2-2 Shareholding Pattern – Ranbaxy Laboratories Limited (as on March 31, 2006)



Promoter's Holding Indian Promoters (A)(1) 127,259,404 34.17

Persons Acting in Concert (A)(2) 2,676,984 0.72Sub Total of Promoter’s Holding (A) = (A)(1) + (A)(2) 129,936,388 34.88Non Promoter's Holding



Grand Total (A) + (B) 372,474,193 100Source: Bombay Stock Exchange

29 Source: Currency Conversion Rate: USD 1 = INR 43.9560 30 Note: Exchange Rate: INR 45.167 = 1 USD

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Exhibit: 2-3 History and Milestones – Ranbaxy Laboratories Limited

YEAR DESCRIPTION 1961 • The company was incorporated.

1973 • Ranbaxy turned into a public limited company.

• The company set up a multipurpose chemical plant in India to manufacture active pharmaceutical ingredients (APIs).

1983 • Ranbaxy established a dosage forms manufacturing facility in Madhya Pradesh, India.

1985 • Ranbaxy Research Foundation was established.

1987 • Production commenced at the API manufacturing facility in Punjab, India.

1991 • Facility for manufacturing Cephalosporins was set up at Mohali, India, during this year.

1992 • Agreement with Eli Lilly and Co., USA, is reached for establishing a JV to market selected Lilly products in India.

1994 • Research center at Gurgaon became completely operational.

1998 • The company filed an application with the Drug Controller General of India (DCGI) seeking approval for conducting Phase-I clinical trials.

2000 • IND application for the asthma molecule RBx-7796 filed by the company.

2002 • IND application for the anti-bacterial molecule Oxazolidinone – RBx 7644 filed by the company.

• Ranbaxy received permission for conducting Phase-I clinical trials for the anti-asthma molecule RBx 7796 from DCGI.

2003 • Ranbaxy and Glaxo SmithKline Plc (GSK) entered into a global alliance for drug discovery and

development.

• Phase-I clinical trials for RBx 7796 completed successfully.

2005

• USFDA’s approval received by Ranbaxy for an Anti Retroviral drug under the US President’s Emergency Plan for AIDS Relief (PEPFAR).

• Nihon Pharmaceutical Industry Limited, Ranbaxy’s JV in Japan, launches Vogseal for the treatment of diabetes.

2006 • Ranbaxy and Zenotech forged a marketing alliance for marketing Zenotech’s oncology products

across the globe under the Ranbaxy label. Source: Company Website

2.4 Overall Growth Strategy

2.4.1 Focusing on Enhancing R&D Capabilities Like other pharma majors, Ranbaxy appreciates the importance of an active R&D policy. The company’s R&D program focuses on the following:

• New Drug Discovery Research (NDDR) • Novel Drug Delivery Systems (NDDS) research • Pharmaceutical research • Chemical and fermentation research

Ranbaxy’s R&D expenditure was 9.8 percent of its net revenues in 2005. It filed 185 patent applications in India and also opened its new Drug Discovery Center during this year. In 2005, Ranbaxy boasted of a strong pipeline of NCE with 10 drug discovery programs running simultaneously. One such program was the development of an anti-malarial molecule in collaboration with Medicines for Malaria Venture, Geneva. Proof of Concept Phase II (a) studies on the molecule were completed by the company in 2005. Other drug discovery programs were focused on metabolic diseases, such as type-2 diabetes, and inflammatory and respiratory diseases, such as COPD and asthma. The company has partnered with GSK on two research

http://www.ranbaxy.com/history_ranbaxy.htm�




programs; with National Institute of Pharmaceutical Education and Research for carrying out research on respiratory diseases; and with National Chemical Laboratories for carrying out research on infectious diseases. Ranbaxy also had a number of oral controlled release products in its development pipeline under its NDDS research program in 2005. Further, the company launched four products belonging to this category. Seven NDDS-based ANDAs (abbreviated new drug applications) were filed by Ranbaxy during 2005, three of them with the US FDA and the remaining four with European regulatory agencies. Ranbaxy showcased its pharmaceutical research capability by launching 49 new products and line extensions in India in 2005. In addition to this, it filed 36 ANDAs with the US FDA, of which 19 ANDAs were approved. In the same year, as proof of its diversified research portfolio, the company launched two products in the herbal drugs category – a natural sweetener and an appetite enhancer for kids, in Malaysia and Romania, respectively. The company also had a number of niche products in its OTC development pipeline during the year. Ranbaxy places special emphasis on research on malaria and AIDS. It aims to provide affordable medication to the affected population in developing countries and its portfolio already consists of ARV medicines for HIV/AIDS patients. In 2007, Ranbaxy enhanced its R&D alliance with GSK by signing a new agreement, which gives Ranbaxy additional responsibilities in the drug development process. As per the initial agreement signed in 2003, Ranbaxy’s role was confined to early stage and pre-clinical work, while GSK was responsible for the remaining part of the development process and for bringing it to completion31.

2.4.2 Focusing on the Pharmaceuticals Business Ranbaxy divested its portfolio under the Allied Business, which comprised of the fine chemicals business, animal health care business, and diagnostics business, in 2005, clearly indicating that it plans to focus on its pharmaceuticals business.


2.5.1 Key Products Ranbaxy manufactures and markets generic pharmaceuticals, value-added generic pharmaceuticals, branded generics, APIs, and intermediates. The company owns 25 global brands. The next Exhibit gives the global sales figures for the company’s top 10 molecules in 2005. The top 10 molecules accounted for nearly 35 percent of the company’s product sales in 2005.

Exhibit: 2-4 Sales Figures for the Top 10 Molecules – Ranbaxy Laboratories Limited32

TOP TEN MOLECULES SALES (USD MILLION) Co-amoxiclav 82.6Amoxicillin 65.2Ciprofloxacin 43.5Cephalexin 41.9Simvastatin 40.4Isotretinoin 36.8Cefaclor 25.3Clarithromycin 25.0Cefpodoxime Proxetil 22.9Ketorolac Tromethamine 22.1

2.5.2 Key Financials33,34 The key financial figures of Ranbaxy Laboratories Limited are given in the Exhibit below. 31 Source: The Hindu: Ranbaxy in R&D tie-up with Glaxo 32 Source: Annual Report 2005 33 Source : Ranbaxy - Annual Report 2005 34 Note: Currency conversion rate: USD 1 = INR 45.33954 (year 2004); USD 1 = INR 44.11538 (year 2005)




Exhibit: 2-5 Key Financials – Ranbaxy Laboratories Limited

FINANCIALS (2005) USD MILLION GROWTH RATE (%) Net Sales 1,169.63 -0.95Net Profit 59.54 -62.5

The next Exhibit presents the geographical break-up of the company’s net revenues for 2004 and 2005. North America continues to be the largest market for Ranbaxy. However, Europe took over India as the second largest market for the company in 2005.

Exhibit: 2-6 Revenue by Geography – Ranbaxy Laboratories Limited and Subsidiaries

Net Revenue (2005): USD 1,169.63 Million

29%

23%22%

16%

10%

North AmericaEuropeIndiaOthersAsia Pacific

Net Revenue (2004): USD1,180.84 Million

37%

21%

20%

15%

7%

North AmericaIndiaEuropeOthersAsia Pacific


2.6 Global Strategy35 Ranbaxy is constantly trying to bolster its presence in the North American market. It has recently acquired the manufacturing and marketing rights for 13 brands in the US. These brands belong to the dermatology segment and have combined sales of around USD 15 million. This acquisition is also important for the company considering the fact that the dermatology market in the US is currently growing at an average annual rate of 10 per cent36.

2.6.1 Focusing on the Generics Business Generics will continue to be a major focus area for Ranbaxy. The company stands to earn major dividends in this area, as more and more branded products will lose patent protection in the coming years. The company is also taking the route of acquisition to strengthen its generics business globally. It recently acquired Be-Tabs Pharmaceuticals, a generics company in South Africa. The Be-Tabs acquisition not only made Ranbaxy the fifth-largest generic pharmaceutical company in the country but also provided it with the capability of manufacturing medicines in South Africa37. Earlier in 2006, Ranbaxy acquired Terapia, a Romanian generic company, and Ethimed, a generics company based in Belgium. In 2005, Ranbaxy added 18 generic products to its portfolio by acquiring them from a pharmaceutical company in Spain. Moreover, in 2004, the company entered the French generics market by acquiring RPG (Aventis) S.A. along with OPIH SARL, a wholly owned subsidiary of RPG (Aventis) S.A. Ranbaxy is also scouting for opportunities in other European markets where generics is positioned for significant growth in the future, thanks to governmental efforts to reduce healthcare expenditure.

2.6.2 Focusing on Capacity Expansion and Modernization Ranbaxy is focusing on expanding and renovating its manufacturing capacities in order to cater to the growing demand and meet stringent quality standards. In 2005, Ranbaxy undertook the following expansion and renovation projects: • Two facilities – capable of simultaneously handing multiple scale-up and exhibit batches – were

commissioned, one in Himachal Pradesh and the other in Punjab, in India.

35 Source: ICFAI 36 Source: Business Standard: Ranbaxy acquires US rights for 13 brands 37 Source: The Hindu Business Line: Ranbaxy concludes Be-Tabs buyout in S. Africa

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• Manufacturing capacities at Paonta Sahib and Dewas in Madhya Pradesh, India, were expanded. • Manufacturing and packaging capacities at New Brunswick, NJ, were enhanced. • A tablet facility in China was renovated to meet cGMP guidelines. • A tablet facility was commissioned in Malaysia. • Integrated packaging lines were commissioned in Ireland. • A bottling plant was commissioned in Nigeria.


Exhibit: 2-7 Key Milestones in Global Expansion History – Ranbaxy Laboratories Limited

YEAR DESCRIPTION

1977 • Ranbaxy established its first joint venture in Lagos, Nigeria.

1990 • US patent for ‘Doxycycline’ was granted to Ranbaxy.

1991 • US patent for ‘Cephalosporins’ was granted to Ranbaxy.

1993 • Agreement for JV in China was reached with Guangzhou Qiaoguang Pharmaceutical Co. Ltd.

and HK New Chemic Ltd.

1994 • The company set up regional headquarters in London, UK, and Raleigh, USA.

1995 • Ranbaxy acquired a manufacturing facility of OHM Laboratories in the US.

1998 • Ranbaxy entered the US market and launched products under its own brand.

1999 • The company signed an agreement with Bayer AG, Germany; exclusive development and

worldwide marketing rights of Ciprofloxacin were given to Bayer AG.

2000 • Ranbaxy acquired the generics business of Bayer AG covering the German market.

• The company entered the Brazilian market.

2001 • Ranbaxy established a new manufacturing facility in Vietnam with an investment of USD 10

million.

2002 • The company launched Cefuroxime Axetil (125 mg, 250 mg and 500 mg tablets) after it received

USFDA approval.

2003 • Bayer AG launched Cipro XR 500 mg/1 g in the US, using the technology developed by Ranbaxy.

2004 • Ranbaxy acquired RPG (Aventis) SA, a generics business, in France.

• Ranbaxy submitted its first anti-retroviral drug filing to the US FDA under the US Presidents’ Emergency Plan for AIDS Relief (PEPFAR).

2005

• The company launched its operations in Canada.

• Ranbaxy’s joint venture with Nippon Chemiphar in Japan (Nihon Pharmaceutical Industries Limited) launched its first product, Vogseal, for diabetic patients.

• The company acquired the generics product portfolio of EFARMES, Spain.

• Ranbaxy received approval from the US FDA for an anti-retroviral drug.

2006

• Ranbaxy obtained approval from the US FDA for Simvastatin 80 mg tablets with 180 days exclusivity.

• The company acquired GSK’s unbranded generics business in Italy and Spain.

• Ranbaxy acquired Terapia, a Romanian pharmaceutical company, for USD 324 million.

• The company forged a strategic alliance with Zenotech. Under this alliance, Ranbaxy obtained the rights to market Zenotech’s oncology products under its own brand in various global markets.

2007 • Ranbaxy acquired Be-Tabs Pharmaceuticals.

• Ranbaxy acquired rights to 13 dermatology brands in the US. Source: Ranbaxy - History

2.8 Key Takeaways • Ranbaxy has a strong R&D focus. It conducts research in the following areas – drug discovery,

pharmaceutical and herbal products, NDDS, and chemical and biological processes for APIs. The company has research collaborations with healthcare firms, such as GSK, and institutes and laboratories.

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• The company is focusing on strengthening its presence in the global generics market and has made a number of acquisitions in this space over the last few years.

• North America and Europe are the key international markets for Ranbaxy. The company has made a number of acquisitions in these geographies over the last few years.




3 Wockhardt Limited

3.1 Company Overview Wockhardt Limited is a research and technology-oriented pharmaceutical and biotechnology company.

Exhibit: 3-1 Brief Snapshot – Wockhardt Limited

DETAILS DESCRIPTION COMPANY NAME Wockhardt Limited PHYSICAL ADDRESS Wockhardt Towers, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 0051, Maharashtra SWITCHBOARD +91-22-26534444 FAX NUMBER +91-22-26534242 WEBSITE http://www.wockhardt.com CHAIRMAN Habil Khorakiwala YEAR OF ESTABLISHMENT38 1959


Total Assets: USD 841.64 million EMPLOYEE STRENGTH40 Around 4,000

Source: Company Website, Consolidated Balance Sheet – 2006


Exhibit: 3-2 Shareholding Pattern – Wockhardt Limited (as on March 31, 2006)



Promoter's Holding



Sub Total of Non Promoter's Holding (B) = (B)(1) + (B)(2) 324,605,258 26.35


38 Source: Datamonitor 39 Note: For financial year ended December 31, 2006 (Exchange Rate: INR 44.246 = 1 USD) 40 Source: Datamonitor

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Exhibit: 3-3 History and Milestones – Wockhardt Limited

YEAR DESCRIPTION 1959 • The Khorakiwala family establishes the Worli Chemicals.

1973 • Wockhardt Private Limited was established.

1984 • Wockhardt merged with two synergistic companies, one making bulk drugs and the other making dietetic foods.

1985 • The company became a deemed public company.

1998 • The company acquired Merind Limited from the Tata Group.

1999 • Wockhardt Limited was incorporated.

2000 • Wockhardt Limited de-merged into two companies – Wockhardt Limited and Wockhardt Life Sciences Limited.

2004 • US FDA approved Wockhardt’s sterile injectable and bulk drug facilities spread over three locations in India.

2004 • Wockhardt Biotech Park, with six dedicated manufacturing facilities, was inaugrated at Aurangabad.

2005 • Wockhardt launched India’s first automatic insulin delivery device.

2005 • Wockhardt launched a high-tech phamaceutical formulation plant at Barotiwala in Himachal Pradesh, India.

2006

• Wockhardt acquired Dumex India Private Limited along with its two products – Protinex and Farex – from Royal Numico NV of the Netherlands.

• The company signed an in-licensing agreement with LSI, a UK-based company specializing in dermatology, to market Vitix.

2007 • Wockhardt signed an in-licensing agreement with Crawford Healthcare of the UK to market Viticolor in India.

Source: Company Website, Pharmabiz

3.4 Overall Growth Strategy41 Wockhardt Limited is a global pharmaceutical and biotechnology company offerings products and services spanning formulations, nutritional products and vaccines, active pharmaceutical ingredients, and biopharmaceuticals. The company was founded by Habil Khorakiwala in 1959. It was originally known as Worli Chemicals and was engaged in the marketing of formulations. Wockhardt Private Limited was established in 1973. With the acquisition of Merind Limited in 1998, Wockhardt expanded its therapeutic coverage in domestic formulations. With the aim of focusing specifically on pharmaceuticals and biotechnology, Wockhardt Limited restructured its business in January 2000 and de-merged its operations into Wockhardt Limited, which comprised the pharmaceutical business (including the Merind pharmaceutical business) and the bulk drugs business, and Wockhardt Life Sciences Limited, which comprised the hospital business and non pharmaceutical businesses42. The hospital business is now consolidated as Wockhardt Hospitals Limited. Wockhardt Limited manages 11 manufacturing facilities – nine in India and one each in the UK and Ireland. The first manufacturing facility was established at Chikalthana in Aurangabad in 1976. Wockhardt Limited launched Wockhardt Biotech Park, a biopharmaceutical complex with six dedicated manufacturing plants at Aurangabad in 2004. With eight manufacturing plants in the city – six in the new biopharmaceuticals complex in addition to one each at Chikalthana and Waluj, and one research centre, Aurangabad has evolved as the hub for Wockhardt’s research and manufacturing activities. The company added another manufacturing plant at Barotiwala in Himachal Pradesh in 2005 for manufacturing high-tech formulations.

41 Source: Pharmabiz 42 Source: Company Press Release

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In order to expand its product portfolio, Wockhardt signed an in-licensing agreement in 2006 with Life Sciences Investments Limited, a UK-based company, to market Vitix – a patented product for the treatment of a pigmentation disorder. A new division called Wockhardt Specialty Nutrition was introduced by the company in the same year to market disease-specific dietary supplements for patients on dialysis, ICU (intensive care unit) patients, and diabetic patients. This was followed by the acquisition of Dumex India Private Limited from Royal Numico NV of the Netherlands. The company also acquired the Protinex and Farex brands through this acquisition and strengthened its range of nutritional products.

3.4.1 Research and Development To maintain a long-term presence in the global pharmaceutical market, Wockhardt Limited focuses on developing R&D capabilities. It runs two R&D centers at Maharashtra in India. The state-of-the-art R&D centers employ a skilled team of over 400 scientists, including 100 doctorate holders working on pharmaceutical technologies, biotechnology, generics, new chemicals entities, and new drug discovery.

3.4.1.1 Specific R&D Areas

Wockhardt focuses on the following key areas – biotechnology, new drug discovery, novel drug delivery system, patents, and technology improvement.

3.4.1.2 Benefits Derived out of R&D

The company’s R&D efforts have resulted in the development of several new products as well as in effecting quality improvement of products and major technological improvements.

3.4.1.3 Future Plan of Action

The company plans to augment its R&D efforts in the field of herbal medicines with a series of fresh initiatives. This will enable the company to introduce herbal ayurvedic drugs for the treatment of diseases for which no allopathic treatment is available.

3.5 Product Lines and Sales Trends

3.5.1 Key Business Segments Wockhardt Limited has a strong global presence in the following segments of the pharmaceutical industry – • Formulations • Biopharmaceuticals • Nutritional products • Vaccines • Active pharmaceutical ingredients (APIs)

3.5.2 Brand Basket of the Company in India The major brands of the company are highlighted in the following Exhibit.

Exhibit: 3-4 Major Brands – Wockhardt Limited

SEGMENT BRANDS Diabetology Wosulin (Recombinant Insulin), Mopaday (Oral Antidiabetic), Glimaday (Oral Antidiabetic) Pain Management Proxyvon, Spasmo-Proxyvon Neuro-psychiatry Libotryp, Tryptomer Nephrology Wepox (Recombinant Erythropoietin) Nutrition Methycobal, Dexolac, Decdan Cough Therapy Zedex, Bro-Zedex, Viscodyne


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3.5.3 Key Financials

Exhibit: 3-5 Financials – Wockhardt Limited (2006)

FINANCIALS USD MILLION GROWTH RATE (%) Net Sales 395.06 24.38Net Profit 54.54 -4.43

Source: Annual Report – 2006

Exhibit: 3-6 Sales by Geographical Segment – Wockhardt Limited (2006)

GEOGRAPHICAL SEGMENT USD MILLION India 152.88USA/Western Europe 199.07Rest of the World 38.81

Source: Annual Report – 2006

3.6 Global Strategy Wockhardt has been able to carve a niche for itself not just in the Indian market but also in the global markets. The company’s global growth strategy hinges on efforts to strengthen its capabilities in dealing with multiple technologies in the healthcare industry. Globally, the company operates as a complete healthcare enterprise, active in the biotech, pharmaceuticals, and nutraceuticals segments. Wockhardt also maintains a sharp focus on its entry strategies for different markets. By identifying opportunities and trends in various markets, the company identifies targets for medium to large acquisitions. For instance, way back in 1998, Wockhardt sensed opportunities in the generics market in Europe, acquiring Wallis Laboratory in the UK. This was followed by the acquisition of CP Pharmaceuticals in Wales in 2003. The operations of Wallis and CP Pharmaceuticals were combined to form Wockhardt UK Limited. Wockhardt UK is amongst the 10 largest generics companies in the UK43. It serves as Wockhardt’s manufacturing base for Europe and features an FDA-approved manufacturing facility for injectables. Wockhardt UK has established a landmark presence in the following segments – retail generics, hospital generics, private label GSL/OTC pharmaceuticals, and dental care (denture cleaning tablets, powders, and fixative creams). Wockhardt UK has entered into a product development and contract manufacturing relationship with Amylin Inc. for Exenatide. To pursue its policy of market-driven acquisitions, Wockhardt Limited acquired the pharmaceuticals business and marketing infrastructure of Esparma GmbH in 2004. Through this acquisition, Wockhardt staged a strategic entry in the German market, which is the largest generics market in Europe. In 2006, Wockhardt acquired Pinewood Laboratories Limited in Ireland. This move further strengthened the company’s presence in the European market. Recently, in May 2007, Wockhardt announced the acquisition of France-based Negma Laboratories. The acquisition of Negma, which is a research-based pharmaceutical company having a portfolio of 172 patents, will not only provide Wockhardt with an appropriate vehicle to enter the French generics market, but also allow Wockhardt to extend Negma’s patented portfolio to other European markets. To form a firm grip on the world’s largest pharmaceuticals market and to enlarge the company’s presence in the US generics market, Wockhardt established its own sales and marketing organization, Wockhardt USA Inc., in 2004. Wockhardt markets around 20 products in the US through Wockhardt USA Inc., and it currently has more than 50 products at different stages of development44. Wockhardt has also expanded its market share in several key products in the US. Bethanechol captured 44 percent of the market share in 2005 as compared to the 40 percent held by it in 2004. Wockhardt has also entered the OTC (over the counter) segment in the US in 2005. Its products are now available in leading drug retailing centers, including supermarket chains such as Wal-Mart.

43 Source: Company Website 44 Source: Company Press Release

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3.6.1 List of Global Locations45 Wockhardt runs operations in Russia, Ukraine, Kazakhstan, Brazil, South Africa, Vietnam, Myanmar, Sri Lanka, Kenya, Ghana, Nigeria, and Tanzania.


Exhibit: 3-7 Key Milestones in Global Expansion History – Wockhardt Limited

YEAR DESCRIPTION

1998 • Wockhardt Limited acquired Wallis Laboratory in the UK. This was the first overseas acquisition made by the company.

2003 • Wockhardt acquired CP Pharmaceuticals in Wales. The operations of Wallis Laboratory and CP Pharmaceuticals were combined to form Wockhardt UK Limited.

2004 • Wockhardt Limited entered Germany, Europe’s largest generics market, by acquring Esparma GmbH.

• It also established its own sales and marketing organization, Wockhardt USA Inc., to enter the world’s largest pharmaceutical market.

2005

• The company signed a joint venture agreement with Representaciones E Investigaciones Medicas, S.A. de C.V., to form Wockhardt Mexico S.A. de C.V. The company, 51 percent of which is owned by Wockhardt and 49% by the local firm, planned to initially market all forms of insulin manufactured by Wockhardt.

• Wockhardt South Africa Pty Limited, a 51:49 joint venture between Wockhardt and Pharma Dynamics of South Africa, was formed.

• Wockhardt Limited established its sales and marketing subsidiary Wockhardt Farmaceutica do Brasil Limited in Brazil to market its pharmaceutical products.

2006 • Wockhardt Limited acquired Pinewood Laboratories Limited in Ireland.

2007 • Wockhardt Limited announced the acquisition of France-based Negma Laboratories. Source: Company Website

3.8 Key Takeaways • Wockhardt has a manufacturing presence in three countries – India, Ireland, and the UK. This gives the

company a strong foothold in the European markets apart from its domestic market, India. • The company is focusing on enhancing its capabilities in the healthcare industry – particularly the biotech,

pharmaceuticals, and nutraceuticals segments – to become a leading player in the global medical industry. • Wockhardt has recently entered the OTC segment in the US. With its products now being available in leading

stores, such as Wal-Mart, the company is rapidly gaining market share in this segment as well.

45 Source: Company Website

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4 Tata Chemicals Limited

4.1 Company Overview Tata Chemicals is a manufacturer of inorganic chemicals, fertilizers and food additives. Its iodized salt brand, Tata Salt, is the leader in its segment in India with a market share of around 40 percent46. Moreover, its fertilizer brand “Paras” leads the market in the states of West Bengal, Bihar and Jharkhand in India47.

Exhibit: 4-1 Tata Chemicals Limited – A Snapshot

DETAILS DESCRIPTION COMPANY NAME Tata Chemicals Limited (TCL) PHYSICAL ADDRESS Bombay House, 24 Homi Mody Street, Fort, Mumbai – 400 001, India SWITCHBOARD +91 22 6665 8282 FAX NUMBER +91 22 6665 8143 WEBSITE http://www.tatachemicals.com/ CHAIRMAN Ratan N. Tata YEAR OF ESTABLISHMENT 1939

Shareholders’ Fund: USD 502.90 million FINANCIAL ASSETS AND CAPITAL48 Total Assets: USD 1,356.89 million

EMPLOYEE STRENGTH NA Source: Tata Chemical Limited, Annual Report 2005-06


Exhibit: 4-2 Shareholding Pattern – Tata Chemicals Limited (as on March 31, 2006)



Promoter's Holding

Indian Promoters (A)(1) 61,567,057 28.62Subtotal of Promoter’s Holding (A) = (A)(1) 61,567,057 28.62Non Promoter's Holding


Subtotal of Non Promoter's Holding (B)= (B)(1) + (B)(2) 153,535,594 71.38


46 Source: Annual Report 2005-06 47 Source: Tata Chemicals 48 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006)

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4.3 Key Milestones

Exhibit: 4-3 Tata Chemicals Limited – Key Milestones

YEAR DESCRIPTION 1939 • TCL was incorporated.

1943 • The company commenced production of caustic soda, hydrochloric acid, zinc chloride, bleaching powder, and liquid chlorine.

1944 • Production of soda ash commenced.

1949 • Production of sodium bicarbonate commenced.

1961-62 • The company commenced production of dense soda ash.

1969 • TCL expanded its soda ash production capacity.

1983 • TCL launched India's first iodized and vacuum evaporated salt, Tata Salt.

1993 • The company commissioned a new cement plant in Mithapur.

1996 • TCL received the ISO 9001 certification.

2003 • The company’s fertilizer plant at Babrala got registered with the British Safety Council.

2003 • TCL’s fertilizer plant received the ISO-14001 and OHSAS-18001 certifications.

2004 • Hind Lever Chemicals was merged with Tata Chemicals Limited. Source: Company Website – Media Releases


4.4.1 To Optimize Processes One of the key initiatives of TCL is to cut down on the cost of production by optimizing energy consumption. The company took a series of measures during FY 2005-06, which resulted in lower consumption of electricity and steam per unit cement, vacuum evaporated salt, sodium bicarbonate, urea, ammonia, caustic soda evaporated, and NPK complexes produced in comparison to FY 2004-05. Some such measures include: instrumentation to control lime klins process parameters; installation of advanced control system in the ammonia plant; and automation of the soda ash plant (phase 1). The company also plans to automate the water softening plant and the glass tower operation at the bromine plant, and install advanced process controller in the urea plant. These measures would further optimize the processes and reduce production cost.

4.4.2 To Strengthen R&D R&D is one of the key drivers of TCL’s growth. Though the company’s R&D expenditure is just 0.05-0.06 percent of the total turnover, it set up an “Innovation Centre” in FY 2005-06 to focus on product development and production techniques. The company is actively conducting research in specific areas such as nano-filtration technology, utilization of raw materials, conservation of water, and enhancement of product quality. All these areas of research would play an important role in the growth of the company. For instance, TCL conducted pilot studies for sea water treatment using nano-filtration technology and it was observed that there was a reduction in the amount of soda ash consumed for water purification and the cold effluent generated reduced by 70 percent. Also, there was an increase in the life span of ammonia stills. Therefore, the company will benefit immensely from reduced cost of production, among other benefits, once the technology is fully absorbed.

4.4.3 SWOT Analysis49

4.4.3.1 Strengths and Opportunities

• Strong Presence in the Domestic Market – TCL is the market leader in soda ash and branded salt segments in India. Moreover, the high growth of construction industry in India has contributed to the growth of the company’s cement business. The domestic demand for soda ash is also witnessing a healthy growth rate. This is on account of the glass industry, which is witnessing increasing demand for glass from the fast growing construction and automobile industries.

49 Source: Evalueserve Analysis

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• Further Optimize Operations – TCL can further reduce its cost of production by taking measures similar to those taken in FY 2005-06. These include automation of various plants and installation of advanced control systems.

• Tap Unexplored Geographies – TCL could look at exploring new markets through exports, acquisitions, tie-ups with foreign companies, and setting up of new facilities abroad. This would help the company de-risk its business to a certain extent.

4.4.3.2 Weaknesses and Threats

• Weak Geographical Presence – Except for soda ash, TCL mainly caters to the Indian market in the other products segment. Only about 10 percent of its revenues come from the international markets. It is clear that TCL needs to step up its global expansion plans to minimize its exposure to market risks.

• Low R&D Expenditure – TCL’s R&D expenditure of only 0.05-0.06 percent of the total turnover is very low as compared to industry standards. The company should accelerate its R&D program through increased expenditure. This would help TCL compete in the global market.

4.5 Key Product Lines and Financials

4.5.1 Key Products The next Exhibit provides the products manufactured by TCL.

Exhibit: 4-4 Key Products – Tata Chemicals Limited


4.5.2 Key Financials50

Exhibit: 4-5 Financials – Tata Chemicals Limited

FINANCIALS (FY 2005-06) USD MILLION GROWTH RATE (%) Sales 925.33 36.65Net Profit 96.64 27.40

Source: Annual Report 2004-05, Annual Report 2005-06

The following Exhibit provides the break-up of the company’s revenues by geography. It is evident from the Exhibit that India is the largest market for TCL, with no market presence in North and South America.

50 Note: Exchange Rate: USD 1 = INR 44.28721 (year ended March 31, 2006)

Product Portfolio

Chemicals Fertilizers Food Additives Others

Soda Ash

Cement

Caustic Soda

Bromine

Gypsum

Urea Salt

Crystalline Salt

Sodium Bicarbonate

Cooking Soda

Gypsum

Hydrobromic Acid

Hydrochloric Acid

Liquid Bromine

Liquid Chlorine

Sodium Bromide

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Exhibit: 4-6 Revenue by Geography (Consolidated) – FY 2005-06

Revenue: USD 906.05 Million

89.4%

2.7% 0.8%

7.2% India

Europe

Asia (excluding India)

Africa

Source: Annual Report 2005-06

The Exhibit below provides the revenue break-up by business segment. The fertilizers segment, comprising urea, phosphatic fertilizers and other agricultural inputs, contributes around 58 percent to the company’s revenues. The inorganic chemicals segment comprises soda ash, salt, marine chemicals, caustic soda, cement and bulk chemicals.

Exhibit: 4-7 Revenue by Business Segment (Consolidated) – FY 2005-06

Revenue: USD 906.05 Million

58.0%

42.0%Fertilizers

Inorganic Chemicals


The next Exhibit provides the sales break-up by product category for TCL on a standalone basis. It is evident that phosphatic fertilizers, urea, and soda ash are the key product categories for TCL.

Exhibit: 4-8 Sales by Product Category (on a Standalone Basis) – FY 2005-06

Sales: USD 813.55 Million

5.5%4.0% 2.1%

39.8%

19.8%

8.8%

20.0%

Phosphatic FertilizersUreaSoda AshSaltOthersCementSTPP








4.6 Global Strategy TCL shifted its focus from strengthening its operations in the existing markets to expanding to other geographies by the beginning of 2005. It acquired the Brunner Mond Group Limited, UK, along with its subsidiaries, Magadi Soda Company Limited and Brunner Mond BV. This made TCL the third-largest soda ash manufacturer in the world with a total production capacity of around three million tons per annum. The company now has a global footprint in the soda ash segment with manufacturing facilities in Asia, Europe, and Africa. The acquisition also added around 1,500 customers to TCL’s list of customers and provided it with access to large European and Asian markets. TCL also acquired a 33.33 percent stake in Indo Maroc Phosphore S.A., a phosphoric acid manufacturing company based in Morocco. The other partner companies are Office Chérifien des Phosphates, and Chambal Fertilisers and Chemicals Ltd. Since phosphoric acid is a key raw material for TCL’s operations at its Haldia facility, the acquisition helped the company ensure a stable source of the raw material at a reduced cost. It would also help the company gain a foothold in the African markets and explore new avenues of growth.


Exhibit: 4-9 Key Milestones in Global Expansion History – Tata Chemicals Limited

YEAR DESCRIPTION

2007 • TCL entered into an agreement with Total Produce Plc to establish a JV for distributing fresh fruit and vegetables across India.

2005 • TCL acquired majority stake in Brunner Mond Group, UK.

2005 • The company launched “TOPP Salt” for the Middle East markets.

2005 • TCL acquired a 33.33 percent stake in Indo Maroc Phosphore S.A., a company based in Morocco and a manufacturer of phosphoric acid.

2004 • TCL received a 5-star rating for having a safe working environment at its Mithapur plant from The British Safety Council.

2004 • The company signed a 5-year MoU with the College of Agriculture and Life Sciences, Cornell University, aimed at collaborative research.

Source: Company Website – Media Releases

4.8 Key Takeaways • TCL has a strong presence in India with around 90 percent of its revenues coming from the domestic market.

It is also the leader in the soda ash and branded salt segments in India. • The company is focusing on reducing its cost of production through process optimization. • TCL does not boast of a strong international presence though it has entered into a JV in Morocco and

acquired a UK-based company in 2005.

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5 Tata Steel Limited

5.1 Company Overview Tata Steel is the largest integrated, private sector steel company in India. Tata Steel has operations in several countries including China, Thailand, and Sri Lanka.

Exhibit: 5-1 Brief Snapshot – Tata Steel Limited

DETAILS DESCRIPTION COMPANY NAME Tata Steel Limited PHYSICAL ADDRESS Bombay House, 24 Homi Mody Street, Mumbai – 400 001 SWITCHBOARD +91-22-66658282 FAX NUMBER +91-22-66658113 / 66657725 WEBSITE http://www.tatasteel.com MANAGING DIRECTOR B. Muthuraman YEAR OF ESTABLISHMENT 1907

Shareholders’ Fund: USD 2.32 billion FINANCIAL ASSETS AND CAPITAL51

Total Assets: USD 4.65 billion EMPLOYEES STHENGTH 38,182 (FY 2005-06)



Exhibit: 5-2 Shareholding Pattern – Tata Steel Limited (as on March 31, 2006)

SHAREHOLDER CATEGORY

NUMBER OF SHARES HELD


Promoter's Holding





5.3 History and Key Milestones52

Exhibit: 5-3 History and Milestones – Tata Steel Limited

YEAR DESCRIPTION 1907 • Tata Iron and Steel Company Limited (TISCO) was founded by J. N. Tata. 1912 • Production started at the Jamshedpur steel plant. 1935 • The production of high-tensile steel commenced. 1937 • The first ‘Research and Control Laboratory’ was opened. 1958 • Ferro-manganese plant commenced production at Joda. 1962 • Tata-Robins-Frazer was formed in collaboration with Hewitt-Robins Inc., USA, and Frazer & Chalmers

51 Source: Annual Report – 2005-06, Note: Exchange Rate: INR 44.13063 = 1 USD, Year Ended – March 31, 2006 52 Source: Company Website

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YEAR DESCRIPTION Engineering Works of GEC, UK.

1976 • West Bokaro Limited amalgamated with TISCO for coal mine operation. 2000 • A cold rolling mill complex was inaugurated in April 2000. 2002 • An ‘F’ blast furnace started operations with a production capacity of one MTPA (million tons per

annum) of hot metal.

• In the same year, the company also signed an automotive steel technology cooperation agreement with Nippon Steel Corporation, Japan, and Arcelor of Europe to work jointly on technical developments.

2003 • First branded cold rolled steel – Tata Steelium – was launched. 2005 • The name of the company was changed to Tata Steel Limited.

• Tata Steel Limited acquired the Singapore-based steel company NatSteel Asia. 2007 • Tata Steel Limited acquired the Anglo-Dutch steel company Corus.

Source: Company Website, Datamonitor

5.4 Overall Growth Strategy Tata Steel is the largest integrated, private sector steel company in India. The company was founded by J. N. Tata with the idea of giving India a steel plant. The company is involved in the manufacturing and distribution of steel and other related products through a number of subsidiary companies.

5.4.1 Strategy53 The company maintains a diversified product portfolio and rather than selling steel as a commodity, it is selling these products under various brands in India. Under its long-term strategy, the company aims to expand its business in India by increasing its manufacturing capacity.

5.4.1.1 Product Diversification

Established in 1907 as the Tata Iron and Steel Company, it was Asia’s first private sector steel company. The first iron and steel plant was set up in Jamshedpur, and the plant started its production in 1912. In 1915, the company ventured into the production of ferro-manganese. A few years later in 1923, an associate company of Tata Steel – Tinplate Company of India Limited – commenced the manufacture of tin-coated and tin-free steel sheets. Tata Steel signed an agreement with Didier-Werke AG of Germany for installing a refractory plant at Belpahar in 1956. The manufacturing of steel mill rolls was undertaken by Tata Yodogawa Limited, which was incorporated in 1968.

5.4.1.2 Brand Basket of the Company

In order to differentiate its steel products in the Indian market, the company has introduced brands such as Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Bearings, Tata Agrico, Tata Wiron, Tata Pipes, Tata Structura, and Steeljunction.

5.4.1.3 Long-term Strategy for Expansion in India

The company has developed a long-term strategy of developing a strong base in India. In 2005, it initiated an expansion plan at its Jamshedpur plant to increase its crude steel making capacity by 1.8 MTPA (million tons per annum) by 2008. The company also plans to build greenfield projects in Orissa, Chhattisgarh, and Jharkhand over the next decade. The integrated steel plant at Orissa will be built in two phases of three MTPA production capacity each, at Kalinganagar, India. The company has also signed a Memorandum of Understanding (MoU) with the Government of Chhattisgarh to build a steel plant with a production capacity of five MTPA, in two phases, and another MoU with the Government of Jharkhand to set up a steel plant with a production capacity of 12 MTPA, in two phases, in Jharkhand.

5.4.2 Research and Development54 Tata Steel established its first ‘Research and Control Laboratory’ in India in 1937. The expenditure on R&D activities in FY 2005-06 was USD 57 million, which was 0.15 percent of the company’s total turnover. Tata Steel’s R&D activities are grouped under the following categories: • Process Research 53 Source: Company Website 54 Source: Annual Report





• Product Research • Patents and Paper


Research in 2005-06 was carried out in the areas of raw materials, which included iron ore, coal, coke, ferro chrome and titania. Sinter quality and blast furnace productivity, energy utilization, energy conservation, waste utilization, product development, and process improvement were other areas of research.

5.4.2.2 Benefits Derived from R&D

Efforts in R&D led to the development of new technologies and processes, which in turn gave benefits in terms of increased productivity, improved efficiencies and cost competitiveness, and enhanced product range and product quality.

5.4.2.3 Future Plans of Action

Improving de-phosphorization by establishing the use of a 7-hole lance in the steel-making process, reducing slag volume in blast furnace for improving furnace productivity, producing clean coal with less than 8 percent ash, and producing high-strength, high-ductility steel for automotive applications are some of its R&D thrust areas.


5.4.3.1 Strengths

• Healthy Product Mix – The company has constantly focused on enriching its product mix. In order to meet the high standards of customers in the automobile, appliance, construction and engineering segments, Tata Steel has increased its presence in value added segments, including auto grade cold rolled and galvanised steel. A healthy product mix enables the company to improve its profitability.

• Strong Brand Image – Tata Steel, a part of the diverse Tata Group, enjoys a strong brand image. It helps the company to maintain its position in the domestic market and expand its operations in the international market.

• Security of Raw Materials – Tata Steel owns iron ore mines. Its self sufficiency in terms of raw materials gives the company an edge over competitors who depend on other firms for raw materials.

5.4.3.2 Weaknesses

• Geographical Concentration – Though the company has increased its operational presence in the international market, only 21 percent of its total revenues were generated by the international market in 2005. Lack of experience in international markets puts the company at a competitive disadvantage.

• Dependence on Imports – The company depends on imports for the majority of its coking coal requirements, which forms a key raw material for steel manufacturing.

5.4.3.3 Opportunities

• Rising Steel Prices –Steel prices have risen twice in India in 2006. The strengthening of steel prices will increase the revenue prospects for the company.

• Increasing Demand for Steel – Due to the increasing demand for steel, the company also has opportunities to expand its steel production capacity.

5.4.3.4 Threats

• Consolidation in Steel Industry – The steel industry recently witnessed a consolidation with a merger between major global players such as Mittal Steel and Arcelor. As a result of other such future consolidations, larger companies may emerge, thereby affecting Tata Steel’s market share and revenues.






5.5.1 Key Products and Business Units

Exhibit: 5-4 Key Products and Business Units – Tata Steel Limited

BUSINESS UNIT PRODUCT LINE

Steel Division Hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rebars, rings and bearings

Bearing Division Ball bearings, double row self-aligning bearings, clutch release bearings and tapped roller bearings for two wheelers, fans, and water pumps

Ferro Alloys and Minerals Division Operates chrome mines and has a unit for making ferro chrome and ferro manganese Oil and Gas Exploration, prospecting, and planning to enter into gas distribution Rings and Agrico Division Forged and rolled rings for bearings and automotive components Tata Agrico Hand tools and implements for the agriculture sector

Tata Growth Shop Equipment ranging from overhead cranes to high-precision components, including a rocket launch pad for the Indian Space and Research Organization (ISRO)

Tubes Division Steel tubing Wires Division Coated and uncoated steel wires



Exhibit: 5-5 Financials – Tata Steel Limited

FINANCIALS USD BILLION GROWTH RATE (%) Net Sales 3.43 4.0Net Profit 0.79 0.9

Source: Annual Report – 2005-06

5.6 Global Strategy57 The strategy adopted by Tata Steel reflects the company’s aim to have a meaningful global presence.

5.6.1 De-integrated Production Strategy The company continues to pursue its ‘De-integrated Production Strategy’ through various strategic acquisitions. The acquisitions are also in line with Tata Steel’s long-term commitment to attain a production capacity equivalent to global players over the next decade along with building a strong regional presence in India. Tata Steel acquired NatSteel Asia in February 2005. NatSteel Asia’s network of steel mills in six countries in South-east Asia and China coupled with Tata Steel’s expertise in the steel-making process and its raw material resources helped Tata Steel gain a strong manufacturing footprint in Asia. Through its de-integrated production strategy, the company produces intermediate or semi-finished products, such as slabs and billets, at the locations where raw materials are readily available. However, the finishing is carried out at locations where customers and markets currently exist or are expected to grow in the future. In line with this strategy, the company acquired 67.11 percent of equity stake in Millennium Steel in Thailand, which is a low-cost steel manufacturing location. The three operating units of Millennium Steel have a cumulative capacity to produce 1.2 million tons of steel per annum and 1.7 million tons of long-rolled steel products in a year. The acquisition was a strong fit with Tata Steel’s strategic expansion plans and significantly enhanced its market position in South-east Asia.

56 Source: Annual Report – 2005-06, Note: Exchange Rate: INR 44.13063 = 1 USD, Year Ended – March 31, 2006 57 Source: Annual Report – 2005-06, Company Website


http://www.tatasteel.com/investorrelations/annual05-06.pdf�




Pursuing its de-integrated strategy, Tata Steel acquired the Anglo-Dutch steel firm Corus in 2007. Through the acquisition, Tata Steel gained access to the steel markets in the West and a network of finishing mills in Europe. It plans to improve the competitiveness of Corus by procuring semi-finished steel from India, where Tata has enormous reserves of iron ore and coal used to make steel, and ensuring that the finishing is carried out in Europe. This takeover made Tata Steel the world’s fifth-largest steelmaker in terms of output, with a combined crude steel capacity of 23.5 million tons. Tata Steel is also setting up a new ferro-chrome plant at Richards Bay in South Africa. South Africa is the largest producer of ferro-chrome globally. High-quality ore is taken from India and converted into ferro-chrome at Richards Bay.

5.6.2 Vertical Integration According to the International Iron and Steel Institute (IISI), the cost of raw materials and energy would continue to pose a major challenge for the steel industry. Tata Steel has drawn out an ambitious plan in seeking captive capacities or long-term commitments for raw materials. The company signed agreements to buy a 5-percent interest in the Carborough Downs Coal Project located in Queensland, Australia; 20 percent of the coal produced over the life of the project (which is estimated to be 14 years) will be secured by Tata Steel.

5.6.3 Other Expansion Plans Tata Steel entered into a joint venture with BlueScope Steel Limited, Australia, in November 2005 for setting up a metallic coating and painting unit. The joint venture company will build a new business for manufacturing zinc/aluminium metallic coated steel, painted steel, rollformed steel products, delivered pre-engineered buildings (PEBs), and other building solutions across India and South Asia. The venture was established to enhance Tata Steel’s ability to provide value-added products.

5.6.4 List of Global Locations Tata Steel has operations in the following countries – India, USA, China, Singapore, Vietnam, Australia, Malaysia, Thailand, Sri Lanka, Philippines, Iran, South Africa, Greece, Switzerland, Germany, Netherlands, Norway, Denmark, UK, Benelux, France, Ireland, and Portugal. It has trading arms in India, Sri Lanka, Singapore, Hong Kong, Bangladesh, Nepal, Shanghai, Dubai, UK, USA, and South Africa.


Exhibit: 5-6 Global Presence – Tata Steel Limited

COUNTRY DESCRIPTION

Singapore • NatSteel Asia, Singapore, was acquired by Tata Steel and became a 100-percent subsidiary of Tata Steel.

Thailand • Millennium Steel Thailand was acquired by Tata Steel.

• The three operating units of Millennium Steel have an aggregate production capability of 1.2 MTPA of steel. The acquisition also enhanced Tata Steel’s market position in South-east Asia.

Bangladesh

• Tata Steel plans to set up a steel plant with a 2.4-MTPA production capacity in the western part of Bangladesh.

• It also plans to develop a coal mine with a production capacity of 6-7 MTPA in the Dinajpur district of Bangladesh. The production of hot rolled coils at the steel plant will enable Bangladesh meet its domestic requirement whereas the coal mine will reduce the country’s dependence on natural gas.

South Africa • Tata Steel has proposed a ferro-chrome plant at Richards Bay in South Africa to produce high carbon ferro-chrome for global consumers.

Australia • Tata Steel signed agreements to buy a 5-percent interest in the Carborough Downs coal project, which

is majority owned and operated by a subsidiary of AMCI Holdings Australia Pty Limited. According to the agreement, Tata Steel will get 20 percent of the coal produced over the life of the project.

Iran • Tata Steel plans to build a gas-based steel plant with a production capacity of 3 MTPA. The steel plant

will be a fully owned by a 100-percent subsidiary of Tata Steel and will also be a 100-percent export-oriented unit.




COUNTRY DESCRIPTION UK • Tata Steel acquired Corus in 2007 and expanded its global presence in the UK.

Source: Company website

5.8 Key Takeaways • The company is a vertically integrated entity, controlling not only its products but also the sourcing of its raw

materials. In this way, the company is present at all steps of the value chain. • The company has de-integrated its production, enabling it to exploit the advantage of low-cost manufacturing

locations. The company’s recent acquisitions, including Corus, have been a step towards implementing this strategy.

• The company is associating its steel with the Tata brand name. The company is also focusing on diversifying its steel business.

• The company is expanding its global base through M&As, particularly in Europe and South-east Asia.





6 Bharat Forge Limited

6.1 Company Overview Bharat Forge Limited is a manufacturer of metal related products for the medium and heavy commercial vehicles segment. It also offers computer aided designing, manufacturing, and analysis services to its customers, thus enabling them to have a faster product design cycle. The company has nine manufacturing facilities in six different countries, including India, China, Sweden, and the UK.

Exhibit: 6-1 Brief Snapshot – Bharat Forge Limited

DETAILS DESCRIPTION COMPANY NAME Bharat Forge Limited PHYSICAL ADDRESS Pune Cantonment, Mundhwa, Pune – 411 036 SWITCHBOARD +91-20-26702777 FAX NUMBER +91-20-26822387 WEBSITE http://www.bharatforge.com/ CHAIRMAN AND MANAGING DIRECTOR B. K. Kalyani YEAR OF ESTABLISHMENT 1961


Total Assets: USD 865.86 million EMPLOYEE STRENGTH 4,000 (FY 2005-06)

Source: Company Website, Annual Report – 2005-06


Exhibit: 6-2 Shareholding Pattern – Bharat Forge Limited (as on March 31, 2006)




Promoter's Holding






Exhibit: 6-3 History and Milestones – Bharat Forge Limited

YEAR DESCRIPTION 1961 • Bharat Forge Limited (BFL) was incorporated.

1966 • BFL started commercial production from its hammer shop.

1972 • BFL executed its first export order to Greece.

1984 • BFL entered into an agreement with the Japanese company Tokyo Drop Forge for technology upgrades and quality improvement.

58 Note: Exchange Rate: INR 44.13063 = 1 USD, Year Ended – March 31, 2006

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YEAR DESCRIPTION 1993 • BFL received ISO 9002 accreditation.

1999 • BFL received QS 9000 accreditation.

2004-05 • BFL acquired various companies in Europe and the US, such as:

Carl Dan Peddinghaus GmbH & Co. KG – Germany

Federal Forge (now known as Bharat Forge America Inc.) – USA Source: Company Website

6.4 Overall Growth Strategy Bharat Forge Limited (BFL), the flagship company of the India-based Kalyani Group, provides auto-component solutions. The Kalyani group, with a market capitalization of over USD 5 billion and has over 10,000 employees worldwide. BFL, which began production in 1966 from its hammer shop, has grown into a truly global company. BFL has manufacturing facilities spread over nine locations across six countries. Three locations are in Germany, two are in India, and the rest are in Sweden, the UK, the US, and China. BFL specializes in manufacturing forgings and machine-related parts for the medium and heavy commercial vehicle market. The two main operating segments of the company are closed die forging and open die forging. The closed die forging division manufactures parts for vehicles ranging from small passenger cars to heavy commercial vehicles, whereas the open die forgings division produces a wide range of products for a number of industries.

6.4.1 Full Service Supply Capability59 BFL has been developing full service supply capabilities for its clients. It is graduating from only being an auto-components’ supplier to a technology and engineering driven development partner for its clients. BFL now provides end-to-end technology solutions for various customer issues. BFL has constantly been expanding its capacities and capabilities to provide services right from product conceptualization to product testing and validation capabilities. Thus, BFL is now adding value at each step of the product development chain for its customers. The following Exhibit represents BFL’s full service supply capabilities.

Exhibit: 6-4 Full Service Supply Capabilities – Bharat Forge Limited


As depicted in the Exhibit above, BFL has the capabilities to support its customers, right from the product conceptualization stage to the final product testing stage.

59 Source: Company Website

Customer Product Conceptualization

Manufacture of Tools

Product ManufacturingProduct Validation and Testing

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6.4.2 Key Customers60 BFL has been able to establish itself as the preferred component supplier for major domestic and global players, as highlighted in the Exhibit below.

Exhibit: 6-5 Key Domestic and Global Customers – Bharat Forge Limited

KEY DOMESTIC CUSTOMERS KEY GLOBAL CUSTOMERS Ashok Leyland Limited Tata Motors BMW AG Renault SA Kirloskar Brothers Limited Maruti Udyog Limited Ford Motor Company Saab AB Bajaj Auto Limited Bharat Heavy Electricals Limited Volvo Group Audi AG Larsen & Toubro Limited (L&T) Escorts Limited General Motors Corporation Volkswagen AG Mahindra and Mahindra Limited Tata Cummins Limited Caterpillar, Inc. Honda Motor Co., Limited



6.4.3.1 Strengths

• Full Service Offerings – BFL is an integrated supplier, offering a complete set of product development services to its clients. The company gains an added advantage over its other competitors by providing end-to-end technology-based solutions to its clients.

• Building a Global Business – The global presence of BFL helps it exploit the cost advantages of having low-cost, technologically competitive manufacturing locations, while continuing to maintain a presence close to its key client locations.

6.4.3.2 Weaknesses

• Risks in Global Expansion Plans – BFL is following an inorganic growth strategy to increase its global footprint. This exposes the company to geo-political risks inherent in all such moves. In addition, the company stands the risk of facing integration issues, particularly associated with mergers and acquisitions.


• Auto-component Outsourcing – Outsourcing for the auto-component industry is on the rise. Backed by its size and geographic reach, BFL is in a position to exploit this trend for building a sustainable high-growth business.

6.4.3.4 Threats

• Increase in the Prices of Key Raw Materials – There has been a rise in the prices of key raw materials, particularly metals. This can lead to a reduction in the company’s profits and margins.

• Currency Fluctuations – BFL’s exports have been growing rapidly. Thus, the operations of the company are sensitive to currency fluctuations.

• Adverse Government Regulations – The forging industry is perceived as an environmentally unfriendly industry, particularly in developed countries. Governments in most parts of the world are consistently upgrading pollution-control norms to more stringent levels. This could adversely affect the company’s global expansion plans.


6.5.1 Key Products62 BFL is an automotive and chassis component manufacturer. The major products lines in which the company operates can be classified under the closed die forging division and the open die forging division. The major product lines under the closed die forging division include:

60 Source: Company Website 61 Source: Evalueserve Analysis 62 Source: Company Website

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• Crankshafts – BFL manufactures a variety of crankshafts ranging from cylinder crankshafts for light duty applications to large 12-cylinder crankshafts for heavy duty applications. The company has the capacity for 5,000,000 forged and 650,000 machined crankshafts in the weight range of 2-2,500 kg.

• Front Axel Beams – BFL is the world’s largest manufacturer of axel beams with a capacity of 700,000 forged and 500,000 machined axel beams in the weight range of 50-200 kg.

• Steering Knuckle – BFL manufactures fully machined steering knuckles with a capacity of 1,000,000 forged and 750,000 machined steering knuckles in the weight range of 2-50 kg.

• Connecting Rods – BFL manufactures connecting rods for the automobile, diesel engine, and power generation industries with a capacity of 2,000,000 forged connecting rods in the weight range of 2-400 kg.

• Rocker Arm – BFL manufactures a variety of rocker arms for diesel engine applications up to a 3-kg weight range.

• Transmission Parts – BFL manufactures transmission parts such as input shafts, gears, sleeve transmission counter shafts, output shafts, etc., for passenger cars and sports utility vehicles. These range from 0.5 to 10 kg.

• Hubs – BFL manufactures a variety of hubs for automotive applications. These range between 1 and 50 kg. • Oil and Gas – BFL manufactures valves, chokes, casing heads, shells, etc., for high-pressure applications in

the oil and gas industry. These range between 15 and 500 kg. In the open die forging division, BFL has one 1600T double column pull-down type press with material handling, heat treatment facilities, and supporting machining facilities. These are used in the following industries: Sugar Tools and Plastic Injection Forging Steel Plants Seamless Tube Wind Energy Mining Cement Gear Manufacturing Fan and Pump Marine Oil & Gas


Exhibit: 6-6 Financials – Bharat Forge Limited

FINANCIALS (FY 2005-06) USD MILLION GROWTH RATE (%) Net Sales 342.49 31.22Net Profit 46.90 28.05


6.6 Global Strategy64 BFL has been expanding as a global entity. It has been expanding its manufacturing base across the globe through alliances and acquisitions. The company’s most recent acquisitions include the 2005 takeovers of Federal Forge and the Imatra Forging Group, along with its wholly owned subsidiary Scottish Stampings. Through these acquisitions, the company’s main focus area is the cross sharing of benchmarking and best practices in the fields of procurement, manufacturing, engineering, and development technologies across all its subsidiaries. The company also aims to create greater efficiency by making its overall operations cost competitive. The company is also looking to leverage technological developments through these initiatives.

6.6.1 Multiple Manufacturing Locations for Key Components65 BFL is following, what it calls, a ‘global dual shore manufacturing capabilities’ model. The key components of the same are: • Dual shore design capability • Dual shore forging manufacturing capability • Dual shore machining capability

63 Note: Exchange Rate: INR 44.13063 = 1 USD, Year Ended – March 31, 2006 64 Source: Bharat Forge Limited - Q3 FY06 Earnings Update 65 Source: Company Website

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The company has established more than one manufacturing location for all of its key components. Typically, one of these is located close to the customer, and the other is located in a low-cost geography that is technologically competitive, such as India. This is done to ensure that the supply of components to the customer is maintained uninterrupted and at the same time, long-term cost advantages are also realized. The company has developed designing, forging, and machining capabilities under this model. The following Exhibit represents the global locations where the company is implementing its dual shore manufacturing capabilities.

Exhibit: 6-7 Global Locations Implementing Dual Shore Manufacturing Capabilities – Bharat Forge Limited

PRODUCTS COMPONENTS INDIA GERMANY US SWEDEN UK CHINA Engine √ √ √ √ x √ Passenger

Vehicles Chassis √ √ √ √ x √ Engine √ x x √ √ √ Middle and Heavy

Commercial Vehicles Chassis √ x x √ √ √ Engine √ √ √ √ √ √

Light Truck Parts Chassis √ √ √ √ √ √

Design and Engineering Services √ √ ↔ √ ↔ x Source: Company Website

Key Points – • All the locations in the above Exhibit have manufacturing capabilities. Design and engineering services’

capabilities at the two locations – the US and the UK (marked with ↔ in the Exhibit) are currently being developed by the company.

• The location in China is operational under a 2005 joint venture between First Auto Works (FAW) Corporation and the company. The joint venture is named FAW Bharat Forge.

BFL is undertaking strategic initiatives to emerge as an integrated global player. Some of these initiatives are highlighted in the next Exhibit.

Exhibit: 6-8 Strategic Initiatives – Bharat Forge Limited

ISSUES STRATEGIC INITIATIVES

Procurement Strategy BFL is expanding its global operation for procuring raw materials, particularly steel, at most competitive prices, while at the same time maintaining quality and sustained availability of inputs.

Customer Relationship Management

BFL has implemented ‘common face strategy’ where all customers that have a relationship with more than one of its subsidiaries are addressed by a single contact person.

Production Synergies BFL is implementing its global dual shore manufacturing capabilities to facilitate production synergies across all its manufacturing locations.

Cost Reduction BFL is sharing best practices and benchmarking procedures across all its operational units to arrive at an overall cost-reduction strategy.

Source: Bharat Forge Limited - Q3 FY06 Earnings Update

Another major step towards BFL’s global aims is its long-term contractual agreements. The company has entered into long-term contracts with global OEMs for passenger cars and medium- and heavy-duty diesel engine components, to pre-sell the output from its expanded global capacities. The Exhibit below highlights the impact of strategic initiatives taken by the company towards its global strategy.

Exhibit: 6-9 Impact of Strategic Initiatives – Bharat Forge Limited

STRATEGY IMPLEMENTATION AND IMPACT

Dual shore manufacturing capabilities • Overall domestic capacity of 240,000 tons

• Overall global capacity of 360,000 tons spread across nine locations in five countries

Full service supply capability

• Centers of excellence set up in Germany and India, and being set up in the US

• Product testing and validation capabilities being set up in most locations

Strong supply partnership with customers • Supply partnerships with over 35 customers globally

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STRATEGY IMPLEMENTATION AND IMPACT

• Key relationships graduating to development partnerships

Diversified product, customer, and geographic base to reduce risks

• Almost three-fourths of the total revenue realized from foreign customers

• Revenue well distributed across various products and geographies

Source: Bharat Forge Limited - Q3 FY06 Earnings Update


Exhibit: 6-10 Key Milestones in Global Expansion History – Bharat Forge Limited

YEAR DESCRIPTION 1972 • BFL executed its first export order to Greece.

1985 • BFL entered the erstwhile USSR market by winning a large contract for under-carriage components.

1990-91 • BFL achieved major breakthroughs in the developed markets of Japan, the US, and the UK for critical suspension and engine components such as front axle beams and machined crankshafts.

2004

• BFL acquired Carl Dan Peddinghaus GmbH & Co. KG, one of the largest German forging companies with plants in Ennepetal and Daun.

• BFL acquired CDP Aluminiumtechnik, now known as Bharat Forge Aluminiumtechnik. The acquisition helped the company to enter into the high-end and fast-growing aluminum component business.

2005

• BFL acquired Federal Forge, now known as Bharat Forge America Inc., thus providing BFL with a manufacturing presence in the US.

• BFL acquired Imatra Kilsta, AB, Sweden, along with its wholly owned subsidiary Scottish Stampings, Scotland.

• BFL signed a joint venture with First Auto Works Corporation, the largest automotive group in China. The joint venture is named FAW Bharat Forge.


6.8 Key Takeaways • BFL is emerging as an integrated player in the auto-components industry. It is in the process of developing full

service supply capabilities for its clients, right from product conception to product testing. In this way, the company is able to provide end-to-end technology solutions for various customer issues.

• The company has implemented dual shore manufacturing capabilities. It has set up more than one unit for manufacturing all its key components. These units are typically spread across the globe. Its presence close to its customers ensures that its clients have an uninterrupted supply of components. At the same time, the company realizes long-term cost advantages through its presence in a low-cost geography.

• It has implemented a common face strategy, under which, all customers that have a relationship with more than one of BFL’s subsidiaries are addressed by a single contact person.

• The company already has a strong presence in India and the US. It is now looking to consolidate its position in Europe and China.

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7 Hindalco Industries Limited

7.1 Company Overview Hindalco is a producer of primary aluminum, copper, and related products such as flat-rolled products and alloy wheels. In India, the company has a market share of 42 percent in primary aluminum segment, and is a leader in rolled products segment and alumina chemicals segment with market share of 63 percent and 90 percent, respectively66.

Exhibit: 7-1 Hindalco Industries Limited – A Snapshot

DETAILS DESCRIPTION COMPANY NAME Hindalco Industries Limited PHYSICAL ADDRESS Century Bhavan, 3rd floor, Dr. Annie Besant Road, Worli, Mumbai – 400 030, India SWITCHBOARD +91-22-5662 6666 FAX NUMBER +91-22-2436 2516 WEBSITE http://www.hindalco.net/ CHAIRMAN Kumar Mangalam Birla YEAR OF ESTABLISHMENT 1958

Shareholders’ Fund: USD 2.13 billion FINANCIAL ASSETS AND CAPITAL67 Total Assets: USD 4.74 billion

EMPLOYEE STRENGTH 19,593 (FY 2005-06) Source: Company Website, Annual Report 2005-06

7.2 Shareholding Pattern The Exhibit given below describes the shareholding pattern of the company.

Exhibit: 7-2 Shareholding Pattern – Hindalco Industries Limited (as on March 31, 2006)



Promoter's Holding

Indian Promoters (A)(1) 209,695,540 18.09Persons acting in Concert (A)(2) 101,755,059 8.78

Subtotal of Promoter’s Holding (A) = (A)(1) + (A)(2) 311,450,599 26.87Non Promoter's Holding


Subtotal of Non Promoter's Holding (B)= (B)(1) + (B)(2) 847,818,402 73.13

Grand Total (A) + (B) 1,159,269,001 100Source: Bombay Stock Exchange

66 Company Website: Overview 67 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006)

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Exhibit: 7-3 History and Milestones – Hindalco Industries Limited

YEAR DESCRIPTION 1958 • Hindalco Industries Limited was incorporated.

1962 • Production of aluminum metal and alumina commenced at the company’s plant at Renukoot in Uttar Pradesh.

1967 • Hindalco’s captive power plant was commissioned at Renusagar in Uttar Pradesh.

1998 • The company secured ISO 14001 EMS certification.

1998 • Hindalco’s foil plant at Silvassa became operational.

1999 • The company commenced production of aluminum alloy wheels at Silvassa.

2000 • Hindalco secured a 74.6 percent equity stake in Indian Aluminum Company, Limited (Indal).

2003 • The copper business of Indo-Gulf was merged with Hindalco.

2006 • Hindalco acquired an aluminum rolling mill and wire rods manufacturing facility in Nagpur.

2006 • Hindalco and Essar Power (M.P.) Ltd. established a 50:50 JV, Mahan Coal Company, to develop the coal mines at Mahan, Madhya Pradesh.


7.4 Growth Strategy Hindalco has a strategic intent in the expansion of its production capacity of both aluminum and copper through its Greenfield projects and capacity expansion at the existing facilities. For instance, in 2005, the company enhanced its copper smelting and refining capacity to 500,000 tpa at its facility in Gujarat. Moreover, Aditya Aluminum, Hindalco’s Greenfield project in Orissa, is steadily moving forward. The smelter has secured approval for SEZ status and the necessary approval has been obtained from the Indian Bureau of Mines, Bhubaneswar, for the bauxite mining plan. Once the project is commissioned, it will have alumina refining capacity of 1.5 million tpa and aluminum smelting capacity of 325,000 tpa. Hindalco has also signed a MoU with the Madhya Pradesh government for setting up a 325,000 tpa aluminum smelter in the state. The aluminum smelting capacity at the Hirakud plant is also scheduled to be increased from the existing 65,000 tpa to 146,000 tpa by 2007. The acquisition of Novelis Inc. further highlights Hindalco’s strategy to bolster its presence in the value-added products segment that registered a higher profit margin in comparison to primary metal. It acquired a rolling mill and conductor rods facility at Mouda in 2006. As a result, the company’s production capacity of flat-rolled products increased to 200,000 tpa. The company has also increased the number of dealers and stockists of its value-added products by 10 during FY 2005-06. Moreover, Hindalco is developing new products, such as components of air conditioning system for the automotive industry. In order to improve profitability, Hindalco is focusing on containing its operating costs, which have increased due to high prices of raw materials. The key initiatives taken to reduce operational costs included measures such as the increasing of captive power capacity at Hirakud by 100 MW; setting up a captive aluminum fluoride facility at Dahej, and enhancing utilization levels by optimizing processes and de-bottlenecking.

7.4.1 SWOT Analysis

7.4.1.1 Strengths

• Operations Across the Value Chain in the Aluminum Business – Post acquisition of Novelis, Hindalco has become the world leader in flat-rolled aluminum products and recycling of aluminum cans. It is also the leading producer of primary aluminum and alumina in Asia. Consequently, the company is present across the complete value chain and its business is at a lower risk from price volatility as fluctuations in the prices of value-added products are lower than the prices of primary metal.

• Strong Geographical Presence – Novelis, a subsidiary of Hindalco, has more than 30 facilities for producing primary metal and coke, manufacturing rolled aluminum products, and aluminum recycling across North and South America, Europe, and Asia. Each of these geographies contributes significantly to Novelis’ net sales. Hindalco’s alumina and primary aluminum production facilities are largely present in India and the company is

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among the top four aluminum producing companies in Asia. This imparts Hindalco a global presence in aluminum production.

7.4.1.2 Weaknesses

• Low R&D Expenditure – Though Hindalco conducts research in some specific areas, its R&D expenditure was only 0.09 percent of its total turnover during FY 2005-06. The R&D expenditure is very low as compared to industry standards. Hindalco should increase its R&D expenditure so as to accelerate the development of new applications and to improve various processes, so that it can compete in the global market.


• Strong Growth in Demand for Aluminum – High growth of manufacturing sector in China and India coupled with the growing automotive sector in high growth economies signals robust growth opportunities for Hindalco.

7.4.1.4 Threats

• Price Volatility – Prices of primary metal are highly volatile. For instance, during FY 2005-06, the prices of aluminum on London Metal Exchange fluctuated between USD 1,675 and USD 2,634 per ton. Such volatility threatens to topple the company’s revenue if the prices remain low for a long time period. Also, volatility in raw material prices can jeopardize the company’s profitability if the prices remain high for a long duration.

• Disruptions in Production Due to External Factors – Factors such as rainfall and maintenance shutdowns pose a major threat to the company’s operations. For instance, in 2005, the company’s new copper smelter at Dahej was shut down for 19 days because of metal leakage problems. In another case, copper production at the company’s facility in Gujarat was disrupted due to heavy rainfall, which led to flooding in the plant.

7.5 Key Financials

7.5.1 Key Products Hindalco’s portfolio comprises of the following products: • Alumina Chemicals including minerals (bauxite, laterite), specialty alumina and hydrates • Primary Aluminum in the form of ingots, billets and wire rods • Aluminum extrusions, alloy wheels, sheet, foil and rolled products • Copper products, such as cathodes, continuous cast copper rods, DAP and NPK complexes, and precious

metals


Exhibit: 7-4 Financials – Hindalco Industries Limited (FY 2005-06)

FINANCIALS USD MILLION GROWTH RATE (%) Net Sales and Operating Revenues 2,555 17.36Net Profit 371 22.04 The company’s aluminum and copper businesses contributed almost equally to its net sales in FY 2005-06. The following two Exhibits provide the break-up of the net sales, registered by the two businesses, by product category.




Exhibit: 7-5 Net Sales by Product Category – Aluminum Business (FY 2005-06)

Net Sales (aluminum business): USD 1,354.15 million

30%

25%13%

13%

11%

8%Rolled Products

Aluminum Ingots and Billets

Hydrate and Alumina (standard and special)

Aluminum Foil, Alloy Wheels and Others

Conductor Redraw Rods

Extrusions

Exhibit: 7-6 Net Sales by Product Category – Copper Business (FY 2005-06)

Net Sales (copper business): USD 1,200.85 million

45%

34%

21%Copper Cathodes

Concast Copper Rods

SAP, DAP & Complexes,Precious Metals and Others


7.6 Global Strategy68 In order to establish a global footprint, Hindalco has taken the route of inorganic growth. Its recent acquisition of Novelis Inc. is in line with this strategy. The acquisition will prove to be beneficial to both the companies in the following manner: • The alumina refining and primary aluminum manufacturing business of Hindalco will complement the value-

added products business of Novelis, which processes around three million tons of aluminum every year. Novelis will benefit from the low-cost aluminum produced by Hindalco. On the other hand, Hindalco would be able to achieve higher capacity utilization rates.

• Hindalco will gain access to the world markets, including the European, and North and South American markets. It is now the world’s leading aluminum rolling company with over 19 percent market share in flat rolled products segment.

• Hindalco’s list of customers now boasts of companies, such as Coca-Cola, Crown Cork & Seal, Ford, General Motors, Kodak, Pactiv, Rexam, Tetra Pak, and Agfa-Gevaert.

Earlier, in 2003, Hindalco acquired two copper mines, Mount Gordon copper mine and Nifty copper mine, in Australia through Aditya Birla Minerals Limited. The company conducts mining and processing operations at both these sites. Concentrate produced at the Nifty site is shipped to the smelting and refining facility of Hindalco at Dahej, India. Hindalco also holds exploration rights in the area surrounding the Nifty and Mt Gordon sites. Although the company has not explored the area much, it is expected to do so in the future.

68 Source: The Financial Express – Hindalco-Novelis: a suitable bonding

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7.7 Global Expansion

Exhibit: 7-7 Key Milestones in Global Expansion History – Hindalco Industries Limited

YEAR DESCRIPTION

2007 • Hindalco signed an agreement with Novelis Inc. for acquiring the latter company for around USD 6 billion.

2006 • Aditya Birla Minerals Ltd. got listed on the Australian Stock Exchange.

2003 • Mount Gordon copper mines in Australia were acquired by Aditya Birla Minerals Ltd.

2003 • Aditya Birla Minerals Ltd. acquired the Nifty Copper Mine in Western Australia.

1992 • Hindalco and Alcan Inc. established a JV, Utkal Alumina International Limited (Utkal), for developing a new bauxite mine and alumina refinery in Orissa, India.


7.8 Key Takeaways • The alumina refining, and aluminum and copper production operations of Hindalco are mainly located in India.

The company is enhancing its production capacities through Greenfield projects and expansion of existing facilities.

• Hindalco is focusing on increasing its presence in the value-added products segment. The acquisition of Novelis Inc. has helped Hindalco establish its operations across the complete value chain in the aluminum business. It has also made Hindalco the world’s leading aluminum rolling company.

• With the acquisition of Novelis, Hindalco has gained access to the world markets, including the European, and North and South American markets.

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8 Tata Motors Limited

8.1 Company Overview Tata Motors, with revenue of around USD 5.5 billion (as of FY 2005-06), is the world’s fifth-largest manufacturer of medium commercial vehicles and heavy commercial vehicles. The company has presence in various countries, including India, Pakistan, the UK, South Korea, and Thailand.

Exhibit: 8-1 Brief Snapshot – Tata Motors Limited

DETAILS DESCRIPTION COMPANY NAME Tata Motors Limited ADDRESS Bombay House, 24 Homi Mody Street, Mumbai, India

POSTAL CODE 400 001 PHONE NUMBER +91-22-66658282 FAX NUMBER NA URL http://www.tatamotors.com MANAGING DIRECTOR Ravi Kant YEAR OF ESTABLISHMENT 1945


Total Assets: USD 4.16 billion EMPLOYEE STRENGTH 22,000

Source: Company Website, Tata Motors – Annual Report 2005-06


Exhibit: 8-2 Shareholding Pattern – Tata Motors Limited (as on March 31, 2006)


NUMBER OF

SHARES HELD PERCENTAGE HOLDING

AS A % OF (A+B)

Promoter's Holding






Exhibit: 8-3 History and Milestones – Tata Motors Limited

YEAR DESCRIPTION 1945 • The company was established as Tata Engineering and Locomotive Co. Ltd. 1959 • R&D center was set up at Jamshedpur. 1966 • Engineering Research Center (ERC) was set up at Pune. 1983 • The company began manufacturing heavy commercial vehicles (HCVs). 1986 • The company began the production of its first indigenously designed light commercial vehicle (LCV).

69 Note: Exchange Rate: INR 44.13063 = 1 USD (for the financial year ended March 31, 2006)

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YEAR DESCRIPTION 1993 • The company signed an agreement with Cummins Engine Co. Inc. for manufacturing high-horsepower

and emission-friendly diesel engines. 1994 • JV agreement was signed with M/s Daimler Benz/Mercedes-Benz for manufacturing Mercedes Benz

passenger cars in India. 1994 • JV agreement was signed with Tata Holset Ltd., U.K., for manufacturing turbochargers to be used on

Cummins engines. 1998 • Two-millionth vehicle was rolled out by the company. 1998 • The company launched Indica, India’s first indigenous passenger car. 2001 • The company exit from the JV with Daimler Chrysler. 2002 • Tata Motors signed a product agreement with MG Rover (UK). 2003 • Three-millionth vehicle was rolled out by the company. 2004 • Tata Motors acquired Daewoo Commercial Vehicle Company. 2004 • Tata Motors was listed on the New York Stock Exchange (NYSE). 2005 • One-millionth passenger car was sold by the company. 2002 • Four-millionth vehicle was rolled out by the company.

Source: 7Company Website

8.4 Overall Growth Strategy Tata Motors was initially established as a steam locomotive manufacturing company. The company ventured into the manufacturing of commercial vehicles in 1954 through a JV with Daimler Benz (Germany), which lasted for 15 years. Later, Tata Motors forayed into the HCV and passenger car segments. The company now runs a series of other businesses, including a construction equipment business, an engineering and design services’ business, and a vehicle financing business. The following Exhibit lists all the associate and subsidiary companies of Tata Motors.

Exhibit: 8-4 Tata Motors’ Associate and Subsidiary Companies

COMPANY NAME NATURE OF OWNERSHIP BUSINESS SEGMENT Tata Technologies Ltd. 84.87 percent of the company’s equity

capital Engineering and design services

Telcon Joint venture (60% of the company’s equity capital)

Construction equipment

HV Axles Ltd. Wholly owned subsidiary Axles for HCVs and MCVs HV Transmissions Ltd. Wholly owned subsidiary Gear boxes for HCVs and MCVs TAL Manufacturing Solutions Ltd.

Wholly owned subsidiary Factory automation solutions and designs, manufacturing of machine tools

Sheba Properties Ltd. Wholly owned subsidiary Investment and finance Concorde Motors (India) Ltd.

Wholly owned subsidiary After sales service of passenger cars manufactured by Tata Motors

Tata Daewoo Commercial Vehicle Company Ltd.

Wholly owned subsidiary Manufacturing of heavy vehicles

Tata Motors European Technical Centre plc Wholly owned subsidiary

Design engineering and product development

Tata Cummins Limited Joint venture Manufacturing of diesel engines Tata Holset Joint venture Manufacturing of Holset turbochargers Tata Precision Industries

Joint venture Manufacturing of precision machining and plastic molding

TML Financial Services Wholly owned subsidiary Vehicle financing Nita Company - Assembly of Tata vehicles

Source: Tata Group, Tata Motors

Tata Motors possesses low cost manufacturing capability and has three manufacturing facilities in India – one each at Jamshedpur, Pune, and Lucknow. The manufacturing standards at the Jamshedpur facility are world-class, which is evident from the fact that the foundry and the forge at the plant have been awarded QS 9000 and

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ISO 9002 certification, respectively, by the Bureau Veritas Certification (formerly Bureau Veritas Quality International – BVQI). The plant also boasts of a semi-automated forging line with presses from Kurimoto (Japan). Tata Motors is very active on the R&D front; it runs two R&D centers at Jamshedpur and Pune in India. The Jamshedpur center focuses on upgrading components and aggregates. The R&D capabilities of Tata Motors include a facility for testing engine performance and an emissions testing laboratory, four poster servo-hydraulic test facility, tracks for testing vehicle durability, crash test facility, and a CAD center for designing and styling. Thanks to its vision and initiatives, the company has been able to launch new products at regular intervals. In 2005, for instance, it launched the Tata Ace mini truck in India. Over the years, Tata Motors has focused on developing indigenous products at affordable prices for the Indian market, be it the first LCV (Tata 407) – which was indigenously designed, the Tata Sierra – which was the first indigenous passenger car, or the Indica – which was India’s first completely indigenous passenger car. In particular, the launch of Indica – positioned as a “value for money” car – was a momentous feat achieved by the company. The car won a number of awards in India as well as abroad, including the Best Family Car award by Auto India (a trade journal). A part of the car’s success can also be attributed to the fact that at the time of its launch, it was the only small car with a diesel variant, thus offering savings on fuel costs to the owner. Tata Motors also adopted a different advertising strategy for promoting Indica – it chose newspaper ads over television ads. The ads, through eye-catching punch lines and covering one full newspaper page, turned out to be highly successful in capturing the readers’ imagination. As proof of this, 100,000 units of Indica were sold in less than 18 months from the launch date70. In continuation of its strategy of rolling out budget cars, Tata Motors is currently working on developing an INR 100,000 car that is expected to be ready by 2008. The company is aggressively targeting people falling under the Indian middle income class, who currently own a two-wheeler. If successful in developing this car within the estimated costs, Tata Motors might be able to claim a significant stake in the transitional market comprising those who seek to upgrade from two-wheelers to four wheelers71. Another important aspect of Tata Motors’ strategy has been its continued focus on building businesses that complement its core automobile business. For instance, HV Axles Ltd. – a manufacturer of axles for HCVs and MCVs, HV Transmissions Ltd. – a manufacturer of gear boxes for HCVs and MCVs, and Concorde Motors (India) Ltd. – a provider of after sales service of Tata Motors’ cars with a fully integrated dealership network for Tata cars, all complement the primary business of Tata Motors.

8.4.2 SWOT Analysis

8.4.2.1 Strengths

• Business Diversity – Tata Motors has established its presence in various segments, ranging from cars and utility vehicles to light commercial vehicles (LCV), medium commercial vehicles (MCV), and heavy commercial vehicles (HCV). The company has also made business capital by providing engineering and design and product lifecycle management services to manufacturers across industries (such as automotive and aerospace (Tata Technologies Ltd.) and construction equipment (Telcon), and gear boxes for MCV and HCV applications (HV Transmissions Ltd.).

• Leader In Commercial Vehicles – Tata Motors is the leader in each of the commercial vehicles segments – light, medium and heavy – in India, with more than 130 models in its portfolio. It also holds the second position in the passenger vehicles market along with the leadership position in the diesel-powered car segment72.


• Low Car Penetration in India – A combination of India-specific factors, including a low car penetration of approximately seven cars per 1,000 persons, increasing disposable incomes, improving infrastructure (roads and highways), and the availability of easy financing options has helped create a buoyant image of the passenger car market in the country. The middle income class has also grown significantly as a percentage of

70 Source: Superbrands 71 Source: Tata Group 72 Source: Tata Group




India’s total population (from 1996 to 2002) and is likely to witness further increase over the subsequent years73.

• Prospective Growth in the Non-vehicle Businesses – Tata Motors can look for dividends from its non-vehicle business lines, for instance, the construction equipment industry. This industry is growing at a CAGR of 25-30 percent in India74. Telcon, the construction equipment business of the company, already has more than 50 percent market share in the excavator segment. The company should now attempt to grow its market share in other segments as well.

8.4.2.3 Weaknesses

• Dependence on the Indian Market – Currently, international business accounts for just 16 percent of the company’s revenues. This clearly indicates the company’s dependence on the Indian market. Tata Motors needs to explore overseas markets to a greater extent so as to reduce its almost exclusive dependence on the Indian market and de-risk its business from associated threats.

8.4.2.4 Threats

• Competition in the Diesel Car Segment to Increase – Maruti Udyog Limited (MUL), the leader in the passenger car segment in India with a market share of about 54 percent, has marked its entry into the diesel car segment in India with the launch of ‘Swift Diesel’75. Through a JV with Suzuki Motor Corporation (SMC), MUL has set up a diesel engine manufacturing facility at Manesar in India with an initial production capacity of 100,000 diesel engines. The technology for manufacturing these engines has been licensed from Fiat SpA and Adam Opel GmbH. The company is planning to ramp up the capacity at this facility to produce up to 300,000 engines by 2010. This is clear proof of Maruti’s aggressive expansion plans in the diesel car segment. With the launch of a diesel-run compact car, Hyundai is also expected to join the coterie of competitors in the segment hitherto led by Indica76.


8.5.1 Key Products77 Tata Motors has products in the following segments: • Passenger Cars – Indica, Indigo, and Fiat cars • Utility Vehicles – Safari Dicor and Sumo • Trucks – Small and intermediate commercial vehicles, LCVs, MCVs, HCVs, Tata Novus, TL 4x4 • Buses – Starbus and Globus • Defense Vehicles


Exhibit: 8-5 Financials – Tata Motors Limited78

FINANCIALS (FY 2005-06) USD MILLION GROWTH RATE (%) Net Revenue 5,374.50 21.40Net Profit* 387.25 25.90

Source: Tata Motors – Annual Report 2005-06

73 Source: Tata Motors – Investor Presentation, 2007 74 Source: The Hindu Business Line: Telcon aims to be a billion-dollar company by 2010 75 Source: The Hindu: Maruti launches diesel Swift 76 Source: FinancialNirvana.com 77 Source: Tata Motors 78 Note: Exchange Rate: INR 44.13063 = 1 USD (for the financial year ended March 31, 2006) * Note: Net Profit = Profit After Tax (PAT) before adjustment of miscellaneous expenditure in subsidiaries, share of minority interest, and

share of profit in respect of investments in associate companies.

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This Exhibit presents the revenue share as per the classification of the company’s business.

Exhibit: 8-6 Revenue as per Business Classification (FY 2005-06)

75%

16%

9%

Domestic Vehicle Business International Business Non Vehicle Business

Source: Investor Presentation – November 2006

8.6 Global Strategy In addition to its R&D centers in India, Tata Motors manages R&D centers in South Korea, Spain, and the UK to cater to the product development requirements of its overseas markets. It exports vehicles to various foreign regions, including Middle East, Africa, South America, and Australia. The company also maintains assembly plants in Bangladesh and Malaysia. Over the years, Tata Motors has left its footprints in various markets through alliances and acquisitions. For instance, it acquired the commercial vehicle business of Daewoo – Daewoo Commercial Vehicle Company Limited (DWCV) – in 2004 as part of its strategy to expand its presence in the Korean market. The Tata Daewoo Commercial Vehicle Company Ltd. (TDCV) has since entered the MCV segment in the region. Tata Motors also forged a recent agreement with Afzal Motors (Pakistan) for exporting HCV kits to Pakistan and assembling trucks there. TDCV plans to enter the LCV segment in 2008. The company is also exporting HCVs globally and HCV kits and MCVs to India. Additionally, it has also developed an LNG-powered truck in collaboration with Korean Gas. In another development, the alliance with the MG Rover Group has helped Tata Motors to quickly grow in the UK market by selling Indica through MG Rover’s distribution network. Tata Motors is currently in the process of expanding its presence in select overseas markets in the commercial and passenger vehicles segments. The share of overseas sales of vehicles in the overall vehicle sales recorded by the company has increased from 7.6 percent in FY 2004-05 to 11.1 percent in FY 2005-06. It entered the passenger vehicle market in Turkey in 2005 with the launch of Indica79. Further, the company recently acquired a manufacturing facility from Nissan Motor (Japan) in South Africa, which will not only supply the South African market with the Indica and Indigo models but would also act as a launch-pad to the European market. Tata Motors might also leverage the FTA between EU and South Africa to achieve this end80. In addition to these, the company is exploring entry opportunities in China and CIS countries such as Ukraine. Recently, it set up a JV with Thonburi in Thailand for manufacturing and assembling pick-up trucks for the Thai market, which is the second-largest market for pick-up trucks in the world. It has also signed a MoU with Iveco for assessing areas of cooperation in commercial vehicles. In yet another development, Tata Motors and Fiat signed an agreement covering the South and Central American markets and select European markets. Under this agreement, Fiat would manufacture pick-up vehicles in Argentina under a license from Tata.

79 Source: Tata Motors (Press Release) 80 Source: The Hindu Business Line

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Exhibit: 8-7 Key Milestones Global Expansion History – Tata Motors Limited

YEAR DESCRIPTION

2005 • Tata Daewoo Commercial Vehicle Company Ltd. signed an agreement with Afzal Motors Pvt. Limited

(Pakistan), which was aimed at technical co-operation between the two companies. The agreement will help TDCV assemble its vehicles in Pakistan by utilizing a newly established facility of Afzal Motors.

2005 • Tata Motors acquired a 21-percent stake in Hispano Carrocera SA, thereby gaining technology and brand rights.

2004 • Tata Motors acquired Daewoo Commercial Vehicle Company Limited. This acquisition helped Tata

Motors gain access to DWCV’s manufacturing facilities, including a modern plant in Gunsan with a production capacity of 20,000 medium and heavy vehicles.

2003 • Tata Engineering signed a distribution agreement, covering the UK and Irish markets, with Phoenix Venture Holdings Ltd. to distribute Safari off-roader and Loadbeta pick-up trucks.

2002 • Tata Engineering signed an agreement with the MG Rover Group. As per the agreement, Tata

Engineering would manufacture the Indica with certain Rover-specific modifications at its Pune facility. The car would be marketed in the UK and in continental Europe through Rover's dealer network.


8.8 Key Takeaways • Tata Motors has built a number of businesses that complement its core automobile business. • The company is very active in the area of R&D; it has two R&D centers in India in addition to the R&D centers

in South Korea, Spain, and the UK. • Over the years, Tata Motors has bolstered its presence globally through technical collaborations, distribution

agreements, joint ventures, and acquisitions. It is expected that the company will continue to focus on enhancing its presence globally.

• Europe and countries, such as South Korea and South Africa, are the prime international markets for the company. The company is also exploring entry opportunities in China and CIS countries such as Ukraine.

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9 Mahindra & Mahindra Limited

9.1 Company Overview Mahindra & Mahindra Limited (M&M) is the flagship company of the Mahindra Group. M&M is a manufacturer and distributor of various farm equipments and multi-utility vehicles, for both the agricultural and the consumer markets.

Exhibit: 9-1 Brief Snapshot – Mahindra & Mahindra Limited

DETAILS DESCRIPTION COMPANY NAME Mahindra & Mahindra Limited PHYSICAL ADDRESS Mahindra Towers, G.M. Bhosale Marg, Worli, Mumbai – 400 018 SWITCHBOARD +91-22-24905407 FAX NUMBER +91-22-24961649 WEBSITE http://www.mahindra.com/index.asp CHAIRMAN Keshub Mahindra YEAR OF ESTABLISHMENT 1945

Shareholders’ Fund: USD 843.32 million FINANCIAL ASSETS AND CAPITAL81 Total Assets: USD 3.07 billion

EMPLOYEE STRENGTH82 34,000 (2007) Source: Annual Report – 2005-06, Company Website


Exhibit: 9-2 Shareholding Pattern – Mahindra & Mahindra Limited (as on March 31, 2006)



Promoter's Holding

Indian Promoters (A)(1) 205,148 0.09Persons Acting in Concert (A)(2) 54,733,578 22.72Sub Total of Promoter’s Holding (A) = (A)(1) + (A)(2) 54,938,726 22.81Non Promoter's Holding




81 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006) 82 Note: The number of employees is for the Mahindra & Mahindra Group of Companies.

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Exhibit: 9-3 History and Milestones – Mahindra & Mahindra Limited

YEAR DESCRIPTION 1945 • Mahindra & Mohammed was established. 1948 • Mahindra & Mohammed was renamed Mahindra & Mahindra Limited (M&M). 1950 • M&M and Mitsubishi Corporation forged a business association. 1955 • M&M became a publicly listed company. 1969 • M&M started exporting utility vehicles and spare parts. 1983 • M&M became a market leader in the Indian tractor market. 2001 • M&M and Renault entered into an agreement for the manufacturing of petrol engines. 2003 • M&M became the first tractor company in the world to receive the Deming Prize for excellence in quality. 2004 • M&M became the first Indian company to register the sale of one million tractors. 2005 • Mahindra Renault Limited was established. 2007 • M&M ranked 22nd in the Business India’s annual survey of top Indian companies.


9.4 Overall Growth Strategy The year 1945 saw the establishment of Mahindra & Mohammad as a franchise for assembling jeeps for Willys Overland Corporation, USA. After India’s independence in 1947, the company changed its name to Mahindra & Mahindra. The following decades represented an era of growth and consolidation for the company, which now has a total revenue of a more than USD 3 billion. M&M primarily operates in the automotive industry83.

9.4.1 Overview84 The Indian automotive market is amongst the fastest growing automotive markets in the world. In the year 2004, it grew by 30 percent as against an average growth of only 6 percent (by volume) globally. Additionally, India has the largest market for three-wheelers and tractors (by volume) in the world. M&M, with its expertise in the domestic automotive sector, has consistently performed well in most sectors it operates in. In 2005-06, the company’s market shares in the multi-utility vehicle segment and the light commercial vehicle segment were 47.6 percent and 16.3 percent, respectively. During this period, the company also maintained a leadership position in the Indian tractor industry with a market share of 29.7 percent.

9.4.2 Key Indian Alliances One of the major reasons for the success of M&M has been its tradition of strategic association with major foreign companies. M&M has constantly aligned itself with foreign collaborators through technological and manufacturing agreements, as exemplified by the franchising agreement with Willys Overland Corporation of the US in 1945 or the present day joint venture with Renault SA, France. These collaborations have helped the company enhance its competency as well as its market reputation. The most recent example has been the April 2007 launch of the Renault Logan by the Mahindra Renault Limited joint venture. With this launch M&M has forayed into the Indian C-segment category. The venture is also poised to launch a small car in the next one year. Some of the major foreign alliances of M&M for the Indian markets are listed in the following Exhibit.

Exhibit: 9-4 Foreign Alliances in India – Mahindra & Mahindra Limited

YEAR ALLIANCES 1945 • M&M became a franchisee for assembling jeeps of Willys Overland Corporation, USA. 1948 • M&M began trading in steel in association with suppliers from the UK. 1954 • M&M and Willys Overland Corporation entered into a collaboration to assemble jeep-type vehicles.

83 Source: Company Website 84 Source: Annual Report – 2005-06

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YEAR ALLIANCES 1956 • M&M and Dr. Beck & Company, Germany, entered into a joint venture to form Dr. Beck & Co (India). 1957 • M&M and Rubery Owen & Company Limited, UK, entered into a joint venture to form Mahindra Owen Limited. 1960 • M&M and GKN Group, UK, entered into a joint venture to form Mahindra Sintered Products Limited. 1962 • M&M and Ugine Kuhlmann, France, entered into a joint venture to form Mahindra Ugine Steel Company Limited. 1963 • M&M and International Harvester Company, USA, entered into a joint venture to form International Tractor

Company of India. 1965 • M&M and Sperry Rand Corporation, USA, entered into a joint venture to form Vickers Sperry of India Limited. 1979 • M&M obtained a license from Automobiles Peugeot, France, for manufacturing diesel engines. 1986 • M&M and British Telecommunications Plc, UK, entered into a joint venture to form Mahindra British Telecom. 1993 • M&M, in association with the Japanese companies, Mitsubishi Corporation and Nissho Iwai Corporation,

established the Mahindra Steel Service Centre Limited.

• M&M and Acres International Limited, Canada, entered into a joint venture to form Mahindra Acres Consulting Engineers Limited.

1994 • M&M and The East Asiatic Company Limited A/S, Denmark, entered into a collaboration to form EAC Graphics (India) Limited.

1995 • M&M and Mitsubishi Corporation, Japan, entered into an agreement for the manufacturing of Mitsubishi L300. 1996 • M&M and Ford Motor Company, USA, entered into a joint venture to form Mahindra Ford India Limited. 2001 • M&M and Renault SA, France, entered into an agreement for manufacturing petrol engines. 2003 • M&M and Lockheed Martin Information Systems, UK, entered into an agreement for manufacturing defense

products. 2005 • M&M and Renault SA, France, entered into a joint venture to form Mahindra Renault Limited.

• M&M and International Truck and Engine Corporation, USA, entered into a joint venture to form Mahindra International Limited.

2007 • M&M, Renault SA, and Nissan Motor Co., Ltd, Japan, entered into a joint venture to set up a car manufacturing plant in Chennai, India.



9.4.3.1 Strengths

• Dominant Market Share – M&M enjoys a dominant position in the Indian market. With rising inflation and interest rates characterizing the Indian market, small players in the automotive industry would find it difficult to grow and consolidate. With this serving as the context, it can be safely asserted that M&M’s strong position and market share is unlikely to be challenged in the near future.

• Better Product Portfolio – M&M boasts of a stronger product portfolio that its competitors. The 0.75-ton carrying capacity in tractors has not been matched by too many of its rivals in the farm vehicles segment. This has helped the company grow faster than its nearest rivals in this segment.

• Key Foreign Collaborations – Over the past few years, M&M has forged several collaborations with global players, which has helped the company expand its portfolio to include cars in the multi-utility segment. M&M is now the market leader in the Indian multi-utility vehicles segment, with cars such as Scorpio and Bolero. While rolling out the Scorpio, M&M used the services of external suppliers – domestic as well as international – for all the major systems, stepping in only to provide design and performance specifications and determine the costs. Everything from designing and engineering to testing, validation, and materials selection, was conducted by M&M’s suppliers. M&M can replicate the success of the Scorpio and produce better cars with the aid of foreign players.

9.4.3.2 Weaknesses

• Business Integration Risks – M&M, Renault, and Nissan entered into a joint venture in 2007 for setting up a car-manufacturing facility in Chennai, India. This can potentially expose M&M to the integration issues associated with such alliances.


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• Access to Better Technologies – M&M enjoys a large share of the Indian market, aided by its low-cost manufacturing base. The company can barter this in exchange for better technologies and product capabilities from its foreign collaborators.

9.4.3.4 Threats

• High Dependence on Monsoons – The tractor division is a key business segment for M&M. The performance of this segment is highly dependent upon rains, and a poor or a delayed monsoon can adversely affect the company’s revenues from this segment.

9.5 Service Lines and Key Financials86

9.5.1 Key Business Segments87 M&M operates in the following key business segments – • Automotive Segment – This segment is responsible for the manufacturing and marketing of utility vehicles

and light commercial vehicles, including three-wheelers. • Farm Equipment Segment – This segment primarily produces Mahindra brand tractors, which are among the

top five tractor brands in the world. It has a capacity to produce 150,000 tractors a year and maintains manufacturing locations in India, USA, China, and Australia.

• Financial Services – The financial services division of M&M is one of the largest non-banking finance establishments of India with an asset base of about USD 1.13 billion. It maintains over 350 branches spread across the nation, largely covering rural and semi-urban locations.

• IT Services – The IT segment of the company, launched in 1986, is currently the eighth-largest software exporter of the country, providing solutions to telecommunications and other service industries globally.

• Other Segments – Apart from the abovementioned segments, the company also runs operations in the following segments: o Infrastructure development sector o Specialty businesses o Systech sector


Exhibit: 9-5 Financials – Mahindra Group of Companies (FY 2005-06)

FINANCIALS USD BILLION GROWTH RATE (%) Total Revenue 31.38 30.53Net Profit 3.18 93.90


86 Note: The service lines and key financials included in this section are reflective of the Mahindra & Mahindra Group of Companies. M&M is a subsidiary of the Mahindra & Mahindra Group of Companies. 87 Source: Annual Report – 2005-06, Company Website 88 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006)





9.5.2.2 Segment Information

Exhibit: 9-6 Revenue by Business Segment – Mahindra Group of Companies (FY 2005-06)

FINANCIALS AUTOMOTIVE SEGMENT

FARM EQUIPMENT SEGMENT

FINANCIAL SERVICES IT SERVICES OTHER

SEGMENTS

Total Revenue (USD billion) 14.62 7.85 3.15 1.32 4.45Growth Rate (%) 16.24 33.90 35.10 45.84 87.78


Exhibit: 9-7 Revenue by Geography – Mahindra Group of Companies (FY 2005-06)

FINANCIALS DOMESTIC OVERSEAS Total Revenue (USD billion) 25.49 5.89Growth Rate (%) 28.05 42.54


9.6 Global Strategy Over the past few years, M&M has been expanding its operations internationally. The company has entered some key markets, such as Europe and South America, with its tractors and multi-utility vehicles.

9.6.1 Automobiles M&M has been focusing its efforts on identifying niche global markets for its automotive products. The company is especially interested in emerging markets, which have sales, distribution and marketing conditions similar to that in India. In 2004, M&M introduced its vehicles in Europe, the Middle East, South America, South-East Asia, and Africa. The company has adopted a customized business model for each country89. The European operations of the company are spearheaded by Mahindra Europe Srl (MESRL), an Italy-based, 80-percent-owned subsidiary. Set up in 2005, MESRL imports vehicles from India and distributes them in Europe. The company’s portfolio includes Mahindra Scorpio (sold as Mahindra Goa), Mahindra Bolero, and Mahindra Classic (sold as Mahindra Thar). These vehicles are already being sold or are slated for introduction in Italy, France, Spain, and the Balkan region – including Belgium, Denmark, Germany, and Finland90. In 2004, M&M set up an assembly plant in Montevideo, Uruguay, to cater to the South American markets. The Bolero (sold as Mahindra Cimmaron in Uruguay) was chosen as the vehicle to carry the President of Uruguay in his inauguration parade in 200591. In 2005, M&M successfully launched the Mahindra Scorpio (petrol version) in the Middle East and Malaysia. The diesel version of the car was introduced in Malaysia in early 2006. The company also paved the way for its entry in the South African market by establishing Mahindra & Mahindra South Africa (Proprietary) Limited, its majority owned subsidiary, set up in 200492.

9.6.2 Farm Equipments93 The US, China, and India are the top three tractor markets in the world. The farm equipments segment of M&M has identified these three markets as the bulwark of its international expansion plans. M&M is the market leader in the Indian tractor industry. The company also has a significant presence in the US through Mahindra USA Incorporated, its wholly owned subsidiary which was established in 1994. Mahindra USA Incorporated has been a high performer in the US since its inception. In 2005-06, when the US tractor industry witnessed a downslide, with the industry size shrinking by 2.5 percent, Mahindra USA’s sales grew by 24 percent.

89 Source: Annual Report – 2005-06 90 Source: Annual Report – 2005-06, Company Website, Hindu Business Line 91 Source: Annual Report – 2005-06, Fortune 92 Source: Annual Report – 2005-06, Company Press Release 93 Source: Annual Report – 2005-06, Hindu Business Line






The company is further planning to introduce a series of models in the US market, which is expected to open up new customer segments. In 2005, M&M established Mahindra (China) Tractor Company Limited (MCTCL) in China. MCTCL is a joint venture between, Mahindra Overseas Investment Company (Mauritius) Limited (80 percent) – a wholly owned subsidiary of M&M, and Jiangling Tractor Company – a subsidiary of Jiangling Motor Company Group, China (20 percent). The joint venture has a capacity to produce 12,000 tractors annually in the 18-33 HP (horse power) range. Apart from these countries, the Mahindra brand of tractors is also sold in countries such as Australia, Nepal, Bangladesh, Sri Lanka, Chad, Mali, Nigeria, and South Africa. In 2005, the company entered the East European market with the launch of its 39-50 HP range of tractors in Serbia.


Exhibit: 9-8 Key Milestones Global Expansion History – Mahindra & Mahindra Limited

YEAR DESCRIPTION 1969 • M&M started the export of utility vehicles and spare parts to the international markets.

1984 • M&M established Mahindra Hellenic Auto Industries SA in Greece to assemble and market utility vehicles in Europe.

1994 • M&M established Mahindra USA Incorporated for the distribution of tractors in the US.

2004 • M&M launched the Mahindra World Tractor in the overseas market.

• M&M launched Bolero and Scorpio in Latin American, the Middle East, and the South African markets.

2005 • M&M established Mahindra (China) Tractor Company as a joint venture with Jiangling Tractor Company, a subsidiary of Jiangling Motor Company Group, China.

2006

• M&M acquired Stokes Group, the largest automotive forgings company in the UK.

• M&M launched Scorpio Pik-Up globally; the launch was held in South Africa.

• M&M launched Bolero and Scorpio in Kenya.

• M&M acquired 67.9 percent stake in Jeco Holding AG, Germany.

• M&M and Global Vehicles USA Inc. entered into an agreement to import and distribute Mahindra vehicles, parts, and accessories in the US.

2007 • The Mauritius-based Mahindra Forgings Global Limited acquired 90.5 percent stake in Schoneweiss & Co. GmbH, Germany.


9.8 Key Takeaways • The company enjoys a position of leadership in the domestic market in most of the sectors where it is

operational. This can be attributed to the numerous foreign alliances that have paid off in the form of increased credibility and market reputation.

• The company has gone global with the introduction of its multi-utility vehicles in key European, Asian, and South American markets. Since 2004, M&M has successfully launched the Scorpio, Bolero and Classic range of vehicles in these markets.

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10 Larsen & Toubro Limited

10.1 Company Overview Larsen & Toubro Limited was set up by two Danish engineers in 1938. It started its operations by marketing Danish dairy equipment from a small office in Bombay. Since then, the company has grown to become one of the largest engineering and construction companies in India. L&T’s geographical reach extends beyond India to more than 50 countries94. The company’s major competitors include Walter Industries, Inc., Bellway Plc, and Hindalco Industries Limited.

Exhibit: 10-1 Brief Snapshot – Larsen & Toubro Limited

DETAILS DESCRIPTION COMPANY NAME Larsen & Toubro Limited PHYSICAL ADDRESS L&T House, Ballard Estate, Mumbai – 400 001 SWITCHBOARD +91-22-67525656 FAX NUMBER +91-22-67525858 WEBSITE http://www.larsentoubro.com/ CHAIRMAN AND MANAGING DIRECTOR A. M. Naik YEAR OF ESTABLISHMENT 1938


Total Asset: USD 3.73 billion EMPLOYEE STRENGTH96 20,000 (2007)



Exhibit: 10-2 Shareholding Pattern – Larsen & Toubro Limited (as on March 31, 2006)




Promoter's Holding

Indian Promoters (A)(1) – 0.00Sub Total of Promoter’s Holding (A) = (A)(1) – 0.00Non Promoter's Holding




94 Source: Company Website, Annual Report – 2005-06 95 Source: Financial Statement – 2005-06, Exchange Rate: INR 44.13063 = 1 USD, Year Ended – March 31, 2006 96 Source: Rigzone

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Exhibit: 10-3 History and Milestones – Larsen & Toubro Limited

YEAR DESCRIPTION 1938 • Henning Holck-Larsen and Soren K. Toubro formed Larsen & Toubro Limited (L&T).

1944 • The Engineering Construction Corporation (ECC) was established.

1945 • L&T took up the dealership of Caterpillar Tractor Company of Peoria, Illinois, for earthmoving equipments.

1950 • L&T became a public limited company.

1957 • L&T received its first large engineering and construction order from the Rourkela Steel Plant.

Mid 1960’s • L&T entered the nuclear facilities’ construction business with the completion of the Atomic Energy Establishment and the Bhabha Atomic Research Centre.

1981-82 • L&T entered the shipping business with a fleet of five bulk carriers.

1984 • ECC was merged with L&T, enabling the new company to emerge as a major integrated player.

2000 • L&T Trade.com, the first Indian Website for global investing, was launched. Source: Company Website

10.4 Overall Growth Strategy Larsen & Toubro Limited (L&T) is the largest engineering and construction company in India. It is also one of the largest private players in the Indian economy with a revenue of USD 3.3 billion 97 . The company’s global operations are on a rise, with export earnings touching almost 18 percent of the company’s total revenue98.

10.4.1 Key Projects and Alliances

10.4.1.1 Key Projects

During its long history, L&T has successfully completed various complex projects in India. Some of these are listed below. • World's largest coal gasifier made in India and exported to China • World’s largest continuous catalyst regeneration reactor • World’s biggest fluid catalytic cracking regenerator • World’s longest product splitter • Asia’s highest viaduct built for the Konkan Railways • India’s first indigenous hydrocracker reactor

10.4.1.2 Key Alliances99

Over the years, L&T has forged numerous alliances with foreign partners to serve the Indian market. Some of these are listed below. • L&T-Chiyoda Limited – It is a joint venture between L&T (50 percent) and Chiyoda Corporation, Japan (50

percent). It offers complete engineering solutions to various industries, such as petroleum, oil and gas, and fertilizer.

• Audco India Limited – It is a joint venture between L&T (50 percent) and Flowserve Corporation, USA (50 percent) and is the leading manufacturer of industrial valves in the country.

• EWAC Alloys Limited – A joint venture between L&T and Messer Eutectic Castolin Group, Germany, EWAC Alloys runs manufacturing facilities at Mumbai (Maharashtra) and Ankleshwar (Gujarat) and an R&D center at Powai (Maharashtra).

• L&T-Komatsu Limited – It is a joint venture between L&T (50 percent) and Komatsu Asia Pacific Pte Limited, Singapore, a wholly-owned subsidiary of Komatsu Limited, Japan. It has a manufacturing facility at Bangalore.

• L&T-Ramboll Consulting Engineers Limited – It is a joint venture between L&T (50 percent), Ramboll, Hannemann & Hojlund, Denmark (26 percent), and the Industrialization Fund for Developing Countries,

97 Source: Annual Report – 2005-06, Exchange Rate: INR 44.13063 = 1 USD, Year Ended – March 31, 2006 98 Source: IBEF 99 Source: Company Website





Denmark (24 percent) and is based in Chennai. The company offers engineering and consultancy services for infrastructure projects.


10.4.2.1 Strengths

• Strong Brand Name – L&T has created an enduring brand value in the market. It has also captured a large market share in all industry segments that are of interest to it, coupled with superior resources and capabilities as compared to the other players in the industry. This allows L&T to charge a premium for its services.

• Superior Performance on Complex Projects – L&T has successfully completed various projects involving high levels of complexity. Some of these include building India’s first indigenous hydrocracker reactor and constructing Asia’s highest viaduct for the Konkan Railways. This has helped the company develop competencies to handle projects of varying complexity.

10.4.2.2 Weaknesses

• Delays and Cost Overruns in International Operations – The operating margin of L&T’s engineering and construction division decreased from 8.1 percent in 2004 to 7.2 percent in 2005 due to significant cost overruns in its international projects. Additionally, in 2004, the company suffered serious setbacks due to delays in one of its projects in the Middle East, resulting in a loss of USD 27 million. L&T stands the risk of further brand and equity erosion if its projects continue to run into such delays or overruns.

• Over Dependence on the Indian Market – Approximately 82 percent of L&T’s revenue come from its domestic operations. Thus, an economic downturn or fluctuations in the domestic demand could adversely affect the company’s revenues.


• Increasing Investments in the Infrastructure Sector – Owing to rising oil prices, investments in the infrastructure and basic utilities sectors are growing in the Middle East. L&T, with its past expertise in this region, is in a strong position to leverage from the boom.

10.4.2.4 Threats

• Adverse Government Regulations – Stringent domestic regulations governing foreign exchange can adversely affect L&T’s standing in the international markets as opposed to players from developed economies with less restrictive regulatory frameworks.

• Political Volatility in the Middle East – The Middle East is one of the key geographies for L&T’s international plans. However, growing political instability and a pervading atmosphere of war could pose a threat to the company’s revenues from this region.

10.5 Service Lines and Key Financials

10.5.1 Key Services101 The major business segments that the company operates in are as follows. • Engineering and Construction – This segment includes engineering and construction projects for core

sectors/infrastructure industries. L&T provides civil, mechanical, electrical, and instrumentation engineering solutions to players in this segment.

• Electrical and Electronics – This segment includes the manufacture and sale of low-voltage switchgear and control gear, custom-built switchboards, petroleum dispensing pumps and systems, electronic energy meters, control and automation products, and medical equipment.

• Others – This segment includes ready mix concrete, property development activities, marketing of welding and industrial products and construction equipments, and the glass packaging business.

100 Source: Evalueserve Analysis 101 Source: Annual Report – 2005-06





Exhibit: 10-4 Financials – Larsen & Toubro Limited

FINANCIALS (FY 2005-06) USD BILLION GROWTH RATE (%) Net Sales 3.32 12.28Net Profit 0.21 -4.21



Exhibit: 10-5 Business Segment Information – Larsen & Toubro Limited

FINANCIALS (FY 2005-06) ENGINEERING AND CONSTRUCTION

ELECTRICAL AND ELECTRONICS OTHERS

Total Revenue (USD billion) 3.03 0.37 0.58Growth Rate (%) 13.46 27.46 28.45


Exhibit: 10-6 Geographic Segment Information – Larsen & Toubro Limited

FINANCIALS (FY 2005-06) DOMESTIC OVERSEAS Total Revenue (USD billion) 2.90 0.90Growth (%) 12.48 20.12


10.6 Global Strategy103 L&T is actively considering exploring international markets as a long-term growth strategy. The company has evaluated and short-listed key geographies to focus its international operations. The selection of geographies has been based on the core strengths of the company, its operational culture, and other logistics issues. L&T has identified the Middle East and China as two strategic geographies for its international expansion plans. Africa and the South-East Asia are the other geographies of interest to the company.

10.6.1 Expansion Focus in the Middle East The evolving economies of the countries in the Middle East offer new opportunities for companies such as L&T. In order to capitalize on this, the company has entered into strategic agreements and joint ventures to enhance its capabilities in the region. A few examples of such ventures are listed below. • Larsen & Toubro (Oman) LLC – It is a joint venture between L&T (65 percent) and The Muscat Trading Co.

LLC (35 percent). It operates in the area of construction with specialization in turnkey projects. The company began operations in 1994 and is now accredited with the ISO 9002 certification104.

• Larsen & Toubro (Saudi Arabia) LLC – It is a joint venture between L&T (49 percent) and Engineer Khaled Hizam Al-Nabet, a Saudi national (51 percent). Incorporated in 1999, it offers turnkey solutions for the construction industry in various specialized fields, such as oil and gas, petrochemicals, and telecommunications105.

• Larsen & Toubro ATCO (Saudia) LLC – It is a joint venture between L&T and A Turki Contracting & Trading Corporation (ATCO) of Saudi Arabia. The venture, established this year, seeks to undertake construction activities with a focus on the hydrocarbon and power sectors106.

• L&T Modular Fabrication Yard LLC – It is a joint venture between L&T and The Zubair Corporation of Oman and would build equipment for offshore applications and the hydrocarbon sector107.

102 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006) 103 Source: Annual Report – 2005-06 104 Source: Company Website 105 Source: Company Website 106 Source: Domain-B 107 Source: Domain-B, Annual Report – 2005-06

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10.6.2 Expansion Focus in China Over the years, L&T has increased its association with the Chinese industry to establish a strong foothold in the country. It has regularly supplied coal gasifiers for fertilizer, methanol, and coal liquefaction projects in China. The company is also in the process of supplying reactors for major petrochemical projects in the country. L&T is poised to gain further business in China owing to the large number of refineries and downstream projects being planned in the country. This would give the company fresh opportunities to supply high-tech equipment for these projects. L&T has set up a manufacturing facility in Wuxi New District in the Jiangsu Province of China for the production of high-end switchgear. The company currently maintains offices in Shanghai and Beijing. Its strong manufacturing base in China also opens up the possibility of setting up a sourcing office in China.

10.6.3 Key International Projects The following Exhibit lists some of the successfully implemented international projects by L&T.

Exhibit: 10-7 Successful International Projects – Larsen & Toubro Limited

COUNTRY LOCATION CLIENT United Arab Emirates Ruwais Refinery, Abu Dhabi Abu Dhabi Oil Refining Company (Takreer)

Bu Hasa, Abu Dhabi Abu Dhabi Gas Industries Limited (GASCO) Bunduq Field, Abu Dhabi Bunduq Company Ltd. Dubai Binani Cement L.L.C.

United Arab Emirates

Dubai Jabel Ali Cement L.L.C. Salalah Dhofar Power Co. S.A.O.C. Sur Oman India Fertilizer Company S.A.O.C. (OMIFCO) Rusayl Oman Cement Company

Oman

Sohar Oman Refinery Company Al Jubail Saudi Formaldehyde Chemical Co. Ltd.

Saudi Arabia Yanbu Safra Company Limited Shuaiba Refinery Kuwait National Petroleum Corporation Mina Abdulla Refinery Kuwait National Petroleum Corporation Kuwait – Kuwait Oil Company Offshore Maydam Mahzam, Bul Hanine Fields Qatar Petroleum

Qatar Umm Said Qatar Fertilizer Company

Srilanka Colombo AES Kelanitissa (Pvt.) Limited Tanzania Songas Limited Thailand Thai Olefins Co. Ltd. Malaysia Kertih Petronas Ammonia Sdn Bhd Uganda Tororo Cement Limited Bangladesh Chhatak Lafarge Surma Cement Ltd. Australia Karratha, Western Australia Burrup Fertilizers UK Well-Stream USA New Jersey Sunoco Inc. Canada Alberta BA Energy


http://www.lntenc.com/lntenc/services/ibd/track.jsp�




10.6.4 List of Global Locations The next Exhibit lists some of the global locations of the company’s subsidiaries.

Exhibit: 10-8 Locations of Larsen & Toubro Limited’s Global Subsidiaries

LOCATIONS OF GLOBAL SUBSIDIARIES OF L&T Dubai, United Arab Emirates Nairobi, Kenya London, United Kingdom Abu Dhabi, United Arab Emirates Munich, Germany Copenhagen, Denmark Texas, United States Milan, Italy Ontario, Canada Paris, France



Exhibit: 10-9 Key Milestones Global Expansion History – Larsen & Toubro Limited

YEAR DESCRIPTION

1953-55 • The Equipment and Construction Company (ECC), Ceylon, was established. The company undertook several construction projects.

1981 • Larsen & Toubro (Singapore) Pte. Ltd. was inaugurated with the Development Bank of Singapore as

an equity participant. The factory began the production of aluminum foil capsules and roll-on pilfer-proof caps for the beverage and pharmaceuticals industries.

1994 • Zubair Enterprises LLC, Oman, and L&T entered into a joint venture to form L&T (Oman) LLC. Source: Company Website

10.8 Key Takeaways • L&T has firmly established itself as a leading engineering and construction firm possessing capabilities to

handle projects of varying complexity in the Indian and international markets. • The company is focusing on select geographies to further its global expansion agenda. It has strategically

identified the Middle East and China to establish and consolidate its global footprint.

http://www.larsentoubro.com/common/add.htm�





11 Videocon Industries Limited

11.1 Company Overview Videocon Industries Limited is an Indian multinational company that manufactures and sells branded consumer electronics, home appliances, consumer electronic components, and office automation products. The company is also an active player in oil and gas exploration, and power generation. It is headquartered at Aurangabad, Maharashtra. LG and Samsung occupy a 40 percent market share in consumer electronics market in India. In order to sustain in the market with these global players, Videocon ventured into component manufacturing. The company currently holds around 33 percent share in the Indian consumer electronics market.

Exhibit: 11-1 Brief Snapshot – Videocon Industries Limited

DETAILS DESCRIPTION COMPANY NAME Videocon Industries Limited

PHYSICAL ADDRESS 14 Kms Stone, Aurangabad-Paithan Road, Chitegaon, TQ. Paithan, Dist. Aurangabad – 431 105

SWITCHBOARD + 91-02431-251501/02/ 03/ 04 FAX NUMBER + 91-22-22873258/22852966 WEBSITE http://www.videoconworld.com/ NAME OF THE CEO Venugopal Nandlal Dhoot YEAR OF ESTABLISHMENT 1984

Shareholders’ Fund: 1.45 billion FINANCIAL ASSETS AND CAPITAL108

Total Assets: USD 3.61 billion EMPLOYEE STRENGTH 10,000 (2007)



Exhibit: 11-2 Shareholding Pattern – Videocon Industries Limited (as on March 31, 2006)


NUMBER OF

SHARES HELD PERCENTAGE HOLDING

AS A % OF (A+B)

Promoter's Holding

Indian Promoters (A)(1) 156,500,268 70.82Persons Acting in Concert (A)(2) 1,198,353 0.54Sub Total of Promoter’s Holding (A) = (A)(1) + (A)(2) 157,698,621 71.36Non Promoter's Holding




108 Note: Exchange Rate – INR 45.12635 = 1 USD; Source: Annual Report – 2005-06

http://www.videoconworld.com/�

http://www.videoconworld.com/about/corporate-profile/history/index.php�






Exhibit: 11-3 History and Milestones – Videocon Industries Limited

YEAR DESCRIPTION

1987 • Videocon entered the following consumer electronics and home appliances segments:

Color and Black and White (B/W) Television (TV)

Washing Machines

1989-1990

• The company added the following businesses to its existing portfolio:

Home Entertainment Systems

Electric Motors

Air Conditioners

1991 • The company expanded in the following home appliances businesses:

Refrigerators

Coolers

1995 • Videocon introduced a new business line by adding glass shells for CRTs (Cathode Ray Tube).

1996 • The company added kitchen appliances in its home appliances business segment.

• The other major extension in the company’s business was in the crude oil segment.

1998 • The company expanded in the following fields under its components’ business:

Compressors

Compressor Motors

2000 • The company successfully expanded its color TV business by its takeover of the Philips Color TV plant.

2005 • Videocon acquired a few Indian and international businesses such as:

Electrolux India: Videocon acquired three Indian plants of Electrolux.

Thomson: Videocon acquired the CPT (Color Picture Tube) business of Thomson. Source: Company Website

11.4 Overall Growth Strategy The company owns state-of-the-art manufacturing facilities across the globe. All of its five Indian units are located in the states of Maharashtra and Gujarat, with three units in Aurangabad, and one each in Gandhinagar, and Bharuch109.

11.4.1 Diversification Strategy110 The company was founded in 1984 with the aim of manufacturing international standard color televisions (CTV). In order to provide world-class products, the company tied up with the Toshiba Corporation of Japan and founded Videocon Industries (VI). Until then, the company was only operating sugar mills and a few other small businesses. In 1987, VI started manufacturing black and white (B&W) TVs and CTVs in its Aurangabad unit, Maharashtra, and marketing products under its own brand name. During the same year, the company entered the washing machines market. In 1989, the company entered the home entertainment systems’ and air conditioners’ market. It reached a market share of approximately 30 percent for the Indian CTV market by 1990. A year later, VI launched refrigerators and coolers in the Indian market. VI tried to diversify its business by entering the real-estate sector in 1990 but was unsuccessful in its efforts. It took a strategically important decision to manufacture cathode ray tube (CRT) glass shells and established an international standard manufacturing unit in Bharuch, Gujarat, in 1995. The glass shell business proved to be a loss-making unit for the company. However, the company continued with this business for its CTV division. In 1996, the company entered the energy sector with an investment in the Rava oil fields (VI’s share in the company was 25 percent; besides VI, the other stakeholders were ONGC and Cairn Energy) situated in the Krishna-Godavari basin. This business helped the company to generate a regular cash flow. In 2005, the 109 Source: Company Website 110 Source: ICFAI

http://en.wikipedia.org/wiki/Cathode_ray_tube�





company made major acquisitions in the domestic and international market. The company acquired 100-percent shares in Electrolux Kelvinator Limited (EKL), a subsidiary of AB Electrolux in India, with an ownership of three plants and a license for marketing Electrolux (license rights for five years with VI) and Kelvinator brands (license rights for unlimited time with VI) in India and other SAARC countries. In addition to this, the company acquired the Allwyn brand of EKL in 1998.

11.4.2 Multi-Branding Strategy111 The company has adopted and followed a multi-brand strategy to handle the stiff competition in the consumer durables market in India. According to industry analysts, Videocon forayed into creating multi-brand portfolios through tie-ups and acquisitions of key brands in India to confront the market captured by MNCs (especially Korean companies) in India. The major strength of VI’s multi branding strategy is its ability to utilize its capacity and potential to manufacture products in large quantities. This strategy has helped the company to cater to different socio-economic market categories through different brands. The company is a profitable venture, and it has adequate resources to undertake its multi-brand strategy. Though the major drawback of the strategy is the high cost of maintaining the large brands, the company could benefit in the long run by maintaining multiple established brands. One of the emerging threats for the company is the presence of Korean brands, such as LG and Samsung, which hold a large market share.

11.4.3 Brand Basket of the Company The major brands marketed by the company in different countries are listed in the Exhibit below.

Exhibit: 11-4 Key Brands – Videocon Industries Limited

BRANDS Videocon Toshiba Electrolux Sansui Kenstar Kelvinator Hyundai Akai Allwyn York


The company has got different rights and agreements from each of the company mentioned above. The company has made an agreement with Hyundai Electronics Limited to market the Korean brand in India. It also signed a licensing agreement with two big players in India – Toshiba and Sansui.

11.4.4 Research and Development (R&D)112 Domestic and International R&D centers – The company has one in-house R&D center, which is located in Aurangabad and two others located in China and Italy. In addition to this, the company has established units through partnerships in Seoul (South Korea) and Tokyo (Japan)113.


The company has undertaken the development and innovation of new products with extra features, productivity enhancement in processes, improvement in the quality of products, and new products in the existing categories.

11.4.4.2 Benefits Derived from R&D

The company aims to derive higher productivity and capacity in its existing production lines, improve quality leading to higher receptiveness to products, create new models and designs, and reduce overall costs.

11.4.4.3 Future Plan of Action

The company plans to create new brands under the parent brand Videocon, improve overall display quality, and develop new technologies in flat panel TVs to enable cost reduction, decrease power consumption for consumer electronics and home appliances, and launch new models with better power consumption features.

111 Source: ICFAI 112 Source: Annual Report – 2005-06 113 Source: Business World





11.4.5 SWOT Analysis 114

11.4.5.1 Strengths

• Own Manufacturing Plants, Assembly Line, and Distribution – The company is able to control costs due to the mass production of its consumer electronics products and household appliances and by being a leading manufacturer of glass shells and color picture tubes (CPT). The company has an extensive distribution network, branch offices facilitated by a logistics infrastructure, and warehouses across India. The company’s plants are strategically located as mentioned below: o Domestic Plants: The strategic location of the company’s plants helps to reduce supply chain and

distribution costs, and avail local sales tax exemption in the state where the goods are manufactured. o International Plants: Similarly, the company’s globally located plants facilitate the distribution of goods in

the key emerging markets in Eastern Europe, Russia, Central and South America, and China. Videocon has a distributed manufacturing base across India with 12 facilities while LG and Onida have two each and Samsung has one. This has ensured that Videocon got exposure to complex supply chain, which is further demonstrated through expansion into foreign markets.

• Multiple Brand Portfolios – Its multi-brand portfolio helps the company to cater to different socio-economic market categories through each of its brands.

• Global Operations – VI is the holding company of Eagle Corporation Limited, an offshore entity, which acquired various companies from Thomson during 2005. Through its subsidiary, the company established operations in the new targeted market and has used new technology and manufacturing methods.

• Diversification in Businesses – The company’s oil and gas business provides it with continuous funds. Since its products are of high quality, it charges a premium on its price.

11.4.5.2 Weaknesses

• Brand Not Established in the International Market – The Videocon brand is not yet established in the international market.

• Longer Working Capital Cycle – The working capital cycle of the company is usually longer than industry standards.


• Market Penetration – The company has a high penetration in the untapped Indian market for electronic products and household appliances and thus can leverage a large market share for innovative products such as Slim TV, LCDs (liquid crystal displays), PDPs (plasma display panels), etc.

• Market Development – The company is currently planning to enter or expand in the following segments: o Flat panel display o Oil and gas exploration and production o Household appliances market – Further developing the company’s multi-brand strategy

• Margin Improvement – The company can leverage better margins through large-scale operations and improvement in dealer services.

11.4.5.4 Threats

• High Competition – The company is facing stiff competition, which is reducing its prices, thereby resulting in decreasing margins.

• Increasing Cost and Interest Rates – The increasing cost of marketing, advertising, and after-sales services is becoming a major cause for concern for the company.

114 Source: Annual Report – 2005-06





11.5.1 Key Products The key product lines in which the company operates are represented in the next Exhibit.

Exhibit: 11-5 Key Product Lines – Videocon Industries Limited



Exhibit: 11-6 Financials – Videocon Industries Limited

FINANCIALS (FY 2005-06) USD BILLION GROWTH RATE (%) Net Sales 2.79 87.79Net Profit 0.18 91.38


115 Note: Exchange Rate: INR 45.12635 = 1 USD, Year Ended – September 30, 2006

Videocon

Consumer Electronics

Home Appliances

Components

Office Automation

Internet

Petroleum

Power

CTVs B&W TVs

Refrigerators Washing Machines

TV, VCR and Audio Components B&W Picture Tubes

Air Conditioners Dish Washers

Microwave Ovens Mixers & Grinders

ISP and Content and Web

Crude Oil (50,000 barrels per day)

1,050 MW

Digital Diaries Kiddy PCs

VCRs Audio Systems

Color Monitors

Water Purifiers

Glass shell for CPTs Monitors for Computers

Compressors Other Electronics

Data Projectors Power Inverters

Digital Mp3 Players Palm Tops

http://www.videoconworld.com/about/corporate-profile/group-profile/index.php�

http://www.videoconworld.com/pdf-docs/investor-relations/financial-info/annual-reports/vinl/VINL-Annual Report-FY2006.pdf�




11.5.2.2 Segment-Wise Performance116

Exhibit: 11-7 Segment-wise Financial Performance – Videocon Industries Limited

PRODUCT LINE REVENUES (USD BILLION) Consumer Electronics 2.55 Oil and Gas 0.32 Others NIL


The oil and gas business provides steady income to the company. This income is used for company’s working capital requirements and business expansion. The oil and gas business was started in 1996-97. This business formed approximately 11 percent of the revenues and 49 percent of the company’s profits in 2006 while the consumer electronics and home appliances business formed approximately 89 percent of the revenues but only 51 percent of the company’s profits. Though the oil and gas business is a profitable venture for VI, consumer electronics remains the primary focus of the company.

Exhibit: 11-8 Geography-wise Financial Performance – Videocon Industries Limited

GEOGRAPHY REVENUES (USD BILLION) India 2.08Rest of the World 0.79


As depicted in the table above, the company’s domestic sales constitute around 73 percent of its overall sales.

11.6 Global Strategy

11.6.1 Overview117 The company is expanding globally and establishing a footprint in the world market. The company plans to increase its existing capacity (24 million CPTs) by 50 percent through measures such as electrical boosters. This will help the company match the manufacturing capacities of global players such as Philips (35 million) and Samsung (32 million), and race ahead of Sony (13 million). The first step in the company’s global strategy was to form a global supply chain through acquisition of international manufacturing plants. The next step was to acquire global brands to increase its market penetration in the international markets. Along with this the company also seeks to become a global original equipment manufacturer (OEM) focusing on emerging markets including Africa and South-east Asia and less-developed markets such as Latin America and Eastern Europe118.

11.6.2 Global Expansion119 Part of VI’s long-term strategy is to have a world-scale vertically-integrated manufacturing facility for display devices, with support of CPT glass. This facility must be in a low-cost and geo-politically diversified manufacturing base. In line with this goal, in 2005, Videocon acquired France-based Thomson SA to improve its facilities quantitatively and qualitatively by including latest advancements in technologies such as slim tubes, plasmas, LCDs and other flat panel displays. The company, through this acquisition and other alliances with companies, such as BPL Limited (India) and JCT Limited (India) for CPT production, has expanded the manufacturing of CPT glass to 24 million pieces per annum in India. The company has become one of the largest manufacturers of color picture tubes with color picture tube glass. The company’s display devices, which are used in the hardware industry, are very important elements for its multimedia and entertainment business divisions. The company, in order to enhance this business, had entered into an agreement with Thomson SA to buy equity of approximately USD 17.7 million from VI. Thomson SA also

116 Note: Exchange Rate: INR 45.12635 = 1 USD 117 Source: Company Website

118 Source: tmcnet 119 Source: Business World






agreed to subscribe to the equity of USD 265.9 million of the Videocon Group’s Oil & Gas venture. The company also plans to expand its oil and gas business in Sudan and Jordan. The group has been expanding its presence in East Asia, Europe, and the Middle East over the past six years. A few examples of the strategy include: • In China, the company owns two manufacturing units, one which produces two million CPTs annually, and the

other that manufactures three million compressors annually. • In Italy, the company has two manufacturing facilities. The first is a CPT unit at Agnani, acquired from

Thomson, which manufactures six million units annually. The other is a compressor plant named Neechi Compressors with an annual production of 0.6 million units.

• In Poland, the company took over a glass shell plant, having a capacity of five million, from Thomson. • In Mexico, the company has taken over another plant, with a capacity of three million CPTs, from Thomson. These manufacturing plants cater to different markets globally. The China plant covers the Asian market, the Mexico plant takes care of the Americas, and the Italy plant meets the European demand. Through the above acquisitions, the company has entered different markets as an OEM.

11.6.3 List of Global Locations

Exhibit: 11-9 Global Locations – Videocon Industries Limited

COMPANY ADDRESS ACTIVITY

Videocon International Limited Shenzhen, China Company’s research and development center

Thomson SA Boulogne Cedex, France Tubes business activity purchased from Thomson

Thomson Displays Polska Sp. Z O O Piaseczno, Poland Displays activity purchased from Thomson Thomson Displays Italy Anagni, Italy Italian tubes manufacturing facility Neechi Compressors Italy Compressor manufacturing facility Videocon – Air-conditioning Plant Oman Air-conditioner manufacturing facility

Videocon Sourcing Company China Source components and tools from China and other Southeast Asian countries

Source: Company Website, Business World, Appliance Magazine


Exhibit: 11-10 Key Milestones in Global Expansion History – Videocon Industries Limited

Product Year Partner Nature of Tie-Up

1985 Toshiba Corp. ・Technical support from Toshiba ・Brand arrangement for sale in the Indian market

Color TVs 2005 Hyundai

・Hyundai to be the ODM (Original Design Manufacturer) for Indian market

Fly Back Transformers, Tuners NA Samsung Electronics ・Technical support

Refrigerators NA Matsushita Electric ・Design and drawing support from Matsushita Air Conditioners 1998-99 Matsushita Electric ・Design and drawing support from Matsushita Washing Machines NA Matsushita Electric ・Technical support from Matsushita

Refrigerators, Air Conditioners and Washing Machines

2005 Electrolux AB Sweden

・Electrolux AB to be the ODM for the Indian and global markets ・Electrolux to source components from Videocon for its global operations ・VI to take over Electrolux's manufacturing plants in Shahjanpur in Rajasthan, and in Warora and Butibori in Maharashtra

Sansui Electric Co. Ltd ・Sansui to be the ODM for Indian markets Audio Products and Color TVs 2005

Akai ・Akai to be the ODM for Indian markets Glass shells NA Techneglas ・Techneglass to provide technical support Color Picture Tube 2005 Thomson ・VI acquired the color picture tube business of Thomson SA with a

http://www.videoconworld.com/about/office-locations/index.php�

http://www.businessworld.in/content/view/673/724/�

http://www.appliancemagazine.com/editorial.php?article=497&zone=1&first=1�




and CPT Glass capacity of 19,000,000 units of CPTs and 4,000,000 pieces of CPT glass per annum ・VI acquired Thomson’s complete R&D facilities located in Europe and China and gained access to the significant resource of patents and IPRs of the CPT segment

Source: Company Press Release, Company Website - Brand Basket

11.8 Key Takeaways • The company has an immense integrated manufacturing capacity in India and has established a significant

presence in the international market for manufacturing CPTs and CPT glass through its acquisition strategy. • The company has a diversified business portfolio, which reduces risk from recession occurring in a particular

business segment and helps to create wealth for the Videocon group. • The company maintains a multi-branding strategy in India. It owns some of the biggest brands that cater to

different socio-economic categories of population and target segments. • The company is looking at the European markets to expand its global footprint.

http://www.videoconworld.com/word-docs/press-events/global/Thomson Takeover (Press Release).doc�

http://www.videoconworld.com/about/corporate-profile/brand-basket/index.php�




12 Videsh Sanchar Nigam Limited

12.1 Company Overview Videsh Sanchar Nigam Limited (VSNL) is India’s largest provider of international communication solutions. The company operates 12 international switching and transmission facilities for voice. Since its inception in 1986, VSNL is focused on providing overseas communication services. It is India's largest player in international long distance services. It operates a network of earth stations, switches and submarine cable systems and offers international telecommunications services including mobile, IP and voice services. It is the world’s first telecom service provider to be accredited with the TL 9000 certification.

Exhibit: 12-1 Videsh Sanchar Nigam Limited – A Snapshot

DETAILS DESCRIPTION COMPANY NAME Videsh Sanchar Nigam Limited PHYSICAL ADDRESS Videsh Sanchar Bhavan, Mahatma Gandhi Road, Fort, Mumbai – 400 001 SWITCHBOARD +91-22- 66578765 FAX NUMBER +91-22- 66395162 WEBSITE http://www.vsnl.in/index.php CHAIRMAN Subodh Bhargava YEAR OF ESTABLISHMENT 1986


Total Assets: USD 2.62 billion EMPLOYEE STRENGTH 2,926 (March 31, 2006)

Source: Annual Report – 2005-06, Company Website


Exhibit: 12-2 Shareholding Pattern – Videsh Sanchar Nigam Limited (as on September 30, 2006)


PERCENTAGE HOLDING AS A % OF (A+B+C)

Promoter's Holding




Others Shares held by Custodians and against which Depository Receipts have been issued (C)(1)

17,180,354 6.03

Total Others (C ) = (C)(1) 17,180,354 6.03

Grand Total (A) + (B) + (C) 285,000,000 100.00Source: Company Website


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http://www.vsnl.in/aboutvsnl/boarddirect.php�

http://www.vsnl.in/aboutvsnl/SharePattern300906.pdf�




12.3 Key Milestones

Exhibit: 12-3 Key Milestones – Videsh Sanchar Nigam Limited

YEAR DESCRIPTION 1986 • Videsh Sanchar Nigam Limited (VSNL) was established as a wholly owned government subsidiary.

1991 • A 359 degree Earth station was established at Arvi, Pune.

• VSAT operations commenced at New Delhi. 1993 • Video conferencing service was initiated from Mumbai, New Delhi, Calcutta, and Chennai. 1994 • Global Network Service (GNS) was launched by the company. 1995 • Internet services were introduced in India by VSNL.

2000 • VSNL became the first Indian public sector undertaking company to be listed on the New York Stock Exchange (NYSE).

2002 • Tata Group acquired 45 percent stake in VSNL.

2003 • Tata Indicom was launched in the Indian telecom services market.

2004 • Chennai-based DishnetDSL was acquired by VSNL. Source: Company Website

12.4 Domestic Growth Strategy121 VSNL is the leading domestic international long distance (ILD) voice services provider. It is also present in the data and enterprise services segment since 2001, providing international private leased circuits (IPLC), national private leased circuits (NPLC), virtual private network (VPN), frame relay, and other related services. VSNL has been providing national long distance (NLD) services since 2003, carrying over 1.5 billion minutes of voice and data annually. The company is also a provider of Internet services with 600,000 Internet subscribers and a provider of bandwidth services with 60,000 broadband subscribers.

12.4.1 Key Domestic Strategic Initiatives VSNL has been evolving its business model to remain competitive along with increasing its profit margins. Some of the key strategic initiatives taken by the company in this direction are:

12.4.1.1 Shift from Voice to Data

VSNL is shifting its business model to become competent in carrying more data traffic than voice traffic. Although voice accounts for more than 55 percent of VSNL’s revenues at present, this figure is fast declining. The shift from voice to higher-margin data businesses is also helping the company improve margins. The data business, currently accounting for over 30 percent of the company’s revenues, is estimated to grow at a CAGR of 60 percent (in volume terms) and at a CAGR of around 30 percent (in value terms), over the next two years. This, in turn, means that data business would contribute almost 60 percent to VSNL’s revenues by 2007-08.

12.4.1.2 Consolidating Undersea Cables

VSNL is a dominating player in the domestic undersea cables domain. Four out of the five cables that land in India, land on VSNL’s stations. As a result, the company has a distinct advantage over its competitors in providing restoration capabilities and direct routes to various destinations for data traffic in India. VSNL is also a member of various consortiums, which allows the company to provide direct connectivity to a large number of destinations. VSNL’s market share in this domain is expected to be more than 50 percent over the next two to three years.

121 Source: Annual Report – 2005-06, Citigroup Global Markets – VSNL, Evalueserve Analysis

http://www.vsnl.in/aboutvsnl/milestone.php�





12.4.2.1 Strengths

• Robust Network Infrastructure – VSNL has a strong network infrastructure that is capable of serving high-end customers, especially in the EU, offering them multiple connectivity options.

• International Alliances in Carrier Businesses – VSNL has alliances with various international firms engaged in the carrier business. The company leverages this to offer integrated solutions to its customers.

• Backing of the Tata Group – VSNL is a part of the Tata Group. This provides the company easy access to financial resources to further fuel its acquisition and expansion drive.

12.4.2.2 Weaknesses

• Increased Domestic Competition – Competition in the domestic market for the carrier business is intensifying rapidly. In the wake of this increased pressure, VSNL is yet to firmly establish itself as a competitive domestic player.


• Need for Wholesale Voice Services – The market for wholesale voice services is growing. VSNL is expanding its capacity to meet the rising demand for connectivity to India in the wholesale voice services domain. VSNL is also planning to expand its wholesale voice services across the EU. This is aimed at enabling enterprise customers and retail voice carriers to connect better to India.

• Domestic Boom in BPO and ITES Industries – With the boom in the BPO and ITES industries in India, a demand for over 10 terabits of traffic from India to the US (via Europe) would be created in the coming four to five years. In order to fulfill this demand, the company is planning to invest EUR 248.46 million in building an India-Europe undersea cable.

• Growing Demand for Integrated Network Services – With the demand for integrated network services steadily rising, VSNL has decided to offer joint services with Tata Consultancy Services (TCS). The combined entity would offer connectivity services, integrated network services, network management services, and IT services to its customers.

12.4.2.4 Threats

• Adverse Government Regulations –The Indian government's telecom liberalization programs, initiated in 2002, are a major threat to the growth prospects of VSNL. Ever since the liberalization drive, retail ILD tariffs have declined from INR 48 per minute in 2002-03 to INR 7.2 per minute in 2005-06. The per-minute assured retention rate of at least INR 9 in 2001 has also fallen by more than 85 percent, to less than INR 1 in 2005-06.


12.5.1 Key Business Segments123 VSNL operates through the following key business segments – • Wholesale Voice – This segment provides ILD and NLD voice services. • Enterprise and Carrier Data – This segment comprises industry-specific solutions that cater to the following

industries: banking and financial services providers, IT and ITES, petroleum, media and entertainment, and other verticals. This segment serves small, mid-sized and large businesses.

• Other Services – This segment offers a range of services including connectivity, messaging and Internet telephony. Some of the key services covered under this segment are – Dial-up Internet Service Broadband Business Wi-Fi and Cybercafe Internet Telephony

122 Source: Annual Report – 2005-06, Evalueserve Analysis 123 Source: Annual Report – 2005-06




12.5.2 Key Financials124 VSNL’s revenues have shown a y-o-y growth of over 37 percent in 2005-06 to cross the USD 1 billion mark.

Exhibit: 12-4 Financials – Videsh Sanchar Nigam Limited (FY 2005-06)

FINANCIALS USD MILLION GROWTH RATE (%) Total Revenue 1,033.85 37.91Net Profit 15.82 -90.15



Wholesale voice is the largest business segment for VSNL, contributing over 57 percent of its revenues. This is closely followed by enterprise and carrier data business segment with over 32 percent of revenues.

Exhibit: 12-5 Revenue by Business Segment – Videsh Sanchar Nigam Limited (FY 2005-06)

FINANCIALS WHOLESALE VOICE ENTERPRISE AND CARRIER DATA OTHER SERVICES Total Revenue (USD million) 592.61 333.27 107.96Growth Rate (%) 38.86 31.85 53.94


Exhibit: 12-6 Revenue by Geography – Videsh Sanchar Nigam Limited (FY 2005-06)

FINANCIALS INDIA USA UK UAE OTHERS Total Revenue (USD million) 482.03 163.09 78.40 59.10 251.23Growth Rate (%) 11.50 88.80 NA -0.99 NA


12.6 Global Strategy125

12.6.1 Summary of Global Operations VSNL is the world’s largest international wholesale carrier. Its global footprint spans over 240 countries in four continents. It has 52 subsidiaries in 21 countries. It has bilateral relationships with more than 415 direct and leading international voice telecommunications providers. It provides more than 17 billion minutes of international wholesale voice traffic annually. The company also provides connections to over 400 mobile operators worldwide. VSNL is the principal provider of signaling conversion services to enable GSM roaming to and from North America. VSNL is also leveraging its expertise to operate telecom services in countries that are liberalizing their telecom markets. The company already has a joint venture to provide telecom services in Nepal and a subsidiary which has an external gateway operator’s license in Sri Lanka. VSNL has also acquired a license to offer telecom services in South Africa.

12.6.2 Acquisitions – Drivers for Global Growth VSNL has been aggressively following the path of M&As to expand its global reach. The most recent acquisitions of Teleglobe and Tyco Global are a step in this direction.

12.6.2.1 Teleglobe International Holdings Limited

In February 2006, VSNL acquired Bermuda-based Teleglobe International Holdings Limited. This was a part of VSNL’s long-term strategy to deliver key mobile, data, and voice services to global enterprise customers. Post acquisition, VSNL is leveraging Teleglobe’s well developed network and capabilities in this domain. Teleglobe now functions as the product brand for VSNL’s voice, mobile, and IP transit wholesale services.

124 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006) 125 Source: Annual Report – 2005-06







12.6.2.2 Tyco Global Network

In July 2005, VSNL acquired Tyco Global Network. Tyco operates a state-of-the-art undersea cable network spanning 60,000 km across North America, Europe and Asia. Post acquisition, VSNL has become the world’s largest submarine cable system owner, providing submarine cable bandwidth across continents.


Exhibit: 12-7 Key Milestones in Global Expansion – Videsh Sanchar Nigam Limited

YEAR DESCRIPTION

1987 • VSNL’s International Business Services Division was established.

• Cable between India and the UEA was laid.

1990 • “Home Direct” telephone services were introduced for Italy, the UK, Japan, the Netherlands, Singapore, and Spain.

1991 • Home Direct telephone services were introduced for Canada, Thailand, Taiwan, New Zealand, Australia, Hong Kong, Malaysia, and Germany.

1993 • Home Direct telephone services were introduced for Portugal and Finland.

• SEA-ME-WE-3 optical digital highway was established from Singapore to France.

1994 • Home Direct telephone services were introduced for Chile and Israel.

1996 • Home Direct telephone services were introduced for Switzerland and Belgium.

1997 • VSNL started its international ISDN facilities.

• VSNL set up a fiber optic link – a high capacity underwater fiber optic cable – around the globe by linking the UK and Japan through Mumbai, India.

2003 • VSNL obtained a license to operate ILD services in Sri Lanka.

• VSNL established VSNL America Inc., its wholly owned subsidiary in the US.

2004

• VSNL Singapore Pte Limited was established to function as the holding company for VSNL’s overseas businesses and as the headquarters for VSNL International.

• VSNL America Inc. received the approval from US Federal Communications Commission (FCC) to operate international telecommunications services from the US.

2005 • VSNL acquired Tyco Global Network, US, to become the largest submarine cable systems in the world.

2006 • VSNL acquired Teleglobe International Holdings Limited, US, to become one of the top three international wholesale voice providing companies.


12.8 Key Takeaways • VSNL has been targeting inorganic growth to expand its global footprint. • VSNL is shifting its business model for carrying a greater percentage of high-margin data traffic than voice

traffic. • VSNL is the leader in the domestic undersea cables’ domain. Out of the five cables that land in India, four

land on VSNL stations. • The company has made a couple of acquisitions in the US over the last few years.

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13 Crompton Greaves Limited

13.1 Company Overview Crompton Greaves Limited (CGL) is the largest producer of power and distribution transformers in India. CGL is also the largest switchgear manufacturer in India, with focus on high-tension (HT) switchgears and the second-largest player in HT motors. The company is the market leader in low-tension (LT) motors. With domestic electricity consumption expected to grow at 3.5 percent, it is sure to benefit the company’s power system segment. CGL procures raw material for manufacturing transformers from a number of domestic and foreign companies, including Rittal, India; Qualitrol; and Sysprotec, USA. CGL also boasts of a number of foreign clients for its transformers. These include Siemens, ABB, Mitsubishi, Groupe Schneider, Alstom, ELIN, GE, and Bechtel. Some of its domestic clients are Enercon, Whirlpool, Bharat Petroleum Corporation Limited, Infosys Technologies, Andhrapradesh Transmission Corporation, and Power Grid Corporation of India.

Exhibit: 13-1 Brief Snapshot – Crompton Greaves Limited

DETAILS DESCRIPTION COMPANY NAME Crompton Greaves Limited PHYSICAL ADDRESS 6th Floor, CG House, Dr. Annie Besant Road, Worli, Mumbai-400 030, India SWITCHBOARD +91 022 24237777 FAX NUMBER +91 022 24237788 WEBSITE http://www.cglonline.com/ CHAIRMAN Gautam Thapar YEAR OF ESTABLISHMENT 1878


Total Assets: USD 626.96 million EMPLOYEE STRENGTH NA

Source: Company Website, Annual Report 2005-06


Exhibit: 13-2 Shareholding Pattern – Crompton Greaves Limited (as on March 31, 2006)



Promoter's Holding





126 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended – March 31, 2006)

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13.3 Key Milestones

Exhibit: 13-3 History and Milestones – Crompton Greaves Limited

YEAR DESCRIPTION 1878 • Col. R.E.B. Crompton founded R.E.B.Crompton & Company.

1927 • R.E.B.Crompton & Company merged with F.A Parkinson to form Crompton Parkinson Ltd.

1937

• Crompton Parkinson Ltd. established Crompton Parkinson Works Ltd., a wholly owned subsidiary in India.

• Greaves Cotton & Crompton Parkinson Ltd., a sales organization of Crompton Parkinson Ltd., was established in partnership with Greaves Cotton and Co., Crompton Parkinson Limited’s concessionaire in India.

1947 • CGL was formed after Lala Karamchand Thapar, an Indian industrialist, acquired Crompton Parkinson Ltd.

2004 • The company’s fans and lighting businesses secured the "Superbrand" status in India. Source: Company Website

13.4 Overall Growth Strategy127 CGL has a high focus on quality, which is evident from the following facts: • The company’s Light Sources division is ISO 9000:2000 and ISO 14001 certified. • Its power transformers and switchgear meet the international Euro/IEC and ANSI/NEMA standards. • Its Industrial Transformer division is ISO 14001 and OHSAS 18001 certified. • Seven of the company’s manufacturing facilities are ISO 14001 certified. • Four of the company’s manufacturing facilities are OHSAS 18001 certified.

13.4.1 Cost Reduction CGL is trying to attain higher profitability. Some of the measures that the company has taken to improve its profitability include the following: • In 2005-06, the company closed down its large machines division in Mumbai. This division had a high cost

structure and consequently exhibited poor profitability. This closure is expected to positively impact the company’s industrial systems segment.

• Its e-Sourcing initiative has led to a reduction in raw material costs. The company has saved around USD 4 million in two years through this initiative. CGL has also been able to identify new suppliers through this initiative.

• Six Sigma is being implemented in product designing to improve product quality. • Product Lifecycle Management is being adopted to reduce the product development cycle time.

13.4.2 Research and Development (R&D) CGL is highly focused on R&D. It has a global R&D center, which is ISO 9001 and ISO 27001 certified. Some of the areas of research include dry transformers, brushless dc motors, vacuum interrupters, high efficiency lighting system, magnetic, ceramic and insulation material systems, and power quality improvement. The company has forged R&D collaborations with a number of institutes and associations, such as Central Institute of Plastic Engineering and Technology, Central Electro Chemical Research Institute, Indian Institute of Technology, Bombay, Indian Copper Development Centre, Regional Research Laboratory, Mumbai, Veermata Jijabai Technological Institute, Mumbai, and Central Power Research Institute. CGL holds 12 patents for various innovative products and methods with a total of 69 IPR applications filed by the company.

127 Source: Annual Report – 2004-05, Annual Report – 2005-06




13.4.3 Strengths and Weaknesses128

13.4.3.1 Strengths

• Strong Product Portfolio – CGL has acquired companies that have helped in expanding and complementing the company’s product portfolio. For example, with the 2005 acquisition of the Pauwels Group, the company added a large number of new products in the power systems market to its portfolio such as transformers of up to 525 kV and 36 kV single-phase distribution transformers.

• Strong Global Presence – The company enlarged its global footprint through inorganic expansion. The acquisition of the Pauwels Group has given the company a strong customer base in developed international markets such as Europe, North America, and the Middle East.

• Shift toward Offering Complete Business Solutions – CGL is integrating its entire business operations to shift from providing only products to offering a full basket of services. It now not only offers products – such as transformers, switchgears, circuit breakers, mobile substations, and power quality products – to its customers, but also offers complete business solutions, including turnkey projects and quality after-sales services. This initiative is helping CGL consolidate its position in the global market and is positively impacting its margins.

• Growing Demand for Power Systems – The demand for power systems is on the rise, especially in developing countries such as China and India. Post the Pauwels Group acquisition, CGL is well positioned to fulfill this demand rise, backed by its enhanced capabilities.

13.4.3.2 Weaknesses

• Order Backlog of the Pauwels Group – At the time of the acquisition of the Pauwels Group, it had a large order backlog, created on account of not being able to deliver ordered products on time. CGL will find it difficult to rapidly fulfill this backlog.

13.5 Business Lines and Key Financials

13.5.1 Key Business Segments129 CGL operates in the following key business segments, based on the nature of products and services offered – • Power Systems – Transformers, switchgears, and turnkey projects • Consumer Products – Fans, luminaire, light sources, and pumps • Industrial Systems – Electric motors and alternators • Others – Telecommunications, investment activities, and others

13.5.2 Key Financials130 CGL’s revenues have shown a y-o-y growth of over 100 percent in 2005-06.

Exhibit: 13-4 Financials – Crompton Greaves Limited

FINANCIALS (FY 2005-06) USD MILLION GROWTH RATE (%) Total Revenue 984.87 100.12Net Profit 52.58 98.11


Post the acquisition of the Pauwels Group, exports of CGL have shown a y-o-y growth of around 60 percent. During this period, the physical exports of the company have grown by 78.5 percent, while the deemed exports have declined by 29.2 percent.

128 Source: Annual Report – 2005-06, Evalueserve Analysis 129 Source: Annual Report – 2005-06 130 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006)





The Exhibit below represents the export break-up of the company between 2004 and 2006.

Exhibit: 13-5 Break-up of Exports by Value – Crompton Greaves Limited

FY 2004-05

15.7%

84.7%

FY 2005-06

6.8%

93.2%

Physical ExportsDeemed Exports



Power System is the biggest segment of the company, contributing around 65 percent to its revenues. This segment grew at a y-o-y rate of over 215 percent in 2005-06.

Exhibit: 13-6 Revenue by Business Segment – Crompton Greaves Limited

FINANCIALS (FY 2005-06) POWER SYSTEM CONSUMER PRODUCTS INDUSTRIAL SYSTEM OTHERS Total Revenue (USD million) 637.09 187.89 151.29 8.59Growth Rate (%) 215.88 21.64 20.34 -16.21


Exhibit: 13-7 Revenue by Geography – Crompton Greaves Limited

FINANCIALS (FY 2005-06) DOMESTIC OVERSEAS Total Revenue (USD million) 519.35 465.52Growth Rate (%) 19.96 686.51



13.6.1 Inorganic Growth131 CGL has established a firm global footprint with transformer manufacturing facilities in the USA, Canada, Ireland, Belgium, and Indonesia. In addition, it has contracting and servicing facilities in Canada and Belgium along with a number of sales entities worldwide. The acquisition of the Pauwels Group in 2005 was a major step toward bolstering its global presence. CGL gained control of the transformer manufacturing facilities of the Pauwels Group, which are spread across Asia, North America, and Europe, having an annual production of around 30,000 transformers. The company also enhanced its transformers’ range from 400 KV to 500 KV in the process. In addition, it gained access to Pauwels’ advanced technology and significant presence in the windmill sector. Moreover, jointly, CGL and the Pauwels Group have a considerable presence in India, North America, and Western Europe. The only weak link is that the company does not have a strong presence in China. With China’s electricity consumption estimated to grow at

131 Source: The Hindu Business Line – Crompton Greaves: Buy

Total Exports – USD 69.88 Million Total Exports – USD 111.67 Million

Growth: 59.80%

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4.6 percent, which is one of the fastest growth rates across all countries, there will be a proportional increase in the demand for transformers and switchgears. CGL also acquired Ganz Transelektro Villamossagi Zrt (Ganz) and Transverticum Kft (TVK) in 2006. The acquisitions bolstered CGL’s portfolio by adding the following capabilities to it: • Strong presence in Europe especially Hungary • High-range transmission and distribution equipment of up to 800 kV • Gas-insulated switchgears of up to 300 kV • Rotating and traction machines of up to 8 MW for railway applications • Capability to execute turnkey projects such as setting up substations of up to 400 kV with conventional

switchgears in the area of transmission and distribution. Recently, CGL announced that it will be acquiring Microsol Holdings of Ireland. Microsol is a provider of automation products and services to the electric utility industry. The company’s products and solutions include substation automation platform, distribution automation equipment, and software solutions.


Exhibit: 13-8 Key Milestones in Global Expansion History – Crompton Greaves Limited

YEAR DESCRIPTION 2005 • CGL acquired the Belgium-based company the Pauwels Group.

2006 • CGL acquired the Hungary-based companies Ganz and TVK.

2007 • CGL announced its decision to acquire Microsol Holdings and other group companies. Source: Company Website, Business Standard

13.8 Key Takeaways • CGL has taken to inorganic expansion to enlarge its global footprint. The recent acquisitions of the Pauwels

Group in 2005 and Ganz in 2006 have helped the company establish a strong presence in North America and Western Europe.

• CGL is integrating its entire business operations to shift from offering only products to a full basket of services, including turnkey projects and quality after-sales services.

• CGL is highly focused on R&D with some of its key research areas being dry transformers, high efficiency lighting system, power quality improvement, etc.




14 Tata Tea Limited

14.1 Company Overview Tata Tea Limited (TTL) is a Tata Group company engaged in the tea business since 1964. It is mainly focused on the branded tea business with famous brands such as Agni and Tetley in its portfolio. TTL bulk tea is shipped in customized blends to leading tea-importing destinations worldwide. TTL has a presence in 40 countries, with the UK being the most significant market, contributing around 40 percent to the company’s total revenues. The key competitors of TTL are Unilever and Nestle.

Exhibit: 14-1 Tata Tea Limited – A Snapshot

DETAILS DESCRIPTION COMPANY NAME Tata Tea Limited PHYSICAL ADDRESS 1 Bishop Lefroy Road, Calcutta – 700 020 SWITCHBOARD +91-33-22813891/ 4747/ 3988/ 3779/ 3709/ 1807/4422 FAX NUMBER +91-33-22811199 WEBSITE http://www.tatatea.com/ CHAIRMAN R. N. Tata YEAR OF ESTABLISHMENT 1964


Total Assets: USD 974.84 million EMPLOYEE STRENGTH 34,596 (March 31, 2006)

Source: Annual Report – 2005-06, Company Website

14.2 Shareholding Pattern The Exhibit shown below provides the shareholding pattern of TTL.

Exhibit: 14-2 Shareholding Pattern – Tata Tea Limited (as on March 31, 2007)


PERCENTAGE HOLDING AS A % OF (A+B+C)

Promoter's Holding




Others Shares held by Custodians and against which Depository Receipts have been issued (C)(1)

23,672 0.04

Total Others (C)=(C)(1) 23,672 0.04

Grand Total (A) + (B) + (C) 59,029,857 100.00Source: Company Website


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14.3 Key Milestones

Exhibit: 14-3 Tata Tea Limited – Key Milestones

YEAR DESCRIPTION 1964 • Tata Finlay was established as a joint venture between the Tata Group and James Finlay and Company, UK.1976 • Tata Finlay took over the production and marketing of tea from James Finlay and Company, UK. 1983 • Tata Tea is established with the sale of James Finlay’s stake to the Tata Group.

1991 • Tata Tea acquired 52.5 percent shareholding in Consolidated Coffee Limited and renamed it “Tata Coffee Limited”.

1992-2007 • Tata Tea entered into various international alliances and joint ventures to consolidate its global standing. Source: Company Website

14.4 Overall Growth Strategy133 TTL was set up in 1964 as a joint venture to produce value-added tea. The year 1985 saw TTL’s entry into the branded tea market with the launch of ‘Kanan Devan’. The company owns 51 tea estates in the states of Assam, West Bengal, Tamil Nadu, and Kerala, and one coffee estate in Tamil Nadu. It produces around 60 million kg of black tea each year.

14.4.1 Summary of Domestic Operations

14.4.1.1 Domestic Tea Brands134

TTL operates the following five brands in the Indian tea market, catering to various consumer segments – • Tata Tea • Tetley • Kanan Devan • Chakra Gold • Gemini Tata Tea Gold, Tata Tea Premium, and Tata Tea Agni, all operating under the Tata Tea portfolio, cater to the premium, popular, and economy segments, respectively. The Tata Tea brand is the market leader, both in terms of value and volume. It was awarded the ‘Superbrand’ status in 2003.

14.4.1.2 Research and Development (R&D)135

TTL has R&D centers focusing on its branded business. The company has a research center at Teok, Assam and a product development center at Bangalore. TTL also holds the following patents since January 20, 1992. • Multi-stage counter current pneumatic drier for drying fermented tea leaves and other similar materials • Multi-stage counter current fluid bed drier for drying fermented tea leaves and other similar materials

14.4.2 Key Domestic Strategic Initiatives • Focusing on Branded Tea – Since 2005, TTL has shifted its focus from tea plantations to branded tea. The

global branded tea business of TTL accounts for around 88 percent of the company’s total turnover. In light of this shift, the company has exited the management of most its plantation estates and transferred it to the following entities, controlled by the employees in the plantations – Kanan Devan Hills Plantation Company Private Limited (KDHP) – KDPH manages seven plantation

estates in Munnar, Kerala, which are principally owned by the employees with TTL holding an 18.2 percent stake136.

133 Source: Tata Group Website 134 Source: Company Website 135 Source: Company Website 136 Source: KDHP Website

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Amalgamated Plantations Private Limited (APPL) – APPL manages the North India Plantation Operation (NIPO) of TTL, with 20 tea estates in Assam and four in West Bengal137.

• Promoting Tea Tourism in Tea Estates in Assam and West Bengal – TTL, through APPL, is promoting tea tourism in its estates in Assam and West Bengal. APPL is also planning to enter alternative farming to emerge as an agricultural product solutions provider138.


14.4.3.1 Strengths

• Wide Branded Tea Product Portfolio – TTL has a diversified portfolio of branded tea. Tata Tea has over 15 brands in its portfolio of branded tea worldwide, including five major brands in India. The global branded tea business of TTL accounts for around 88 percent of the company’s total turnover. The remaining 12 percent comes from bulk tea, coffee, and other sources of investment income.

• Support of the Tata Group – TTL is a part of the Tata Group. This provides the company an access to superior financial resources to fuel its acquisition drive. For example, the company’s recent acquisition of 30 percent stake in Energy Brands Inc. was funded through many Tata Group companies. Of the USD 677 million, TTL is investing only USD 192 million. Tata Sons Limited, another Tata Group company, is investing USD 58 million in the form of equity in Tata Tea (GB) Limited. The rest of the amount is being raised by way of debt by Tata Tea (GB) Limited140.

14.4.3.2 Weaknesses

• Business Integration Risks – TTL has entered into various international alliances and joint ventures to increase its global footprint. This exposes the company to geo-political risks, which are inherent in all such initiatives. In addition, the company faces the risk of integration issues that are particularly associated with mergers and acquisitions.


• Shift to Value-Added Markets – With the majority of its key markets experiencing stagnancy, TTL is diversifying and expanding into the fast developing value-added markets. TTL has recently shifted its focus to high-margin markets, including value-added green teas and specialty teas. In 2005-06 alone, the company launched 50 new products, primarily in the green tea and herbal tea segments.

14.4.3.4 Threats

• High Dependence on Declining Markets – TTL is experiencing decline in its major markets. The company’s strong presence in the global black tea market, deriving over 80 percent of its revenues, is

now experiencing stagnancy since the past few years141. The tea market in the UK, which contributes to around 40 percent of TTL’s total revenues, is also facing a

declining trend. Together these factors are deeply affecting the growth potential of the company, resulting in slow growth of revenues, growing by only 2.14 percent over the past financial year.

• Fluctuating Prices of Raw Tea – TTL sources tea from several countries. Variations in climatic conditions and other influential factors in these countries can lead to fluctuations in the price of raw tea from these high cost plantations, thus making the company less competitive in world markets.


14.5.1 Key Business Segments142 TTL operates in the following business segments –

137 Source: Tribune 138 Source: Economic Times 139 Source: Annual Report – 2005-06, Evalueserve Analysis 140 Source: Hindu Business Line 141 Source: Hindu Business Line 142 Source: Annual Report – 2005-06




• Tea – This segment is engaged in the cultivation and manufacture of black tea and instant tea. It is also involved in the buying, blending and sale of tea in bulk or in other value-added forms.

• Others – This segment is engaged in the cultivation and production of coffee and other minor crops. It is also involved in the trading of commodities.

14.5.2 Key Financials143 The revenues of TTL have experienced sluggish growth over the past one year.

Exhibit: 14-4 Financials – Tata Tea Limited

FINANCIALS (FY 2005-06) USD MILLION GROWTH RATE (%) Total Revenue 703.94 2.14Net Profit 67.79 38.84



Branded tea and bulk tea together contribute over 94 percent of the company’s total revenues.

Exhibit: 14-5 Revenue by Business Segment – Tata Tea Limited (FY 2005-06)

FINANCIALS TEA OTHERS Total Revenue (USD million) 664.08 39.86Growth Rate (%) 3.20 -12.69


Exhibit: 14-6 Revenue by Geography – Tata Tea Limited (FY 2005-06)

FINANCIALS INDIA UK USA AND CANADA REST OF THE WORLDTotal Revenue (USD million) 202.16 270.51 138.59 92.67Growth Rate (%) 4.84 2.73 9.31 -12.76


14.6 Global Strategy144 The global retail market for packaged tea and the ready-to-drink tea market segments are worth USD 20.3 billion and USD 24.5 billion, respectively. The top 10 global tea markets account for 65 percent of the entire packaged tea sales worldwide. TTL products are sold in five out of these top 10 markets, which are – Russia, USA, UK, India, and Poland. In total, TTL’s products and brands have a presence in 40 countries worldwide.

14.6.1 Acquisition of Tetley Group Limited TTL has traditionally entered countries that have a strong potential in the tea markets, such as the US, the UK and Sri Lanka. In 1987, TTL entered the US market through its wholly owned subsidiary Tata Tea, Inc. In 1992, the company formed alliances with Estate Management Services (Pvt) Ltd., Sri Lanka and gained access in the tea plantation business in Sri Lanka. By 1995, TTL decided to acquire an international brand to expand its global footprint and raised a bid for the UK-based Tetley Group Limited. However, this first attempt proved to be unsuccessful. In the year 2000, TTL made its second and successful bid for Tetley. Tetley was the second largest brand of tea in the world, second to Unilever. It had a turnover of GBP 280 million. The acquisition made Tata Tea the world's second largest tea company, with its products sold across countries, such as India, the US, Canada, Western Europe, Australia, the Middle East, West Asia, Africa, Poland, Russia and Kazakhstan.

14.6.2 Geographic Overview – 2005-06 TTL is determined to grow as a branded international tea business. The company achieved significant milestones in its international operations in 2005-06. Some of these are described below.

143 Note: Exchange Rate: USD 1 = INR 44.13063 (year ended March 31, 2006) 144 Source: Annual Review – 2005-06, Annual Report – 2005-06







14.6.2.1 US145

TTL acquired the Good Earth Corporation in October 2005 and the Eight O' Clock Coffee Company in June 2006. Both these acquisitions have helped TTL in strengthening its foothold in the US market. Good Earth, a fast growing specialty tea brand with a prominent presence on the US west coast, has a market share of 3.7 percent in the US specialty tea market. The Good Earth brand gave TTL a premium product range. Eight O' Clock is the market leader in the branded whole bean market and the category leader in the value gourmet segment in the US retail market. It is also the third largest coffee brand by volume and operates a strong retail distribution network.

14.6.2.2 UK

Since the 2000 acquisition of the Tetley Group, TTL has grown from strength to strength in the UK market. The “Tetley decaf”, re-launched with an improved blend in April 2005, became the top brand in the decaffeinated sector with a market share of 32 percent. The “T of Life” also became the fastest growing iced tea brand in the UK market. All this combined to increase sales by 2 percent and market share to 26.2 percent.

14.6.2.3 Poland

Poland saw TTL sales grow by 14 percent. This was achieved mainly on the back of new product launches, such as fruit and herbal teas. Green tea is also doing well in the country with a market share of 7 percent. The country has also improved its focus on the distribution network. In April 2007, the company acquired the Vitax and Flosana brands of specialty tea from Premium Foods SA, establishing itself as the second largest in the Polish tea market.

14.6.2.4 Canada

TTL became the first mainstream tea brand in Canada to enter the organic tea market with the launch of its organic range of teas – Organic Earl Grey, Organic Green, and Organic Orange Pekoe. The launch was in line with the growing demand for organic products in the country. The Organic range further cemented the company’s leadership in both the black tea and specialty tea markets. The company’s market share in these two markets in the country is 46.3 percent and 24 percent, respectively.

14.6.2.5 Australia

TTL launched four flavors of “Tetley Ice T” in Australia and also developed a strong distribution network for the same. This helped in increasing the company’s sales by 10 percent and helped it capture a market share of 14.9 percent. The company also has a market share of 18.6 percent in the Australian green tea market.

14.6.2.6 Czech Republic

In May 2006, TTL acquired JEMCA, the top tea brand in the Czech Republic with a market share of 27 percent. JEMCA has a significant position in the black tea, fruit tea, and herbal tea markets, and has a strong distribution network in the country. The JEMCA acquisition also gives TTL a cost effective international manufacturing facility.

14.6.2.7 Pakistan

TTL entered Pakistan in 2004 and the company’s sales grew by 43 percent in 2005-06 alone, making Pakistan the fifth-largest Tetley market, by volume, with sales exceeding 2 million kg. The company achieved this mainly through innovative marketing programs that reinforced the superior quality of the Tetley blend.

14.6.2.8 Bangladesh

TTL entered Bangladesh in 2003 and in 2005-06, the company’s sales doubled over the past year, helping it capture a market share of 5 percent.

145 Source: Hindu Business Line, Company Website





Exhibit: 14-7 Key Milestones in Global Expansion – Tata Tea Limited

YEAR DESCRIPTION 1987 • TTL established Tata Tea Inc., its wholly owned subsidiary in the US.

1992 • TTL entered into a JV with Estate Management Services (Pvt) Ltd., Sri Lanka, to manage the Watawala Plantations Limited.

1993 • TTL entered into a JV with Allied Lyons PLC, UK, to form Estate Tata Tetley.

2000 • TTL acquired the Tetley Group Limited, UK.

2003 • TTL entered into a 50:50 JV with the Lakson Group, Pakistan.

2003 • TTL entered into a 50:50 JV with the Advanced Chemical Industries (ACI), Bangladesh.

2005 • TTL acquired FMALI Herb Inc. and Good Earth Corporation in the US.

2006

• TTL acquired JEMCA, a market leader in the Czech Republican tea market.

• TTL acquired Eight O' Clock Coffee Company, USA.

• TTL acquired 30 percent stake in Energy Brands Inc., owner of the Glaceau Water Company, USA.

• TTL acquired 33 percent stake in Joekels Tea Packers, South Africa.

2007 • TTL acquired the Vitax and Flosana brands of specialty tea from Premium Foods SA in Poland.

• TTL entered into a JV with Zhejiang Tea Import and Export, China, for the production and manufacture of green tea, instant tea, and other liquid tea concentrates.

Source: Company Website, IBEF, Hindu Business Line, Economic Times

14.8 Key Takeaways • TTL is the world’s second-largest tea company with a presence in 40 countries worldwide. • TTL has been aggressively forging international alliances and establishing joint ventures to increase its global

footprint. • TTL has diversified its product portfolio to include coffee, water, and other beverages, and has emerged as an

international beverages company. • US, UK, and Canada are the key international markets for the company.

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15 The Indian Hotels Company Limited

15.1 Company Overview The Indian Hotels Company Limited is one of the leading players in the Indian hospitality industry with more than 100 years of experience. It is a part of the Tata Group and operates under the “Taj Hotels Resorts and Palaces” brand name. The company boasts of a presence in a large number of countries, including India, Mauritius, Malaysia, Australia, USA, Sri Lanka, Africa, and the Middle East.

Exhibit: 15-1 Brief Snapshot – The Indian Hotels Company Limited

DETAILS DESCRIPTION COMPANY NAME The Indian Hotels Company Limited PHYSICAL ADDRESS Oxford House, 15/17 N.F. Road, Apollo Bunder, Mumbai – 400 001 SWITCHBOARD +91-22-66651000 FAX NUMBER +91-22-22846680 WEBSITE http://www.tajhotels.com/ CHAIRMAN Ratan N. Tata YEAR OF ESTABLISHMENT 1903


Total Assets: USD 973.85 million EMPLOYEE STRENGTH NA

Source: Indian Hotels – Annual Report 2005-06


Exhibit: 15-2 Shareholding Pattern – The Indian Hotels Company Limited (as on March 31, 2006)




Promoter's Holding





146 Note: Exchange Rate: INR 44.28721 = 1 USD (FY 2005-06)

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Exhibit: 15-3 History and Milestones – The Indian Hotels Company Limited

YEAR DESCRIPTION 1903 • Indian Hotels opened its first hotel, The Taj Mahal Palace & Tower in Mumbai.

1971-72 • The company conceived the idea of palace hotels; its first such venture was the Rambagh Palace in Jaipur.

1974 • Indian Hotels set up the Fort Aguada Beach Resort in Goa.

1978-82 • The company extended its operations to Delhi with the Taj Mahal Hotel and then enhanced its presence with the Taj Palace Hotel.

1993 • Indian Hotels established the Indian Institute of Hotel Management in Aurangabad with the aim of nurturing talent for the hospitality industry.

2004 • The company established a joint venture with Conservation Corporation Africa and Cigen Corporation to promote wildlife tourism in India.

Source: Company Website, Tata Group


15.4.1 Renovation of Existing Properties One of the key strategies of Indian Hotels is to renovate its existing properties. The renovation being undertaken is not only limited to rooms and lobbies, but also includes introducing theme-based outlets such as restaurants and bars. During 2004 and 2005, the company renovated rooms and suites at many of its properties, including the Taj Lake Palace, Taj Holiday Village, and Taj West End. It also launched a number of theme-based food and beverage outlets during this period, including the “Verandah” restaurant, “Ice” bar, and “Beachhouse” at different properties.

15.4.2 Enhancement of Product Portfolio New products and services is another focus area of the company. In 2004, it introduced the “Jiva Spa” in a few hotels with the aim of providing its customers with treatments based on Indian ayurvedic and yogic systems. The service was then introduced in eight other hotels and resorts in 2005-2006. The company has also ventured into wildlife lodges – it formed a JV with Conservation Corporation Africa and Cigen Corporation in 2004 to promote wildlife tourism in India by establishing wildlife lodges and providing services such as game sightings. As an extension to this initiative, the company acquired two lodges in 2005-2006 in Madhya Pradesh in India.

15.4.3 Tapping the Opportunity in the Economy Segment One of the company’s key initiatives has been the introduction of economy class hotels in India. It launched its first such hotel in Bangalore in 2004. The company used this hotel as a prototype, modifying some of its features when it launched its second such hotel in Haridwar in 2006. These hotels are being promoted under the “Ginger Hotels” brand name.

15.4.4 SWOT Analysis

15.4.4.1 Strengths

• Robust Portfolio – The company’s portfolio comprises over 9,000 hotel rooms with more than 200 food and beverage outlets across key tourist destinations, including India, Mauritius, Sri Lanka, Africa, Maldives, Australia, the UK, and the US.

• Strong Brand Equity – The “Taj” brand enjoys a strong image and is associated with superior quality standards and efficient services. Its association with the Tata Group, which enjoys an image of trust and quality, has further added to its brand equity.

15.4.4.2 Weaknesses

• Dependence on Domestic Operations – The performance of Indian Hotels is greatly dependent on its domestic operations. In FY 2005-06, about 76 percent of the company’s revenue came from its Indian

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operations, though this percentage was lower than the corresponding figure in FY 2004-05. Its dependence on domestic operations exposes the company to certain socio-economic risks. This is especially so because a significant portion of the revenue generated from the company’s domestic operations comes from a limited number of its own hotels.

• Dependence on the Luxury Hotels Segment – The luxury segment contributes nearly 50 percent to the company’s revenue with each of the business hotels and leisure hotels segments contributing only about 4-6 percent. This clearly indicates that the company’s business is focused largely on the high margin luxury segment, which in turn is dependent on the global social, political, and economic conditions.


• Expanding International Operations and Product Portfolio – Indian Hotels should try to tap business opportunities in high-growth travel destinations other than India through acquisitions and by building new hotels and resorts. It can also look towards other avenues of growth, such as providing new services in the form of spas and wildlife resorts.

15.4.4.4 Threats

• Increasing Popularity of International Destinations – The increasing popularity of travel destinations, such as Southeast Asia and Australia, may result in fewer tourists visiting India. Also, with rising disposable incomes and lower airfares, a higher number of Indians would prefer traveling to foreign destinations. These factors would affect Indian Hotels since its domestic operations are the biggest contributor to its total revenue.


15.5.1 Key Products Indian Hotels offers the following products and services: • Hotels – Luxury, business, and leisure hotels • Luxury Residences – Three luxury residences, one each in Dubai, Mumbai, and London • Private Luxury Jet Service (TajAir) – Two Falcon 2000 aircraft • Air Catering – Services including in-flight catering, management of lounges, and airport restaurants are

provided by TajSATS Air Catering Ltd., a JV between Singapore Airport Terminal Services and Indian Hotels. • Travel Services – Services including air and rail ticketing, hotel bookings, car rental, and medical insurance,

through its travel services company Inditravel

15.5.2 Key Financials147 The Exhibit shown below gives the geographical distribution of Indian Hotels’ revenue for FY 2004 and FY 2005. It can be observed from the Exhibit below that the company’s share from international operations has increased considerably over the period.

Exhibit: 15-4 Geographical Distribution of Revenue – The Indian Hotels Company Limited

FY 2005(total revenue: USD 423.3 million)

76%

24%

DomesticForeign


84%

16%

DomesticForeign

Source: Indian Hotels Company Limited – Annual Report 2005-06

147 Note: Currency Conversion Rate: USD 1 = INR 44.28721 (FY 2005); USD 1 = INR 44.94271 (FY 2004)





The next Exhibit gives the segmental distribution of Indian Hotels’ revenue for FY 2004 and FY 2005.

Exhibit: 15-5 Revenue by Business Segment – The Indian Hotels Company Limited


89.43%

0.27%10.30%

HotelieringAir CateringOthers


87.22%

0.47%12.31%

HotelieringAir CateringOthers

Source: Indian Hotels Company Limited – Annual Report 2005-06


15.6.1 Establishing Global Alliances One of the key global strategies of Indian Hotels is to forge alliances with foreign hospitality chains to promote each other in respective markets. It formed its first such alliance with the Raffles International Limited, Singapore, in 2004. Holding culinary promotions and sales events at travel and trade fairs across different geographies, and loyalty programs for guests were some of the areas of partnership. The fundamental idea was to leverage the presence of each of the alliance partners in different geographies to market their respective brands. At the time of the alliance, Indian Hotels had a strong presence in India whereas Raffles was yet to establish its presence in the country. On the other hand, Raffles is strongly positioned in Europe, Australia, North America, and South America unlike Indian Hotels that has a weak presence in these regions148. A similar alliance was formed with Shilla Hotels and Resorts, Korea, in 2005-06. Going forward, Indian Hotels is expected to forge similar alliances in other geographies.

15.6.2 Expanding International Operations Indian Hotels is looking at expanding its operations worldwide through purchase of hotel properties and by entering into management contracts. During FY 2004-05, Indian Hotels began operations at a luxury resort in Mauritius and at a hotel at Denis Islands in Seychelles. These are being operated by the company under management contacts. In the following year, the company signed management contracts for a number of hotels properties across Bhutan, Malaysia, and Dubai. The company also acquired the BLUE Sydney hotel in Sydney in 2005 and Ritz-Carlton hotel in Boston in 2006. Indian Hotels is expected to further expand its global operations in markets, such as China, South Africa, and Thailand.


Exhibit: 15-6 Key Milestones in Global Expansion History – The Indian Hotels Company Limited

YEAR DESCRIPTION

2007 • Indian Hotels signed an agreement with the Kor Hotel Group for acquiring The Campton Place. The hotel is located in San Francisco and has 101 rooms and 9 suites.

2006 • Indian Hotels acquired the Ritz-Carlton hotel in Boston from Millennium Partners.

148 Source: Hotel Online: Raffles Hotels and Resorts Creates Alliance with India-based Taj Luxury Hotels, The Hindu: Indian Hotels ties up with Raffles International





2006 • The company forged an alliance with Qatar Sports Investment Company to develop a five-star golf and spa hotel in Doha by 2009.

2006 • Indian Hotels entered into a partnership with Eurocape in South Africa. The two will collectively develop a portion of the Mandela Rhodes Place lifestyle complex in Cape Town.

2006 • Indian Hotels forged an alliance with The Shilla Hotels & Resorts, South Korea, for cross-marketing of the two brands in South Korea.

2005 • The company extended its operations to Australia with the acquisition of the BLUE Sydney hotel in Sydney.

2005 • Indian Hotels forged an alliance with ETA Star Property Developers LLC to develop a new luxury resort in Dubai. The resort was supposed to be developed at the Palm Island Jumeirah, a man-made island.

Source: Tata Group

15.8 Key Takeaways • Indian Hotels has a strong presence in India and is focusing on increasing its presence worldwide through

acquisitions and management contracts of hotel properties. • The company is mainly focused on the luxury segment; however, it is trying to enhance its presence in the

economy segment. • In addition to hotels and resorts, the company is also into other businesses, such as air catering and travel

services. • The company is expected to expand its global operations in markets, such as China, South Africa, and

Thailand.

http://www.tata.com/indian_hotels/releases/�




16 Appendix

16.1 Company Name Abbreviations 1. BFL – Bharat Forge Limited 2. VI – Videocon Industries Limited 3. L&T – Larsen & Toubro Limited 4. DRL – Dr. Reddy’s Laboratories Limited 5. M&M – Mahindra & Mahindra Limited 6. TCL – Tata Chemicals Limited 7. TTL – Tata Tea Limited 8. VSNL – Videsh Sanchar Nigam Limited 9. CGL – Crompton Greaves Limited

16.2 Other Abbreviations 1. CTV – Color Television 2. JV – Joint Venture 3. HCV – Heavy Commercial Vehicle 4. MCV – Medium Commercial Vehicle 5. LCV – Light Commercial Vehicle 6. CPS – Custom Pharmaceutical Services 7. CROs – Clinical Research Organizations 8. APIs – Active Pharmaceutical Ingredients 9. OTC – Over the Counter 10. NDDS – Novel Drug Delivery System 11. NDDR – New Drug Discovery Research 12. ANDAs – Abbreviated New Drug Applications 13. NCEs – New Chemical Entities 14. US FDA – United States Food & Drug Administration 15. ILD – International Long Distance 16. NLD – National Long Distance 17. ISDN – Integrated Services Digital Network

16.3 Glossary of Financial Terms 1. y-o-y – Year on year 2. Net Sales = Sales Turnover – Excise Duty + Other Income – Inter Segment Sales 3. Net Profit = Net Profit after Tax 4. Total Capital = Shareholder Funds + Debts + Deferred Tax liability 5. Total Capital = Total Assets - Current Liabilities 6. Total Assets = Total Capital + Current Liabilities and Provisions 7. Investment = Investment made by the company (as given in the consolidated balance sheet) 8. Promoter’s Holding – Shares held by the promoters (a company or persons who are in control of the

management).




17 Disclaimer

The information contained herein has been obtained from sources believed to be reliable. JETRO and Evalueserve disclaims all warranties as to the accuracy, completeness or adequacy of such information. JETRO and Evalueserve shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.

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