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Published on: Dec. 30, 2020, 3:11 a.m.
Where private companies score over PSUs
  • Illustration: Panju Ganguli

By Sunil Damania

Business is all about optimism. You can't run a business with a pessimistic view. If you look at the business houses or groups that have either gone out of business or become a smaller shadow of their glorious past, you can see that they are those that either did not take risks or failed to predict the business trend.

Just scan through Business India Super 100 over the years and you will see the change. Two decades back, Super 100 was dominated by PSU companies. Out of the top 10 companies of the year, as many as five were PSUs. In 2000, companies like IOC, BPCL, HPCL, VSNL and BHEL were part of the top 10. Today, they struggle to find a place even in the Top 50. The reason is evident: the PSU companies never took risks. They never thought out of the box. And, the blame is squarely on the successive governments that controlled these PSUs, which lacked the focus and strategy to survive and thrive in the ever-changing world. MTNL was once a force to reckon with (ranked 20th in 2000) but, today, it’s struggling for its existence.

Many Indian business houses have become risk-averse, with most in the listed space not thinking out of the box. Their aim seems to be surviving, rather than thriving. They have become too conservative in their thought processes. Instead of expanding businesses horizontally or vertically, they have started shrinking their businesses. Risk-taking is a word they have removed from their vocabulary. While not taking a risk may appear a good strategy in the short run, this kind of mindset will eventually ensure that one will soon run out of the business. Someone else will take the risk and replace your business with theirs.

This is where Mukesh Ambani stands out. He took the risk and went on for massive capex, when India Inc was shying away from doing it. At one point in time, Reliance Industries’ capex was higher than all Nifty 50 companies’ capex put together (excluding PSUs).

The stock market rewarded Ambani for his risk-taking. He not only transformed his business from oil to chemicals, making it world-competitive, but ventured into the new area of telecom. Remember, most players lost money in telecom, including Tata and Birla. And, yet, Ambani not only ventured out but also became the market leader in no time. His out-of-the-box thinking of offering voice service free helped him make Jio the market leader. Ambani, at the same time, scaled up RIL retail business too, which many others would not have thought of. He roped in some of the world’s best companies to invest in its telecom and retail businesses. The stock market has rewarded Reliance Industries handsomely.

In 2000, Reliance Industries’ market cap was a mere Rs30,000 crore. It was not the most valuable company, as companies like Wipro and Hindustan Unilever had a much higher market cap. Today, Reliance Industries has a market cap of Rs12.60 lakh crore (the growth has been at a CAGR of 20.5 per cent for 20 years!) and it is India's most valuable company.

The trend of rewarding the risk-taker is not restricted to India alone. It manifests globally. Look at Tesla, whose promoter, Elon Musk, took a gamble to bring out electric vehicles. The company was almost on the brink of bankruptcy, but today, Tesla's market cap is $590 billion, while the market cap of some of the other leading auto players has stayed considerably lower. Ford’s is at about $36 billion; Volkswagen’s, at $100 billion; and Toyota, close to $216 billion. In other words, Tesla’s market cap is higher than the combined market cap of the other three auto giants. And, imagine, Tesla came into being only in 2003!

Companies that will thrive are those who are willing to take risks. Remember, profitability is no longer the criterion for businesses to succeed. Investors are willing to back companies, if their businesses are innovative. But many business houses have a different idea of taking risks. They think expanding the business in the same line, either through organic or inorganic routes, is risk-taking. I am afraid it's not. The risk is of a different kind, when you start a business with innovative ideas, rather than acquiring companies or setting up new plants.

Tata Steel acquired Corus, but the market did not reward it well. It was the same with Tata Motors’ acquisition of JLR and Hindalco’s takeover of Novelis. They all took the risks, but were not appreciated by the market. Tata Steel’s 10-year equity returns in absolute terms, are almost nil, while Tata Motors' 10-year return is a negative 31 per cent and Hindalco’s a mere 11 per cent.

 Now, let’s do some crystal-gazing. Who will top the list of Business India Super 100 in, say, 2040? Before we do that, let me give you some statistics. Out of those in the Fortune 500 list of 1995, only 60 have survived in the list today. The rest have either been acquired or have closed down. In India, too the tally will not be any different. TCS was not listed in 2000, but it’s today the second-most valuable company in the country. The companies that used to be in top list, like VSNL (acquired by Tata), or Ranbaxy (Merged with Sun Pharma) or Satyam (merged with Tech Mahindra) are all in the history books. Likewise, many of today's toppers will not find a place in the top list two decades down the line.


Either they would have been acquired or would be struggling to survive, as was the case with MTNL.  I have a feeling that the list of 2040 will be dominated by companies that are in the forefront of the process of technology-adoption. At least 20 per cent of the companies from that list may not even be listed today. The dominance of manufacturing companies will come to an end, while companies from the service sector will dominate. Remember: ‘opex’ will be the new buzzword, as capex would by then have taken the back seat.

So, how do you know who will survive? It will be those who take risks and bring a fresh perspective to the business model (remember, Jio focussed on data, rather than voice revenue). Unfortunately, despite reforms initiated by the Narasimha Rao government way back in the 1990s, we don’t have many world-beating industries, except in IT services and pharma. These two industries are competing in the world market and are well respected. They deserve applause.

Now, detractors may argue that they are not focussed on IT products or drug innovation. That too will eventually happen, as the present set of players has set the right platforms for new companies to innovate. In the next two decades, many Indian pharma companies will have developed patented drugs and IT companies, new products. We may even see a few IT product companies from India. I am optimistic about that.

Future toppers will have to focus on becoming globally competitive; not based on cheap labour, but on technology. Adoption of high technology should be the way to go. I am afraid not many business houses at present are looking in that direction.

I hope India Inc will shed its risk-averse attitude and become risk-takers. Mukesh Ambani has set the ball rolling. He should be the ideal role model for them to follow.

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