What do the world’s highest wind turbine, the Paris metro and a sweaty Delhi resident sheltering under a ceiling fan have in common? The answer lies in an Indian company that has in a period of four years transformed itself into a transnational entity to be reckoned with: Crompton Greaves.
Beginning with its 2005 acquisition of Belgium-based power transformer maker Pauwels, Crompton Greaves has undertaken a seemingly inexorable march across Europe buying up companies in the power systems sector in Hungary, Ireland and France in consecutive years.
“There came a point when we decided that it was better to be a small fish in an ocean than a big frog in a well,” smiles S M Trehan, Crompton Greaves’ managing director and the man credited with turning the company around from a primarily domestic, loss-making, debt-laden entity into a profitable, global player.
The interview with Trehan is taking place in the Belgian headquarters of Pauwels located in the Flemish town Mechelen, an hour’s drive north of Brussels. An Indian flag flutters lazily, rising out of the manicured lawns that sprawl around the Crompton-Pauwel offices. But there is little else that reveals the plant’s Indian links.
“By 2004 it was clear to me that the Indian market for any product that Crompton Greaves made was only around 3 per cent of the global market for that product. So, there was a 97 per cent market we were not tackling. But to make a dent in this 97 per cent, we realised that we would have to move outside. We needed customers, financing, employees, factories, all outside of India,” explains Trehan.
The results of the decision to go global have been dramatic. Four years ago the company was exporting a mere 5 per cent of its wholly-India manufactured products. Today 41 per cent of its products are made and sold outside of India in addition to the 25 per cent of domestically manufactured products that are exported.
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It is to the company’s aggressive international expansion that Trehan credits Crompton’s growth from a $500 million firm in 2005 to the $2 billion it is worth now.
But the world-wide economic recession where the economies of the developed West have in particular suffered raises questions about the wisdom of acquisitions in these markets.
“For us it is a strategy that has definitely paid off,” counters Trehan. “We took a disciplined approach to the acquisitions and were able to make them at a good price. For the five companies we have bought, we have also walked away from five.”
He admits that growth in Europe and the US has been flat over the last year; Crompton’s profit margins would have been higher had it remained focused on India. But he insists the added total profits and global footprint that the foreign subsidiaries have brought have made them worthwhile.
Despite the economic slowdown, Crompton’s turnover for the financial year ending March 2009 was Rs 93,100 crore with a net profit of Rs 563 crore, a significant growth over the 2007-2008 profit of Rs 409 crore. And things are now picking up even faster. For the second quarter of 2009, the company grew 18 per cent.
The fact that growth has come in India where power supply is far outstripped by demand holds no surprises. But even in Europe, where demand for power distribution has sharply slumped, Crompton has been able to keep its head above water by converting the distribution transformers it makes to fit the needs of wind turbines.
Climate change concerns have meant that renewable energy is witnessing fast growth in Europe. Crompton’s Mechelen subsidiary, Pauwels, has taken advantage of this by becoming one of the leading suppliers of transformers to wind turbines. Its signature SLIM transformer is being used inside a 160 meter tall wind turbine, the world’s highest, in Brandenburg, Germany.
And while the power distribution market in the West has suffered in the wake of the financial crisis, Trehan says the power transmission sector has continued to grow. “Take Belgium, which has excess power, and Germany, which has a power deficit. At the moment there is no grid linking the two countries and so any power transfer must go through the Netherlands. New transmission networks have continued to be built throughout the last year,” he says.
The replacement demand for transformers is also high in the West. Thus, for example, Pauwels has recently supplied two hundred 25 to 1000kVA transformers to RATP, the operator of the Paris Metro.
So, does Crompton have any further acquisitions planned?
“If the question is do I have any names to give you now, the answer is no. I will first have to tell Sebi (Securities & Exchange Board of India, the markets regulator in India) before the media,” quips Trehan. “But if the question is whether we have decided to stop acquiring abroad, the answer is that acquisitions are a continuous process and as a strategy we will continue with them.”
Trehan points to Latin America and China as the next two regions where the company will look to expand. Crompton’s main rivals, ABB, Siemens and Areva, are already active in these markets and it is Trehan’s stated ambition to grow his company to the same level as these big three. Currently the global market for transformers is pegged at $72 billion, of which ABB alone accounts for $15 billion.
“By 2015 we will be an $8 billion company which will take us into the top three,” he says confidently, as the interview winds down.
“It’s amazing how much the mindset of Indian companies like ours has changed over the last decade,” Trehan concludes before heading off to a Pauwels board meeting. “Seeing the way the world and India have opened up since the 1990s has transformed our ambitions forever.”