 "India has one of the lowest price points in Asia-Pacific: Sanjiv Lamba")
The Linde Group, one of the world’s top gas and engineering company, has aggressive growth plans for its listed arm in India. Sanjiv Lamba, chairman and member of the Global Executive Board, says while he is disappointed with the single-digit sales growth in the past 18 months, he remains convinced about India’s long-term potential. Edited excerpts from an interview with Krishna Kant:
How has Linde grown in India? What are the prospects?
The Linde board looks at India in three ways. First, we are disappointed with the single-digit growth in Linde India’s top line in the past 18 months. This is much below India’s growth potential and is contrary to our long-term plans for the country. (Second) Slower growth has translated in poor return on capital employed, which goes against shareholder interest. However, we remain convinced about the long-term growth prospects of India. The country is likely to remain a high growth market, next only to China in the region. Thirdly, most of our investment is tied to top quality companies such as Tata Steel, Jindal Steel, JSW, Steel Authority of India and Reliance Industries, all best placed to take the India growth story forward.
We had five years of reasonable growth and then went through a downtrend, which I believe is bottoming out. In the next two-three years, India is likely to be back on the high growth path and we continue to invest with that in mind. If you exclude the volatility in 2013, we grew at a compound annual growth rate of 25 per cent for four years prior to that. We aspire for around 15 per cent growth over the next eight-10 years.
We are in the advance stage of setting up an application development centre in India, our second such facility in Asia after Shanghai and fourth in the world. Here our engineers will work with customers to develop new applications for gases and that will help us grow faster.
How did Linde manage better returns on equity and capital employed than its India arm?
Financial ratios for Linde India have been compressed due to the twin factors of aggressive capital expenditure and slower growth in recent quarters. In last five years, we have invested Rs 2,000 crore in capacity expansion but many projects are yet to generate revenues either because they are being implemented or customers in sectors such as steel, petrochemicals and automobile face demand slowdown. Overall, our return on capital employed is eight per cent but it improves to 11 per cent if we exclude capital work under progress.
Globally, we have a major presence in a number of mature markets — Europe, the UK, the US and Australia, among others. The scale of our operations in those markets is much bigger and incremental capital expenditure is not that high. Besides, operating margins in many of those markets are higher than in India.
Are you saying competition is higher in India?
I look after 20 countries in the Asia-Pacific region and India has one the lowest price points in the region. Globally, the (gas) sector is dominated by four large companies but in India there are over 150 companies, including our global competitors.
Does that make consolidation a possibility in India?
If profits fall further or slowdown intensifies, it could force many smaller companies to close down or sell off. We ourselves have acquired a couple of companies in the past and would like to play the role of a consolidator if the environment is right.
Historically, steel makers have been your biggest customers. How has demand from these changed in recent years?
Yes, that’s right but steel is now one among many industries that we serve. As technology develops and environmental and energy norms get tougher, gas use is increasing in all industries. For example, crude oil refineries are now large customers as they use hydrogen for flushing out sulphur from fuel to confirm to new emission norms. Automobile makers are using new types of welding gases to get superior fit and finish. Globally, medical gases are a fast-growing category, accounting for 30 per cent of our revenue.
Is that behind Linde’s financial resilience in the wake of the 2008 global financial crisis?
There are two explanations for this. One is the volume gains from growing intensity of gases in various industries. Over the year, we have been able to find new application for our gases and continue to work with customers to improve their processes and products. Secondly, we are present in 100 countries, including in all key emerging markets. That compensates for the slow growth in mature markets.
Besides, we have a large healthcare business. We are a leading supplier of medical gases to hospitals and also have a home care business in Europe and North America.
Tell us about Linde’s clean energy plans, including for hydrogen fuel.
In Europe, we have a LNG (liquefied natural gas) business in Scandinavia (Finland, Denmark, Norway and Sweden) and plans to put up hydrogen-filling stations in Germany for cars expected to hit the market. Ships in Europe are required to cut emissions and we are helping shipping lines, especially in Scandinavia, to cut their emission by switching to LNG. But we are not the typical energy company and don’t compete with big oil and gas companies. They are all about scale while we focus on application and technology. We help customers switch from conventional fuels such as furnace oil or diesel to LNG.
Will any of these ventures come to India?
We are in preliminary discussions with major energy companies such as Petronet LNG to help expand the application for LNG in India. However, we can’t share more details about this.
How has Linde grown in India? What are the prospects?
The Linde board looks at India in three ways. First, we are disappointed with the single-digit growth in Linde India’s top line in the past 18 months. This is much below India’s growth potential and is contrary to our long-term plans for the country. (Second) Slower growth has translated in poor return on capital employed, which goes against shareholder interest. However, we remain convinced about the long-term growth prospects of India. The country is likely to remain a high growth market, next only to China in the region. Thirdly, most of our investment is tied to top quality companies such as Tata Steel, Jindal Steel, JSW, Steel Authority of India and Reliance Industries, all best placed to take the India growth story forward.
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We are in the advance stage of setting up an application development centre in India, our second such facility in Asia after Shanghai and fourth in the world. Here our engineers will work with customers to develop new applications for gases and that will help us grow faster.
How did Linde manage better returns on equity and capital employed than its India arm?
Financial ratios for Linde India have been compressed due to the twin factors of aggressive capital expenditure and slower growth in recent quarters. In last five years, we have invested Rs 2,000 crore in capacity expansion but many projects are yet to generate revenues either because they are being implemented or customers in sectors such as steel, petrochemicals and automobile face demand slowdown. Overall, our return on capital employed is eight per cent but it improves to 11 per cent if we exclude capital work under progress.
Globally, we have a major presence in a number of mature markets — Europe, the UK, the US and Australia, among others. The scale of our operations in those markets is much bigger and incremental capital expenditure is not that high. Besides, operating margins in many of those markets are higher than in India.
Are you saying competition is higher in India?
I look after 20 countries in the Asia-Pacific region and India has one the lowest price points in the region. Globally, the (gas) sector is dominated by four large companies but in India there are over 150 companies, including our global competitors.
Does that make consolidation a possibility in India?
If profits fall further or slowdown intensifies, it could force many smaller companies to close down or sell off. We ourselves have acquired a couple of companies in the past and would like to play the role of a consolidator if the environment is right.
Historically, steel makers have been your biggest customers. How has demand from these changed in recent years?
Yes, that’s right but steel is now one among many industries that we serve. As technology develops and environmental and energy norms get tougher, gas use is increasing in all industries. For example, crude oil refineries are now large customers as they use hydrogen for flushing out sulphur from fuel to confirm to new emission norms. Automobile makers are using new types of welding gases to get superior fit and finish. Globally, medical gases are a fast-growing category, accounting for 30 per cent of our revenue.
Is that behind Linde’s financial resilience in the wake of the 2008 global financial crisis?
There are two explanations for this. One is the volume gains from growing intensity of gases in various industries. Over the year, we have been able to find new application for our gases and continue to work with customers to improve their processes and products. Secondly, we are present in 100 countries, including in all key emerging markets. That compensates for the slow growth in mature markets.
Besides, we have a large healthcare business. We are a leading supplier of medical gases to hospitals and also have a home care business in Europe and North America.
Tell us about Linde’s clean energy plans, including for hydrogen fuel.
In Europe, we have a LNG (liquefied natural gas) business in Scandinavia (Finland, Denmark, Norway and Sweden) and plans to put up hydrogen-filling stations in Germany for cars expected to hit the market. Ships in Europe are required to cut emissions and we are helping shipping lines, especially in Scandinavia, to cut their emission by switching to LNG. But we are not the typical energy company and don’t compete with big oil and gas companies. They are all about scale while we focus on application and technology. We help customers switch from conventional fuels such as furnace oil or diesel to LNG.
Will any of these ventures come to India?
We are in preliminary discussions with major energy companies such as Petronet LNG to help expand the application for LNG in India. However, we can’t share more details about this.