Last decade saw India's conglomerates score a few hits, but mostly misses

Performance of corporates against their own benchmark is turning out to be a mixed bag

As Indian conglomerates near their 2020 targets, performance against their own benchmark is turning out to be a mixed bag. At the start of the current decade, conglomerates like Adani, JSW, Aditya Birla Group and Larsen & Toubro (L&T) had chalked out their long-term strategy as well as their targets. 

While mergers and acquisitions helped companies like UltraTech meet targets, industry officials and experts state macro economic conditions and change in corporate strategy may have held back a few others from meeting their goals. 

“Decade 2010 was a high, but later it turned into a bumpy ride. The economy is one factor and market dynamics another and these keep changing,” said Harish HV, an independent consultant.

UltraTech aims at reaching 100 million tonne (mt) capacity by FY20 through both organic and inorganic means,” analysts with Motital Oswal noted in a May 2015 report, when Ultratech’s capacity was at 71 mt. 

As of March 2019, Ultratech’s cement capacity was at 98.8 million tonnes, helped by two major acquisitions — Binani Cement and Jaiprakash Associates’ cement assets. However, not all conglomerates have had a similar fate.

Sajjan Jindal-promoted JSW Energy, for instance, aimed to operate 10,000-Mw capacity by 2020. The company is barely half way through with this target. 

“The company in between changed focus to electric vehicles but that did not work. It will now pursue the earlier set target,” said Seshagiri Rao, chief financial officer (CFO) of the JSW Group. 

The group aims to operate 20 mt cement capacity by 2020 and is expected to be on track with the plan.

“Most growth and strategic targets were built under the assumption that growth will accelerate in the second half of the decade, which unfortunately did not materialise. With no case to add new capacities and exports remaining below par, targets would need to be recalibrated,” said Munesh Khanna, partner for Backbay Advisors. 

This holds true for power companies which hit a rough patch as there was no more demand to absorb incremental thermal power capacity in the country. Tata Power and Adani Power have also been unable to come close to their 2020 targets so far.

Adani group’s coal targets, set at 200 million tonnes, also remains largely unmet. The group’s plans to start mining from the Australia coal mine was expected to contribute to this target, which got stuck for lack of approvals and other litigations in that country.

Conglomerates like L&T have been on-track with the company-level strategy plan. 

For instance, as part of its Lakshya 2021 plan, the company had envisaged divestment from non-core assets. In May last year, L&T agreed to sell its electrical division, part of the non-core assets, to Schneider Electric for Rs 14,000 crore. However, the company’s plans to tap the defence and nuclear power segment in a big way still awaits a meaningful achievement. 

“Overall, we are making satisfactory progress towards our five-year plan. We are also thinking beyond FY21 and a number of new opportunities for value accretive growth are being considered. We expect to be an industry leader at the  global level by 2021 in the use of digital technologies and advanced analytics,” said a spokesperson for L&T.

Email queries sent to Adani Group and Tata Power on Friday remained unanswered.

Undeterred by the performance so far, groups like JSW are charting their plan for the next decade. Rao added that the group will look to achieve its port capacity target of 200 mt and power capacity of 10,000 Mw in 2030.

“We will look at both organic and inorganic options,” he said.

Khanna pointed out inorganic growth will be favoured. “As the larger conglomerates grow bigger, acquisition strategies will play an important role,” he said. Both Rao and Khanna pointed out that greenfield expansion in the country has been challenging.