According to a survey of 300 chief financial officers (CFOs) of Indian companies and foreign multinational corporations, there would be increased mergers and acquisitions (M&As) in 2012.
The spurt in M&As would result from reduced inflation and lower interest rates locally, said the survey by Deloitte India.
Deloitte India CFO Survey 2011-2012, which sought responses from CFOs of small, mid-sized, large, listed and unlisted and Indian and MNCs, was completed between December 2011 and early February 2012. According to the global consultancy firm, the biggest driver for M&As is scalability and the need to extend their reach outside India. Access to resources and capabilities and business consolidation are other reasons. “In organisations with revenues above Rs 1,000 crore, international expansion is seen to be one of the top drivers for M&A activity. Whereas, among MNCs headquartered outside India, one of the top drivers is domestic expansion, signalling that India is a growing hub for MNCs today,” the survey pointed out.
| PULSE OF HONCHOS Highlights of Deloitte India CFO Survey |
| * Domestic economy has dampened risk-taking appetite |
| * Outsourcing not under consideration, except for contract-bound companies |
| * Revenue growth, cost cuts will drive the firm’s agenda for 12 months |
| * Focus now more on operator role; but want to focus more on catalyst and strategist roles |
| * Tax environment major concern; unsatisfied with govt’s responses to Goods and Service Tax and the Direct Taxes Code |
The CFOs were bullish about the performance of their organisations, with almost 50 per cent believing their companies would perform better in the coming year.
Of the respondents, 37 per cent attributed this to internal or company-specific factors, such as products or services, operations and financing. About 10 per cent said the improvement would be due to external factors.
In manufacturing industry, 41 per cent of CFOs were less optimistic, due to external factors such as the economy and market-related elements playing a vital role.
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CFOs in technology, media, telecommunications, health care and life sciences were more optimistic.
Amid elevated borrowing costs, a majority of Indian CFOs surveyed saw alternative sources of debt funding such as commercial papers, foreign currency convertible bonds and external commercial borrowings attractive, as they are seen to be relatively easier sources of funding. Bank borrowings tend to be less attractive to CFOs due to high interest rates.
Small companies with revenues less than Rs 500 crore tend to find equity most attractive, whereas larger companies find other debt most attractive
Deloitte India’s Pulse Survey was intended to provide CFOs information on what their peers think about a cross section of topics.