The pharmaceuticals, automobiles, retail, telecom, oil retailing and biotech businesses will be hot this year 


Riding high on the surge in demand across sectors and the efficiency drive that has been pushed hard during the recession, India Inc is raring to turn on the heat. Be it in manufacturing, outsourcing, investments or consolidation, Indian companies are poised to enter a phase of high growth. We take a look at six industries – pharmaceuticals, textiles, automobiles, retailing, telecommunications, biotechnology and oil retailing – that could be the most happening sectors in 2004. 

Pharmaceuticals: Wockhardt has acquired C P Pharmaceuticals in the UK. Ranbaxy is in the process of acquiring French pharmaceuticals major RPG Aventis. Welcome to the new world of Indian pharmaceutical companies where domestic companies are fast emerging as multinationals, fighting neck-and-neck with the established global transnationals. 

The tension is palpable. At one end of the spectrum, domestic companies like Ranbaxy, Dr Reddy’s, Sun Pharmaceuticals and Cipla are focused on developed generics markets, including the US and Europe. At the other end, the Indian arms of multinational drug makers like Pfizer, GlaxoSmithkline, Aventis and Novartis are eyeing the domestic market. 
Their strategy revolves around brand building and marketing. 
Acquisitions, alliances and product filings weave the main theme in the sector. Nicholas and Sun Pharmaceuticals are scouting for acquisitions in regulated markets like the US and Europe. Even relatively smaller companies like Unichem Laboratories are sniffing for acquisition opportunities overseas. They know that in a product patent regime where reverse engineering will not work any more exports hold the key to growth. Global alliances are the strategy for Elder Pharma. It already has 25 alliances and wants more. 

It’s all happening here. Dr Reddy’s and Ranbaxy are focusing on research and development (R&D) and targeting the regulated generics market with long-term plans of developing new chemical entities (NCEs) and proprietary drugs. The likes of Nicholas Piramal, Elder Pharma, Divi’s Laboratories, on the other hand, want to evolve as alliance partners and service providers.

The international drug companies, meanwhile, are preparing to open up their global product portfolio to Indian consumers with generic competition diminishing. Pfizer is planning to shut three of its Indian manufacturing locations, GlaxoSmithKline is evaluating the feasibility of its two manufacturing locations and Novartis is reviewing its Rifampicin facility. Eli Lilly, Aventis Pharma and GSK are viewing India as a sourcing hub.

Certainly, India is emerging as a global outsourcing powerhouse. It is the place to conduct contract research and clinical trials. 
Manufact-uring outsourcing involves the supply of active pharmaceutical ingredients (API). Elder Pharma-ceuticals, Unichem, Glenmark Pharmaceuticals, Granules India, Shasun Chemicals and Cipla have entered into alliances with several multinationals for the supply of APIs. 

Nearly every company is investing in R&D. Dr Reddy’s, Ranbaxy Laboratories and Sun Pharmaceuticals have been the traditional investors in R&D (investing around 2-4 per cent of their turnover annually). But mid-sized companies too have now started investing in research to get a toe hold in a product patent regime. Unichem Laboratories is investing around 25 per cent of its net profits in R&D. Ditto for JB Chemicals and Glenmark Pharmaceuticals. 

Automobiles: More than five decades ago the very British Morris Oxford served as the inspiration for the great Indian Ambassador. In 2003, the Tata Indica aka the City Rover was cruising along on English highways. The wheel has definitely come full circle, and the Made in India label has arrived in the global car market. 

Besides flirting with Rover (Tata Motors has signed a five-year agreement with MG Rover for the export of 1,00,000 City Rovers), Tata Motors has also ventured out into the Italian and Spanish markets on its own with its small car dream. Tata Motors is looking to push exports, which currently account for only around 7 per cent of sales, to at least 15 per cent in three years. 

Tata is also planing to get a toe hold in East Asian markets with its proposed acquisition of Daewoo Commercial Vehicle, which has a 25 per cent market share in Korea. Over time, analysts expect this new acquisition to be a vehicle for expansion into China and Japan, two of the world’s largest markets. 

If 2003 was an exciting year for the auto markets in terms of new launches, first information reports have it that nearly 20-odd cars are queueing up to hit the roads this year. Hyundai will launch the Getz, a B segment hatchback, and Elantra, a C plus segment car in 2004. General Motors will launch at least two new sets of wheels under the Chevrolet tag. Rumour has it that the Isuzu Panther alias Chevrolet Tavera and Chevrolet Spark a.k.a Daewoo Matiz will grace the GM portfolio in 2004. 
There are treadmarks to suggest that a hatchback from Maruti on the Suzuki Liana platform and a small car from Toyota on the Yaris platform will roll into the country next year. Tata Motors finally launched its long-awaited Indigo Estate in 2004.

Retailing: The retailing wave has hit four product categories – foods, apparel, lifestyle products, consumer durables and electronics. Though the organised retailing industry is still at a nascent stage – accounting for only around two per cent of the $180 billion retail market in India – it is likely to touch 10 per cent by the end of this decade. The big ticket is food retailing which takes up nearly 72 per cent of retail consumption.

The Rs 6,000 crore-plus RPG group dominates the organised retail sector with its Food World for food, Music World for music, Health and Glow for cosmetics, health products and medicines and Giant hypermarkets. 
The retailing business now accounts for about 10 per cent of the group’s turnover but is expected to grow substantially. RPG is planning to take its Giant retail chain public and use the money to expand the outfit. Once that happens, it will bring down the Goenkas’ stake in Great Wholesale Club – the entity that owns Giant – by 20 per cent. 

Expansion is the key word for Tata group retailing arm Trent. After establishing a presence in the lifestyle retailing business through Westside, Trent is making a foray into food retailing. The plan is to invest over Rs 40 crore in five years. 

Consumer goods giant Hindustan Lever has joined the retailing bandwagon by putting up services areas to pump up home consumption. It has set up Kwality Walls parlours for selling its ice cream brands. Unconfirmed reports say that HLL may look at setting up coffee and tea parlours. 
Shoppers Stop is expected to come out with an IPO of Rs 100 crore soon. With over 10 stores in its portfolio, Shoppers’ Stop plans to take the number of stores to 35 by 2007. 

Vijaypat Singhania group company Raymond has forayed into consumer electronics retailing through a separate company Plugin Sales. It holds a 60 per cent stake in the company with the rest held by a team of professionals – senior executives of consumer durable companies – who conceived of the idea. 

The retailing story does not end here. The $3-billion Starbucks Corporation, the world’s largest premium speciality coffee pub, is brewing a local debut plan. It earlier lost the race to Tata Coffee for picking up a stake in Barista. Shoprite, Africa’s largest grocery retail supermarket group, too plans to set up base in India. UK’s leading retail chain Marks & Spencer has adopted the franchisee route to set up operations while the world’s fourth largest retail chain – the Germany-based Metro AG – has entered the Indian market in a cash-and-carry format. Walmart is also keen to enter India. When that acually happens, the fast moving consumer goods sector will be under pressure to drop prices as competition will be fierce. Then the consumer can really be king.

Oil: The petroleum and natural gas sector is set to flare up as retailing of transportation fuels like diesel and petrol will see phenomenal action. Essar Oil set the ball rolling by launching three retail outlets. Over the next three months it plans to set up more than one outlet a day; the target is 100 by March. Reliance Industries is planning a phased roll out of 1,500 retail outlets from February.

Over 1,000 new petrol pumps are likely to spring up in the next 12 months. Essar Oil, Reliance Industries, MNCs (read Royal/Dutch Shell) and public sector outfits like Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Oil and Natural Gas Corporation and IBP will be setting up these outlets.

Biotech: IT stands for India today and BT stands for Bharat tomorrow. This has been Prime Minister Atal Behari Vajpayee’s refrain at several business conferences. With a strong skilled human capital base, India is set to take the global biotech market head on. Shanta Biotech’s Shanvac – India’s first genetically engineered vaccine against Hepatitis B – was launched at a price of $4. This is less than half the price of similar vaccines being sold by multinational companies across the globe. 

Early this fiscal year, Wockhardt launched human insulin. Shantha Biotech launched Streptokinase – a genetically engineered life saving drug for heart attacks. Shantha Biotech is, in fact, launching several products like plasminogen activators, interferons and sophisticated vaccines. 

Says Kiran Mazumdar-Shaw, chairman and managing director of Biocon India, “Indian biotechnology has the requisite genes for global success but somehow the DNA sequence is sub-optimal. We have to align these genes of success to produce a DNA strand that matches global standards.” She should know what she’s taking about. After all, Biocon delivers products and solutions in over 50 countries. 

The list of Indian companies in the biotech space is quite long. There are Dr Reddy’s, Biocon, Cipla, Strand Genomics, Wockhardt, DSQ Biotech and Serum Institute. Then, there are multinationals like Monsanto, Pfizer, Unilever, Dupont, Chiron-Boehringer, Hoechst Roussel Vet and Bayer. Eli Lilly has a presence in India through a 50:50 joint venture with Ranbaxy which markets its biotech products. 

“The sector is gradually building the critical mass. Global success for Indian biotechnology will largely depend on the lowest cost base for innovation,” says Shaw. The flow of investment in the sector is increasing with venture capitalists, private equity funds and Indian banks taking keen interest in it. State government-led venture capital funds like APIDC Venture Capital (Andhra Pradesh), Karnataka State Industrial Infrastru-cture Development Corporation (KSIIDC) are also launching dedicated biotech funds.

Telecom: About 30 million mobile handsets are used in India today. Given the speed at which mobile telephony is growing, by 2005 the number of handsets may overtake the number of television sets across the country. China today has a larger subscriber base than India but India has taken less time to reach this number. 

In 1995, India’s tele-density was just one per cent. By 2003, it was seven per cent and mobile subscriber numbers swelled to 17 million. Pradip Baijal, chairman of the Telecom Regulatory Authority of India, says India’s tele-density will touch 15 per cent in 2005, five years ahead of the target the government set.

What is driving this pace? The credit for changing the rules of the games goes to Reliance Infocomm which entered the market with its code division multiple access (CDMA)-based services in December 2002 with a tariff of 40 paise per minute (the tariff then was Rs 2 per minute), so triggering off a price war.

The rate war intensified with CDMA companies like Tata Teleservices entering the market and BSNL aggressively offering its cellular services. The next phase will be one of consolidation. Integrated players will no longer position themselves as CDMA or global system for mobile (GSM) companies. They will make bucket offerings to subscribers, with a lot of services bundled. This essentially means that there will be no need to subsidise tariffs.

Says Kobita Desai, principal analyst at Gartner India, the research company: “Move forward is the message that has been communicated. The steps taken in the recent past by the telecom regulator, the government and telcos have to some extent been able to convey this message. There is still a long way for India to go but the momentum has been set in motion.”