Indian firms follow unique path

16 January 2012

NEW DELHI: Firms like Reliance Industries, Sun Pharmaceuticals and Hindustan Unilever are moving into categories beyond their original competencies in India, continuing the trend towards big conglomerates.

Reliance, one of India's biggest holding companies, and active in sectors from retail to energy, has entered the media industry via a tie-up with Network18 Group, the broadcaster.

This alliance was linked to Reliance's upcoming roll out of a 4G broadband wireless network, which will receive preferential access to Network18's content.

Channel [V], a TV station which is part of New Corp's Star India stable, has also launched the Spot Café Bar in New Delhi, a restaurant offering menus on iPads and a wide range of events. It intends to add 40 cafés in the next three years.

"We are a youth entertainment brand and want to reach out to every aspect patronized by the segment," Prem Kamath, EVP, Channel [V], told Knowledge at Wharton. "We want to extend the brand on the ground and place it where people can interact."

Hindustan Unilever, the FMCG manufacturer, has also opened several Bru World Cafés, thus entering the fast-growing out-of-home coffee market, currently worth around $185m.

Sun Pharmaceuticals, the healthcare giant, is setting up a new power plant, Mahindra & Mahindra, the automaker, is targeting the energy segment, and Hiranandani, the real estate specialist, is moving into power generation and hotels.

"People in India resonate a lot with brands," Sidharth Punshi, managing director of investment banking at JPMorgan, said. "If you can tap the consumer, then you grow with him."

Elsewhere, Piramal, present in fields like real estate and pharma, sold its formulations arm to Abbott as it sought to press into sectors such as financial services. By contrast RPG Enterprises, the power-to-technology group, is keen on entering healthcare.

"Today, a lot of the diversification is based on resources and vision. Companies want to de-risk from declining sectors and enter sunrise sectors like renewable energy and infrastructure with a long-term view," said Devinder Chawla, a partner at Ernst & Young, the advisory network.

However, this approach has its dangers. United Breweries launched an airline in 2003 which is now facing difficulties and MindTree, a software services provider, invested $11m in the smartphone category, a move it has since abandoned.

The Future Group, which began in retail and has also stretched into fields as varied as logistics and media, accrued a debt of $1.6bn, meaning it has started to divest various assets.

"At times companies can go too far without having a right strategy," said Punshi from JPMorgan.

Data sourced from Knowledge at Wharton; additional content by Warc staff