The Telegraph
Since 1st March, 1999
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Markets warm up to makeovers

Mumbai, June 29: Stock markets are taking a fresh look at manufacturing companies following the extensive restructuring the sector has gone through to become globally competitive.

After decades of making products that were primarily import substitutes for local markets, small and medium-scale firms are turning into outsourcing hubs. Some of them are opening offices in developed countries to market their wares.

“The last two to three years have seen these companies restructure in a major way,” said Jignesh Shah of ASK Raymond James. His comment is an indication that investors will value these firms more.

Companies have conducted financial and operational restructuring that has helped them return to their core competence and improve bottomlines, he added.

Firms have taken advantage of low interest rates by shuffling expensive loans while, at the same time, adopting measures to ramp up operational efficiency.

Thus companies in the auto and pharmaceutical industries have improved quality, delivery and scale to meet the demands of overseas customers. Pharma majors like Ranbaxy, Dr Reddy’s, Sun Pharma have created a niche for themselves in the global market. They have been followed by companies like Reliance, Tata Engineering, Mahindra & Mahindra, Larsen & Toubro and Engineers India.

Some, like Bharat Forge, Thermax and Crompton Greaves, have started reaping the benefits in a market that has changed the way it values them.

But the industry is more excited with the ventures of smaller engineering firms. Thermax, Crompton Greaves, Sundaram Clayton, Sundaram Fasteners, including small-and-mediumsized drug firms like Lupin, Shasun, Ipca Labs are being noticed as potential players.

The late 90s saw Indian software companies making an impact abroad. Now it is time for manufacturing, engineering, agrochemicals, pharmaceuticals sectors to rustle up the foreign markets.

Analysts say it started in the late 90s when a slowdown, excess capacities and liberal government policies favouring import of capital goods led to declining growth rates for the sector.

This led to a consolidation move in the sector as many weak players exited. The survivors drastically retuned their strategies by becoming leaner and more focussed on core competencies.

Incidentally, a few global majors have also realised the potential and are using the Indian manufacturing bases as global hubs. Companies like ABB, Cummins, Alstom Projects and even consumer goods major Hindustan Lever.

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