India’s heady economic growth in the past five years has seen the number of listed companies with annual sales of at least $1 billion grow more than two-fold to a record 71.
The not-so-great news is that in the same period, neighbouring and sometimes rival China’s billion-dollar corporate club has increased 500% to 90 from just 18.
There is nothing particularly significant about crossing the $1 billion, or Rs4,100 crore, annual revenue mark. But $1 billion is often a psychological benchmark that tends to separate the big boys from the rest of the corporate pack.
Economists are not surprised at the jump in the number of such companies in India, up from 29 five years ago and through the fiscal year ended March.
It is the “rising tide effect”, notes Subir Gokarn, executive director and chief economist at credit rating agency Crisil Ltd. “With the economy on the high growth track, the environment is conducive to significant growth for businesses as well,” he says.
BILLION-DOLLAR CLUB (Graphic)
PETRO FIRMS REAP IN MEGA BUCKS (Graphic)
A Mint analysis of traded companies in Brazil, Russia, India and China, the so-called BRIC countries, shows that on this score at least, India and China have pulled far ahead of the pack.
Data from Bloomberg suggests that Brazil has 17 companies with annual revenues of more than $1 billion, compared with 11 in 2001. Russia has actually seen a drop in the number of $1 billion companies into single digits, from seven in 2001 to three in 2006.
The notion of BRICs as global powerhouses has taken root since a 2003 report by investment bank Goldman Sachs Group Inc. suggested that Brazil, Russia, India and China could be among the most dominant economies by 2050. These countries are forecast to hold a combined gross domestic product (GDP) of $14.951 trillion.
“We think the number of such opportunities over the years would be much larger,” says Mark Mobius, managing director of Franklin Templeton Investments. “China and India are unique in this respect. The internal market is so big that companies can continue to grow for many years without the market being saturated or glutted.”
According to Mobius, one prime example is the use of mobile telephony where China even now has only 45% penetration and India only 15%, and still growing. Many more sectors, according to him, would see such opportunities.
“Many people are dismissive of such mega trends as being too shallow or simplistic,” says Mobius. “However, over a period of time, one realizes that it is these trends which manifest themselves in growth of companies and even the economy,” he adds.
To be sure, the sudden and sustained appreciation of the rupee versus the US dollar has also a bearing on the swelling number of billion-dollar companies in India. The rupee has appreciated about 10% since January 2007 against the greenback. With the erosion of the value of the dollar against the rupee, Indian companies’ sales have grown faster in dollar terms than they otherwise would have.
Indeed, of the 71 firms, three companies clearly made it into the list because of the currency effect: Indian Bank, ABB Ltd and National Mineral Development Corp. Ltd. In the case of commercial banks, the net interest income is considered as revenue.
The list of Indian companies doesn’t include unlisted organizations such as the Gujarat Cooperative Milk Marketing Federation, which markets Amul dairy products. The federation said on Friday that its revenues have touched Rs4,277.84 crore in 2006-07, thus becoming the first $1 billion cooperative in India.
Clearly, India’s growth of billion-dollar businesses pales in comparison to China’s performance on this front. China also has an edge over India in the sheer size of its top business houses.
For?instance,?Indian?Oil?Corp. Ltd, the largest Indian company with revenues of $52.53 billion, is still less than half the size of its Chinese counterpart, China Petroleum and Chemical Corp., which is the largest Chinese company with revenues of $133.84 billion.
In fact, the latest Global Fortune 500, published by Fortune magazine, has only six Indian companies. In comparison, 20 Chinese firms are featured on the list. Still, Siddhartha Roy, economic advisor to Tata Sons, says that the two countries cannot be compared.
“The growth rates for the two countries are quite different,” says Roy. “We also have to take into account the fact that businesses in China have got much more support from their government. Look at China’s currency, for instance. It continues to be kept at an artificially low level.”
Irrespective of what China does, economists remain sanguine about India’s corporate houses. “The GDP will continue to grow and, with the growth, demand will also increase,” says Roy. “On the export front too, Indian businesses will continue to do well as they are competitive and cost-effective in the global markets.”
“I see this growth gaining momentum and a lot of it will be triggered by the need for businesses to stay in a position of competitiveness,” adds Crisil’s Gokarn. “This will result in consolidation giving birth to more billion-dollar companies in India.”
Indeed, the Mint analysis suggests some 13 listed Indian companies are likely to cross the $1 billion annual sales figure within the next 12 months.