Monday, October 25, 2010
MUMBAI / NEW DELHI - Bloomberg
This month, executives of his Essar Energy attended a conference hosted by Nigerian President Goodluck Jonathan to attract investors in the power grid. The officials, backed by $2 billion the company raised in April on the London Stock Exchange, also mulled other “business opportunities” around Africa, the company said.
Ruia, who controls the $15 billion Essar Group with his older brother, Shashi, is not alone. Billionaire countrymen Sunil Mittal, chairman of India’s largest mobile phone provider, Bharti Airtel; Adi Godrej, chairman of Godrej Consumer Products and Harsh Mariwala, founder of Marico, have fueled a $15.8 billion buying spree in Africa since January 2005.
“Africa looks remarkably similar to what India was 15 years ago,” said Firdhose Coovadia, director of Essar’s African operations. “We can’t lose this opportunity to replicate the low-cost, high-volume model we’ve perfected in India.”
Indian companies acquired or invested in at least 79 companies in Africa, chasing business in less crowded markets after growing in a home economy that expanded by an average 8.5 percent since April 2005.
Africa’s gross domestic product expanded 4.9 percent a year from 2000 to 2008, McKinsey & Co. said in a June report. The continent’s GDP will rise to $2.6 trillion by 2020 from $1.6 trillion in 2008.
The last frontier
Consumer spending may double to as much as $1.8 trillion by 2020 as infrastructure is built and farm output increases, the report said. That is the equivalent of adding a consumer market the size of Brazil.
“Africa is seen by the investing community as the last frontier,” said Walter Rossini, who manages $330 million in an India fund at Aletti Gestielle in Milan. “There is a higher risk, but then there is greater reward if the political situation remains stable over the next 10 years.”
Africa is new territory for Bharti, which paid $9 billion in June for mobile phone operations in 15 countries and will rebrand them by year’s end.
This month, Bharti executives sought advice at the Kenya offices of Bangalore-based Karuturi Global, the world’s largest rose-grower. Sai Ramakrishna Karuturi, the managing director, said Africa is driving his company’s success.
Six years ago, as he struggled to compete against flower growers in Africa and Europe with lower freight costs and larger tracts of land, he bought a small plot in Ethiopia. Sales since have grown 11-fold to $112.7 million in the fiscal year that ended March 31.
He leases 311,000 hectares of land - larger than the U.S. state of Rhode Island - in Ethiopia and Kenya, and his company sells more than half-a-billion roses a year.
“I got in on the ground floor, others got in on the second floor, but there’s a lot of floors left to go in Africa’s economic cycle,” Karuturi said. “Africa offered us a scale we could never reach in India.”
Indian acquisitions in Africa peaked in 2008, when companies closed 26 deals worth $3.1 billion. Those include the state-run Indian Farmers Fertiliser Cooperative’s $721 million purchase of Industries Chimiques du Senegal, an idle phosphates producer that once was the country’s largest industrial plant. Ernst & Young handled 11 deals since 2005.
“We are seeing Indian companies look at Africa in a major way,” said Anuj Chande, the London-based head of the South Asia Group at advisory and accounting firm Grant Thornton U.K. “Compared to India, valuations are quite attractive. We’re expecting to see a lot of midsize deals across a variety of sectors.”
Apollo Tyres, India’s second-biggest tiremaker by market value, bought Durban, South Africa-based Dunlop Tyres International for $62 million in April 2006. That gave Apollo two manufacturing plants and a retreading unit in South Africa and Zimbabwe, and brand rights to 32 African countries.
Adi Godrej bought a hair-color company in South Africa and a soap and body-lotion maker in Nigeria. His Mumbai-based Godrej Consumer Products gets 23 percent of its total sales outside India, including Africa.
Marico paid 520 million India rupees ($12 million) to buy the consumer division of Durban-based Enaleni Pharmaceuticals Consumer Division in October 2007. Two months ago, it bought South African health-care brand Ingwe for an undisclosed price.
Dabur India started shopping on the continent in 2004, when it bought a hair-care brand in Egypt and then a Nigerian cosmetics company.
“I am not even a fly on the wall in India, but in Ethiopia I am the largest investor, the second-largest employer after the government,” said Sai Ramakrishna Karuturi, whose company owns professional football and volleyball teams. “To do that in India, you have to be a Tata or an Ambani.”