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Some of the new entrants in the BS1000 club are bucking the trend in more ways than one. In addition to robust results in a lacklustre environment, many are also investing in growth.
The people leading these companies are laying the road for future gains through both greenfield investments and acquisitions. Among them is Sanjay Sethi, managing director (MD) and chief executive officer (CEO) of Chalet Hotels. After a stint outside the company, he re-joined the firm in early 2018 with the intent of taking it public. The idea was to fuel growth, reduce debt at the time and also create a currency which could be used for mergers and acquisitions.
Chalet, a group company of K Raheja Corp, successfully listed in February 2019. The company runs seven hotels in partnership with global brands such as Marriott, Westin, Four Points by Sheraton and Novotel. The 2,500-room hotel chain is on an expansion path. “Greenfield is the largest growth play for us. We’ve got three hotels under development totalling up to about 650-odd rooms under construction,” Sethi said.
The company also has a few non-hotel assets, such as retail and commercial spaces in its portfolio, which are co-located with the hotel assets and complement the hotel assets. “We’ve got a couple of office towers and retail products in the portfolio, and there are two more office towers under development,” he said.
Dinesh Chandra Agarwal, Managing Director and CEO IndiaMART InterMESHDinesh Chandra Agarwal, Managing Director and CEO IndiaMART InterMESH
In February 2020, Chalet took the inorganic route to buy Novotel, Pune, which Sethi says is a departure for the company, adding, “While organic growth has been the mainstay, all options for growth will be examined.”
Another new entrant, diagnostics chain Metropolis Healthcare, has depended on local partnerships to fund growth, both before and after it went public in the first half of 2019. Its initial public offer was shortly after financial markets had been in turmoil because of debt issues at lending major Infrastructure Leasing & Financial Services (IL&FS). Investor sentiment was weak during the book-building process, recalled Ameera Shah, promoter and managing director of Metropolis. Everybody seemed to be in wait-and-watch mode, and there were calls to defer the issue by a year. The company decided to go ahead anyway.
“We, of course, decided to price the IPO at a discount to the price we would have got normally in a good market. But we thought that let’s leave money on the table for investors. It was a good decision that we made at the time, because investors very quickly were able to pocket good profits and that gave them more confidence to stay for the future,” said Shah.
From Sanjay Sethi to Ameera Shah, meet new entrants in BS1000 club
A key part of the growth has been through partnering with local laboratories. The idea, according to Shah, has been to seek synergies where the local partner can benefit from the company’s experience and the company can also learn from them in a way that ensures growth. One such partner was Desai Labs in Surat, with which it began an association 10 years ago, and acquired in 2007. It’s grown from a single lab, to having a significant presence with 16 per cent market share in the city, with revenue growing 10-15 times.
The focus on growth continues, though Shah admits that the macroeconomic situation has been challenging of late. She believes, however, that gains can continue. “We are in full investment mode. We continue to invest in new labs, new centres, and acquisitions,” she said.
Acquisitions found mention in the December 2019 results too, with the company announcing that it acquired four labs in the quarter, and was in the process of acquiring a 51 per cent stake in Shraddha Diagnostic Centre in Ahmedabad.
For Dinesh Chandra Agarwal, MD and CEO of IndiaMART InterMESH, partnering with and helping smaller businesses aided the company to grow and get listed. He recalled in his maiden annual report after going public that the company started with Rs 40,000 in seed capital. This has since grown to a company that has more than Rs 500 crore in annual revenues.
IndiaMART calls itself India’s largest online marketplace, where businesses can buy and sell products and services from each other. This online business-to-business (or ‘B2B’) marketplace has helped people like Faruck Mansuri, a small businessman in Rewa, Madhya Pradesh, buy a cutting machine, a weighing machine and a feather cleaning machine to help in his meat business. Piyush Jain, who inherited a swimming pool business, now offers 450 customisable products. His turnover has grown 10-fold and his geographic reach has extended beyond Delhi, to a network with more than 500 dealers and distributors.
Ameera Shah, Managing Director Metropolis HealthcareAmeera Shah, Managing Director Metropolis Healthcare
IndiaMART has a large base of micro, small and medium enterprises (MSMEs), and claims 5.5 million MSMEs listed on its platform, though it has lately also attracted large brands to its platform.
“We earn revenue primarily through the sale of subscription packages (available on a monthly, annual and multi-year basis) to suppliers, which offer a range of benefits, including the listing of their supplier storefronts on a priority basis, access to a lead management system, integrated access to third-party online payment gateways and access to request for quotes,” it said.
The route has worked well, as its revenues and profits have grown. It is also betting on innovation to reach out better to customers. Agarwal gives the example of how search is now possible in nine different Indian languages through voice commands on the platform. There have been other moves too, to attract its target customers. This includes investing in video and algorithmic matchmaking initiatives.
“Internet penetration among India’s MSMEs remains low, with 17 per cent of MSMEs using the internet for business purposes in 2017,” he said of the potential for growth, going ahead.
The company is making other investments too, to leverage the potential of smaller companies that are going digital.
IndiaMART InterMESH bought a 26 per cent stake in a mobile accounting software application in the first week of September. “We will continue to look for possible opportunities where we can make investments,” Agarwal said.
Another company which has been on a steady investment spree is Polycab India, which makes cables, wires, fans, lighting and other electrical equipment, and will invest Rs 300 crore of capex this year. The company has said that it has been investing a similar amount over the last five or six years. The company’s business has grown since then. So, relative to its business, the company has scaled back on expansion. However, it is in contrast to the rest of the private sector.
“A sharp decline in real fixed investment induced by a sluggish growth of real consumption has weighed down GDP (gross domestic product) growth,” noted the latest Economic Survey. It said that the contribution of industrial activities to the economy has fallen during 2009-14 and also during 2014-19. Manufacturing and construction segments have contributed to the slowdown.
Inder T Jaisinghani, Chairman and MD, Polycab IndiaInder T Jaisinghani, Chairman and MD, Polycab India
Polycab too has grown well in recent times, navigating the slowdown through reliance on markets outside India, too.
More growth lies ahead, believes Inder T Jaisinghani, chairman and managing director at Polycab India. “The increase in consumer spending, infrastructure growth, industrial investments, and the inevitable rise in nuclear, more affluent families will drive demand for innovative and premium products of the kind manufactured and sold by Polycab,” he said.
However, not all new entrants in the BS1000 have fared equally well. Some, like Sterling and Wilson Solar, had difficulty meeting debt obligations and their stock has been under pressure.
On the other hand, there is a big outlier — Indian Railway Catering and Tourism Corporation (IRCTC) — which has gone up six-fold in value since September 2019 from its IPO price, as investors have lapped up its shares.