THE WORLD, IT seems, is not enough to accommodate India Inc's rising ambitions. Driven by strong balance sheets and armed with rising cash accruals, corporates have begun to push their boundaries. Companies are spending aggressively to expand their global footprints either through acquisitions, capital expenditure (capex) or both.

Sample this: ET500 companies have seen their annual capex grow at an average rate of 23% during the past three years to touch around Rs 150,000 crore in FY07. It is now equivalent to over 15% of their gross book (book value of existing plant and machinery), up from 11% two years ago.

Moreover, with easy credit and low leverage balance sheets, Indian companies are waking up to the wonders of leveraged buyouts. In the first six months of CY07, there were close to seven deals that were over $1 billion in value, and nearly 11 deals were over $500 million. Many of these deals were for targets much larger than the acquiring company itself. Clearly, Indian companies today are no longer wary of acquiring companies bigger than themselves.

Most domestic companies are busy adding capacities across all sectors, which can help them to double their asset bases and production capacity in the next 3-4 years. ETIG had earlier estimated that India Inc may add close to Rs 5,00,000 crore in capex in the next five years.

Combining capex with aggressive mergers & acquisitions (M&As) can see Indian companies emerge as global leaders in many of their

segments. This has already started happening, with Tata Steel and Hindalco having emerged among the largest companies globally in their operating segments.

These apart, Suzlon Energy has emerged among the top five companies globally in the wind energy space. Suzlon has actively pursued an inorganic strategy to build scale and vertically integrate its business. It started off with Hansen, which allowed Suzlon to acquire gearbox-manufacturing capability.

This was followed by the larger buyout of REpower, which provided Suzlon with integrated manufacturing capabilities and gave it an entry into the lucrative European market. Europe accounts for nearly 50% of the global wind energy market.

The factors that have helped Indian companies are fast-growing and cash-rich domestic operations, easy availability of credit and under-leveraged balance sheets, which corporates are exploiting aggressively. Tata Steel and Hindalco have made several acquisitions to expand their market and enter higher value-added segments.

They also have the inherent advantage of being low-cost resource producers. These acquisitions have provided both Tata Steel and Hindalco with scale and are a natural fit with their existing businesses.

The same is the case with United Spirits, which has ensured a captive source of Scotch supplies through its acquisition of White & Mackay (W&M). India is among the fastest-growing scotch markets.

Despite being the largest domestic spirits player, United Spirits used to be constrained earlier because it never had a stable source of Scotch reserves.

However, it should be remembered that some of these acquisitions are expensive since companies have paid a premium to acquire these assets. Most of these acquisitions have been funded largely through borrowings, which increase the risk if credit flow dries up or the global economy slows down. Nevertheless, the confidence that these companies have shown in realising their dreams needs to be commended. For instance, when the W&M acquisition was announced, the market reacted positively, notwithstanding the higher leverage and debt burden that the deal would bring in. It's obvious that the market prefers growth to financial conservatism.

Domestic corporates are in the midst of what could be the largest ever capex cycle. India Inc had previously under-invested as companies were just emerging from the exuberance of the mid '90s. This was followed by a lean period during which, capex almost dried out and aggression gave way to caution. What followed was extensive restructuring, resulting in lay-offs, demergers, spin-offs and consolidation. This resulted in leaner operations and more focused companies.

However, when the economy began to grow in FY03, most companies found themselves under-prepared for the surge in demand that followed. The biggest capex is taking place in the infrastructure space, with companies in sectors like oil & gas, telecom services, metals, cement and power producers leading the pack. Leading this list is Bharti Airtel, which spent close to Rs 9,000 crore in capital work under progress last year, followed by ONGC, Reliance Industries, Reliance Communications, NTPC, IndianOil, HPCL, Tata Motors, Tata Steel, JSW Steel, Sterlite Industries and Grasim Industries, among others.

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