+

Indian scenario post-1991 Liberalization

India saw an economic liberalization policy in 1991
It was an emerging market with
Information asymmetry
Regulation misguidance
Inefficient Judicial System
This caused friction in business interactions and resulted in
increase in market transaction cost

We got to acquire core competence in focus areas- Harsh Goenka, 1992

Acquisition based
1.
2.
3.
4.

Corporate strategy model

Exit from marginal profitable business

Identification of core sectors based on size, growth and market position
Target capitalization of Rs.120 billion
Long term management of portfolio of business

1991

1992

1993

1994

1995

1996

Construction of new plants, local (Goodyear) & international (SL) JV,

modernization, acquisition of Carbon & Chemical India (Total- Rs. 8.1bn)

Acquisition of Noida Power, JV & collaboration with Rolls Royce, Acquired

SAE (ABB affiliate) & international offices

Alliance with Airtouch (cellular), Sprint (service e-mail), Datacraft (WAN),

UK firm, NTT & ITOCHU (paging), NTT (telephone licenses)

JV (Dutch seed Co.), JV (French Co. flowers), Increased holding in Searle,

Aqua culture tech. deal with U.S. Firm

Indias first supermarket chain with Dairy Farm, Expansion of travel

agency business, sold liquor & pharmaceutical division

FINANCIAL
SERVICES

Mutual fund & assets management Co.

FINANCIAL
SERVICES

New textile machinery plant, JV with UK firm (Leather mfr), JV with

Hoerbiger, Austria (Valves), Cotton yarn exporting plant, Razor blades

TIRES

POWER

TELECOM

AGRIBUSINES
S

RETAIL

+ Business restructuring of RPG Enterprise

New
facilities
Expansions

Acquisition
Joint
ventures

Diversificati
on

Takeovers
International
ization

Refurbishm
ent

RPGs steps to restructure the firm

Diversified by regrouping themselves into related business
Relied on each sector to be financially self sustaining
Concept of cross holding inter company loans & investments
Asset disposition of non core business to reduce debt (Nylon tire cord business)
This reduced gross inefficiencies and promoted greater entrepreneurship

+ Business restructuring of RPG Enterprise

I. Equity Stake before Liberalization

Usual equity in large family owned firms: 25%

Goenka Family owned ~47% of equity in RPG

II. Investment strategy of Family-owned companies post liberalization

CompaiSelf sustainability in each sector (Financial) by raising funds through

1.
Internal sources of funds
2.
Capital Markets: Domestic & Foreign

Methodology of source evaluation: Relative costs and benefits of different sources of funds
1.
Firms own internal operations
2.
Domestic Capital Markets
3.
Foreign Capital Market
4.
Access to international markets
III. Overview of capital structure in 1995

Total loans from group companies as % of Total debt: 1.12%

Receivables from group companies as % of Total Sales: 1.86%

Investment in group companies as % of Total Net Worth: 13.52%

As can be seen, cross holding between Goenka companies persisted despite liberalization. This can be
due to
(i) Lower cost of funds
(ii) Inter-dependencies between group companies
(iii) Easy accessibility of funds
(iv) Phasing out of pre liberalization sources of funds
At the same time, absolute borrowings (CEAT, CESC) also increased significantly indicating positive
impact of liberalization on investor sentiment