India’s Entrepreneurial Spirit Key To Its Performance

To be a true value creator, a company has to be relevant to the society in which it operates, says T V Ramanathan, MD & CEO, Exide Industries, as he speaks of value creation in India and stresses on the importance of social relevance of a corporation in the process.

T V Ramanathan
MD & CEO,
Exide Industries

What is your perspective on value creation?

The term ‘economic value creation’ has had its fair share of controversy. Over the last several decades, different approaches have been considered to define the phrase. Some have used the stock market as a yardstick to calculate value. That is, value given by the stock market to a particular corporation. However, various market bubbles, for example the dot com bubble, have proved that it is not the most sustainable yardstick over a long period of time.
The book value approach also has its own problems. There are many assets hidden in a company that are difficult to quantify. For example, brand value, market reputation or employee quality. These are increasingly becoming more and more important and at the same time more and more difficult to evaluate.

The latest approach of Economic Value Added – EVA is perhaps the most foolproof method to calculate a corporation’s worth to the society and shareholders. That is, output minus input. Output is profit after tax and some other adjustments minus various costs. This method has no ambiguity as all the elements in this calculation are known to everyone.

To me, the social relevance of a corporation is also equally important. To be a true value creator, a company has to be relevant to the society in which it operates. Otherwise everything else becomes hollow.

Do you think Indian companies have succeeded in creating value in the true sense of the term?

Yes, I think there are many Indian companies that have created tremendous value. If I may give the examples of a few of our customers – the Tatas, the Mahindras, the Bajajs – these companies have created great value by operating within the various constraints of the Indian system. You also have the Aditya Birla Group, Wipro, Infosys – there are so many examples. They withstood the challenges of the opening up of the Indian economy two decades ago and grew despite having to face a number of global challenges.

At the same time, many perished because they couldn’t create value. But these companies and of course many others grew like the proverbial phoenix by adapting to the changing economic environment.

According to you, have shareholders reaped the benefits of capitalism in India? If not, what has been the real reason for this globally acclaimed ecosystem to have failed in the Indian context?

After economic liberalisation, I think Indian shareholders have indeed reaped the benefits of capitalism in India including our company Exide. Last year, we did a calculation and found that on the last working day of the financial year ended 2001-02 (March 28, 2002), if an investor had bought 100 shares of Exide Industries at the closing price of that day, he would have invested Rs 6450. 10 years down the line, on the last working day of the financial year 2011-12 (March 30, 2012), he would have 2133 shares worth Rs 318243.

This calculation is based on the assumption that the investor would have subscribed fully to the 1:15 rights issue of 2007-08 (record date December 17, 2007) at Rs 30 per share. And this, without taking into account the various dividends that have been paid every year for ten years.

Despite the challenges in the economic environment in the last two years, the Indian industry was able to perform much better than the Euro zone. This was possible only because of the entrepreneurial spirit – a hallmark of capitalism – unleashed by the economic liberalisation that happened two decades ago.

What are the challenges faced and strategies adopted by you for emerging among the top value creating companies today?

The journey for Exide has been challenging. There have been many difficult situations that we have faced together as a company. As part of the Indian economy, we are also affected by the ups and downs of the economy. Exide’s strength has been its people focus coupled with a strong marketing network and these two are ably supported by a very strong balance sheet and very understanding stakeholders. This ’Exide Family’ feeling has held us together and seen us through difficult times.

We have diversified into synergistic activities like lead smelting and inverter and UPS manufacture which have added tremendously to our value creation initiatives.

What is your vision for the Indian economy for the next five years?

As Indian economy gets more and more integrated with the global system, the global shocks will be felt in a more pronounced way. But overall, I see the Indian economy continuing on its growth trajectory. The government should create confidence for the private sector to invest in infrastructure projects, stable policies should avoid flip-flops and carefully balance between economic growth and environment management.

Where do you see your company fitting in this vision? Also, where do you see the company in the next five years?
Without sacrificing profitable growth, we should create sustainable economic environment with enhanced focus on societal responsibilities. We aspire to ensure minimum living standards in and around the areas where our production facilities are located.