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Good morning. Two multinational companies are said to be returning to India. While French retail giant Carrefour’s return is more certain, that of Ford Motors is still in the works. What’s making these companies come back to India for business? Read on to know more. 

In other news, India’s cement companies haven’t done well this year, and that is unlikely to change for now. Meanwhile, our daily podcast The Core Report, hosted by founder-editor Govindraj Ethiraj, has made it to Goodpod’s monthly ‘Top 28 Business News Podcasts’ list alongside podcasts from the Wall Street Journal, Financial Times, Bloomberg and Morning Brew. We’re of course absolutely thrilled. If you don’t already listen to the daily podcast, do tune in!

THE TAKE

What’s Luring Back Global Companies To India?

One swallow does not make a summer. But could the return of one or potentially two multinationals in quick succession reflect the relative resilience of the Indian market, and be a small turning point of sorts? On Monday, the $98 billion French retail giant Carrefour announced they would return to India with a fresh partnership. The company had exited India a decade ago. On Wednesday it was reported that Ford Motors, which shut shop in India in 2021 leaving car owners panicking, is discussing buying its old plant. This will the third time the company is making a return to India.

India is not an easy market as many companies have learnt the hard way. It takes years to find the real, addressable market for a product or service. Designing the right approach for India’s highly value-conscious consumers can take longer. There is also no guarantee that the markets will always grow. Take, for example, electric vehicles. This is a logical product for a price-sensitive customer who has to shell out more than Rs 100 per litre for petrol. Electric two-wheelers and three-wheelers are selling well in India but electric cars are slowing down. Hybrid cars now seem more attractive and allow car owners to hedge against a fully electric car which has some charging infrastructure limitations.

Tesla, which seemed to be gung ho about entering India, clearly found that it would only make sense to export cars into India and not set up a greenfield plant. Tesla’s cars are clearly beyond the average customer's reach. But everything has a context.

After Donald Trump came to power in 2016, America started making it difficult for Chinese imports. Companies started considering moving manufacturing to countries like India.

India has had its own problems with China, particularly at the border and flowing into trade matters too. However, global multinationals who are retreating into their primary markets are likely discovering their own markets are not growing much or growing in a limited way. This is particularly true as the post-pandemic surge in spending is now ebbing the world over.

China is a big factor too. Chinese demand is not recovering even as the country continues to reel from the fallout of the housing crisis. Demand is weakening because of which global oil prices are sliding right now. If countries can’t sell more to China, from within or from outside, that’s a major growth market off the table. Other countries like Russia are not in the reckoning, remember many American brands like McDonald’s have departed after its invasion of Ukraine.

A Yale School of Management report, first published in January this year and since updated, said around 1,000 companies publicly announced they were curtailing operations in Russia. Meanwhile, India is a broad market where premium customers are continuing to grow, though with some fits and starts. Some 10 crore customers with strong purchasing power cannot be ignored by any brand, anywhere in the world. India has also evolved into a dependable manufacturing cum export base.

Remember companies like Maruti export around 14% of their production. This amounted to 2.8 lakh cars last year, a large number. Other global car majors are also exporting from India even as they sell to the domestic market. Ford is reportedly looking at both the domestic and global markets with fresh eyes. Many multinational pharma companies have pulled back from the domestic market in India but they have expanded their R&D presence to serve their parent firms. Many manufacture generic drugs here to export overseas

Carrefour, which has 14,000 stores in 40 countries, says it will launch in India next year. Carrefour and Ford have another thing in common. Both came in with joint venture partners that did not work out. They must have realised that there have been fairly successful foreign ventures in India in recent decades in their own sectors, including joint ventures. 

Remember, Walmart is in India, though not in the way people first thought they would, nor did Walmart itself. The company course corrected to focus on e-commerce for Indian consumers and the India manufacturing base for exports. There is a fairly obvious reason why some companies evolve and adapt faster to India and its multi-layer opportunities.

That is mostly to do with people. The successful companies had the right ones driving it.

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CO:RELATIONS

A Not So Strong Year For Cement

Cement company shares have had tepid 2024 growth in 2024, with most listed cement companies underperforming at the benchmark indices like the Nifty and the Sensex. The fine print tells us the remainder of the year will not be any better. In the first quarter of 2024-25, the average realisation or operating profit of these companies was lower than a year ago. That was despite a fall in fuel prices. That shows the demand weakened due to seasonality and general elections. The government infrastructure spending on physical transport structures and housing slowed. 

India Ratings, an affiliate of credit ratings agency FITCH, expects higher government spending to boost demand in the second half of 2024-25. However, it could be reflected in the bottom line much later. A ramp-up in overall cement capacity could start pushing more output to the market in 2024-25 and put pricing pressure.

CORE NUMBER

Rs 115 crore

This is the bank guarantees of telcos that India’s telecom regulator has asked the Department of Telecommunications (DoT) to encash for non-payment of penalties. The penalties have been imposed on telecom companies by the Telecom Regulatory Authority of India (TRAI) for not curbing spam calls and messages. Of the total amount, Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd owe the largest amount, about Rs 50 crore, for defaults over 8-10 years.

FROM THE PERIPHERY

—📱 Samsung is slashing jobs in its Indian unit after poor sales led to its lowest market share in a decade. According to a Moneycontrol report, layoffs could affect as high as 20% of its Indian workforce across sales, marketing and operations. A restructuring of its smartphone, consumer electronics and home appliances divisions has already seen key executives exit, with no fresh hiring in place. Meanwhile, a worker strike at the Chennai factory has stalled production, just before the festive season. Samsung faces fierce competition from Xiaomi and Vivo, losing over 30 senior executives in retail, marketing and business development roles to rivals.

—✈️ The Delhi High Court upheld an August 14 order requiring SpiceJet to ground two planes by August 16 and return the engines to lessors Team France 01 SAS and Sunbird France 02 SAS due to unpaid lease rentals. SpiceJet sought a stay, but the division bench rejected it. The Ajay Singh-led airline faces legal battles from lessors, financial troubles, and market share losses. Despite plans to raise Rs 3,000 crore, SpiceJet struggles with a negative cash flow of Rs 613 crore, hindering its operations and efforts to reintegrate grounded aircraft. 

—🛑 Airport workers at Kenya’s main international airport went on strike on Wednesday to protest against a deal between the country’s government and the Adani Group, which would see the Indian conglomerate renovating and running the airport for 30 years. According to the Kenya Airport Workers’ Union, the deal would lead to job losses, and adversely affect remaining employees. The strike has led to planes being grounded and scores of passengers stuck at the airport. The deal was halted by a court in Kenya on Monday.

—🥊 Hindenburg Research, which has hit out at Securities and Exchange Board (SEBI) chairperson Madhabi Puri Buch several times over the last few weeks, said in a recent X post that she has maintained “complete silence” for weeks on the allegations against her. It also added that new allegations that have emerged suggest that a private consulting firm, promoted by Buch accepted payments from several listed companies including Mahindra & Mahindra, ICICI Bank, Dr. Reddy’s and Pidilite while she was a whole-time member of the SEBI. The allegation was made by the opposition Congress, which previously accused her of receiving income from ICICI Bank after she became a full-time SEBI member.

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