NEW DELHI: Mitsui Sumitomo’s purchase of a 26% stake in Max New York Life, Daiichi Sankyo’s acquisition of Ranbaxy Laboratories and Nippon Life’s buying into the Reliance Anil Dhirubhai Ambani Group are not isolated instances of Japanese firms’ growing business interest in India Inc. After automobiles, pharma and insurance, the concentrated strategy of Japanese firms is to expand in India in areas like insurance, retail, advertising, auto parts, banking, cables, chemicals and logistics, among others. Experts said that several more such moves are in the pipeline.
“Around three dozen M&A deals are currently under consideration involving Indian and Japanese firms representing diverse sectors. With time, more announcements of Japanese investments in India will come to the fore,” said a senior partner at a leading consultancy firm. These business areas may include films, animation, graphics, fertilisers and food processing, which are far removed from the traditional investment destination of Japanese firms like automotive (Suzuki and Honda) or electronics (Panasonic and Canon).
However, this trend is not new, experts said. “The Indo-Japanese economic ties went on a growth trajectory after the visit of Prime Minister Manmohan Singh to Japan in 2006,” said a government official. According to information available from Indian and Japanese embassies and trade bodies, over half of the 900 Japanese firms that are currently operating in India came in in the last 50-60 months, with around 100 firms entering the country within the last two years via mergers and acquisitions. Foreign direct investment (FDI) inflows from Japan too have crossed Rs 7,200-crore in 2010-11, clocking a nearly 20-fold jump in just five years, show data from the commerce ministry. Japan is also India’s third largest source of FDI and Japanese companies have made cumulative investments of around $3 billion in India in the past two decades. According to a recent survey conducted by the Japan Bank for International Cooperation, India was ranked as the most promising overseas investment destination for Japanese companies for a long-term duration.
In the last 6-10 months alone, companies like Mitsubishi Electric, Kokuyo and Sumitomo have made inroads into India, acquiring substantial stakes in Indian firms like the Pune-based Messung Group, Camlin and Atlas Logistics which operate in non-traditional investment areas. Last November, Tokyo-based Mitsui bought a stake in online payment service provider Suvidhaa Infoserve for $12 million, while Toshiba and Hitachi tied up with the Sajjan Jindal Group and Chennai-based BGR Energy, respectively, to make turbines and generators. Mitsubishi is already partnering Larsen & Toubro to make boilers.
Explaining the reasons for the fast-growing Japanese interest in Indian firms, Rajiv Kumar, secretary general of Ficci, said: “With the India-Japan comprehensive economic partnership agreement (Cepa), there will be more announcements on the M&A front. India became the focus of the Japanese government in the last two-three year period. Indian companies provide good market and sound business fundamentals to Japanese partners and that is another reason why several deals are happening.”
“I personally know of several Indian companies engaged in business dialogue with their Japanese counterpart and more announcements will follow in next few months,” Kumar added.
The India-Japan Cepa, which was signed in February 2011, is expected to boost bilateral trade between the two countries to $25 billion from $10.3 billion currently. This is the first major trade deal India has signed with a developed country. On a government-to-government level, Japan has already assisted India in infrastructure development including the Delhi Metro and participation in the Delhi-Mumbai Industrial Corridor and Dedicated Freight Corridor projects.