2016: CEOs speak…

From The Hindu Business Line

Some top bosses of India Inc tell us how their sectors and companies will fare in the New Year

KRISHNAKUMAR NATARAJAN, MD & CEO, Mindtree

The year 2015 saw technology becoming the mainstream rather than just being an enabling function. Also, the app ecosystem is clearly more prevalent today and infrastructure to make these applications real, too, has improved.

What became a challenge for the industry was handling volatile currencies. The euro, pound and Australian dollar saw sharp swings, making it difficult to plan the business. We also saw more and more economies getting protectionist. The Indian IT industry is a global industry. A very small percentage of the revenue — from 1-2 per cent to a maximum of 7 per cent — comes from India. So the need to have a predictable operating environment at a global level is very important.

Growth targets for 2016

The way customers are adopting technology, and with businesses becoming more tech-driven, the demand for IT services will grow. But again, as customers want more for less, they will be more prudent in spending on technology. Just because a new innovative technology is there they may not use it unless there is a strong business case for it. But overall, I believe, in the next three-to-five years, technology spends will only be higher, even if in single digit, it will be significant given a large base.

For Mindtree, the first two quarters of FY16 have certainly been good with business growing in double digits.

In FY16, I think we will do better than the industry average; Q3 will see growth despite it being a seasonally weak quarter and some impact from Chennai operations due to rains. In FY17, we continue to see strong momentum in digital revenues.

The drivers for growth

For the next one year, I think North America has enough growth left. Our customers there haven’t turned cautious on IT spends. Europe is picking up fast, with all uncertainties around Greece and Portugal resolved in some manner. Industry segments which are serving the consumer may see the strongest growth — all those in retail, travel and hospitality may do well. Since the target for all these companies is customers in their 20-30s, the demand from this group will drive the usage of digital platforms.

In telecom, my view as an outsider is that it would continue to see difficulties. Not only are customer preferences changing, but companies are also stuck, having bought bandwidth for a large price, and with the average revenue per account diminishing. Unless there is a dramatic change in business model, companies will continue to struggle.

For oil and gas, 2016 may not be as bad, as the consensus is that the bottom in oil prices has already been reached. But again, with shale gas and companies in the alternate energy space in wind and solar getting bigger, the threat to the core business of oil companies remains. So they may see difficult times, going ahead.

The challenges

Competitive pressures in traditional services will certainly intensify, as customers want more for less and, today, customers don’t view switching as a risk. The currency, I think, may be more range-bound this year and not as volatile as in the last year.

Restrictions on work visas are not a big risk as the industry can innovate by evolving new models to deliver business. Today, physical presence is not the only way by which one can deliver services. If one needs to meet the client, video conferencing is as good. Also, over a period of time, I believe there will be more demand from markets in the East, such as China, and dependence on the developed markets will reduce.

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Increasing capacity to drive growth

TV NARENDRAN, MD, Tata Steel-India and South-East Asia

India’s steel imports grew almost 60 per cent in the current financial year compared to last year. The sharp increase in imports and predatory pricing have impacted the profitability of Indian producers. Steel prices in India have dropped 40 per cent in the last 18 months, while internationally, prices dropped roughly 30 per cent. Administrative support in terms of tariff and non-tariff barriers has given the much-needed relief, but slide in prices has negated the impact.

Growth targets for 2016
The government of India is aiming to scale up the country’s steel production to 300 million tonnes (MT) by 2025 from 81 MT in 2013-14. That’s almost four times its present capacity. The Indian steel industry is undoubtedly capable of achieving this target.

To meet the expected rise in demand, Indian steel makers are steadily increasing capacity. This year, we began a new chapter by dedicating the Kalinganagar Steel plant to the State of Odisha, which defines the vision of Tata Steel towards future growth and value creation for the company and its stakeholders. We are confident that the plant will achieve global benchmarks in steel production, technology and other performance parameters.

The drivers for growth
In 2016, India’s steel consumption is expected to grow 7 per cent due to higher economic activity against 2 per cent growth in consumption last year. This has and will help the steel industry cover the distance to a considerable extent.

The domestic steel industry is in need of a thrust from the Centre. More so, because India is the world’s third-biggest steel market after China and the US and one of the top six countries where demand is expected to rise next year. With the industry taking significant strides towards realising the ‘Make in India’ dream, a mix of safeguards against unfair imports and fresh government spending can spark a new period of growth.

The Indian steel industry is a core industry and one of the largest contributors to the country’s GDP. An industry that offers direct and indirect employment to over 7 lakh people needs to be nurtured during tough times.

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Banking on digital platform

DIPAK GUPTA, Joint Managing Director, Kotak Mahindra Bank

The year 2015 witnessed a series of changes in the banking industry. Several of these will result in structural transformations in the way people go about their banking.

Decisions made by regulators — be it the first rate hike by the Fed in about a decade, the introduction of the marginal cost of funding methodology, or the guidelines on recognition and resolution of stressed assets — have deeper macro-economic implications.

The RBI’s directive on the benchmark lending rate will help in quicker transmission and ensure banks become more competitive. This is likely to enhance their value in the long run and contribute to economic growth.

Outlook for 2016
Several banks, of course, have a challenge in managing growth, given their precarious capital positions. In 2016, the transformation of the banking sector will continue as all banks make their systems agile and prepare for competition from beyond banks. We will have to adapt readily while ensuring that the most secure experience is offered at all times in line with the ever-evolving technology.

At Kotak Mahindra Bank, we had an exciting run in 2015. The merger of ING Vysya Bank with Kotak Mahindra Bank has made us India’s fourth-largest private sector bank. Our physical presence is now spread across every nook and corner of India, while our digital services are being designed to enable simpler and seamless banking for customers from different walks of life, from both urban and rural areas.

Our proposed strategic investment in Airtel M Commerce Services for Payments Bank will help us service a larger customer base in the country. We will leverage our banking expertise to deepen financial access and fulfil all the financial needs of customers in rural and remote parts.

The drivers for growth
The bankruptcy code tabled in this winter session of Parliament helps to put a legal framework around insolvency and bankruptcy proceedings of non-financial firms. This will enable firms in financial turmoil to either restructure their assets or sell them off in a timely manner. The money recovered will help bankers and other lenders ensure that there is no blockage in the flow of funds. This will also ensure better planning and allocation of resources.

The challenges
A number of new banks, in the form of payments banks and small banks, will increase competitiveness amongst commercial banks. We will witness different working set-ups, where banks will not only focus on improving and delivering better products and services but also integrating with different entities for a holistic approach. The boundaries of the banking sector are increasingly getting blurred with alternate payment and transaction channels offered by financial technology companies and e-commerce websites.

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Expansion of fleet on cards

AJAY SINGH, Chairman and Managing Director, SpiceJet

For SpiceJet, 2015 was a remarkable year. Returning to profitability after seven quarters, registering the highest passenger load factor for eight consecutive months, remarkable improvement in operational efficiencies, restoring customer trust in the brand and thereby scripting one of the most euphoric turnarounds in the history of Indian aviation — 2015 was a year that enabled us to witness some of our greatest highs. And 2016, I hope, is up to give us a few more.

Growth targets for 2016
Growth is vital. However, trimming down costs while sustaining the growth momentum is crucial and is where the challenge lies. We expect that our current growth of around 20 per cent in the domestic markets will continue for the next eight to 12 months and thereafter stabilise at around 10-12 per cent. Apart from fleet expansion, we will continue our focus on enhancing our regional connectivity, which will witness a renewed thrust in 2016. Also, improving our service excellence at various levels and thereby enhancing the end-customer experience is an intangible target we would be looking at.

The drivers for growth
A combination of lower fuel costs, moderate capacity addition and strong passenger growth will drive growth in domestic aviation. I think the performance of the airline will continue to improve over previous years if the rupee remains stable and oil stays at $60-65 a barrel. Fleet expansion is what we are targeting subsequently for the next level of financial growth as it would help us increase frequency on profitable routes. Also, regional connectivity will continue to be one of our focus areas as we increase frequency in our existing routes and start some new flights.

The challenges
Aviation turbine fuel (ATF) has changed the dynamics of the industry. ATF has always been one of the biggest challenges for the industry as fuel prices in India have always been one of the highest in the world. Its current placidness has been one of the key factors rendering positivity to the sector.

Also, we need to set the company on a growth path for the next several years. We will focus on bringing down our structural, lease and maintenance costs and prepare for a time when oil prices will not be as benign as they are today.

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New markets, new products

ONKAR S KANWAR, Chairman, Apollo Tyres

For the Indian tyre industry, 2015 was a very challenging year. The Indian market witnessed sedate growth even as increasing imports from China continued, capturing nearly one-third of the truck-bus radial replacement market in India. This not only put at stake the capacity expansion plans of the domestic tyre manufacturers but also had a negative impact on the associated rubber industry. Besides, key reforms continued to be stalled due to the logjam in Parliament.

Growth targets for 2016
We are working towards gaining market share in all product segments. Apollo Tyres will increase its dominance in the truck-bus radial segment, wherein we have already announced plans to double capacity to 12,000 tyres a day from 6,000 tyres now. Given the growth of the radial tyres segment, we are converting part of our bias (non-radial) capacity at one of the plants in Kerala into high-value products. In 2015, there was a significant increase in the capacity of Off Highway tyres to 25 tonnes in our Kalamassery plant in Kerala and we plan to ramp it up further. European operations will gain from our recent acquisition of Germany-based tyre distributor Reifencom GmbH.

The drivers for growth
The key drivers for our growth would be entry into newer markets and products across geographies. Our sales offices in Thailand — for the Asean market, Dubai — for the West Asian region, South Africa and Australia, serviced by exports out of India and the Netherlands, are doing extremely well. We are hoping to see increased demand from these markets.

In India, we are hopeful of a further upswing in the commercial vehicles industry. This, in addition to the likelihood of opening of the mining segment, will help drive demand. Our association with Manchester United in 129 countries will further help increase our visibility and brand recall.

The challenges
Imports from China will continue to be one of the leading challenges. Cheap imports will have a cascading effect on other intermediaries, including rubber growers. Low-cost imports are putting at risk the entire ‘Make in India’ clarion call. Importantly, these companies do not have an understanding of the country’s requirements and this can have serious safety implications for consumers.

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