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Offlate, we’ve been reading about demergers and acquisitions going on in large conglomerates in India. GodrejRaymondTata Motors and others have started to demerge their businesses, some for common reasons like Family feud or derisking units or because SEBI asked them to. 

Demergers are usually considered as value unlocking activities. But there is a common pattern on how things are happening in the top offices of these large conglomerates or legacy companies in India. 

Tata Motors for example is separating its Commercial Vehicle (CV) and passenger vehicle business. Interestingly, their CV business revolves around ICE whereas their PV business is EV, also includes the JLR, and other related investments. 

You’d say okay, they just divided the companies basis technology, which will ease their operations and hiring. No? 

Yes, great observation. But you are half right. Read on. 

Where Is The Trend Leading Us?

Now look at what Raymond and Godrej have in common. Both companies have carried out a demerger where they have separated out units that are into aerospace and automotive manufacturing companies. Godrej group has Godrej and Boyce, whereas Raymond has an engineering BU where they have Maini Precision & JFKEL tools. Godrej & Boyce owns 3,400 acres of land in Mumbai, including a 3,000-acre parcel in Vikhroli, Mumbai. Whereas Raymond has a 100-acre land parcel in Pokhran Road II, situated next to Thane’s leading mall and a renowned hospital chain. Both the companies have consumer BUs as well. 

If you look at the Big4, they are also investing heavily into building software and allied tools for manufacturing. In fact, last year we came across certain Ads on Linkedin, placed by a large consulting firm about part localisation in India.

Bigtech is not behind. Companies like GoogleUber have been investing heavily into Automotive since the last decade. 

In all the cases you’d see a common thread. All these companies have started to look at their manufacturing BUs, especially the ones into Aerospace and Automotive with a new lens. And that’s where things get interesting. 

So How Does All This Matter?

In the last few years, we have seen a slow down in the services sector in India. The PMI was at 58.4 in October last year. The service industry is going through a rough patch. The job market is down as well here. But hey, there's a silver lining! Our government is pulling out all the stops to boost manufacturing, offering incentives like PLI, grants & subsidies. The start-ups like OlaAther, have been the early adopters of these incentives and have grown exponentially. The FOMO is spreading in the legacy companies. 

Mahindra & Mahindra, for example, has raised $145 million from Temasek for its electric vehicle unit at a valuation of up to Rs 805.8 billion ($9.8 billion) to ramp up EV sales! And they've been rolling out new vehicles left and right. Similarly other legacy players are raising even higher funds. 

More focus by large conglomerates in Engineering or Manufacturing, also leads to more Foreign Direct Investment (FDI) flowing into our country. Plus, focusing on manufacturing opens up doors for global partnerships, especially in the supply chain world. Supply chain is an important dimension to have collaborative ecosystem for the suppliers, distributors, logistics partners, and regulatory authorities. This is similar to what we have seen at Procurabl. Our deep expertise in varied electronic components, and the data intel that we have has led to us building partnerships across ecosystems. And eventually our customers reward us for the execution excellence by referring us to more such partners. 

Now when large conglomerates have the intel from data, existing execution excellence, FDI, and partnerships, that allows them to leverage the realty that they already own. Which leads them to building an ecosystem on the real estate they own. We won't be surprise if we see a logistics hub or a warehousing hub in these spaces in near future. 

Now this is a flywheel, with focus on manufacturing, comes the infra which means more jobs on the service spectrum, reducing the imbalance.

So, let's not see this industry drift as a rat race. Instead, there's a lot of good stuff coming our way in the next three years. 

Team Procurabl

May 14, 2024


Why are Indian Legacy Companies Splitting Their Businesses?

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