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More than in most years, our list of the 50 best big public companies in the region this year is a guide to the outfits that have real staying power. Companies that racked up big numbers when times were good had to show sterner stuff this year.
This is the fifth anniversary of the Fab 50, and no companies have shown more staying power than the seven that have made the list every year--Australia's Brambles, BHP Billiton and Woolworths; India's Infosys Technologies and Wipro; Hong Kong's Li and Fung; Taiwan's Hon Hai Precision Industry. But a few companies that have graced our list for four years--such as mainland wireless outfit China Mobile and Hong Kong retailer Esprit--saw their streaks end this time.
Full List: Asia's Fab 50
In Pictures: India's Billionaire Drop-Offs
Asia's 200 Best Under A Billion
The World's Biggest Companies
In Pictures: China's Richest
Our list is a mix of giant, established companies--this year that includes Australian miner BHP Billiton, Hong Kong conglomerate Noble Group and Indian oil-and-gas heavyweight Reliance Industries--and smaller outfits such as Agile Property Holdings, Anhui Conch Cement and Digital China Holdings. Note that all three of those upstarts are from China and new to the list.
The mainland's fast growth continues to toss up hot new companies that force themselves onto our honor roll. Indeed, China once again boasted the largest number of Fab 50 companies--16, or almost one-third of the list. When we compiled our first list in 2005, only five Chinese companies could crack it.
On that first list, Japan had the most companies--13--but in a sign of how that economy has stagnated, only four made the list this time.
Of the four Japanese companies on this year's list, three are making their first appearances as Asian Fab 50 companies, led by Komatsu, the world's second-largest maker of earth-moving equipment. In total, 20 rookies made their debuts on the Asia Fab 50. Most of the companies are based in China, led by SAIC Motor, one of China's "big six" automakers. After a one-year absence, Singapore made its presence felt again with its sole representative--also an Asia Fab 50 first-timer--Olam International, the world's largest supplier of cashew nuts.
From this year's list of Asia's Fab 50 companies, we highlight two companies from India that are leaders in their industry. Jindal Steel & Power, once a struggling factory, was transformed into India's most valuable steel producer after state-owned SAIL. Gree Electrical Appliances, led by Dong Mingzhu, currently vies with LG Electronics for the title of world's biggest maker of residential air conditioners.
How do companies make the Asia Fab 50?
This year we started with a universe of 910 companies with at least $3 billion in revenue or a $3 billion market capitalization. We whittle down the candidates by first looking at each company's five-year track record for revenue, operating earnings and return on capital. Then we look at the most recent results, share-price movements and the outlook for the year ahead. A loss in the last fiscal year knocks the company out. Judgment calls must be made, given the differences in transparency, accounting and conditions among countries. In the end, we think it's a valuable exercise that calls attention to great management and entrepreneurial skill.
As a business school student at the University of Texas at Dallas, Naveen Jindal noticed how his American pals flaunted their country's flag. Inspired, he got himself an Indian flag for his dorm room. On returning home in 1992 and put to work in the family's steel empire, Naveen ordered the national flag to be flown at the small, moneylosing factory that he was looking after in eastern India.
But three years later a bureaucrat who visited the plant directed the police to take the flag down. It turned out the Flag Code of India banned private citizens from displaying the national flag except on special occasions. Incensed by the archaic restriction, which he felt impinged on the fundamental right of free speech, Naveen, then all of 25, plunged into a nine-year legal battle with the government. It ended in 2004 when India's Supreme Court ruled in his favor and the Flag Code was amended.
Today Indians can display the orange-white-green of their tricolor even on T-shirts, declares Naveen, who's now a youthful 39 and a twice-elected member of parliament. He sports an Indian flag pin on his jacket. His run-in with the government inspired him to run for office in 2004 as a member of the Indian National Congress, which heads the current ruling coalition. "I had to do my bit to make the country of my dreams," says Naveen, explaining what motivated him.
He's brought the same sense of purpose to making the company of his dreams. He's transformed his struggling factory, which was once considered the black sheep of the family business, into Jindal Steel & Power, India's most valuable steel producer after state-owned sail. It's worth more than the much bigger Tata Steel. Although Jindal's annual capacity is only 3 million tons versus Tata's 30 million, its market cap is $11.8 billion, compared with Tata's $9 billion.
It's obvious why investors prefer Jindal. In the past eight years, note analysts at Deutsche Bank, it has been a star performer, consistently reporting operating margins of more than 40%. In the fiscal year ended in March, net income rose 85% to $585 million and revenue was up 55% to $2.1 billion. The standout performance earned the company a spot on the Fab 50 for the first time. Tata has also performed very well over the past several years--just not as well as Jindal--and makes the Fab 50 for the third year in a row.
Jindal was able to weather the economic downturn, say analysts, partly because it specializes in long steel products--rails and H beams--that are used in construction and remain in demand as India continues to build infrastructure. And it sells entirely in its home market, shielding it from the deep slump in steel demand in much of the rest of the world. Steel demand in India was flat last year, but a revival is now under way, with demand rising 6% in the quarter ended in June, says Prasad Baji, metals analyst at Edelweiss Capital, a financial services firm in Mumbai.
It also helps Jindal that it's among the country's lowest-cost steel producers. "If we keep costs low, we'll be the last one standing in a downturn," explains finance director Sushil Maroo. "And we prefer to cut costs through innovation." For example, Jindal makes steel using sponge iron, which allows it to use a greater proportion of cheap noncoking coal ($15 a ton) rather than imported coking coal ($160 a ton). Another plus: Jindal has its own coal and iron ore mines as well as power plants to feed its steel mills. This insulates it from rising raw material prices. Not only is the company fully integrated but its production system is also flexible. "We manage market swings by rejigging the output mix," says Chief Executive Vikrant Gujral.
No surprise that the company's stock has turned red-hot lately. Jindal has soared threefold this year, outperforming the 77% rise in the benchmark Sensex.
But it's not so much steel as Jindal's fast-rising and highly profitable energy business that's stoking investors' interest. In perennially power-starved India the company has made a killing in the short-term market as the country's first sizable merchant power producer. Although Jindal Steel's 1,335 megawatts is less than 1% of India's total power capacity, Deutsche Bank estimates that it earned 13% of the sector's profits in the last fiscal year.
To plug the country's energy deficit, the government changed the rules to permit private companies to sell power on the spot market rather than at regulated tariffs through long-term agreements with state electricity boards. Jindal already had experience setting up efficient power plants for its steel factories, so it jumped on the opportunity. It's paid off. In the June quarter power contributed 74% to Jindal's operating profit of $300 million.
This combination of steel and power puts Jindal Steel in unique territory, says Rakesh Arora, associate director, basic materials, at Macquarie Securities in Mumbai. "Every steel player is now trying to be like them."
Wannabes have a lot of catching up to do. Jindal Steel has already amassed huge raw material resources--iron ore and coal mines--that its competitors are now scrambling to match. It has a 230-million-ton coal mine near its steel-and-power complex in eastern India. Additionally, it has secured rights from the government to five additional coal blocks, with reserves of 2.2 billion tons--the largest allotment to any private company in the country.
Looking ahead, Naveen--who's Jindal Steel's executive vice chairman and managing director--has sought to capture resources wherever he could get them. In 2007 he outbid steel baron Lakshmi Mittal's Arcelor Mittal to snag the development rights for iron ore mines in Bolivia that have reserves of 20 billion tons; that's more than India's total iron ore reserves of 6 billion tons. Jindal promises to invest $2.1 billion there for mining and other projects that include a steel mill and power plant. Although doing business in landlocked Bolivia is a stiff challenge, Naveen says he's willing to sweat it out because "having one's own captive source of raw materials helps keep costs down and protects us against industry cycles."
Wearing a Nehru jacket over a striped shirt, he's seated in his New Delhi office. It's crammed with objects that reflect his many interests: polo, skeet shooting, exercise, flying. Modern art hangs on the wall; his wife, Shallu Jindal, is the art collector. On one shelf are models of planes and helicopters, several of which he's piloted. A glass case holds an array of his shooting medals. Next to his chair is an exercise machine fitted with a saddle that, at the push of a button, simulates a gentle trot. Although he owns 45 horses and a polo team, he can't go riding as often as he used to, hence the surrogate machine. Jindal executives are used to their fitness-obsessed boss conducting meetings perched on the saddle.
Of late his passion for sports has taken a backseat to keeping Jindal's bottom-line fit. "We have no aspirations to be number one," declares Naveen. "It's more important to be profitable and efficient than big."
It's a lesson he learned not at B-school but from his dad, the late Om Prakash Jindal, the founder of the $12-billion-in-revenue O.P. Jindal Group. Jindal senior, who never went beyond high school, started his career in the northern industrial town of Hisar as a trader in steel pipes, and went on to build a steel-and-power conglomerate. During his lifetime the patriarch informally divvied up the empire, handing down daily control of his companies to his four sons. Then he pursued a part-time career in politics. He was the energy minister in Haryana, his home state, when he died in a helicopter crash in 2005 at the age of 74. His wife, Savitri Jindal, took over that portfolio and chairs the group but has no operational role. She was ranked 234th on forbes asia's billionaires list in March with an estimated net worth of $2.7 billion.
Of the four brothers, Naveen, the youngest, was hardly the rising star. He was more interested in sports than in the family trade. But after he completed his M.B.A., his father took him under his wing, involving him in a small sponge-iron-based steel plant. "Though my father wasn't an engineer, he was a great one for experimenting and this was his newest baby," recalls Naveen.
But it was a problem child. The factory was beset by production glitches compounded by the poor quality of raw materials. Because the unit was losing money, it was hived off as a separate company and Naveen was put in charge. "I wasn't happy because all the decision making fell on me," he admits. "I didn't want all that responsibility."
It was a slog. He struggled to pay salaries and took a sleeping pill every night. The factory turned around after he persuaded his dad that their homegrown technology wasn't working and that the plant needed both technical help and new equipment. It was his father who saw that access to raw materials would be critical in the future, and he advised Naveen to secure his own. That spurred him to embark on a mine-acquisition binge at a time when such concessions were available on the cheap. This has given him an edge over rivals, including his siblings who run their own steel units under the Jindal umbrella.
Older brother Sajjan, whose JSW Steel produces 7.8 million tons a year, admits that his own focus on building new capacity rather than securing mining concessions proved to be a mistake. "I missed out," he says. "Now we're buying more resources." As for his younger sibling, he says, "He works with a focused mind. Naveen is consistent and persistent in everything he does."
And a bit of a risk-taker. Drawing up plans for Jindal Steel's foray into power generation with a 1,000-megawatt coal-fired plant, he first sought long-term customers. But he failed to ink a power purchase agreement with any state electricity board, which could've put the $900 million project in jeopardy. Confident that Jindal wouldn't lack customers, given India's thirst for energy, he persuaded a consortium of 15 banks to back the venture. "It was a calculated risk but we were pretty sure it would pay off," says Naveen, excusing himself to take a call on his cell hone from the chief minister of Haryana State.
Emboldened by his success, he's now crafting myriad strategies to cash in on his sizable resources. Notwithstanding his proclamations that he doesn't aspire to scale any rankings, he's drawn up plans for a big ramp-up of Jindal, including a public listing of its power arm. Over the next decade or so he proposes to add 17 million tons of steel capacity and 14,000 megawatts of power. While the economy has slowed, it's still growing at a fast 6% this year. And demand for steel and energy, he believes, will stay high.
Jindal's pipeline of new projects include a hydropower joint venture with the state government of Arunachal Pradesh and an ambitious project to process liquid petroleum from high-ash coal using German technology. Ever the resource hunter, he's also eyeing opportunities in oil-and-gas exploration. Subsidiary Jindal Petroleum has secured seven oil blocks, five in Georgia and one each in Bolivia and India.
Despite Jindal's recent track record, Macquarie's Arora has concerns about the group's ability to execute its megaplans: "Jindal's project-management capabilities will be tested as they enter uncharted territory." Naveen is unfazed: "We're in no hurry. We propose to expand in a modular manner, using the cash flow from one project for the next." Dad would have surely approved.
Additional reporting by Gady Epstein, Li Jie, Joann Muller, Anuradha Raghunathan and Russell Flannery.
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