Emerson bets big on India, eyes 42% hike in sales

US-based multinational to invest Rs 1,000 crore over five years

At a time when investments are slowing down and large Indian corporates are deferring projects, one US-based multinational is betting big on emerging markets including India.  Emerson, a $24 billion conglomerate known for its compressors,  industrial control valves and uniterrupted power supply systems, hopes to increase its India sales to $1 billion (about Rs 5,000 crore) by 2015. In an email interview with the Business Standard Emerson's president and chief operating officer Ed Monser shares the company's India plans.

Why is Emerson bullish on India? The company in its 2012 outlook expects emerging markets to show strong growth.

A lot of what Emerson offers by way of technology and engineering solutions is focused on automation and power management. We do this with energy efficiency in mind. This means that when any market is experiencing an infrastructure boom or significant economic growth, like India, it is  a market that is ripe for Emerson technology solutions.  Markets where more power, delivered more efficiently are needed are good markets for us. The fact that we have invested in 15 major facilities across the country and 100-plus offices is testament to our commitment to India.

We deliver our technology solutions in India through four core businesses. Emerson Network Power focuses on back-up power systems, precision cooling and connectivity technologies for data centres and telecommunications networks. Emerson Process Management enables process industries with better plant management through intelligent control systems and software. Emerson Industrial Automation improves manufacturing productivity for a range of industries by offering fluid automation to electrical drives and power-generation technologies. Finally, Emerson Climate Technologies enhances household and commercial comfort, plus food safety and energy efficiency via air-conditioning, refrigeration and heating technologies.

As India builds out its infrastructure, improves its efficiency standards and looks to optimize manufacturing efficiency, Emerson is ready with technology and engineering solutions. Moreover we are also focused on developing new solutions that meet the needs of our customers in India. That is  why we have nearly 4,000 of our 8,000-plus India employees focused on engineering and innovation.

Globally Emerson expects sales to grow at 4-6 percent in 2012. What is the sales guidance for India and which business segments will be the drivers of growth?

Over the last few years, we have experienced growth in the double-digit range in India. Our economic outlook for India is for gross fixed investment to grow over 9 percent during the next five years. So we expect to see continued growth in India across all of our core businesses during this period. We are targeting to have sales of $1 billion  (about Rs 5,000 crore ) in India by 2015.

Investment climate in India has been subdued in recent times. Infrastructure and construction projects have been deferred or are stuck. How is this impacting Emerson's business in India? Please share revenue and profit performance for the company's India operations in FY 2012. What have been the challenges to growth in India?

We did well in fiscal year 2011 with sales of approximately $700 million in India (about Rs 3500 crore). We are targeting to reach $1 billion in sales in India by 2015. Our focus continues to be on major sectors like oil and gas and power generation, all of which are growing. While growth may have slowed down a bit this year, nothing has been cancelled. It has only been deferred. It is  also important to note that overall trends show growth in infrastructure and that metals, oil and gas and power as sectors will do very well in the future.

Emerson recognizes that infrastructure development is the driving force behind economic growth in India. Better infrastructure will lower business costs in the country and enhance GDP growth. We have a lot of experience helping emerging markets improve their infrastructure.

What are Emerson's expansion plans in India? What investment does the company plan to make in FY 2013 (calendar year 2012) and in which sectors? Is Emerson looking at developing India as an export centre for its products?

India is one of Emerson's top emerging markets and is already the second largest market in Asia-Pacific for us. Presently, 35 percent of Emerson is  global sales are from emerging markets. We expect this to reach 45 percent in 2015. Our investments are based on a model of growth from emerging markets customers and we base our India investments on this model. Emerson has made investments in India of about $750 million to 800 million (Rs 3,500-Rs 4,000 crore)  in the last three to four years across all business units. One example is our Emerson Process Management investment in Chennai when we acquired Fisher Sanmar.

Emerson in India has invested significantly to serve the local market and over 90 percent of what we sell in India is domestically produced. We are also exporting some products made in India to the Middle East and other parts of Asia. We view India not as a low-cost market but as a best-cost market.

Our focus in India is on manufacturing best-in-class engineering products. For example, some of our industrial valves and process valves being used in the oil and gas industries in the Middle East where quality is absolutely vital from a safety standpoint are made in India. We also export compressors for the air conditioning and refrigeration industries and alternators. We have built significant global engineering capabilities in India. So, for example, wherever Emerson is working on a refinery project, our India engineers are usually involved from a project engineering standpoint.

In the next four years Emerson is looking at $5-6 billion worth of acquisitions which is higher than the initial target ($4-5 billion).  Can you share the reason for the hike in target? Are you looking at acquisitions in India and in which sectors? By when do you propose to close the acquisitions in India?

We have made quite a few acquisitions in India in the recent past. We are always open to considering acquisitions that are aligned to our business strategy. India is obviously one of our target markets.  We do not have any announcements at this time. 
 
Emerson plans to focus on three growth initiatives (portfolio management, strategic investments and emerging markets) to achieve sales growth in 2011-2015. How is this strategy being implemented in relation to and in India?

In terms of portfolio management, it means we are repositioning our portfolio of businesses into higher growth and more profitable markets. We will be pursuing acquisitions globally that align with our value-creation strategy. We will continue to make strategic investments in innovation and marketing for our core businesses (process management, network power, industrial automation, and climate technologies). Obviously India is one of our emerging markets and we will continue to invest in this market because we see more potential for growth.

What are Emerson's fundraising plans to support its ongoing and future projects in India? Is Emerson India planning to raise funds from Indian markets from the debt or equity route? Please share details.

We do not comment publicly on the details of our specific financing arrangements, but I can tell you we had another solid performance in cash flow from operations in fiscal 2011 at $3.2 billion. Generating strong cash flow continues to be one of our highest priorities. In fact, Emerson generated nearly $16 billion of operating cash flow during the past five years. A strong cash position allows us to invest in growth programs, fund acquisitions the types of activities we have been doing in India and will continue to do in the future  as well as provide consistent, long-term value returns for shareholders.

How much does India contribute to Emerson's total consolidated revenue?

Global sales in fiscal 2011 were $24.2 billion and India's contribution to this was $700 million.

Will you be able to share details on proposed investment by Emerson in India?

Emerson will be targeting India-specific investment of $35-40 million (Rs 175-200 crore)  annually over the next five years.  We invest as we see good opportunities. We make investments to enable both organic and inorganic growth and we evaluate these investment opportunities for the business impact they can make on Emerson as a whole.