Vinod Saraf, who built specialty chemicals business Vinati Organics from scratch, has been conservative in foraying into new areas, despite the advantage of launching it just before economic liberalisation in 1991. He continued with flagship product Iso Butyl Benzene (IBB) until 2007, and diversified into manufacturing acrylamide tertiary-butyl sulfonic acid (ATBS) in 2006, key ingredients used in pharmaceuticals and oil.

Vinati, the world’s largest manufacturer of IBB and ATBS, has a 65% market share globally for both products. Around 75% of its production is exported. The company reported an EBITDA margin of 37% — ₹353-crore EBITDA on a revenue of ₹954 crore — last fiscal. Net profit fell 19% year-on-year to ₹269 crore due to Covid-led disruptions.

Sticking to the knitting has paid off for India’s leading emerging companies, despite economic headwinds.. Almost all the top 10 high EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin-generating companies in Fortune India’s Next 500 list (excluding financial institutions) are single-business companies.

India Grid Trust, which made its debut this year at 48th rank, reported the highest EBITDA margin at 84.71% among the Next 500 companies. One of the largest infrastructure investment trusts (InvITs) focused on power transmission and sponsored by private equity giant KKR, the company posted an EBITDA of ₹1,421 crore on a revenue of ₹1,677 crore in FY21. However, net profit declined 34% year-on-year to ₹334 crore due to lower energy consumption during lockdown. The trust, which owns 7,570 km of transmission lines and 100 MW of solar assets, has ₹11,796-crore net debt.

Its peer, IRB InvIT Fund, also a first-time entrant at rank 213, reported an EBITDA margin of 80.2% in FY21. With a portfolio of 20 road projects, including seven national highways under operations and maintenance (O&M) contract, the trust, sponsored by IRB Infrastructure Developers, claims to have a 20% share in the ambitious Golden Quadrilateral project. The company’s EBITDA stood at ₹917 crore in FY21, on a revenue of ₹1,143 crore, due to underlying matured toll road assets and low maintenance cost.

CLP Wind Farms India Pvt. Ltd., the Indian arm of CLP group, comes third with an EBITDA margin of 75.32%, and ranks 397th on the list. Among financial institutions, Credit Suisse AG had the highest margin at 87.39%, followed by Repco Home Finance with 86.75%.

As American writer Max Lerner once said, the turning point in the process of growing up is when one discovers the core strength that survives all hurt. The last two years have been a testing time for businesses in India. Almost all the high EBITDA margin-generating companies faced negative revenue growth in FY21. However, they managed to survive with lesser profit and bounced back as the economy gathered steam, mainly due to their focus on core competencies.

Cautious Additions

Expansion around the core strength is necessary for gaining size and scale, says Vinati Saraf Mutreja, MD and CEO, Vinati Organics, and the eldest daughter of Vinod Saraf. “All these years we were focused on optimising performance and improving profitability rather than diversifying into unknown areas. However, staying with a single-business line will not help in gaining size and scale. That is why we leveraged the core strength and built the ATBS business, which is similar to IBB,” she adds.

Achieving size and scale is not easy in a single line of business, and hence, focus is key. Forward and backward integration and addition of supporting facilities are necessary to consolidate the core business. Anything outside the ambit of the existing business is difficult to be nurtured, especially during a financial crisis.

When Ravi Modi, the promoter of Vedanta Fashions, owner of men’s ethnic wear brand Manyavar, wanted to diversify into women’s wear, finding the right fix was the most difficult. After trying out several outfits for two-and-a-half years, Modi zeroed in on sarees and lehengas. Though it was a natural extension, working outside core business areas was not an easy task.

Infrastructure optimisation, operational efficiency and cost reduction despite disruption in the global supply chain owing to the Covid-19 pandemic has helped APM Terminals-owned Pipavav Port clock decent EBITDA margins, says a senior executive of the company. “We are one of the few ports in India to have LPG rail siding within the port (a dedicated rail line for safer and faster evacuation of LPG), which can accommodate the full rake. It has increased our efficiency in LPG handling. We evacuated more than 200 rakes since the commissioning of the LPG rail siding last year,” he adds.

Gujarat Pipavav Port Ltd., renamed as APM Terminals Pipavav, had an EBITDA margin of 57.55% in FY21. It posted a profit of ₹222 crore during the fiscal, down 30.5% year-on-year. The private port is investing in upgrading its facility to handle bigger ships and expanding container capacity. Its annual cargo-handling capacity includes 1.35 million, 20-foot equivalent unit containers, 4 million tonnes of dry bulk, 2 million tonnes of liquid bulk and 2.5 lakh passenger cars.

Core competency enables companies deliver unique value to customers, global management consulting firm Bain & Company said in one of its recent reports. Companies focused on tcore strengths create sustainable competitive advantages, which help them foray into related businesses/markets.

Better Longevity

In order to build on core strengths, companies rely majorly on technology and talent. “Getting the right people and latest technologies are important for any business. But companies focused on their inherent strengths will fetch a better value out of it,” says Vedant Modi, chief marketing officer, Vedant Fashions.

The apparel retailer has been able to build an asset light-business, thanks to technology support. “Technology is as important as designing, merchandising and marketing for us. It connects workers at the back end as well as franchisees at the front end. We have a tech-driven proprietary inventory management system to understand customer requirements better,” he adds.

Understanding core competencies allows companies to invest in strengths that differentiate them from rivals. “One of the key facets of our operations is our reliability centric approach to maintenance through focus on technology, along with a zero defect and zero negligence mindset towards achieving operational excellence,” says Harsh Shah, CEO, India Grid Trust. The company has implemented an AI-enabled platform for monitoring power transmission assets and preventing outages. It has a unique business model where the InvIT focuses on distributing 90% of free cash flows to stakeholders.

Around 95% of IRB InvIT Fund’s toll revenue is collected through FASTag. Revision of toll tariff helps in improving the EBIDTA margin of the company, says Vinod Kumar Menon, executive director, IRB Infrastructure Pvt. Ltd.

Computer Age Management Services Ltd. (CAMS), a registrar and transfer agent of mutual funds, is also building on its core competencies with the assistance of technology. The company has launched initiatives, including smart statement and digital portal for intermediary commission management. Application programming interfaces (APIs) have powered its distribution channels. The bet on technology has paid off. The company reported an EBITDA margin of 42% — ₹296 crore EBITDA on a revenue of ₹706 crore — in FY21. Profit rose 19.5% year-on-year to ₹205 crore.

Biggies, including the Tatas, RIL and the Aditya Birla Group, are also stressing on core competencies in each of their businesses to achieve growth, even in adverse conditions such as economic headwinds, price fluctuations and material shortages. The focus on competencies helped Tata Motors file 80 patents in 2020, while it received 98 patents. Overall, TCS has filed 6,169 applications and has been granted 2,100 patents as of September 2021. In 2020-21, RIL filed 91 patent applications, and got 137 granted from previous filings.

A sharper focus on core offerings is clearly the way ahead for India Inc.

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