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Top 10 R&D spenders over the decade - Views on News from Equitymaster
 
 
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  • Apr 17, 2003

    Top 10 R&D spenders over the decade

    Research and Development (R&D) expense is a vital ingredient for the growth of a company, as new products and innovations are the life-blood for sustaining the growth in any industry. Let us evaluate India Inc.’s scorecard on this count.

    Although India’s share is very miniscule, research and development has come a long way. More and more companies are making a conscious effort towards R&D. Some of the relative new entrants in the field of R&D include Telco, ONGC and IOC. All three have started to spend on R&D post FY95. So on an 8-year CAGR basis, IOC and ONGC’s R&D spending has increased by over 16% each, while Telco’s spending has increased at a mere 3%. But if one compares the R&D expense with sales then the ratio is not too enthusing.

    Top 10 R&D spenders
    Top R&D spenders FY02
    (Rs m) R&D exp. % of Sales
    Dr. Reddy'S Laboratories Ltd. 980 6.0%
    Tata Engineering & Locomotive Co. Ltd. 924 1.3%
    Reliance Industries Ltd. 901 0.2%
    Bharat Electronics Ltd. 896 4.7%
    Bharat Heavy Electricals Ltd. 871 1.3%
    Oil & Natural Gas Corpn. Ltd. 803 0.4%
    Ranbaxy Laboratories Ltd. 771 3.4%
    Mahindra & Mahindra Ltd. 690 2.1%
    Indian Oil Corpn. Ltd. 686 0.1%
    I T I Ltd. 581 2.6%

    The top spenders in R&D continue to be pharma companies. Dr. Reddy’s has been the top spender in FY02 (Rs 980 m) with a 53% CAGR over the last decade (6% of sales). In the top 50 R&D investors there are 13 pharma companies, 10 companies from the auto industry and 5 from the software industry. This clearly indicates that pharma companies continue to rule the roost on the Indian R&D front.

    Among auto companies, Telco is the top R&D investor (Rs 924 m), R&D as 1.3% of sales. Two-wheeler companies have also upped R&D spends significantly over the last few years. Bajaj Auto’s spends have clocked a 37% CAGR on R&D. For that matter, even TVS Motors has been spending at 39% CAGR. This indicates that the companies are spending more in order to roll out new models on a regular basis, which would help them in saving their turf and keep them ahead in the race for market dominance.

    Company Name Sales CAGR* R&D exp. CAGR*
    Dr. Reddy'S Laboratories Ltd. 28.9% 52.8%
    Tata Engineering & Locomotive Co. Ltd. 10.0% 3.4%**
    Reliance Industries Ltd. 33.8% 22.5%
    Bharat Electronics Ltd. 9.7% 15.3%
    Bharat Heavy Electricals Ltd. 7.7% 7.0%
    Oil & Natural Gas Corpn. Ltd. 14.8% 19.4%**
    Ranbaxy Laboratories Ltd. 17.8% 19.3%**
    Mahindra & Mahindra Ltd. 11.4% 40.0%
    Indian Oil Corpn. Ltd. 16.6% 18.2%**
    I T I Ltd. 6.8% 25.4%

    * CAGR FY92-FY02   ** CAGR FY95-FY02

    In FY02, Hero Honda was the market leader with 51% share and Bajaj Auto had a 23% market share in the motorcycle segment. But in FY02, Bajaj Auto’s R&D spending has been 1% of sales, as compared to 0.2% of sales for Hero Honda. Bajaj Auto probably has been forced to spend more to keep its dominance in the two-wheeler segment intact. Also, Hero Honda till date has had Honda’s support on the technical side. But the higher spending by Bajaj Auto has reflected in market share tally in FY03. During the fiscal, Hero Honda gave away market share and finished with 44% of the motorcycle pie, whereas Bajaj Auto gained share (albeit marginally) to 25%. Of course, there are a lot of other reasons for a company’s success, but R&D is the stepping-stone for keeping ahead in the race.

    Tough R&D spending as a percentage of sales maybe high (5%-6%) for pharma companies, when compared globally, in absolute terms it is very small. Glaxo spends around US$ 27 bn on R&D as compared to Dr. Reddy’s humble Rs 980 m. But atleast companies have realized the importance of investing in R&D. With globalization in full swing, domestic companies have to compete aggressively by way of innovative products and services. This can either come from internal spending and investment, or if the companies are not capable, they can bring in strategic partners to help them bridge this technological gap.

     

     

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