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Mast Kalandar: A North Indian Restaurant in South India

2011-03-17T21:02:00.007+05:30

http://www.business.in.com/article/work-in-progress/a-north-indian-restaurant-in-south-india/22502/1

A North Indian Restaurant in South India

Pallavi and Gaurav Jain pulled a rabbit out of their hat by running a successful North Indian restaurant chain in South India. Now, they want to try their luck in the rest of the country

by Rohin Dharmakumar | Feb 22, 2011

In February 2005, a group of 10 restaurant staff couldn’t believe their ears when they heard their new employers talk. They were standing in a stuffy, under-construction restaurant - to be called Mast Kalandar - in Bannerghatta Road, a Bangalore suburb, that would be their workplace when it was ready. But what the chefs, waiters and helpers were thinking was: Were their employers, a young couple, ready for the restaurant business?

"Because our food is going to be just like homemade food, we will use only quality ingredients we use at home, such as MDH spice mixes, Annapurna flour, sunflower oil or Amul butter and cheese," said 34-year-old Pallavi Jain. "Our food costs will be higher than other restaurants by 10 percent," said a chef. "We can’t sustain it."

Gaurav Jain, 37, added, "We will cook all our lunch and dinner meals fresh, every day." Another voice quipped back, "In hotels and restaurants, food is usually prepared once, cooled and then reheated when ordered. Cooking and serving everything fresh, two times a day, won’t work."

Either the couple wasn’t grasping the gravity of the situation, or they were plain suicidal.

Then Pallavi said, "Oh, and we will not have deep freezers in our kitchens because we will only use fresh ingredients in our cooking, like in our homes."

"You’re both mad," said one of the staff, hoping his stark comment would probably knock some sense into the obviously inexperienced couple. "This won’t survive," he said. The staff didn’t think that the Rs. 18 lakh, part of their life’s savings that the couple had sunk into the business, would pay off.

He was wrong. In fact, the next year the couple opened a second outlet in Bangalore. Then a third, and a fourth. After a couple of years, the sunny yellow outlets even started popping up in Hyderabad and Chennai. Hard-nosed venture capitalists committed to investing serious money in the chain, nearly $5 million in all.

Today, Mast Kalandar has 22 outlets and a clear plan to reach 100 before the end of next year. And then, 500 more.

And all this using the almost bland cuisine positioning: "Authentic, vegetarian, homemade style North Indian food." Wasn’t eating out all about escaping homemade food?

Homemade, but not at Home

Well yes, and no. Increasingly, there’s a new category of customers frequenting restaurants: They eat out or order in because they don’t want the hassle of cooking at home. They include working professionals who don’t have the time or knowledge for everyday cooking, or newly married working couples who don’t want to deal with dirty vessels, maids and grocery.

That is the primary market Mast Kalandar is targeting.

"We’d like to think of ourselves in the ‘home meal replacement’ category," says Gaurav. He is from Uttar Pradesh and Pallavi, the company’s COO and food strategist, from Punjab. When their jobs got them to Bangalore, they started looking for regular eating out options, light on their stomachs and wallets. There weren’t many.

Things came to a head one day when, after a night of playing Scrabble with their friends, they decided to head out for an early lunch. "We couldn’t agree upon a single place that served North Indian food that all of us would like. So, we came back home and cooked khichdi instead," says Gaurav.

That incident formed the nucleus for the Jains’ first outlet.

Cracking the Iceberg

A restaurant is like an iceberg. What the customer sees is only the tip. The real factors that are behind the success or failure of a restaurant are the ones behind closed doors: The complexity of preparing the dishes, the real estate costs, the supply chain for procuring and transporting ingredients across outlets or tweaks to the standard menu relative to local customer preferences.

Getting even one of them wrong can scuttle a restaurant’s chances of making it through the notoriously high rate of failure in the industry. Mast Kalandar’s business model rests on four key aspects.

Its decision to offer freshly cooked meals is both its biggest differentiator and its biggest execution risk. "Over 30 percent of our customers dine more than six times a month with us," says Gaurav. The restaurants seat 55-60 people, who spend Rs. 80-100 per person on a meal. This adds up to Rs. 85 lakh to Rs. 90 lakh in revenue at one restaurant annually, delivering cash profits of 25-30 percent in steady state. With 22 outlets, this translates into revenues of Rs. 18.7 crore.

There are enormous demands on the kitchen and supply chain, especially in light of Mast Kalandar’s decision to not have deep freezers in the kitchens.

Infographic: Sameer Pawar

This means the Jains have had to evolve their own supply chain - a centralised kitchen in every city they operate in, where fresh vegetables are sourced and cut, mixed with spices and other ingredients, cooked partially and shipped in an unfinished form to outlets. At the outlets, the meals are put through the final stage of cooking before being served to diners or home delivered.

The food is transported in imported temperature-controlled boxes that can keep food from spoiling for up to 10 hours. Mast Kalandar calls it the ‘hub and spoke’ model.

To stay true to its home-style credo, it strikes partnerships with vendors across India. For instance, its papads come from Rajasthan, pickles from Meerut and Jaipur, jaggery from Hapur in Uttar Pradesh and special curry masalas from Kumaon. For staples, it has tie-ups with the likes of Safal, Amul and MDH.

The final differentiator is Mast Kalandar’s focus on ‘pre-plated meals’: Multiple elements of a meal - salads, breads, curries, vegetables and sweets - bunched into different meal options. While this allows individuals to sample multiple dishes in the same meal, it also allows Mast Kalandar to create more saleable menu options out of fewer ingredients or dishes.

But can it maintain this while scaling from 22 to 100 outlets? Or 500?

Successful restaurants are good sources of profit, but venture capitalists need a few dozen of them in order to justify multi-million dollar valuations that will sway later-stage investors. Caught in the numbers game, new entrepreneurs often end up taking their eyes off the nitty-gritty of daily profitability at a single restaurant level as they rush to put up newer ones elsewhere. Two chains that got caught in this vicious cycle over the past few years were Delhi-based Yo! China and Bangalore-based Kaati Zone. Both were the recipients of multi-million dollar venture investments, from Matrix Partners and Accel Partners, respectively.

Yo! China expanded too aggressively across locations and formats, while Kaati Zone misjudged the sales needed to justify large, restaurant-style outlets. Wiser from their experiences, Yo! China is now following a more sober expansion strategy, while Kaati Zone is focussing on take-away meals.

A Tough Order

For Mast Kalandar to even achieve its short-term goal of 100 outlets, much less the long-term one of 500, it will need to evolve around possible failures.

The first of these will loom when it expands outside South India. Will North Indian food be as popular in Mumbai or Ahmedabad or Gurgaon?

These aren’t hypothetical questions because Jain says these are the cities he is concentrating on for his expansion outside South India. He believes his cuisine will find an audience in all these cities because the primary demographic target - working professionals who want affordable, home-style North Indian food - is present everywhere. It helps that his restaurants start turning in cash profits within three months. Include the cost of investments, and an outlet turns profitable in 14 months.

Expanding outside South India isn’t much of an option if Mast Kalandar wants to grow beyond 100 outlets, says Kanwal Singh of Helion Venture Capital, one of its venture backers.

To make it tougher, consumer tastes evolve constantly. "Every couple of years, consumer preferences change due to their experiences with newer food and retail formats and higher incomes. In order to be relevant, you need to keep reading that correctly," says Ashish Kapur, CEO, Yo! China, who’s had to revamp his restaurant décor, redo his menu every few months and serve food in clay-pots to keep customers coming back.

Assuming Mast Kalandar can pull that off, the next big challenge will be expanding its hub-and-spoke model across the country, while allowing for the inevitable menu localisations that each region’s tastes will demand.

"They will need to reinvent themselves with each new region. Even within regions there will be questions. For instance, can I go to Coimbatore or Mysore? If I do, will I need to open up central kitchens there?" says Singh.

But Jain is confident in being slow and steady. He’s even considering an international expansion in the foreseeable future, along with a move to rope in franchisees at some point (all of Mast Kalandar’s outlets are currently company-owned). "The fact that my wife and I aren’t from the food industry is, in some ways, a plus because we can think differently from them. Of course, the minus is we have no experience of pitfalls," says Gaurav.

SKIL Infra - Nikhil Gandhi

2011-03-16T12:11:00.003+05:30

http://epaper.financialexpress.com/FE/FE/2011/03/16/ArticleHtmls/16_03_2011_009_003.shtml?mode=1

Food caFE NIKHIL GANDHI Trading on gods & goodwill

The SKIL Infrastructure chairman tells Shobhana Subramanian how he went from selling brooms to the Bombay Port Trust to building India's first private sector port at Pipavav

Despite a severe cough, Nikhil Gandhi hasn't lost his sense of humour.We're at the Souk on the fourth floor of Mumbai's Taj Mahal Palace in Apollo Bunder, which was opened in the centenary year of the Taj in 2003. The restaurant is known as much for the food that it serves as for the magnificent view of the harbour and lives up to its reputation on this pleasant afternoon, the boats in the bay taking one's breath away . It's Gandhi's favourite restaurant and one he picked without a moment's hesitation when I called to invite him to lunch with FE.

The chairman of SKIL Infrastructure, who started out as a small-time businessman and later built India's first port in the private sector at Pipavav, is now excited at the thought of building the country's first warships. We decide to opt for the business lunch buffet. There's plenty on offer in terms of salads and starters, all with exotic names. And while Gandhi stays vegetarian, I pile up my plate with some prawn, fish and lamb starters and also try out the stuffed vine leaves. The cough, I discover, is the result of Gandhi having inhaled clouds of dust at the Bangalore air show, where he ended up signing a couple of agreements with Swedish firms to make defence equipment. He has been quite caught up with the defence space for some time now and lately has been poring over books on warships, admitting that the technical stuff can be quite challenging. But he'll come up the curve soon enough.

Indeed, the fact that he never went beyond school doesn't seem to have been any kind of handicap for the 51-year-old Gandhi who's pulled off a string of projects--whether it's ports, roads or a container service. Gandhi recalls how he was pulled out of Mrs Walton's school in Calcutta after Naxalites set the school bus on fire one day, and was put into the neighbourhood Gujarati medium school because his mother was so traumatised by the event. The result was that when he ended up in an English medium college, he couldn't cope.

"It was terrible; I couldn't understand a word and after 15 days I cried and told my parents, I can't do it."

So he switched to ferrying paan leaves to Bombay, bringing them from Calcutta in cane baskets, in unreserved train compartments, and selling them to vendors between Bhuleshwar and Ghatkopar. He would then pick up toys to be sold back home. Having eked out a sum of R45,000 from his trading efforts, Gandhi managed to win a contract to supply 80,000 brooms to the Bombay Port Trust (BPT) and that's when he first saw the port and fell in love with it.

Even while he continued to supply cleaning cloths to BPT, he managed to get on to the board of BPT, no mean achievement for someone who did not even belong to the city . How did you pull that off, I ask? As it happens, this was the late 1980s and Gandhi managed to win the confidence of a couple of the seniors who inducted him to the board against the quota reserved for members of the "user community'. That was a leg up for the young Gandhi, then not even 30, who used his proximity to the members to learn about ports and the infrastructure surrounding them.

Even as he turned manufacturer of marine equipment and started exporting bulk drugs, the "fiery speaker' in him convinced both the Gujarat and the central governments that the private sector needed to play a role if India's ports were to get going. More important, he managed to coax financial institutions,including IDBI, IL&FS and UTI, to put out money to build a port at Pipavav, which cost R500 crore.

But it wasn' teasy .Gandhi had another near brush with death as he was brutally attacked by the port mafia (a couple of workers were murdered). "I've left that behind but I must say that it was a tough environment and the cobras and leopards didn't help." It was around that time that Gandhi bumped into a devotee of Shirdi Sai Baba who turned him into one too. While the gods are clearly happy with him, Gandhi has been fortunate to have also enjoyed the blessings of both the late Dhirubhai Ambani and elder son Mukesh.

"Dhirubhai uncle always supported me. When I first met him in his office in Maker Chambers IV , and he said I was a member of his zero club, I didn't realise he meant that I was worth nothing. But if I am alive today, and have not been bumped off by the mafia, it is because of him." Gandhi doesn't play down his connection with the Ambanis, saying he still consults Mukeshbhai, two years his senior. "Their doors have been open to me and I have been very lucky to have his support," he tells me.

At the same time, he exudes confidence and is in no doubt whatsoever that he has it in him to take on large infrastructure ventures. Apart from his Kathiawadi business instincts, which include a knack for cost control, Gandhi believes younger brother Bhavesh's ability to implement has played a big part in his success.

I get myself a second helping; my guest, understandably , doesn't have much of an appetite.Gandhidiscovered his love for Lebanese food at Maroush in London and has been a regular at the Souk since it opened. He's also partial to Punjabi cuisine and doesn't mind Chinese food now and then.

What's he's most fond of is his Bengali food and he indulges himself during his Calcutta trips, which he makes at least once every three months. "I love going to Calcutta because I have lots of friends there; I don't need a reason to go there. And I'm very fond of Bengali food so I make sure to get myself invited to their homes," he chuckles. He recalls how he once flew back, ahead of schedule, from a tour just so he wouldn't miss a Bengali food festival. On every trip, he lugs back a sackful of muri and the masalas that go with it. "I bring parcels of food for my sister and my friends here." It's not just food; Gandhi has brought back more than two dozen friends and classmates who now work with him in his many ventures.

A self-confessed workaholic, he's busy trying to list SKIL Infrastructure to raise around R2,000 crore. SKIL once housed the Pipavav port, the railway container business and the roadways businesses, which were later sold.Gandhi believes it was a mistake to have sold those businesses, saying he did it because he needed to give the private equity players an exit. I am trying to estimate how much SKIL could be worth today , given that it holds a 26% stake in Everonn and a 52% stake in Pipavav Shipyard, which translate into a combined market capitalisation of less than R3,000crore.Pipavav,of course,is still in the red but should turn the corner this year. Gandhi's not willing to talk numbers just yet. That he's always thought big and talked big is somewhat perplexing--he claims it was he who first convinced the government about the utility of SEZs--but there's no doubt he's been able to drum up financial support.

Nonetheless, the $20 billion worth of investments that he'd planned to make, over 10 years, does seem a tall order; he says the global financial meltdown has delayed some of his plans--including for a new port--but is sure they'll come through. SKIL today has only a minority stake in the two SEZs in Mumbai; it's Mukesh Ambani and Anand Jain who are the bigger partners.

Gandhi has to do without his favourite rose petal ice cream today and we share some Oomali--a Middle Eastern dessert somewhat like kheer. Although work is clearly his big love-he calls it his hobby--the stress doesn't get to him. That's probably because he does manage to fit in some time for yoga and also exercises regularly in a small gym that he has built at home. And he finds time to catch up on his reading-his favourite book is Lee Kuan Yew's From Third World to First. Yes, Nikhil Gandhi has come a long way .

SEBI's action against GHCL's promoters appreciated

2009-04-21T23:05:00.000+05:30

Published on Tue, Apr 21, 2009 at 09:12 , Updated at Tue, Apr 21, 2009 at 12:39
Source : CNBC-TV18

The Securities and Exchange Board of India (SEBI) has barred Gujarat Heavy chemicals (GHCL) founder and Chairman and Managing Director, Sanjay Dalmia from the stock market. Commenting on this, Udayan said the SEBI's move is welcomed but there is lot of shadiness about GHCL now. Its not a small company, I just hope that there is no Satyam kind of a situation lurking out there somewhere.

Here is a verbatim transcript of Udayan Mukherjees comments on CNBC-TV18. Also watch the accompanying video.

A few months back we were talking to the GHCL promoter, Sanjay Dalmia and we kept on asking him what is going on with the stock holding in your company. And he kept on saying in a very cool manner that this is just inter-promoter share holder transfers that we keep on doing, I cant be bothered to keep you informed what I am doing with my intra-group companies etc and that cockiness has given way to a Sebi ban on him from accessing the markets.

So its always struck us completely shady the way his share holding was changing around with very little information available. And you know what has been going on in any case that one particular share holder is trying to destabilize Sanjay Dalmia though he is not talking about it openly but he has been trying to elbow him out of board in any case. So this is a complete mess out there, in any case there have been very large global acquisitions, I dont know to what end those acquisitions have been made. So I would be very worried as a GHCL share holder, the kind of promoters who are running the ship right now. And frankly I wont be surprised if the next 6 or even 3 months you see some big moves on the current promoters being edged out in some form.

I think there will be quite a bit of shareholder activism; even at the board level that you will see if you are not seeing it already on GHCL. The Sebi move is welcomed but there is lot of shadiness about this company now. Its not a small company either, I just hope that there is no Satyam kind of a situation lurking out there somewhere.

Interview - Rakesh Jhunjhunwala by Ramesh Damani

2009-02-01T09:48:00.003+05:30

http://www.moneycontrol.com/india/news/market-outlook/don%E2%80%99t-buy-bizgive-fixed-ratereturn-jhunjhunwala/09/34/382979/0

Before one buys a multi-bagger stock, one has to check out the company’s fundamentals. According to Rakesh Jhunjhunwala, Partner, Rare Enterprises, one needs to check what opportunity the business has, who are the entrepreneurs, how much capital is needed, is the business scalable, and what is the company’s valuation.

Besides checking out the company, there are a number of things one needs to keep in mind before buying.

Raamdeo Agrawal, Director, Motilal Oswal Financial Services, said the best way of buying a multi-bagger is to buy it extremely cheap. However, Jhunjhunwala feels besides being cheap one should also see value when one buys. He said one should not buy businesses which gives fixed rate of return.

After identifying the opportunity, Jhunjhunwala feels, one needs to be decisive and not get stuck in a trap where one is perpetually seeking extra information.

Sanjoy Bhattacharyya, Partner, Fortuna Capital, agrees with Agrawal and Jhunjhunwala. However, he is quick to add that one should buy businesses that are scalable. “First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.”

He also feels that one can never have a multi-bagger if capital is irrationally allocated by the people who run the company.

He feels investors should be able to figure out change and know how to capitalize on it. "If someone who has experience and has been around in the market laughs at you for buying a particular stock, it should be a great source of encouragement for you." Agrawal seconds Bhattacharyya’s thought, but Jhunjhunwala feels that if both persons agree that doesn't mean one does not buy the stock.

Here is a verbatim transcript of the exclusive interview with Raamdeo Agrawal and Rakesh Jhunjhunwala on CNBC-TV18. Also see the accompanying video.

Q: You had more than 10 multi-bagger stocks, what are the characteristics? How does one find 10 multi-bagger stocks? How does one start the process of thinking that the stock is going to be a 10 bagger?
Agrawal: You don’t pay anything to have multi-baggers. If you want a multi-bagger literally you have to buy free of cost, your purchase price decides your rate of return. That is a simple method.

Jhunjhunwala: That doesn’t mean that if Infosys has Rs 30 crore market capitalization, then at Rs 90 crore I should not buy it. We don’t buy it just because it has doubled. You have to see value when you buy.

Agrawal: The first fundamental thing is that you have got to buy extremely cheap and it is non-negotiable. If you want a multi bagger, it has to be bought literally free of cost. Like I could have bought Bharti Telecom around Rs 4,000-5,000 kind of valuation, today it commands a valuation of Rs 1,50,000 crore in just five years. So, when you buy these kind of things at those prices literally, the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years. That is a non-negotiable kind of a trade for finding a multi bagger. Now, the market must become irrational about that stock. So, from under valuation it goes to a fair valuation and from fair valuation it goes to irrational valuation.

Q: You are too modest to say this but I know you have had 700 baggers. Where have you looked for your 100 baggers, give us intellectual hypothesis?
Bhattacharyya: Between being smart and being lucky, I know it will hurt your ego like hell because all you guys are IIM-A always ought to be lucky not smart. It seems that there are two things, which are very important. Agrawal spoke the need to buy cheap, so valuation is very much in your favour.

But two other things you must buy a business, which is of very high quality. What do I mean by high quality business is that a business which is capable of growing over time. I think in the modern lingua franca it is called scalable. I hate words like that. But I think that is what they teach you here, so scalable and the scalability doesn’t require linear inputs of capital.

In a really high quality business, which is disproportionate and where you don’t need to have equal amounts of money to finance incremental growth, that is a wonderful business. The cigarette business, the biscuit business are also highly predictable. What destroys most people is their inability to foresee change. Most of us are not as smart as we think and change can be very rapid and very destructive. So, you have got to be able to figure out change.

Unless you are Rakesh Jhunjhunwala, you are usually a minority holder.

Then, it is very important to understand, what is the agenda and the interest of the majority holder or management usually. If it’s a private equity firm which has the majority stake in the company, what is their agenda? What do they want and how well do they allocate capital? You can never have a multi-bagger if capital is irrationally allocated by the people who run the company. If they have this wild ambition that I am going to spend and earn lots of money, but I will spend even more in terms of capital expenditure and financing growth, you will have very high reported profit but zero cash flow or negative cash flow. You can never get a multi-bagger out of that situation. But you have obviously got to search for a management which has competence and then make sure that you sort of super-impose a huge dose of integrity on that and rational capital allocation. The minute that is missing you will be at risk. Your 10 baggers could reduce back to being a 2 baggers because you could wipe out 80% of your gains.

Q: Are Titan, Praj, Nagarjuna some of the great multi-baggers?
Jhunjhunwala: Titan was a retailer, it was a brand company, it always had a great business. That was a reality. So, it was a great business. In a moment of crisis and when they went into Europe, they lost money. That was a crisis primarily. To my mind what is most important for Titan is India’s prosperity. I envisaged the future and I thought Indians are going to buy far many watches, so that is how he said that the business should be great. So, in a moment of crisis you get great valuations and you envisage the future where the product could have great demand and great growth and that business doesn’t need money.

In MBA language, price is equal to EPS multiplies by P/E, so circumstance should arise where the P/E should grow and the EPS should grow. Suppose I buy a stock, which earns Rs 5. At 5 P/E and I pay Rs 25, if the earnings becomes Rs 15 and the P/E becomes Rs 20, that Rs 25 goes to Rs 300. So, the basic methodology is that can this EPS grow year-upon-year and will the P/E expand. P/E expansion is function of so many items. It is a function of size. So, many of my companies I don’t sell because I feel that P/E will expand, as their size increases and liquidity increases.

Q: Your favourite multi-bagger in your career?
Agrawal: Vysya Bank that was a very first one, second one was Hero Honda, and third one was Bharti.

Q: What has been your multi-bagger historically?
Jhunjhunwala: For me anything that gives me money is my favourite one. There is no emotion. But I think as I judge myself some of the finest investment decisions which I have taken in my life is the decision to invest in Titan, decision to invest in Crisil, decision to invest and retain my holding of Karur Vysya Bank. Now, it is14-15 years since I have bought them. But I think some investment of Rs 2,000 is worth sum I don’t know how many crores today.

Bhattacharyya: The important thing is to identifying the opportunity and then as Jhunjhunwala said is acting on it, being decisive, not getting stuck in a trap where you are perpetually seeking extra information. If you are looking to identify great opportunities, one other thing that all of you will do well is to make friends or associates with people who are called in the language of Dalal Street smart money. You have three of the smartest guys sitting here. But to say this if you have guys, who are really smart serious, thinking investors, one of the ways you will find 100 baggers is by talking to them frequently. I am not joking.

Jhunjhunwala: One important trade of any 10 bagger is there should not be any institutional ownership, it should be under research, nobody should know about it. Today also I was asking Mr. Bhattacharyya that have you researched Titan. Even if the stock have gone up 30 times, Mr. Bhattacharyya has not researched it, which is very good for Titan. I have not researched Bharti, which is very good for Bharti. The stock has appreciated so much but the amount of interest remains in the stock remains at low level. So, it should not be one of the popular not by rule but generally it is not a popular stocks and there should be deep scepticism.

Bhattacharyya: In fact one of the good test to follow is go and tell it to someone else who has experience and has been around in the market for a long time. He will laugh at you. The fact that he is laughing at you should be like a tremendous source of encouragement.

Jhunjhunwala: There are no rules. If two agree, it doesn’t mean that you don’t buy.

Agrawal: What Mr. Bhattacharyya said is a truest thing, when I like something very deeply and when he disagrees ‑ because he is my friend, I go and test with him – and when he disagrees that is going to be a multi bagger.

Q: When you look at buying stake in a company, what is the most important factor or criteria that you look at?
Jhunjhunwala: I cannot say whether the leg or head is more important or the brain is more important or the heart is more important. There are equally important factors, and any successful business is a combination of factors.

When I look at any investment or any business, I look at three-four factors. First, the external opportunity which is demand. For instance in Praj maybe because of the need of alternative fuels the demand for ethanol plants went through the roof. So, I look at the opportunity the business has.

Then I look at the entrepreneurs, I look at the capital needed, and I want to judge scalability. We could make money in Pantaloon because Kishore Biyani could scale the business. Then, it is important what you buy, it is important at what price you buy. So, I look at the valuation. I have no analysis paralysis. I judge very fast.

Q: Which are the sectors that one should invest in say for a period of one year given the current market level and fluctuations?
Bhattacharyya: My answer is not going to be a happy answer. First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.

You are buying a business with specific players, a cast. You are buying the people who run that business; you are buying the assets and liabilities of that business, you are buying the balance sheet of the company. Within the same sector, different people have different opportunities.

So, if I were to say that the pharmaceutical sector is a great opportunity, there are different pharmaceutical companies. Say if you were buying Sun Pharma as opposed to buying Lupin, you are buying it at completely different valuations. Some sectors that are hot right now, I mean the whole world knows they are hot right now. So, the prices at which you are buying that sector reflect the hope and the enthusiasm that people have for that now.

But I don’t think that I understand anything other than what is called bottom-up. That means god lies in the details. There are specific opportunities or companies that I can tend to buy.

Agrawal: I would approach the financial sector, the large banks, which have large bond portfolios like SBI has Rs 2-2.5 lakh crore worth of bond portfolio, mark-to-market. When the yield drops you know what happens to bond prices and that goes directly to the P&L. In any case, you are buying that stock at 1-1.2 times book, insurance free thrown with the SBI stock. So, I would like to buy that for maybe 25-40% case for the next one year.

Secondly, I would say telecom. I think god communicates wirelessly. I think the telecom penetration in India is just about 25%. We are headed for 75% if not 100% in the next 5-6 years. We are going to see more than 10-15% compounded quarterly growth for the next 20-25 quarters in this country. Hence, we have a great opportunity in buying Bharti Telecom.

Q: Is there any sector you like?
Jhunjhunwala: I think that India-centric sectors will do well whether it is banking, retailing, infrastructure, all sectors that are related to India – SBI, Bharti, and Hero Honda.

Q: You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like Tata Power and NTPC have significantly high ground assets, or whether some new companies like KSK Energy who have captive coal reserves. How do you compare these and what are the parameters that you use to identify value?
Jhunjhunwala: The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.

Bhattacharyya: In fact, I would like to endorse what Jhunjhunwala said. But I think of your question and I suspect it may be that how do you distinguish between companies that are asset plays, which don’t have at this stage earnings that you can identify with and see and therefore put a multiple to them as opposed to companies that have a stream of earnings.

Jhunjhunwala: But market will value them if within a comprehensible period those assets can return a stream of earnings. If I have a company whose office is worth Rs 5,000 crore, what can I do? I will wait for earnings for one, two, or five years. Nobody is going to buy that company because their office is there. Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.

Q: In the present market scenario both from an investors’ perspective and a speculators’ perspective, where would you put your money – in real estate, in fixed income, equities, or gold?
Agrawal: To tell you the truth, I don’t know any other trade. I know only stocks. So, I don’t have any other option but to buy stock.

Jhunjhunwala: We never allocate capital. We have money means it is for equities.

Agrawal: Just equities, not even cash and equities, only equities. So, when I wanted to play real estate, I bought hotel shares. I am not going to buy 100 acres here and there. I said let’s go and buy earning real estate, i.e. hotel shares.

Jhunjhunwala: I have allocated some part of my trading portfolio to debt – to buy bonds. Long-dated bonds with good yields are very good.

Q: How do you decide when to sell a multi-bagger?
Jhunjhunwala: I will sell a stock only in two circumstances: when I have limited capital and when I get an opportunity that is better than what I have now. So, if comparatively I need capital, I will sell it.

Secondly, when the perception of earnings peaks and the P/E is unsustainable. I think that is a time to sell. The earning may not peak but the expectations of hope like in 2000 everybody said Infosys’ earnings will double every year for the next 10 years. That was the expectation in the market and its P/E was at the current earnings, it was 100-150 times. So, when the expectation of earnings peaks and the P/E is unsustainable, I think that is a time to sell.

Agrawal: There are two types of stocks. One you buy forever and one you buy for a trade.

Jhunjhunwala: I strongly contest this. There is no stock forever in the world.

Agrawal: I contest that. There are clearly two types of stock. One you buy for selling and one you buy forever.

Learning Curve

2009-02-01T09:46:00.000+05:30

Ramesh Damani is hosting a new series called Learning Curve wherein the D Street experts meet the B School Students and explain and answer their questions.

Yesteday the D Street was represented by RJ, Raamdeo Agrawal of Motilal Oswal Securities and Sanjoy Bhattacharya, Founder and Partner, Fortuna Capital and B School by IIM ( I think IIM A). RD asked the trio about the hunt for 10 baggers.

Here were their views (or what I thought I remembered)
Raamdeo Agrawal : Get the stock very cheap. He spoke about the mcap of Bharti Airtel now and 5 years ago. His 10 bagger was Bharti Airtel

Sanjoy Bhattacharya : 1 Scalability of business
2 how well the promoters allocate capital
3 true agenda of the large stakeholders
4 predictability of the business / products
5 When told to others in the mkt for some time, they should not be optimistic of the stock being a multi bagger()

RJ :
1 Scalability
2 Institutional interest should be less
3 less covered
His favourite 10 bagger was Titan

They were couple of other sub topics.
RJ & Sanjoy felt they should not be married to stocks while Raamdeo felt there were 2 kinds of stocks - stocks which can be held forever and stocks which were to be traded

Raamdeo was optimistic about the telecom sector in future while RJ felt anything India centric would do good.

JVL Agro 3rd Qtr results 2009

2009-01-21T09:55:00.002+05:30

Economic Times 20 Jan 2009

Interview - Ajay Bijli, MD, PVR Ltd

2009-01-13T09:02:00.001+05:30

We may do 2-3 more films with Aamir'
DNA India 13 Jan 2009
Arcopol Chaudhuri

PVR Ltd's subsidiary PVR Pictures has struck gold twice at the box-office through its two co-productions with Aamir Khan. Currently, the company is sitting on a slate of independent low-budget productions which will release in the coming months. In this interview Bijli, Ajay Bijli, chairman and MD, PVR Ltd, told Arcopol Chaudhuri that the company is confident of beating this financial year's growth rate in the coming FY.

Excerpts:

You recently launched PVR Cinemas at Phoenix Mills. Do you have a 3D screen in place, considering a long pipeline of international 3D releases in 2009?
We'll make one screen 3D-enabled here. We have to spend more on it, because it is supposed to have a curvature. With 7 screens, PVR Phoenix is the biggest multiplex in Mumbai. PVR's biggest property is in Bangalore with 11 screens at Koramangla. Another 11-screen property is coming up in the city.

The launch of new multiplexes must have been affected by the economic slowdown...
In the multiplex business, expansion is a function of a real estate. If we were dependant on one or two developers, and if their plans get stalled, then we get affected. Our strategy was always not to tie up with one developer. Fortunately, most of our developers aren't financially so stressed that they've had to put off their projects. Wherever they are doing multiple projects, our growth has been impacted — some pockets in Bangalore, Chennai, Udaipur and Amritsar. This has meant that our projects have got postponed to the next financial year. This means, we'll be growing faster in FY09-10. In FY08-09, we targeted launching about 40 screens but managed only about 24.

How many will you launch next FY?
If all goes well, we'll launch about 50 screens at about Rs 2 crore per screen. We've signed enough projects so that even if 20-30% of projects do not materialise on time, then the rest are enough to see us through in the next FY. Multiplexes add value to a mall. For example, on any Sunday, Phoenix Mills gets 22,000 visitors. Last week, after PVR launched, the number rose to 41,000.

Has the nature of the deals changed with developers?
We're doing revenue sharing deals, rather than fixed rental deals. Some of our existing properties already have it in practice and most of the new ones are using revenue sharing deals.

How are you utilising the PE funding of Rs 120 crores that PVR Pictures received?
We'll produce about 4-5 films projects in a year. Annually that'll mean about spending about Rs 60-70 crores. Taare Zameen Par, Jaane Tu Ya Jaane Na, Contract were low budget films and the plan is to continue the trend. We even have a movie at a Rs 2 crore budget. It's logical. It hasn't been practiced in the industry, so we want to put it into practice. In distribution, we'll do about 20-25 films in a year, wherein we'll invest in prints and publicity.

With successes like Taare Zameen Par and Jaane Tu Ya Jaane Na, it seemed like you found a perfect co-producer in Aamir Khan. Why haven't you signed more projects with him?
We may do more films with him. He's got 2-3 ideas that he wants to discuss.

As a multiplex business, have you thought about ways to combat something like IPL?
Both forms of entertainment have to co-exist. This year, I'm hoping the film industry to continue releasing films. Secondly, I hope the organisers give multiplexes telecast rights for the matches.

If the latter doesn't materialise, how do you save yourself from poor occupancies?
I think Bollywood must take IPL head-on. Last year, during IPL, occupancies were low because there wasn't good content. Tashan was the biggest release and it did not fare well because audiences did not like it. But if say, a Ghajini releases during IPL, it'll still do as well.
c_arcopol@dnaindia.net

Make your debut — now

2009-01-11T12:35:00.003+05:30

The Hindu Businessline 11 Jan 2009

If you’ve been waiting in the wings, unsure, here are five reasons why you should take the plunge.
Srividhya Sivaumar

If you are young and want to make it big in the stock markets, the timing couldn’t be better to begin your equity sojourn. Entering the world of equities at a time when some of the ‘biggies’ in the investment community are licking their wounds promises to give you an entry point well ahead of the general curve, with bang for your buck.

Wondering how that could be? We present you with five reasons (in chronological order) why we believe that if you have been waiting on the sidelines to buy stocks, or want to make a new beginning, ‘now’ is the time.

First things first
Had it been the same time last year, you would have had to make at least a dozen phone calls before your broker even agreed to meet you for opening that demat-cum-trading account. Well, can’t really blame the brokers. Money was good and so were the markets, leaving little reason for them to take that ‘extra’ interest in processing your account, unless of course you had a lump sum.

But now, with the liquidity tap gone dry and business difficult to come by, most brokers may not only vie to open your account but may also do it for free. Some of the leading banks are now offering demat account for free — an offer to grab.

Low hanging fruit
Now that 2008, pegged as one of the most devastating years in the world of equities is over, it may be time for the tide to turn. Agreed, we may still be far from a complete turnaround as the after-tremors of the financial shakeout of last year may not have fully played out yet.

But you can take heart from the fact that your entry would be at a time when there is not much to lose in the markets — for the worst, if we were to believe the growing consensus of leading analysts and economists, may now be behind us.

What’s more, stocks are available at a fraction of the price that they were trading at last year — reason enough to take the plunge now, if you were ready for one then.

No hurry, so no worry
At the peak of the Bull Run, there was not much time at the disposal of the investors to make an informed investment decision.

Time was a commodity always in short supply then, for sometimes even a mere mention of a stock’s name saw it soar the next moment. That, however, has now changed.

Time, like most other commodities, is now available in plenty. Stock prices appear in no hurry to go anywhere, leaving you with ample time to do your homework and make a decision. Besides, sedentary markets even give you sufficient time to convert your wrongs into rights. Exchange dud stocks for some quality ones.

Owner’s pride, neighbour’s envy
Agreed, low hanging fruits appear attractive only as long as you have access to them, and provided they are ripe. But what raises your odds of getting not just one, but a basketful, of multi-baggers is the fact the bourses have many such fruits (promising stocks) now.

While picking the best stocks may have been a problem earlier, with time by your side, building that dream portfolio of stocks has become a lot easier. Aiding you is the absence of the penny or the momentum stock lure.

With not many obstacles between you and your dream portfolio, picking stocks will be a sure shot way to build a portfolio that will, years later, grow to be your pride and yes, other’s envy.

When risk becomes riskier
Having burnt their fingers in the markets, some quite badly at that, most investors now have lost the appetite for high risks.

This loss in risk-taking ability offers a good entry point for the beginners.

You can add stocks to your kitty at bargain price, and stay ahead of the equity curve.

But a word of advice. While the market does appear ripe for beginning your long-term investments, remember to keep greed at bay.

For it was the ‘greed-is-good’ ideology of the present day market participants, aka ‘The Children of Gordon Gekko’ (the fictional character from the film Wall Street) that led to the devastation in stock markets

Foreign direct investment

2009-01-11T11:32:00.001+05:30

Sunday ET GUIDE BOOK
Foreign direct investment
Lisa Mary Thomson

IN SIMPLE terms, foreign direct investment refers to the investment made by an entity (generally a company) in an enterprise located in a different country. By virtue of making this investment, the investor gains a certain degree of influence or control over the management of the enterprise. It is generally believed that to qualify as FDI, the investor should be in possession of at least 10% of the shares of the company and have access to voting power in the company.

FDI can be both outward and inward. In the case of inward FDI, the investor can enter the country by incorporating a company, either by getting into a joint venture with an Indian company or setting up a wholly owned subsidiary. Alternatively, he could retain the status of a foreign company and simply set up a liaison, project or branch office in India. However, it is generally expected that FDI signals long-term commitment on the part of the investor as there is a lot of physical investment included.

What are the benefits of FDI?
FDI comes with benefits for both the investor and the economy where the investment in made. For the investor, this could be a chance to tap markets where he could make profits. The investors are wooed with techniques such as tax breaks, easier regulations, low interest rate on loans and so on. For the economy, FDI has provided a muchneeded push in terms of injecting liquidity apart from bringing in better technology, creating more job opportunities and so on.

Are there any regulations on FDI?
The Government has laid down rules both on the basis of the sector as well as the nature of activity that is meant to be undertaken with the FDI. For instance, FDI in an activity like mining for diamonds and precious stones does not require prior permission. A notification simply needs to be sent to RBI within 30 days of receiving the remittances and documents needs to be submitted in a period of 30 days after the shares are issued to the foreign investor. However, in certain other sectors like broadcasting , the proposal needs to be sent and approved by the Foreign Investment Promotion Board (FIPB). There are also caps on the amount of foreign investment in particular sectors and in certain cases, this is inclusive of both FDI and FII investment.

What is the difference between FDI and FIIs?
The most visible difference would be that while FDI includes investment directly into a particular company, Foreign Institutional Investors (FIIs) are known to invest either in the primary or secondary markets, in stocks, mutual funds or via instruments such as participatory notes, dated government securities, commercial papers etcetera. There is also a greater perception of stability that is associated with FDI. In periods of market instability, FIIs are known to beat a hasty retreat leaving the market in a lurch.
lisa.thomson@timesgroup.com

Bajaj Group

2009-01-09T06:02:00.002+05:30

Financial Express 8 Dec 2009

The Bajaj family settlement at the start of the New Year should help the younger Bajajs to take their respective businesses to the next orbit.

WISH you a happy New Year,” said Rahul Bajaj, surprisingly warm and boisterous, when contacted over the telephone on January 1. Usually reticent about discussing family issues where he’d been pictured as the one unwilling to accede to his younger brother Shishir’s de mands, the very first day of this year was particularly special for him.

The Bajaj Group—now minus Shishir and family—had sent across a media statement that evening, saying cousins Rahul, Shekhar, Madhur and Niraj Bajaj had reached an “amicable settlement” with the Shishir Bajaj Group.Just a few days before, Rahul was unwilling to talk. Not unexpected since the settlement was the second major attempt after talks failed in 2003, and no one wanted to take chances. But on New Year day, it was time to celebrate, keeping aside six years of hostility. “What could be a better way to start the year? We’re friends now,” Rahul continued.

FE spoke to the ‘Shishir Bajaj Group’ (SKB Group), too. “We would like to confirm that the settlement has been signed and implemented,” was all what Kushagra Nayan Bajaj, Shishir’s son said. Kushagra had staked claim to his family’s share of ownership in part of the undivided group business.

These developments could well mark the birth of a new era of harmony in the Bajaj family. In late December 2008, following the announcement of an unwinding of crossholdings by Rahul and Shishir to facilitate the settlement of the family dispute raging since 2002, the two undertook a ‘zero-value’ share swap. In what would give control of India’s largest sugar company Bajaj Hindusthan to Shishir, Rahul transferred his group’s entire 29.62% stake in that company to Shishir. Shishir reciprocated by selling his 25% holding in group investment firm Bajaj Sevashram.

“The Bajaj Group shareholding in Bajaj Hindusthan Ltd and Bajaj Consumer Care is now with the SKB Group,” the January 1 statement said. “The promoter shareholding of all other companies in the Bajaj Group, including that held by the SKB Group, is now with the four brothers of the Bajaj Group. This includes companies like Bajaj Auto Ltd, Bajaj Electricals Ltd, Mukand Ltd, Bajaj FinServ Ltd, Bajaj Holding & Investments Ltd, Hercules Hoist Ltd etc.” This could be curtains to a much publicised family dispute,which was only overshadowed by the discord between the two Ambani brothers—Mukesh and Anil—over ownership of the Reliance Group companies. While the Reliance dispute was settled in June 2005, the Bajaj issue continued to simmer. Adding fuel to fire was the aggression of a younger Bajaj—Kushagra—the present joint managing director and CEO of Bajaj Hindusthan. The raging family spat even gutted the truce efforts mediated by S Gurumurthy, a mediator of many a business family issues, in 2003. The seeds of discord among the otherwise peace-loving and respected family (patriarch industrialist Jamnalal Bajaj, Rahul’s grandfather, was also a freedom fighter and close associate and follower of Mahatma Gandhi), took roots as the family grew from the second to the third generation, with existing assets split among more family members. Jamnalal’s two sons. Ramkrishna and Kamalnayan held 50% each in Bajaj Sevashram, a group holding company. When it came to the third generation, Rahul and Shishir, Kamalnayan’s sons, got 25% in Bajaj Sevashram, while Shekhar, Madhur and Niraj got 16.67% each.

The responsibilities for group firms were divided in an informal manner among the cousins—Rahul Bajaj managing Bajaj Auto, with Madhur also playing a role, Shishir running Bajaj Hindusthan, Shekhar, Bajaj Electricals, and Niraj, Mukand Steel. Things looked picture perfect until their children, Shishir’s son Kushagra in particular, wanted clarity in the holdings and responsibilities, and for himself, a role in the financial services business of Bajaj Auto.

The initial rumblings in the family started in 2000, when Kushagra is said to have asked for responsibilities in Bajaj Auto’s financial services business. According to some reports, this was not agreeable to Rahul Bajaj. Shishir then asked for separation.

In 2002, Shishir alleged Rahul Bajaj of trying to oust him from the chairmanship of Bajaj Sevashram. The Shishir Bajaj group then approached the Company Law Board (CLB) for redressal in 2003. The CLB suggested that both the sides should reach an amicable solution.

Following it, in 2003, an MoU was signed between the five cousins, and subsequently, a settlement was ready, which also included a compensation order. Accordingly, the Shishir Bajaj group was to be given a cash compensation equivalent to his share in Bajaj Sevashram, which was estimated to be around Rs 500 crore then. This figure is said to have been re-negotiated and something to the order of Rs 170 crore was decided to be given to Shishir.

But the settlement had loopholes, and did not give Shishir the entire control of Bajaj Hindusthan. Although the group investment firm Bajaj Sevashram did not have any shares in Bajaj Hindusthan, two other holding companies, Jamnalal Sons and Bacchraj & Co, held the group’s 28% in the sugar company. In order to protect the interest of minority shareholders, it was proposed that a mirror company would be formed for Bacchraj & Co and the shares of Bajaj Hindusthan would be shifted there. The new firm would hold 24.54% of Bajaj Hindusthan.

It was then Kushagra’s turn to voice his concern over the settlement. He was in favour of 100% ownership of shares in Bajaj Hindusthan, which included the 25% shares owned by Bacchraj & Co. “The original agreement between us was that 100% of Bachhraj’s holding in Bajaj Hindusthan would finally be ours,” he was quoted in media reports. He said that the Rahul Bajaj faction should ensure that the non-promoters are adequately compensated and their stake transferred to the Shishir Kushagra faction.

As per the original family document agreement, the Rahul faction would sell its shares in Bajaj Hindusthan, held through Bacchraj, for Rs 6.7 per share. But the market price of Bajaj Hindusthan rose subsequently—shares of the company reached a high of Rs 399.50 on the Bombay Stock Exchange on January 9, 2008 although as on January 1, 2009, it stood way below at Rs 74.50, which made non-family promoters resent the settlement.

Kushagra wanted the Rahul faction to pay the entire compensation to minority shareholders. The Pitties, who were minority shareholders, had already said that they would have to be compensated since the settlement would not favour them. But the Rahul faction put the ball back in Shishir’s court, saying that buying out the minority shareholders would be Shishir’s business.

Kushagra also feared that in case the demerger of Bajaj Auto did not happen, Rahul would give Bajaj Hindusthan to his younger son Sanjiv. But Bajaj Auto’s various businesses were demerged into two newly incorporated subsidiaries in May 2007—Bajaj Holdings and Investment (BHIL) and Bajaj Finserv (BFL). Bajaj Holdings and Investment became the new auto company, renamed Bajaj Auto. The existing Bajaj Auto was renamed Bajaj Holdings and Investment, acting as the primary in vestment company. And Rahul’s elder son Rajiv Bajaj continued to be MD and CEO of Bajaj Auto. Sanjiv would be MD of Bajaj Finserv.

Months later, the new settlement announced in December 2008 saw a toning down of stance from the Rahul Bajaj camp when he decided to acquire from family members and group companies—Bachhraj & Co and Jamnalal Sons. These he would then transfer to Shishir in a zero-value deal, resulting in control of Bajaj Hindusthan to younger brother Shishir.

Rahul Bajaj would acquire over 4.1 crore shares amounting to 29.2 % stake in the sugar major by way of inter-se-transfer of shares among the promoters through market transactions. These shares would be acquired at the market price as on December 30. The acquired shares, along with 0.21 % already held by Rahul Bajaj as well as the holdings of six other family members amounting to 29.62 %, would then be transferred in favour of Shishir. After the transfer of shares, Shishir will have 32.47 % stake in Bajaj Hindusthan.

Why has the settlement come up at this time? Has it anything to do with the downturn that most Indian companies are facing? According to Girish Solanki, an analyst with Angel Broking, “The settlement bodes well for the family. As the new generation keeps coming in, the family stakes get broken up, and it’s better to have a lot of clarity.” However, this is also the time when valuations of most companies have dropped owing to the slowdown and the fall in the capital markets. Bajaj Auto has been seeing falling sales and reported a 33% decline in twowheeler sales during December 2008 at 119,215 units against 177,249 units in the same month previous year. Its motorcycle sales also declined by 33% at 118,510 units against 176,441 units in December 2007 as high interest on loans and the economic slowdown forced many to delay two-wheeler buys.

Kushagra, on the other hand, was preparing for an upcycle in the sugar business, which, according to analysts, will help him rake in Rs 300 crore to Rs 400 crore in profits. “Kushagra is on an aggressive journey. There’s no stopping him. The Rahul faction has understood this, and better sense has prevailed,” Solanki added.

On December 30, about 39.9 million shares of Bajaj Hindusthan Ltd representing 28.2% of its outstanding equity changed hands in two block deals on the BSE. Shishir Bajaj, in turn, sold his 25% holding in Bajaj Sevashram, of which he was chairman, to Rahul Bajaj in an offmarket deal. With this he has exited all group investment firms that held stakes in different companies of the Rahul Bajaj faction.

With the settlement, a lot of credibility will be added to the businesses of the group, analysts said. It’s not uncommon that squabbles arise in family run businesses. But for those who bury the hatchet by clearly spelling out ownership and assigning responsibilities, there is a prospect of better and bolder growth. The Bajajs are on the threshold of such an opportunity.

Wi Max

2009-01-08T09:04:00.002+05:30

Ecnomic Times 5 Jan 2009

GMR Infrastructure

2009-01-08T08:59:00.002+05:30

HUMILITY IS THE KEY WORD
Economic Times 5 Jan 2009

Whenever faced with a crisis, we don’t panic because we have multiple options (Plan B, Plan C... ) even as we start

GMR group is now 30 years old. Along this journey, I’ve faced challenges that any first generation entrepreneur from a rural background would. It all began with my dream, as an engineer, to start an industry in my village Rajam, in Srikakulam district in Andhra Pradesh in 1977. The big challenge those days was getting a license for an industry. After a lot of enquiry, I found someone in Madras who was selling his Jute mill. I bought the license from him and shifted the machinery to Rajam. We took eight months to get all the permissions from the state government and from the Jute Commissioner in Calcutta. This experience taught me the need for perseverance to do business in India.

Around 1986, I had accepted to be a Director on the Vysya Bank Board. Between 1987- 88, Vysya bank came up with two consecutive 1: 1 Rights issues to meet RBI’s new capital adequacy norms. To ensure 100% subscription, I requested all my friends and relatives in the village to invest. I also invested my own money for which I had to pledge my wife’s jewellery. The biggest challenge came in 1994 when one of the large shareholders decided to leave the board and move on to start a new venture. I had to take over the chairmanship of the bank and moved my family from Rajam to Bangalore at the age of 42. These were difficult days in my career. Slowly we built the bank. We were the first in the banking industry to bring implement core solutions. We were also the first to bring in international partners (ING group) in commercial banking. Ultimately after stabilizing the bank’s performance, I decided to divest my stake in Vysya bank to the ING group and remain focussed on two core sectors of vital importance to the national economy – Agribusiness and Infrastructure development.

I always tell my team members that PPP stands for “Patience, Passion and Perseverance”.To build any infrastructure project, the first and foremost challenge is building trust. PPP projects have many challenges in their life cycle. Stakeholder complexity is an irrefutable reality. We have responded to this reality by being transparent and working in true ‘Partnership’ spirit. We always take a long term view of every situation and invest in the best - talent and technology.

We learnt the importance of partnership with all our stakeholders — investors, JV partners, the Government and the various Ministries. It is only through open and transparent communication that any Public Private Partnership (PPP) project can be made a success. But mere lip service will not do. We have to be genuinely transparent and walk the talk.

Every new sector we enter, we approach with an open mind. We sincerely invest time and resources in learning the business and then create international benchmarks in that industry. For example, in our first Power plant at Chennai, we as an example, in the first of its kind power plant, we opted for a two stroke engine run turbine – generator, much against common wisdom and prevailing practice. It’s 10 years since the plant was commissioned and we have recovered the cost of the plant. The plant easily runs at 95% plf. We estimate that it would continue this way for atleast another 40 years without any major overhaul requirement. We applied the same principles to our DIAL & GHIAL airports. We brought in the best international technology and best partners first in Hyderabad and later at Delhi Airports.

One big challenge as a project developer was the Delhi International Airport project. When we took over the airport in May 2006, the traffic was already 16 million as against the original design capacity of 8 million. Undertaking modernization and expansion in a running airport was a big challenge. Again, Delhi being the National Capital, complexities of multiple stakeholder management posed a challenge. We had to move one step at a time, taking everyone along. Finally, our core value of entrepreneurship tells us to see an opportunity in every problem. So, whenever faced with a crisis, we don’t panic because we have multiple options (Plan B / Plan C ..etc) even as we start. In any business or project that we enter, we plan to the utmost details – macro & micro.There is nothing too small to be considered insignificant. That way, we are always prepared mentally and financially.

In summary, GMR group has evolved from a single entrepreneur run small enterprise into a large family –owned, professionally managed multi-business, multi- national conglomerate, all within 30 years. For me, this accelerated career growth has been both qualitative and quantitative.The jute mill I started with Rs 3 lakh in my pocket, today stands metamorphed into a global enterprise with an asset base of US $3.2 bn.

The biggest challenge I now face, is to ensure that GMR group grows and thrives as an institution beyond its founders. My focus today is on developing the next generation of leaders, embedding our core values and beliefs in the organisation, reinforcing our systems and processes and empowering the CEOs and their teams to take complete ownership for their respective businesses. Simultaneously, I am working closely with my own family members to ensure that we all live within and abide by the GMR family values & constitution that we all signed in Feb 2007. We’ve learnt that every challenge can be converted into an opportunity, as long as we retain our fundamental value – Humility.

GM RAO CHAIRMAN, GMR GROUP

Realty Bites

2009-01-07T22:58:00.003+05:30

Real estate company executives say low-cost homes will revive the sector in 2009
Financial Chronicle 7 Jan 2009

1 Pradeep Jain Managing Director, Parsvnath Developers
"Yes 2009 will be the year of affordable housing. It will be quite eventful for us and we expect that the present subdued market sentiment turns positive. In the wake of lower inflation and cheaper home loans, we expect the end-user demand to pick up. I hope that funds become easily available
for developers, as well."

ABOUT THE COMPANY Parsvnath is at present developing 114 mega projects spanning 211.32 million sq ft in 51 cities and 18 states. The company, through its subsidiary Parsvnath Hotels, is developing eight five-star and five budget hotels. Together, Parsvnath is developing close to 2,040 hotel rooms.

2 Sanjay Chandra Managing Director, Unitech
"The ongoing economic stimulus measures by the government will continue to improve liquidity for both developers and end-users alike. Even as we will focus more on building affordable houses, the end-user demand will pick up because the interest rates on home loans are expected to fall further."

ABOUT THE COMPANY Unitech is the second largest developer in the country in terms of market capitalisation. The developer has projects across all verticals such as residential, retail, commercial and the hotels. The company has also ventured into the telecom business and floated a new company by the name of Unitech Wireless. It recently sold 60 per cent stake in Unitech Wireless to the Norway-based Telenor for more than Rs 6,000 crore.

3 Rohtas Goel Chairman and Managing Director, Omaxe
"We have already shifted our focus from the premium segment to building affordable residential projects, and will continue to do so in the year 2009. The sops doled out by the government to boost the country's economy will spur the end-user demand for houses."

ABOUT THE COMPANY Omaxe has completed more than 120 projects. The developer is coming up with various residential and commercial projects. The company introduced the concept of theme malls such as a Wedding Mall and a House 2 Home Mall. While the former proposes to be a one-stop shop for all wedding requirements, the later meets all the requirements of interiors to convert a house into a home.

4 J C Sharma Managing Director, Sobha Developers
"The first half of 2009 will be the time when realty in India will see the worst getting over.Things will come under greater control. Lower interest rates regime and an overall lower inflation will see a splurge in consumer confidence. And at the end on the day, it's this very consumer confidence that drives the sector and the economy."

ABOUT THE COMPANY Listed on the Bombay Stock Exchange, Sobha Developers is a Rs 1,200 crore-plus company. In the area of real estate, the company has plans to be present in more than 10 cities across India. While the Sobha brand is present in Bangalore, Mysore, Thrissur, Coimbatore and Pune, the future will see launches of new projects in Chennai, Delhi and Cochin. The company was among the first to announce a cut in its residential property prices last year.

5 Hemant Shah Chairman, Akruti City
"We can see a great opportunity ahead. We at Akruti are willing to remodel our pricing and projects as per the demand. We developers should change our strategy by understanding the need of the hour."

ABOUT THE COMPANY The real estste company is also planning to launch affordable housing in Mumbai’s Thane and Kalyan neighbourhoods. The company gave the much-needed local support to India's largest publicly traded real estate company, DLF, to enter the hyper-competitive Mumbai market. The company is developing an infotech park in collaboration with DLF in Pune and a commercial complex in Andheri.

6 Kamal Lunawath MD, Arihant Foundations and Housing
"The year 2008 was a very challenging year and that’s the best way to put it. Even though the market may take a few years to see the highs of 2007, still we managed to complete over a million sq ft of residential and commercial space in and around Chennai. The sentiments were bad for most part of 2008. Once the sentiment improves, it will lift the market in the new year. In 2009, we want to get more into affordable housing and launch at least a million sq ft of affordable housing."

ABOUT THE COMPANY Chennai-based Arihant Foundations and Housing, listed on the BSE and NSE, is a more than three-decade old company.

7 Madhusudhan Rao Chairman, Lanco Infratech
"2009 might be very similar to 2008. We won't see the kind of project development we saw in mid-2007. We expect commercial, retail and hospitality to be very slow. Residential real estate market might do better depending on the location. Overall, it won't be a very good year. Although
the government has announced some incentives for the sector, it might not be sufficient. The situation is far worse. The economy, as a whole, is slowing down. There is a lot of job insecurity among people. This will surely have an impact."

ABOUT THE COMPANY Hyderabad-based Lanco Infratech is into power generation, infrastructure, EPC and property development. Its flagship project is the Rs.5,500 crore-Lanco Hills township.

8 Sudhir Reddy Chairman and Managing Director, IVRCL
"In 2009, developers would have to focus on affordable housing. But, for those who have already finished projects or are half-way through, it would take additional investments to reengineer their ventures. This would entail additional cost. Developers also have to decide how much loss they are
ready to suffer to get buyers. Interest rates too have to come down further. Then we might see some movement in the sector."

ABOUT THE COMPANY Hyderabad-based IVRCL is a strong players in the infrastructure and real estate segments. It operates in the property market through its subsidiary IVR Prime, which posted a turnover of Rs.595.8 crore F2008. Net income was Rs.175.7 crore.

9 Harsh Neotia Chairman, Ambuja Realty
"The total constructed space in our country is vastly less compared with the basic require ment of constructed space. Therefore, in the long term context, India will have a fundamental demand to house its people. This will generate demand for schools, colleges, hospitals, hotels, offices and
shopping centres. The demand-supply mismatch gives us the confidence to say the macro picture of our realty space is very comfortable and bright."

ABOUT THE COMPANY Ambuja Realty Group, perhaps the largest developer in the East, had its origin in Bengal Ambuja Housing Development (BAHDL), which now is a JV between West Bengal Housing Board and Ambuja Housing and Urban Infrastructure (AHUICL).

10 Kumar Gera CMD, Gera Developments & CREDAI Chairman
"I am looking forward to 2009 to get government approval for the special residential zones, which is being discussed at various levels, to derive the same benefits of special economic zones to boost real estate sector's affordable housing projects and create thousands of jobs in the country.

ABOUT THE COMPANY Gera Developments operates in Pune and Goa. In 2008, the company made a foray into Bangalore where it invested in a 25-acre lake front property and will take up the development after the market conditions improve. In 2008, the company clocked a slowdown in sales only in the last quarter of the year.

Shriram Group

2009-01-04T19:51:00.002+05:30

Outlook Business 27 Dec 2008

Why private equity loves this man?
Shriram Group Chairman R Thyagarajan has a way of attracting and keeping PE firms happy. At last count, he had 25 investments in 7 group firms

Sriram Srinivasan

If R Thyagarajan, Chairman of the Rs 5,000-crore Shriram Group, calls a meeting of all institutional investors with stakes in his companies, he would have representatives from most of Wall Street’s big names seated in his nondescript office in Alwarpet, Chennai. In attendance would be the likes of Texas Pacific Group, Bessemer Venture Partners, Citicorp Finance, Cambridge Place Investment and Merrill Lynch (now part of Bank of America).

Sixteen private equity (PE) funds have, in recent years, made 25 separate equity investments across Shriram companies, cumulatively pumping in about Rs 1,936 crore (See table).

Interestingly, none of these institutional investors would have Thyagarajan’s mobile number—because the man simply refuses to carry one. The 73-year-old group Chairman doesn’t use spreadsheets or make earnings forecasts either. In fact, he even says that none of his group companies work with a business model. Thyagarajan is rustic, down-to-earth, brutally frank (with investors) and certainly not the sort to throw big lunches for PE investors. And yet, the Shriram Group has more PE funds invested in it than perhaps any other business group in the country. The funds have largely flown into its truck finance, consumer finance, and realty businesses.

So what is it about the group that PE funds find so attractive? Thyagarajan has a simple answer: "We aren’t focussing all the time on what our share (of the equity) should be. That’s because there isn’t a promoter family or anything like that behind the group." Moreover, he adds, the group is transparent.

But beneath this simple synopsis is a seasoned group of companies, with businesses in tough-to-copy markets, home-grown talent and, interestingly, a management culture that’s native. The icing on the cake, however, is how Shriram creates wealth for investors. Over the short-term, not all investments have been rewarding, but over the long-term, Shriram has been a terrific wealth creator. So, if one had invested Rs 64 crore to buy four million shares of Shriram City Union Finance in December 2006, those shares would be worth Rs 139 crore (as of November 28) despite the hit the market has taken. Mauritius-based ChrysCapital, which manages $2.25 billion in capital, did exactly that with its Van Gogh Fund. In fact, the investor bought two million additional shares in between.

Then, there were media reports last year about ChrysCapital making a partial exit from Shriram EPC, an engineering, design and construction company in the renewable energy space, taking back returns that were four times its investment. This was before Shriram EPC’s initial public offering. Another of its funds, Uno Investments, put out about Rs 120 crore in February 2005 for a slice (about 36 million shares) of Shriram Transport Finance. Now, its holding of about 31 million shares (Uno sold a small part of its holding in between) is worth about Rs 708 crore (as of November 28).

Comeback group

All this would have been unimaginable a decade ago. In 1998, Shriram was just another non-banking financial company (NBFC) fighting for its very survival. Back then, NBFC was a bad word as many fly-by-night operators promised the moon and made off with investors’ money. The Reserve Bank of India (RBI) cracked the whip in response, issuing stringent norms for NBFCs. The whole industry was caught in a quagmire, and Shriram, which had established its name in chit funds and in financing second-hand trucks, was feeling the heat.

"Managing our reputation became our biggest challenge," recalls Akhila Srinivasan, a Shriram veteran who now runs the insurance business. "Our best strengths came out of that crisis." Shriram not only managed to survive and diversify, but also got a vote of confidence from investors like never before. Since March 2004, its financing businesses alone have seen investments by a dozen PE players.

Forget 1998; such interest from PE investors would have been unimaginable even in the early part of this decade, when Shriram started managing truck loans on behalf of Citicorp Finance and UTI Bank (now Axis Bank). It was unthinkable even when Srinivasan decided to make a cold call to persuade FMO, a development finance organisation in Netherlands, to lend Shriram some funds. Those days, FMO extended loans to only a few Indian companies. Srinivasan flew down to Amsterdam, and convinced FMO to lend Shriram Rs 60 crore during the first meeting itself. Thereafter, it didn’t take much time for FMO to come in as an investor.

Arun Duggal has seen the shift in perception about Shriram from different vantage points. Now the Chairman of the board at four group companies, including Shriram Transport Finance and Shriram City Union, Duggal’s earlier job as head of Bank of America’s Indian operations between 1998 and 2001 put him in touch with PE firms. Later, when he advised them on their investment strategies, he found it wasn’t easy to make a pitch about Shriram. "The group was unknown to many. And NBFCs were shunned," he says. The group today manages Rs 27,000 crore of assets, compared to about Rs 1,000 crore in 1998.

Calling card

By the time Frontline Strategy, a Mauritius-based organisation known for its investments in Cbay Systems and Titagarh Wagons, injected an undisclosed amount into Shriram Strategic Engineering Private Ltd (SEPL) Composites for a 26% stake in June this year, the Shriram name had been firmly established on the PE radar.

Now, as K Ramakrishnan, Executive Director & Head (Investment Banking) of Chennai-based investment bank Spark Capital, says: "The group has become a darling of PE investors. More often than not, even without hiring an investment banker and running a formal process, it has been able to attract best-in-breed investors."

"After 2002-03, we have been comfortable," says Thyagarajan. "We have not been desperate for private equity funds." They have flowed in nonetheless, as is evident from the extent of capital PE players have poured into Shriram. Take, for example, the 22-year-old Shriram City Union Finance, which is in the business of retail loans. PE investors and FIIs hold 42% in it directly. In addition, in September this year, the Texas Pacific Group (TPG) invested Rs 530 crore for a 49% stake in Shriram Retail Holdings, Shriram City Union’s holding company. "The market opportunity in SME/personal loans is compelling," says Puneet Bhatia, Managing Director of TPG India, which has stakes in the holding companies of two group companies. "And the group is well positioned to harness it," he adds. TPG globally manages about $50 billion of capital.

It was as Newbridge that TPG first invested in a Shriram company (the holding company of the transport finance business). It paved the way for a second investment more than two years later. Says Bhatia: "Having seen the group from the inside helped convince us on the attractiveness of partnering again for a different arm." This time, it was in the holding company of the consumer finance business.

The initial trickle, the gradual build-up and the current flood of PE investments have a meaning, according to R Sridhar, MD of Shriram Transport Finance Corporation. "It has been about building credibility," he explains. The transport finance business was the group’s initial calling card among investors. "The business model of the used-trucks business is strong," says Ravi Bahl, MD of ChrysCapital. Shriram has, over the years, managed to create a market for used-truck loans among low-income groups, which organised financial institutions consider risky and therefore avoid. By working out a method to assess the value of used trucks, building relationships with clients and getting back the monies, Shriram has cornered 25% of a market that is largely unorganised. The margins are also higher on loans for used trucks than for new ones. "We fund credit-starved small-truck owners," says Sridhar. "It is normally considered a complex and difficult segment."

It’s the people

Thyagarajan, atypical of a corporate, seems allergic to the word ‘business model’."I wouldn’t like to use that term," he says. "The important thing is to run the business well. Once we do well, others will start seeing a model in what we do." But he does agree that PE investors want to see your business model, and more importantly, how you run it. Shriram seems to have the people to run it, despite avoiding the popular routes to getting talent. "It has grown with home-grown leaders, and has generally stayed away from high-profile recruitments," says Spark’s Ramakrishnan, who has observed the group for 15 years and facilitated many of its PE deals. Just take a look at its current set of leaders: Sridhar has been with Shriram since 1985; Srinivasan joined the group in 1986; and Subhasri Sriram, Executive Director of Shriram City Union Finance, made her entry in 1991.

"The branch manager is given all freedom to make mistakes and evolve," says Srinivasan, who started off her career at Shriram as a management trainee. "A person who started as a clerk is now the chief of the chit funds business in Andhra Pradesh," she says proudly. Interestingly, as Duggal says, this has happened even though the group doesn’t believe in pampering employees with too much money. It manages to retain employees by offering them stock options and challenging assignments. "Shriram doesn’t stereotype people," says Subhasri Sriram. "I have been in accounts, finance and then in operations." She says her company has seen near-zero attrition in the last year. Shriram isn’t a place populated with suited-booted, English-speaking managers. But you can trust the group to come up with interesting solutions—for instance, the person disbursing money at the branch level is also responsible for getting EMIs back on time!

"The people at Shriram do not believe in doing business with spreadsheets," says Bahl, referring to its native style of management. The belief is that you can trust a highly involved and empowered team, shorn of all paraphernalia, to deliver the goods. Until now, that belief has paid off.

The PE connect

In June this year, something happened against the run of play. A potential PE deal was called off. Goldman Sachs had initially proposed to invest Rs 300 crore for a 20% share in Shriram Credit, which is into equity and commodity trading. It didn’t come through. "They didn’t give us a final no, but there was foot-dragging," says Thyagarajan. "We didn’t want to embarrass them."

"We believe in partnerships," says Duggal, "and we go out of the way to build them." One instance of that was how Shriram Properties, the group’s realty company, zeroed in on a PE investor for a Rs 1,800 crore project near Chennai. "We gave our word to Sun Apollo," says Shriram Properties Managing Director M Murali. The deal hadn’t been signed, and Sun Apollo took some time to pay. Meanwhile, two other PE investors showed interest, and bid higher than Sun Apollo’s. Shriram Properties didn’t take those, and instead waited for Sun Apollo to invest. Sun Apollo has since invested in two more of Shriram’s projects.

Shriram Properties seems to have literally gone out of its way for a PE investor when it deferred its IPO plans last year. The realty firm was about to file for an IPO when Walton Street asked if it would consider an investment rather than go for an IPO. Shriram Properties obliged. "We would have got the funds from the IPO in five to six months. We got it from Walton Street in two months," says Murali.

Having said that, PEs do form an important cog in the Shriram growth wheel. A finance-based business could do well to have more investment in equity, as more capital is a pre-requisite to borrow more. "In NBFCs, growing without capital isn’t possible," says Subhasri Sriram. "And the intangible benefits have been the confidence of the employees and investors’ ideas."

Choosing and managing

It’s a general perception that PE firms come in with a target rate of return in mind. On the other hand, Thyagarajan says in negotiations with PE firms that he’s more interested in talking about Shriram’s track-record than about future projections. Interestingly, observers say, those seemingly parallel lines of thought don’t seem to matter.

Thyagarajan says: "PE firms also understand there can be no guarantee of returns. They say they will get into a venture only if they get 30% IRR (internal rate of return). I understand that’s how they should take decisions." And then: "We don’t guarantee them anything. We only say what we have done in the past. Whether you think it would give you the return or not is your decision."

TPG’s Bhatia says he had to be convinced of both the track-record and the features that would drive future success. "The group’s and our approach converged on these aspects, and this is somewhat rare."

Over the years, Duggal says, the group has consciously allied with PE firms with compatible values and investment horizons. "Our preference is not to go with PE firms that are control-oriented. We want partners who can support our business," Duggal adds. He goes on: "We can’t work much with hedge funds. Their investment horizon is short." It is no wonder then that Frontline Strategy’s shortest investment span till date has been four-and-a-half years (it has invested in Shriram SEPL). "We have even stayed invested in some for over six years," says Supratim Basu, Director at Frontline Strategy.

Then, the good old idea of clear communication takes over. Potential conflicts are nipped in the bud. "I think we have never been obsessed with capital markets," Subhasri Sriram states as an example. "There have been times when we were undervalued. That didn’t worry us. We were only concerned about doing what we needed to do. And we have communicated to the PE firms that this is what we always stand for." ChrysCapital’s Bahl agrees with him: "There has been good information sharing and transparency."

Thyagarajan knows a thing or two about how to handle things even when they don’t agree. "If I say my method is the best method and they say it is not, I would say, ‘okay let’s follow what you say, and let’s see if you are on the right path,’" he says.

But the most important thing is that the roles of PE investors are clearly defined. "We have agreed on what we do and what they do, and we go by that," says Sridhar. In the case of the transport finance business, which Sridhar heads, ChrysCapital’s job is at the board level, while TPG plays a more active role helping Shriram with its international resource network. "PEs don’t bring in any culture," says Sridhar. "At the end of the day, it’s Shriram’s culture."

MalvinderSingh - FC BUSINESSMAN OF THE YEAR

2008-12-31T17:48:00.001+05:30

MalvinderSingh - FC BUSINESSMAN OF THE YEAR
Financial Chronicle 31-Dec-2008
ALOK SHARMA
New Delhi

IF YOU were to name the man who sprang the biggest surprise on India Inc in 2008, who would you pick from among those captains who regularly hit the headlines?

Ratan Tata? Mukesh Ambani? Anil Ambani? Nandan Nilekani? None of them did anything to shake up the Indian corporate world. Tata did, but only to an extent, with Nano. That was hardly a surprise though; everyone knew Nano had been in incubation for some time. Mukesh’s new refinery was on its way, and Anil pulled no rabbit out of his hat. Nilekani only did what he was expected to do – manage Infosys well.

Financial Chronicle’s editorial team went through a great deal of CVs and found the man who qualifies for the honour: Malvinder Mohan Singh, 35, of Ranbaxy fame. He is our Businessman of the Year. Forget, for a while, that he, along with his brother Shivinder Mohan Singh, piled brick upon layered brick on a significant edifice that their grandfather Bhai Mohan Singh and father Parvinder Mohan Singh had built, and made it India’s biggest drug company by sales and among the world’s top five generic drug company. Blot out, for a moment, also the fact that Ranbaxy, Shamik Banerjee under the brothers’ combined baton, crafted some fine foreign acquisitions.

The sole deed that makes him the first denizen of the FC Hall of Fame was that one deal that left India Inc thunderstruck, caught media by surprise, and put the general public in bewilderment over the size and significance of it. Yes, we are talking of the Ranbaxy deal of June 11 with DaiichiSankyo of Japan.

What marked the deal was, of course, its size --- $4.6 billion, or Rs 18,400 crore at exchange rates prevailing then, Rs 10,000 crore of which was to go straight into the promoter family’s coffers for its 34.82 per cent stake, and the rest to other shareholders via the open offer from the Japanese company. There have been takeovers of Indian companies by foreign ones in the past, but this was the biggest such transaction of them all.

Yet, more significant was the fact that the Singhs decided to sell the brightest of their family jewels, and that was going into foreign hands. Ranbaxy was considered so precious to India that even our public men wondered in Parliament if it was wise to let it fall into the lap of a foreign company.

Another small detail: The Daiichi deal was the best kept secret in the Indian corporate world.

Not a whiff, no inspired leaks before the deal was actually announced.

Amazing, given that most Indian companies leak like a sieve, mostly with encouragement from the promoters themselves. So when the announcement came, it both surprised and shocked.

But that’s how Mailvinder works – on the quiet and away from public gaze. Till the end of 2007, the thought of selling Ranbaxy never crossed the mind of anyone in the family. Early in 2008, the need was felt for a strategic R&D partner. That’s when they went on a scouting mission and came into talks with Daiichi. Even so, according to Malvinder, selling Ranbaxy was not thought of. It was Daiichi which insisted on a majority stake. The only way this could be accomplished was by selling the entire Singh family stake. Negotiations were quick and came to fruition fast.

The decision was an emotional wrench, admits Malvinder, and taken keeping in mind the company’s future well-being and, of course, the unprecedented shareholder value that it would unleash.

Consider the details: Daiichi offered Rs 737 a share, a premium of over 50 per cent on the preceding three months’ average daily closing price of the Ranbaxy share on the Bombay Stock Exchange, and way above the Rs 560 that the scrip commanded a day before the deal was announced.

Supporting Malvinder’s decision to exit Ranbaxy was Brian Tempest, former chief executive officer of the company, who was privy to the talks and the secret deal. Speaking about the deal, he told Financial Chronicle: “It would help take Ranbaxy to the next level… It now has a partner/ owner with deep financial pockets that could help the company in further acquisitions and patent litigation.” Tempest believes there are many big pharmaceutical companies envious of Daiichi’s success with the Ranbaxy deal.

We may dare add that there would be a legion of Indian business families who might have turned green thinking of the unprecedented millions that the Singhs have earned by selling out.

Other corporate leaders, too, see the deal as path-breaking. G V Prasad, vice-chairman and chief executive officer of Dr Reddy’s, says the deal combines two very strong companies to create a new global force in the pharmaceutical industry.

“Ranbaxy adds international presence, a generic pipeline and a strong India presence to Daiichi Sankyo,” he adds.

A former chief executive officer of Ranbaxy, D S Brar, is on record that, after the deal, mergers and acquisitions would be seen in a “little more” positive light.

In the financial world, the deal has become legendary and is often cited as a case study. Gagan Banga, chief executive officer of Indiabulls Financial Services, says, “It was a smart move by the Ranbaxy management, as R&D is crucial for growth of pharmaceutical companies. The amount of investment required in pharmaceuticals may not have been otherwise possible for Ranbaxy to muster.” Sudip Bandyopadhyay, director & chief executive officer of Reliance Money, says, “The timing of a deal is all about luck and chance. But Ranbaxy was right in its strategy. They were quick to read the writing on the wall, that R&D is a crucial element for further growth. Unless a company develops new drugs it cannot grow beyond a point. Ranbaxy was smart enough to understand its limitation.” Post- deal, the standing of Ranbaxy has undergone a huge change. For one, it has become a debt-free firm with a combined market capitalisation of around $30 billion. The Daiichi-Ranbaxy combine is now the world’s 15th largest pharmaceutical company.

It wasn’t always so for Ranbaxy. Founded by Bhai Mohan Singh in 1961, the fledgling company barely managed to mark its presence in the pharmaceutical world. When his son, Parvinder, took over in 1993, Ranbaxy was a mere Rs 36 crore turnover company. Malvinder became chief executive officer and managing director in January 2006, with the company having reported net sales of Rs 3,408 crore in calendar 2005. Last year, net sales clocked were Rs 4,026 crore.

Results for calendar 2008 are yet to be compiled, but the first three quarters saw net sales of Rs 3,350 crore.

In recent years, Ranbaxy has experimented with professional executives at the helm, but they came a cropper and had to soon leave. Though a family run company, Malvinder always saw himself as a promoter who was also professional. As far as Ranbaxy goes, one may say he is truly a professional now, having been retained by Daiichi to run the company.

Today, Malvinder is not a stake holder in the company that has been with the family for more than four decades but he has acquired a triple-barrelled designation – in addition to being CEO and MD, he is also the chairman. He is also better off as a professional manager than he was as a promoter-professional. Daiichi pays him Rs 25 crore a year. As ownercum-professional, he used to earn Rs 19 crore.

(With inputs from Vivek Sinha) aloksharma@ mydigitalfc.com

Food & grocery, home décor are verticals with growth potential

2008-12-30T00:14:00.001+05:30

Financial Chronicle 29 Dec 2008
VIVEK SINHA & VRISHTI BENIWAL

ORGANISED retail may be reeling under slowdown shocks but an increase in consumer expenditure may help a few retail verticals register robust growth in the next calendar year. Food & grocery, large format stores of consumer durables & electronics, health & wellness, mobile telephony and other specialty stores in the home décor and footwear category are the five retail verticals that are slated for maximum growth, according to Arvind K Singhal, chairman of management consultancy Technopak Advisors.

“The consumption, in all probability will increase by 8 per cent in the next fiscal,” says Singhal. He said that understanding the mindset of a consumer and providing quick and customised services will be the key to future growth of retailers. “Mere knowledge that people are spending may not be enough, its important to identify with ‘what’ a consumer is spending upon,” explains Singhal. “Even if the GDP growth slips down to 6 per cent, it will still imply a healthy growth in customer spending in 2009 compared with 2008.” Singhal further points out that the profitability of many retailers came under pressure in 2008 partly due to their aggressive expansion and partly due to high operating expenses on account of rentals and salaries in particular. In fact, high rentals have been a bone of contention for the organised retail players.

Various reports have said that organised retailers have been paying rentals as high as 7-10 per cent of their total sales compared with 2-3 per cent of the global average. “In 2009, rentals are going to be soft and hence the margins of retailers should improve,” he adds.

The growth potential for these five retail verticals is robust also due to the fact that though these enjoy a lager share in the overall retail market of the country yet their share in the organised category is miniscule.

FCCB: Double-edged sword

2008-12-28T18:34:00.001+05:30

Src : The Hindu Business Line 28 Dec 2008

FCCB is a popular source of raising money as it benefits both the investors and issuers. But the current liquidity crunch and the market meltdown have taken the wind out of its sails.

Parvatha Vardhini C

Foreign Currency Convertible Bonds (FCCBs) have been in the news for most part of this year, thanks to the global financial turmoil. First, FCCBs were a problem due to the mounting forex losses of Indian companies.

In addition to the marked to market losses on derivatives, companies also had to provision for interest costs on FCCBs, following the sharp depreciation of the Indian rupee.

Later, the problem of high conversion prices for outstanding FCCBs made its presence felt amid falling stock prices, underscoring the possibility of their non-conversion. It again made headlines recently, when the RBI allowed the buyback of FCCBs. But before we begin to track these developments, let’s get the basics right.

Brass Tacks

FCCB is an instrument that has the features of both equity and debt. Issued as interest bearing or zero coupon bonds, FCCBs are convertible during their tenure into equity. They are a popular source of raising money as it benefits both the investors and issuers.

For investors, it brings the advantage of capital protection (like an investment in any other debt instrument), as well as the chance to capitalise on an appreciation in the price of the company’s shares through conversion. For the company, it is a source of low-cost debt as coupon rates on the bond are lower than the average lending rates.

Tough times

In the past few years of strong economic growth, rising share prices and lower interest rates, Indian companies resorted to funding their growth plans through FCCBs in large numbers. But the current liquidity crunch and the market meltdown have taken the wind out of their sails.

Companies with FCCBs maturing in the next one or two years are now in a tight spot, especially so for companies whose stock prices have fallen way below the conversion prices originally fixed. Take the case of Tata Motors. For 11,760 million yen worth FCCBs maturing in March 2011, the conversion price has been set at Rs 1,001. But the stock currently trades at Rs 179.

Several other companies such as Subex Azure, Suzlon Energy, Tata Steel, Wockhardt, Ranbaxy and Reliance Communications are also faced with a similar problem.

Double-edged sword

In these troubled times, FCCBs have turned out to be a double whammy. That is because if bondholders do not convert, these companies will be forced to pay up their liabilities. For example, FCCB holders of Coimbatore-based Shanthi Gears exercised the redemption option in November, following which the company had to redeem outstanding FCCBs worth $5.3 million (Rs 25 crore)

In the current cash crunch scenario, small and medium-sized companies may find it challenging to raise funds to meet this additional liability. Besides, a higher debt obligation at a time when the economy is already witnessing a slowdown may be a further drag on their profits.

That said, even if companies choose to lower the conversion price instead of taking on this burden, their woes may continue as it will then imply a higher equity dilution than planned.

This notwithstanding, some companies such as Simbhaoli Sugars, Pioneer Embroideries and Spice Jet have lowered their conversion prices in the past few months.

Time running out

While companies whose FCCBs mature two-three years down the line can expect the markets to rebound, others such as Wockhardt, whose FCCBs worth $110 million (Rs 517 crore) mature in October 2009 do not have the luxury of time.

Its shares now trade at Rs 104 as against its FCCB conversion price of Rs 486, virtually ruling out the possibility of conversion.

Any additional borrowing too might not be a very good option as its debt-equity ratio, currently at about 2.3:1, is already on the high side. The company is reportedly looking to sell off some of its non-operational assets to meet its liability.

RBI moves

Realising the catch 22 situation that some of the Indian companies were in, the RBI had permitted the buyback of FCCBs, (on satisfying certain conditions) last month through new ECBs (External commercial borrowings).

It recently allowed buyback through rupee resources as well. Reliance Communications, which had issued zero-coupon FCCBs in February 2007 for $1 billion (Rs 4,700 crore), at a conversion price of Rs 661 is the first company to avail of this. GTL Infrastructure too has followed suit.

When Ponzi lost his scheme to Madoff

2008-12-23T08:07:00.002+05:30

Src : DNA India 23 Dec 2008

Vivek Kaul

BANGALORE: “The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolise men who are making a lot of money, and assume that they know what they’re doing” —Paul Krugman, Nobel Prize-winning economist

As the flight took off from the Bangalore airport, I was looking to an hour and half of a peaceful snooze. But I hadn’t taken into account the fact that she was sitting next to me.

“What is a Ponzi scheme?” she asked.

“Why this sudden interest?”

“Well, Bernard Madoff, a highly respected figure on Wall Street until recently, has admitted that the investment fund he was running was essentially one huge Ponzi scheme. In fact regulators are now saying this may be the biggest Ponzi scheme the world has ever seen, at around $50 billion,” she said.

“Hmmm... Ponzi scheme gets its name from Charles Ponzi, an Italian immigrant to the United States of America, who promised investors in 1919 that he would double their money in 90 days, which he later reduced to 45 days. Money started pouring in as no other investment in the market at that point of time offered such high returns. At its peak, the scheme had 40,000 investors who had invested around $15 million in it. Ponzi thought he had in place a business model that could help him deliver the astonishing returns he had promised. But all he ended up doing was use he money brought in by new investors to pay off the old investors.”

“So, basically no new wealth is created in a Ponzi scheme. But, wouldn’t such a scheme last only as long as the money entering the scheme is more than the money leaving the scheme?”

“You are right. This was the case with Madoff’s investment fund. In the beginning, he tapped money locally. He targeted country clubs, Jewish charities (he was a Jew himself) and even charity dinners. He was good at networking, of course. As his fame grew, on the back of consistent returns of 10% per year that his investment fund generated, other feeder funds started to invest money into his investment fund. Madoff’s fund continued to do well even when the broader market was falling. Even as recently as November, when the US market fell by 7.5%, this fund generated positive returns. All this good news led to the fund bloating even more, and when this happened, he needed even more new investors who would invest money to be able to pay investors who wanted to redeem their investment.”

“So what did he do?”

“Well, he started to look at markets outside the United States. His salesmen touched base with investors in Europe, the Persian Gulf, South East Asia and finally China. This is the first true blue global Ponzi scheme.,” I explained.

“I don’t get one thing. Madoff ran this fund for years. How come no one questioned his investment strategy?”

“Good question. In a Ponzi scheme, the investment strategy followed appears to be a genuine one, but at the same time it is obscure enough to prevent any scrutiny. Madoff, when asked, told his investors and other investing professionals that he was employing a strategy known as “split-strike conversion.” This is a common investment strategy employed by derivative traders and investors. Other fund managers who had tried it were of the view that it was impossible to generate the kind of returns Madoff was generating using this strategy. However, no one really questioned it because Madoff’s fund kept generating the so-called consistent returns. This consistency also ensured that the investors rolled over profits into the next investment cycle. This is another characteristic responsible for the success of Ponzi schemes — as more and more people roll over their “profits” by not redeeming their initial investment, the chances of the scheme surviving increase. In Madoff’s case, the “so-called consistent returns” assured investors that their investment is safe.”

“But if everything was going so well, why did the fund collapse?” she asked.

“Well, October and November have been particularly bad months for stock markets worldwide. Due to this, a lot of investors wanted to redeem the money they had invested. At the same time, new money wasn’t really coming in. In early December, Madoff was struggling to raise nearly $7 billion to redeem the money his investors wanted back. A little later, on December 10, he called his sons and his employees and admitted that there really wasn’t any investment model in place and that his fund was one big Ponzi scheme. What broke Madoff’s back was essentially the same thing that has broken the back of every Ponzi operator before him — the point where the money leaving the scheme exceeds the money entering it.”

“How come nobody figured this out?”

“Typically, people running a Ponzi scheme have a ‘halo’ around them. Indeed, many cases of financial fraud involve individuals with charming and convincing personalities who have an ‘infectious optimism’ that makes others trust them. Madoff, for example, was a family man who did a lot of philanthropy as well. He was also the non-executive chairman of the Nasdaq stock exchange for a few years in the early nineties. All this worked for him.”

“Will the number of Ponzi schemes come down in the days to come?”

“I don’t think so. Over the years, investors have been fooled into investing money into various Ponzi schemes. They ignore the most fundamental principle of investment theory: You cannot make large profits without taking risk. Investors should logically seek large amounts of information before investing. But most do not do so. Few ask the right questions at the right time and are naive enough to believe in what is communicated to them by those carrying out the fraud. Most are driven to investing in such schemes by greed.

“Maybe we should start calling Ponzi schemes as Madoff schemes now.”

“Oh the renaming has already happened, at least in the US press.”

(The example is hypothetical)

References: ‘The Madoff affair: Con of the century’, The Economist, December 20, 2008; Madoff scheme kept rippling across borders, The New York Times, December 19, 2008

RPG sells 50% in Cellucom

2008-12-20T10:41:00.001+05:30

Src : Economic Times 20 Dec 2008

Rashmi Pratap & Kala Vijayraghavan
MUMBAI

FIERCE competition in the mobile retail space has claimed its first victim. The RP Goenka group has sold its 50% stake in mobile and laptop retail chain RPG Cellucom to joint venture partner Arun Nagar, founder and owner of Dubai-based Cellucom. Industry analysts peg the valuation of the deal at around Rs 150-200 crore. However, this could not be independently verified. RPG group declined to provide details. While confirming the exit, a group spokesperson said, “This divestment is consistent with RPG’s focus on higher margin retail categories.”

Mr Nagar’s Cellucom has presence across Asia, Eastern Europe, South America and Africa. In October, he had announced plans to invest around Rs 300 crore on expansion in India and said the company was adding around 15-20 outlets every month. Currently, there are over 200 RPG Cellucom stores across the country and the company plans to set up 500 stores by March 2010. It is expected that RPG Cellucom will re-christen itself to reflect the change in ownership.

Cellucom, which is a mobiles and IT products retail chain, has now mandated Ernst & Young (E&Y) to find an Indian investor for the venture, said a source familiar with the development. It has approached retail chains including the Tata group’s Chroma, Essar Group-owned Mobile Store and Kishore Biyani’s Future Group for a possible joint venture as the business needs more investment. E&Y is also learnt to be approaching some private equity investors to explore the possibility of funding, the same source said.

Cellucom is learnt to have created an Indian holding company structure to comply with foreign direct investment (FDI) norms. FDI is not allowed in multi-brand retailing in India but is permitted in wholesale or cash & carry businesses. Regulation allows franchise agreements in back-end support like technical know-how, supply chain management and general support services to Indian retail companies.

With this exit, RP Goenka group’s retail businesses now comprise multi-format Spencer’s Retail, music stores chain Music World and Books & Beyond. “RPG will now focus on core operations and more profitable ventures. Retailers are looking at consolidation and only serious players will remain in the business,” said an analyst. Industry estimates suggest that handset sales business grew at around 15-20% last year but has seen 8-10% growth in 2008.

Interview with Nassim Nicholas Taleb

2008-12-16T20:47:00.003+05:30

Src : DNA India 16th Dec 2008

Nassim Nicholas Taleb explains why the rarity and unpredictability of certain events does not make them unimportant

Allen Webb

The scholar, trader, and author Nassim Nicholas Taleb brings a decidedly contrarian view to the world of finance, statistics, and risk. In 2007, he published The Black Swan: The Impact of the Highly Improbable, which argues that we should never ignore the possibility or importance of rare, unpredictable events. In this interview with the Quarterly, he looks at the current financial crisis through the lens of his Black Swan thinking.

For people who haven't read The Black Swan, can you quickly summarise what they should know to understand your point of view on recent events in global financial markets?

Before Europeans discovered Australia, we had no reason to believe that swans could be any other colour but white. But they discovered Australia, saw black swans, and revised their beliefs. My idea in The Black Swan is to make people think of the unknown and of the potency of the unknown, particularly a certain class of events that you can't imagine but can cost you a lot: rare but high-impact events.

So my black swan doesn't have feathers. My black swan is an event with three properties. Number one, its probability is low and based on past knowledge. Two, although its probability is low, when it happens it has a massive impact. And three, people don't see it coming before the fact, but after the fact, everybody saw it coming. So it's prospectively unpredictable but retrospectively predictable.

Now that we're in this financial crisis, for example, everybody saw it coming. But did they own bank stocks? Yes, they did. In other words, they say that they saw it coming because they had some thoughts in the shower about this possibility-not because they truly took measures to protect themselves from it.

Now, a black swan can be a negative event like a banking crisis. It also can be positive: inventing new technology, making new discoveries, meeting your mate, writing a best seller, or developing a cure for cancer, baldness, or bad breath. In The Black Swan, I say that in the historical and socioeconomic domain, black swans are everything. If you ignore black swans, you've got nothing. And I showed that the computer, the Internet, and the laser-three recent technological black swans-came out of nowhere. We didn't know what they were, and when we had them right before our eyes we didn't know what to do with them. The Internet was not built as something to help people communicate in chat rooms; it was a military application and it evolved.

So these things have a life of their own. You cannot predict a black swan. We also have some psychological blindness to black swans. We don't understand them, because, genetically, we did not evolve in an environment where there were a lot of black swans. It's not part of our intuition.

Say a little more about the relationship between black swans and the global financial crisis.

I warned in The Black Swan against some classes of risk people don't understand and against the tools used by risk managers-tools that could not fully capture the properties of the world in which we live. The financial crisis took place because people took a lot of hidden risks, which meant that a small blip could have massive consequences.

In fact, I tried in The Black Swan to turn a lot of black swans white! That's why I kept going on and on against financial theories, financial-risk managers, and people who do quantitative finance. I warned that they were dangerous to society.

You question many of the underpinnings of modern financial theory. If you were the dean of a business school, how would you overhaul the curriculum?

I would tell people to learn more accounting, more computer science, more business history, more financial history. And I would ban portfolio theory immediately. It's what caused the problems. Frankly, anything in finance that has equations is suspicious. I would also ban the use of statistics because unless you know statistics very, very well, it's a dangerous, double-edged sword. And I would ban linear regression. All these things don't work.

What are your concerns with statistics and portfolio theory?

The field of statistics is based on something called the law of large numbers: as you increase your sample size, no single observation is going to hurt you. Sometimes that works. But the rules are based on classes of distribution that don't always hold in our world.

All statistics come from games. But our world doesn't resemble games. We don't have dice that can deliver. Instead of dice with one through six, the real world can have one through five-and then a trillion. The real world can do that. In the 1920s, the German mark went from three marks to a dollar to three trillion to a dollar in no time.

That's why portfolio theory simply doesn't work. It uses metrics like variance to describe risk, while most real risk comes from a single observation, so variance is a volatility that doesn't really describe the risk. It's very foolish to use variance.

Does your thinking inform the debate over the efficient market hypothesis?

I have no idea. I don't know if markets are efficient or inefficient. I don't know if we'll ever know. And I don't know if it's relevant.

What does all this mean for managers at non-financial companies? What should they be doing differently?

I recommend two things. Number one, take the maximum amount of risk and other forms of exposure to positive black swans when this costs you very little if you're wrong and earns you a lot if you're right. Number two, minimise your exposure to negative black swans.

This is exactly the opposite of what the banks did. They had no real upside and a lot of downside-or, to be more precise, they got a little bit of cash flow to have all the downside. I recommend the opposite. Be hyperconservative when it comes to downside risk, hyperaggressive when it comes to opportunities that cost you very little. Most people have the wrong instinct. They do the opposite.

What would your ideas look like in practice for, say, a manufacturer?

If risk doesn't cost you a lot, take all the risk you can. That's how economic growth is generated. Don't fear being aggressive if that only costs you a little. Do more trial and error. Learn to fail with pride, comfort, and pleasure.

But try to have less downside exposure by building more slack into your system through redundancy, more insurance, more cash, and less leverage. Imagine a shock. What will happen if there's a shock? How many months could you keep operating?

The problem is, Wall Street penalises companies that have more of this kind of insurance, because they are going to lag behind companies that don't take on the expense. I see this in my investment business. But you know what? The people who insured against catastrophes are still standing today. The other people are bust. So don't fear overinsurance for your downside, even if you lag behind as a result.

You're a critic of scenario planning. Is there a way to do it effectively?

I don't like scenario planning, because people don't think out of the box. So scenario planning may focus on four, five, or six scenarios that you can envision, at the expense of others you can't. Instead of looking at scenarios and forecasts, you should be looking to see how fragile your portfolio is. How vulnerable are you to model error? How vulnerable is your cash flow to changes in any parameter of your calculations? My idea is to base your navigation on fragility.

www.mckinseyquarterly.com Copyright © 2008 McKinsey & Company. Reprinted by permission.

Bull or Bear?

2008-07-01T23:20:00.001+05:30

Lot of ppl are predicting the sensex or looking at the sensex levels to invest .Instead of looking at the sensex and nifty , I think its better to look at the individual stocks. I think its matter of time before the good stocks will bounce back but the time period nobody can guess , could be 1 month, 1 year or 10 years but the point is good stocks will give us a better Return On Investment than other asset classes. Investors can look at the current scenario in a +ve manner a) they are able to buy stocks at a better rate something like a discount sale b) they have a good choice, sometime ago we could not find stocks with a good price , all the stocks were highly valued now investors can sit down and choose stocks with good promoters, with good business models etc at a good price.

PPl are predicting 12K etc , my only point is if all the sensex predictors are so accurate , they can borrow money and invest as per their predictions and become richer than RJ, but why is it we do not hear about such cases. We hear only stories where ppl have accumulated wealth through the years. Warren Buffet admits he cannot predict the market and I do not think there can be any better investor than WB. The point I want to bring across is forget about the ppl predicting sesex, nifty or crude prices pick good stocks value and sit tight. John Templeton words may be very difficult to follow but they are very logical - "Help people. When people are desperately trying to sell, help them and buy. When people are enthusiastically trying to buy, help them and sell."

As far as my own portfolio goes, am bleeding left , right and center but am sitting tight thinking they have value and will rise again. GHCL, Sujana Towers, MoldTek, Freshtrop Fruits and CESC are stocks I hold. My only repent is I should not have been 100% invested and instead had some money to pick up a lot of jewels. Am bullish on individual stocks

Stock valuations are not about earnings alone

2008-01-20T14:33:00.000+05:30

maybe the below article will show why we are so bullish on CESC

Src:
http://www.thehindubusinessline.com/iw/2008/01/20/stories/2008012050430700.htm

Stock valuations are not about earnings alone

Listing of subsidiaries, re-rating of peers within a sector and news of private equity deals are among the factors that can transform the valuation picture.

Srividhya Sivakumar

Healthy growth in corporate earnings, rising institutional interest and ample liquidity have been the main drivers of high stock prices over the past three years. Conventional parameters apart, the recent re-rating of stocks has also been driven by other factors. Companies are valued not just for their core businesses but also for other strengths that have the potential to add value to core operations. Here are a few such triggers investors need to take note of:

Listing of subsidiaries

With the primary market in spate, companies seeking to hive off a new business for subsequent listing stand to receive an attractive valuation for the new business that isn’t captured in the company’s books. The listing of a subsidiary by an existing company has more often than not delivered value to the holding company. Consider Reliance Energy.

Since the filing of the draft prospectus of Reliance Power (early October-07), Reliance Energy has returned about 76 per cent, while the Sensex appreciated by only 10 per cent. Pantaloon Retail, following the announcement of the listing of Future Capital Holding (late September-07), its 78 per cent subsidiary, spurted 40 per cent between the date of announcement and that of the IPO, outpacing the 20-per cent rise in the Sensex.

The price surge in HEG and Rajasthan Spinning and Weaving Mills (RSWM) can be traced to similar factors. Given their rather indifferent valuations, news of the potential listing of Bhilwara Energy, their commonly-held subsidiary, drove their stock prices to new heights.

HEG more than doubled and RSWM appreciated more than 150 per cent in just two months while the Sensex managed a piffling 6 percent rise only!

Going by these trends, investors looking for potential upsides should watch for proposed listings of subsidiaries by companies such as ICICI Bank (planned listing of ICICI Securities and ICICI Ventures), M&M (Club Mahindra) and L&T (L&T Infotech).

Tracking the draft prospectuses of these arms on the SEBI site and looking into the potential valuations of these new companies may help investors time their investments in these stocks. One caveat here is that valuations would hinge on the sector leanings of the subsidiaries concerned.

Peer re-rating

Had you invested in Tata Power three months ago, you would now be sitting on profits of over 70 per cent on the investment, thanks to the high-profile Reliance Power IPO. In the same three-month window, other power stocks such as Torrent Power, JP Hydro, NTPC and CESC have turned in double-digit returns, a rare phenomenon in the sedate power sector. This bout of re-rating was prompted by the Reliance ADAG group’s decision to list Reliance Power.

The spate of new listings in the brokerage/financial space in recent times — Motilal Oswal Financial Services, Religare Enterprises and Edelweiss Capital has had a trickle-down effect on listed brokerage firms, such as India Infoline and Geojit Securities, IL&FS Investment Managers, and so on. The price investors were willing to pay for Motilal’s offer also pegged up the valuations for holding companies with unlisted broking businesses — such as Kotak Mahindra Bank and Indiabulls.

The mega public offer of DLF also had a similar impact on its realty peers. Given that most IPOs today enjoy strong investor appetite, a new listing usually contributes to a fresh discovery of the prices investors are willing to pay for the growth prospects of the business.

In this context, the price action in peer group companies of Emaar MGF (DLF), Oil India (ONGC), Wockhardt Hospitals (Apollo Hospitals and Fortis Healthcare) and Titagarh Wagons (Texmaco), among the many in line for initial offers, bear close watching in the weeks ahead.

Private equity deals

The private equity party in India has just begun; nonetheless, PE deals have altered the price discovery mechanism of our markets. For instance, Eton Park Capital’s acquisition of a 5 per cent stake in Reliance Capital for Rs 500 crore had valued the latter at about 13 per cent of its assets under management. This valuation was quite liberal when compared to the values earlier accorded to Reliance Capital’s asset business and thus drove a re-rating of comparable AMCs, such as Birla Sun Life.

Birla’s AMC business is housed with Aditya Birla Nuvo, the flagship company of this group. The Aditya Birla Nuvo stock gained 30 per cent from the time of this deal.

Similar benchmarking was also used to drive an expansion in price-earnings numbers of several listed broking companies, which attracted private equity deals in good number over the past year or so.

Valuation ‘gaps’ between two firms in a similar business have been swiftly bridged. This underlines the fact that investors are increasingly willing to bet on businesses and stocks if they are available at cheaper valuations in a bull market, rather than try and justify standalone absolute valuations for a business.

Nonetheless, it might not be such a great idea to invest blindly in companies that have attracted PE money. While most such companies have generated profits for shareholders, investors may be better off tracking the company fundamentals before taking the plunge.

For instance, while Nagarjuna Constructions returned about 85 per cent after the Blackstone deal, Gokaldas Exports, despite a similar private equity deal, has delivered only about 7 per cent.

Investment books

Prolonged bull markets, such as the current one, tend to soak up the supply of stock candidates that are available at good “value”. This may explain the trend among market participants to unearth hidden sources of “value” in a company’s asset base or balance-sheet that could add a few rupees to the company’s intrinsic worth.

The market value of investment books of companies (the value of securities/stakes held by the company as a part of its trade or non-trade investments) have been drivers of re-rating for stocks such as Tata Investment Corporation, Ramco Industries, Rallis India, IDFC, and many others. Consider Ramco Industries. The stock price shot up by a whopping 33 per cent in the last one month on discovery of a valuation mismatch; its investment book value per share was higher than the market price.

Arguments on similar lines may partly explain the surge in stock prices of companies such as Tata Investment Corporation, LMW, Dewan Housing and IDFC, to name a few. For instance, in Tata Investment Corporation, the value of its investment book would stand at about Rs 841 per share at current market prices; LMW’s investment book would be valued at about Rs.64 per share.

However, the caveat here is that though the market value of the investment book may be much higher than the book value, it must be capable of value unlocking through a sale of those shares at market price. Companies that do not actively manage their equity portfolios and cross-holdings between group companies may not lend themselves to such unlocking. Moreover, the market value of the investment book too is directly related to the state of the stock market and any meltdown could lead to a swift mark-down in values.

Beware the black swan

More often than not, while such triggers have made stocks outperform the broad market till now, they may not continue to do so. Investors should primarily base their investment decisions on a company’s core business fundamentals.

The Bajaj Auto demerger is a case in point. Contrary to the general market sentiment that demergers are good for shareholders, the stock crashed by about 13 per cent after the terms of the demerger were announced; the stock continues to languish despite a bull market. Investors expecting value discovery for Bajaj’s insurance business were caught off-guard on disclosure of a call option at a nominal price with its insurance partner, Allianz.

This came as an unpleasant surprise to market participants who were pegging up Bajaj’s insurance business at about Rs 600-1000 per share. Such damp-squib occurrences are rare but they prove that investors may be better off going by stock fundamentals for long-term investments.

What is open interest?

2008-01-15T22:59:00.000+05:30

Src:
http://www.livemint.com/2008/01/13230547/Ask-Mint--Everyone-has-heard.html

Ask Mint | Everyone has heard of simple interest, but what is open interest?

A rising open interest number indicates that the present trend is likely to continue

Real Simple | Shailaja and Manoj K Singh

Stock markets are known for their random progress. Sometimes they move up, sometimes they move down and sometimes they even move sideways. But intelligent investors always keep looking for different cues to overcome the randomness. The futures and options market provides many indicators about market expectations. One such handy indicator is the open interest number in the futures and options market. But for our friend Johnny, the term open interest, far from being an indicator, is a source of confusion. The problem is that he does not even know what the term “open interest” means. Today, as usual, he is taking the help of Jinny.

Johnny: I have heard about simple interest, compound interest and even penal interest. But what is this open interest?

Jinny: Open interest has nothing to do with the types of interest rates you have heard about. People generally get confused between trading volume and open interest in the futures and options market. Open interest simply means all the outstanding futures or options contracts that have not yet been exercised or squared off, expired or fulfilled by delivery. Each transaction will be a part of trading volume but may not lead to increase or decrease of open interest.

Johnny: What? How so?

Jinny: Okay, let’s try to understand how it is so. Suppose you are buying a single call option from me. Your buying a single call stock option will result in a single contract of call option in which you acquire the right to purchase and I get obliged to sell the underlying stock. This transaction will create one trading volume and one open interest in the market. Both your right and my obligation form part of the same transaction and hence, a single call option contract would lead to single open interest in the market. You and I may square off our respective positions by entering into opposite contracts with someone else. For instance, you may square off your position by selling a call option and I may square off by purchasing a call option with a third party. These transactions will lead to an increase in trading volume. But will it change the position of the open interest in the market? No, because our squaring off with the third party merely brings someone else into our shoes. No separate rights and obligations are created.

New parties will assume our existing rights and obligations under the contract. So the open interest of the market would continue to be the same. However, the number of options left open in the market would rise in case one new buyer enters into a derivative contract with one new seller. In that case, new rights and obligations come into existence.

Johnny: Then what leads to a fall in the open interest number?

Jinny: The number of options left open would fall in case you settle your derivative contract either by cash or physical delivery at the expiry date. In either case, the derivative contract comes to an end leading to a decrease in open interest. Further, options contracts automatically come to an end at the expiry date if the party purchasing the option fails to exercise its right. There can be a fall in open interest before the expiry date in case parties square off by entering into an opposite contract with each other. If I had earlier sold you an option contract, I can square off by purchasing an option contract from you. Entering into opposite contracts will extinguish our mutual rights and obligations.

Johnny: Future trends? How can open interest tell us about that?

Jinny: Well, you can use the rise or fall in the open interest number as an indicator of the future expectations of the market. A rising open interest number indicates that the present trend is likely to continue. If the open interest number is stagnant, then it means that the market is in a wait-and-watch mode. If it starts declining, then the market is clearly in a trend reversal mood. In a rising market, continuous decline of open interest indicates an expectation of downward movement. Similarly, in a falling market, the decline of open interest indicates that the market expects an upward trend. But all said and done, trends in the futures and options market are all future expectations only, and like the performance of the Indian cricket team, expectations may go wrong anytime.

Johnny: Yes, Jinny, there is always a possibility of getting fooled by randomness.

What: Open interest means all the outstanding futures or options contracts that have not yet been
exercised or squared off, expired or fulfilled by delivery.

How: The number of open interest in the market rises in case one new buyer enters into a derivative contract with one new seller.

When: If the number of open interest is rising, it indicates that the present market trend is likely to continue. If the number of open interest is declining, the market is likely to be in a trend reversal mood

Shailaja and Manoj K. Singh have important day jobs with an important bank. But Jinny and Johnny have plenty of time for your suggestions and ideas for their weekly chat. You can write to them at realsimple@livemint.com

Sayaji Hotels - Management Interview

2008-01-12T12:11:00.000+05:30

Src:
http://indiaearnings.moneycontrol.com/sub_india/compnews.php?autono=320728

Sayaji Hotels
Jan 10, 2008 at 03.20 PM

Sayaji Hotels may build hotel in Pune for Rs 135 cr

Sayaji Hotel is likely to set up a 5-star hotel in Pune. Sajid R Dhanani, MD of Sayaji Hotel, informed CNBC-TV18 that by 2009, they will be investing about Rs 135 crore in the hotels and about Rs 150 crore in the restaurants business. Out of this, Rs 135 crore will be for hotels, Rs 52 crore is by way of equity and Rs 87 crore by way of debt, he said.

Excerpts from CNBC-TV18’s exclusive interview with Sajid R Dhanani:

Q: You are setting up one hotel in Pune, you have aggressive plans on the restaurant side of the business. Give us your total capex from 1-2 years time horizon?
A: By 2009 we will be investing about Rs 135 crore in the hotels and about Rs 150 crore in the restaurants. Out of this, Rs 135 crore will be for the hotels where Rs 52 crore is by way of equity and Rs 87 crore by way of debt. As regards to restaurants, we are raising equity to an extent of about Rs 35 crore and balance internal accruals and debt has been used for the same.

Q: What are the cash levels in the company currently?
A: This year we are expecting a cash profit of close to Rs 18 crore.

Q: Give us an idea of what is the total number of hotels you hope to launch by 2009-10 and the number of Barbeque Nation outlets?
A: By 2009-10 we will be having one more hotel in Pune and about close to 75 Barbeque Nation Restaurants all over the country.

Investment Themes - ET

2008-01-06T15:22:00.000+05:30

Src:
http://economictimes.indiatimes.com/articleshow/2677891.cms

Investors benefit when consumers spend on luxury
7 Jan, 2008, 0000 hrs IST,Kiran Kabtta and Supriya Verma, TNN

Consumers are spending on luxury like never before. Read on as ETIG embarks on a journey to find out how investors can benefit from this trend... Income growth has brought about a double-digit growth in employees’ salaries, directors’ remuneration, dividend payout by corporates and net worth of investors and promoters.

But the biggest gainers have been those at the top of the economic pyramid. Directors’ remuneration has grown much faster than employees’ salaries, while promoters have witnessed a faster growth in dividend income and net worth than small shareholders. Increase in wealth has been substantially faster than the corresponding increase in income.

Eventually, this has created a new class of consumers with aspirations and money to jump to the next level of consumption. This has opened up a goldmine of opportunity for companies willing to fulfill the lifestyle aspirations of this new class of brand-conscious consumers. Though we are aware that as income and wealth crosses a certain level, individuals may switch to a foreign luxury brand, that leakage will be more than compensated by a greater number of new entrants into the rungs of the upper-middle class.

The majority of Indian companies have a mix of products catering to all segments of consumers. Nevertheless, we have attempted to zero in on listed Indian companies which are top end in their respective categories.

FOOD & BEVERAGES: Food is one of the major areas of expenditure for consumers. The taste of consumers becomes more refined as their income level increases. It has been observed that consumption of liquor and fresh fruit juices beefs up as economic status rises. United Breweries, Freshtrop Fruits and Jain Irrigation Systems are the companies to watch out for in this segment. Apart from volume brands, United Spirits has the largest portfolio of high-end liquor brand. Freshtrop Fruits exports fresh fruits to various parts of Europe and the Middle-East and now plans to enter the domestic market in a tie-up with retailers. Jain Irrigation Systems supplies fruit pulp and concentrates to most of the fruit juice manufacturers and bottlers in India.

CLOTHING: Clothing is yet another segment which attracts the bulk of expenditure from consumers. As incomes rise, preference for branded clothes increases. This also explains the growth in designer labels in the domestic consumer market. Among Indian clothing brands, Raymond is the most premium and sought-after brand in the made-to-order suit category. It also owns a host of premium brands in the ready-to-wear segment. Other companies with good growth prospects in this league are Zodiac Clothing and Provogue India.

ACCESSORIES: Indian premium brands in accessories like watches, jewellery and luggage also come under the lens when we talk of high-end consumer spend. Companies in this category can be a good buy for investors interested in tapping the growing consumerism. Titan Industries — with its timepieces & jewellery brand, Tanishq — and Gitanjali Gems — with its jewellery and diamond brands — are attractive picks in this category. VIP Industries is also an attractive player in this segment, since it attracts consumers looking at buying high-end luggage to suit their tastes.

APARTMENTS: The best way to flaunt your wealth is by living in a smart and upmarket house. Thanks to rising income levels in high-growth sectors like IT, retail and real estate, not only has the average age at which people purchase houses come down, but the average spend per flat has also gone up. People don’t mind paying extra for dedicated parking slots or designer interiors these days. This has opened up big opportunities for companies such as Orbit Corporation, DLF and Godrej Properties (promoted by Godrej Industries).

HOTELS: Till a decade ago, visiting a five-star hotel was unheard off among the urban middle class. Now, New Year bashes or annual holidays at a five-star property are becoming common-place among the growing urban middle class. As salaries and wealth at the upper end grow, the potential market for hospitality chains like Taj (Indian Hotels), Oberoi (EIH) and The Leela is only getting bigger by the day. This, coupled with graduation of households to the upper middle class, will add to demand for travel and tourism in India. This has also given a fillip to the concept of ‘eating out’, particularly at specialty restaurants, the best of which are housed in five-star hotels.

HOME FURNISHINGS: With good homes comes the demand for top-class interiors and home furnishings. Hindustan Sanitaryware, Nitco, Somany Ceramics and Kajaria Ceramics are companies to reckon with in the case of interiors. Bombay Dyeing and Welspun India are leading brands in towels, bed linen and various home décor items. Besides quality, high-end consumers seek aesthetics while decorating homes. This category, which is ancillary to the real estate and hospitality industries, will also get a boost due to consumption boom.

With growing prosperity, lifestyle changes are likely in future too. If investors buy into our logic, they can add these companies into their portfolios, even if the sector per se may not be performing well. Conversely, investors interested in putting their money in any sector can invest in a company in the premium segment.

Alps Industries - Mgmt Interview

2008-01-05T17:51:00.000+05:30

Src:
http://www.moneycontrol.com/india/news/business/alps-ind-plans-to-settwo-150-mw-power-projects2-yrs/17/16/319833

Alps Ind plans to set up two 150 mw power projects in 2 yrs
2008-01-04 16:42:46 Source : CNBC-TV18

Alps Industries is planning to foray into the energy sector. It has already set up a wholly owned subsidiary, Alps Energy.

In an exclusive interview with CNBC-TV18, Sandeep Agarwal, Managing Director, Alps Industries, said the company is looking at setting up hydropower projects worth 150 mw in the next two years.

Excerpts from CNBC-TV18’s exclusive interview with Sandeep Agarwal:

Q: Could you tell us what plans do you have for this unit? What sort of investments can we see? At any point of time, could we look at a potential listing for the subsidiary as well?
A: We are looking at setting up around 2-3 hydropower projects in Himachal and Uttaranchal. Overall, we are looking at around 150 mw over the next two years. We have already negotiated one project for around 15 mw. We are in discussion with the Himachal government for another project of 61 mw.

Q: What is the strategy behind stepping into power in a fairly aggressive manner? What capex would this require?
A: We are looking at a capex of around Rs 1,000 crore over the next two years, which would be roughly around Rs 6.5 crore per mw. We ourselves are captively using around 30-40 mew currently. On a plant load factor of 50%, we will be using 50-60% energy over there.

Q: For this Rs 1,000 crore investment that you require, would you have to go and access the markets? If yes, what route would you deploy and how soon?
A: At the moment, we are looking at going into a synergy. Hopefully, 1.5-2 years down the line, we will be going public on this.

Q: Over what period of time will this Rs 1,000 crore worth of investments come into the company? Consequently, will you be looking at any debt component as well to fund this?
A: We are looking at a debt to equity of 1:2. We are roughly looking at an equity portion of about Rs 350 crore for this company.

Q: By when do you hope to list the company, if at all?
A: We are looking at possibly 2010.

Ratan Tata Interview

2008-01-04T23:59:00.000+05:30

Src
http://www.businessworld.in/content/view/3324/3421

‘The Mindset Has Changed’

04 Jan 2008

Q: JRD had a huge impact on Tatas but lost control of the satraps, didn’t he?
A: You have got to view that in the context of being the chief for 50 odd years; having a team of your people grow with you. I was accused of instituting a retirement age. But there was always a retirement age of 65 years. What did happen, when JRD passed 65, he did not retire and others who were close to him moved with him and when they became 65, they did not retire.

Q: Do you find yourself in a similar situation in terms of succession?
A: I do not want to go out on a wheelchair. Today, if I had a firm successor in place, after the small car is in production it would have been a terrific time to step away.

Q: But the next 4-5 years promise to be great. Why miss that?
A: Yes, there is great satisfaction as one has moved Tata Tea from a plantation company towards a ready-to-drink company. Tata Chemicals is looking at bio-fuels and being the largest soda-ash manufacturer. Indian Hotel is moving overseas. Tata Steel and Tata Motors have great plans. TCS has always chalked out its own path. Importantly, I think the mindset has changed. Now we can take on new challenges like the great over-dependence on fossil fuels. One needs to look at bio-fuels, ethanol, bio-diesel, wind energy and solar. Actually, the (1983 strategic plan RNT created for Tatas but which was rejected) had solar energy and batteries.

Q: What problems do you see in the near future for the group companies?
A: Not all of their succession is very clear and not all the management is deep enough to take care of a sudden death or departure. We are also not doing enough in terms of really generating IPR, really getting involved in true R&D as against just product development. Tata Chemicals is getting involved in nanotechnology. Tata steel and Tata Motors are generating some IPR. But it is very very small. We need to do much more.

Q: How much of a handover will you give your own successor?
A: Realistically, a year to 18 months. It should not be longer because the way things work, there would be tremendous pressure to unseat that person. It should be stated and that person should become known for filling that position and not just waiting in the wings. I know what happened in my case.

Q: What is the one key thing your successor should have?
A: Values. That is one of the issues that makes the question of succession so difficult. The person must maintain our values because they are, in a manner of speaking, the DNA of the group, the crown jewel of the group. You could play the game that others play, and you would probably grow faster and you would probably be more profitable, but you’d be just like everyone else.

Since Tatas are so global some people think of you as leaving India.
A: We have not left India. That is a common misconception. We have a higher level of investment in India compared to overseas. If we take the case of Tata Steel, they have about 30 million tonnes of new plant projects in India — which will take two years, five years, seven years or which may never be cleared. You ask yourself those questions. We believe in six-seven years we can have 30 million tonnes from scratch in this country, if we get captive iron ore and coal mines. But there is uncertainty, so, if there is opportunity, we will go outside India.

Q: Sounds like you go abroad because it’s easier to do business there.
A: It is. If we want to set up an assembly plant for motor cars in South Africa, you pick a piece of land, talk to the local government, talk about the rules and incentives, the compliance involved and that’s that. The moment you try to do the same here, you are likely to be in the midst of a political tangle. You have little issues all around you that detract you from what you want to do. We all blame the government for regulations but we need to blame the government for letting vested interests manipulate policy to suit themselves.

Q: Will the going global of Indian companies hurt India?
A: I think it will. You will see established companies going overseas and establishing a robust base outside India. And into India will come the opportunistic companies of the world.

Q: I worry that India knows its problems but is not seized with them.
A: Yes. I’ve often wondered why should you be able to travel two hours to Dubai and have that quality of infrastructure in Dubai, which is a country that some years ago was far behind Bombay. The real issue is that in India the standards of acceptance at every turn are very low. There isn’t pressure to do things on a world-class basis. There are exceptions. You have Sreedharan of the Delhi Metro who is a terrific chap. He stands out as an exception; but you do not have 20 of him.

Q: Frankly, standards of service at the Taj are also falling. In the Indica, the trim, the suspension isn’t really great.
A: What I will say is that we refurbished the Old Taj, which was terrible and needed a lot of repair. As far as the service is concerned we have always felt the service is very personal. As far as the Indica is concerned, you’ll have to be a little bit accommodating. It’s the first-ever car from Tata Motors. So, if you want to make a comparison then go back to Toyota’s first-ever car, go back to Hyundai’s first car, go back to any of those first cars and then ask is it acceptable or not. It is not an excuse, because you are producing cars in today’s market. All I am trying to say is that the next Indica, which will be launched in a few months, will have a substantial difference.

Q: Can a firm making a Rs-1 lakh car have the mindset to market a $1-lakh car?
A: Let me just say that whoever buys Jaguar, whether it be a car company that does not have a car in that range or be it a firm that does not have a car in the first place, it will be folly to try and change the Englishness of the brand in any way. It would be very necessary to let the touch and feel of the whole company remain as it is. Let it be a British company. You know there is a kind of ownership which is not an intrusive ownership. So, if and when we get Jaguar, you are raising an issue that it’s a mindset of dealing with a quality product as you said in your article, and can we manage quality and such. But we do not ask that question when the Saudi’s own a large stake in Mercedes...

Q: But that is not controlling stake.
A: Yeah, but none of the companies that we have taken over have seen us seeking to change the look and feel of the company by imposing our products or our management style or anything of that nature.

Q: You understand what it takes to market Jaguar. But in India the problem is always down the managerial chain.
A: Yes, it is. It would be false to say it is not. One may not be as successful as one may hope. It takes many decades to build up the mindset and the culture. To change that culture, you have on one hand lip service of change and you have a vast majority who resist that change. So, it not an easy thing to change culture in a group that has 200,000-odd people. Especially with different companies with different traditions and different manners of working, it’s difficult.

Q: Can you attract the talent you need to drive change into Tatas today?
A: You know, Tata Administrative Services (the group’s elite managerial cadre) was ranked No. 3 in the campus survey that was out this year.

Q: I believe there is talk of taking Tata Sons public…
A: No. It’s not something that we are actively considering. There are too many issues involved in this. For example, Tata Sons’ majority ownership is with the (Tata charitable) trusts and I think the view is that it should continue. It gives us a holding company with a difference; a holding company where 65 per cent of the profits go back into charitable causes. We all feel that structure should probably not be disturbed. I don’t think taking Tata Sons public would serve our purpose.

Q: Was the delay in listing TCS connected to this or was it a strategic move?
A: No. This was totally strategic. I am not at all sorry (about the delay). Would I have been happy if we would have had the valuations twice as much, which became half as much? I would have had some degree of shame vis-à-vis the shareholders.

Q: How are your ties with Pallon Mistry (who owns 18 per cent of Tata Sons)?
A: My own relationship with him (Mistry) has been very cordial. By the time I became chairman he had been a great support and a great moderating force on the board and has been very supportive of what I want to do. He has been very understanding. I have appreciated him as a director and shareholder.

Q: So how exactly does Tata Sons run today?
A: For many years, the trusts were not allowed to vote on the shares that they had and the charity commissioner voted on those shares. When I became chairman, we had a funny situation. Pallon Mistry voted on his share and the charity commissioner voted on his, and we (Tata companies) did not have any rights. So I went to the government and said why you don’t amend the Companies’ Act so that you give us the right to vote on our shares but reserve the right to take it away if there is any malfeasance or misconduct of any sort. They didn’t say yes or no but in the recent Companies Act, it did get amended. So once again, we had the right to vote on our shares. So again, we (Tata trusts who own 65 per cent, Tata companies who now own about 20 per cent, and the Tata family that owns a miniscule portion) vote on virtually 85 per cent of the shares.

Q: Many new Tata businesses, telecom, finance, etc. demand connecting with consumers, not a Tata forte.
A: We had considerable consumer orientation that we lost with Tata Oil, which ran itself into the ground. We had textiles, our first business. Voltas was into air-conditioners and refrigerators and white goods long before other people were. But we did not run these businesses very well. I think we focused on the manufacturing and not merchandising of these products. There was also no common branding at that time but now we have put that in place. So the brand equity has in itself changed quite substantially.

Q: Right now the biggest change needs to be in Tata Tele. It could be huge!
A: I think it is a travesty that GSM players are saying that no one else should be entering the field, and that no new licences should be given. On one hand we have the incumbent government companies that do not want anyone to move forward and on the other hand we have a very powerful cartel of two-three big players. In Delhi, you have the President of CII talking about open markets on one hand and on the other hand trying to ensure that there is no one who comes into the industry.

Q:Tata Tele is fighting hard in Delhi. Is this assertiveness a new trait?
A: I have tried to bring that as a group change. What one has been trying to do is to put people who will do this into those kinds of positions. Tata Teleservices has a sad history. We have had our own problems in terms of wrong CEOs. It’s been an industry where you really have to be nimble footed. You need a proprietor watching all the time.

Q: After 17 years, is it still a thrill to see a Tata hoarding and realise how well the group is doing?
A: There is a thrill when you see where it has come, when you see that 50 per cent of Tatas revenues come from overseas, when we are building a series of new businesses in India. You talked of a change in being nimble, and there is that change too. Maybe not as much as one may have wanted, but there is a change. That feels good.
jpocha@abp.in
(Businessworld Issue 08 January - 14 January 2008)

Stock Themes 2008

2008-01-04T23:21:00.000+05:30

Src:
http://economictimes.indiatimes.com/articleshow/2673097.cms

Watch out for events for better stock play in '08
4 Jan, 2008, 0545 hrs IST,Nishanth Vasudevan, TNN

MUMBAI: At the start of last year, an investor could have chosen three companies at random from the stock pages of ET, and most likely ended up with an average return of at least 40%. That is unlikely to be the case this year, with most companies fully reflecting their earnings potential as ahead as 2009-10.

Investors looking for above-average returns from equities here on will have to look for more than just pure earnings growth. Some market experts recommend identifying shares that will (or have the potential to) be driven by specific events such as asset demergers, listing of subsidiaries, take-over and delisting, among others. Analysts expect shares in these categories to return at least 30-50% annually, as against the expected 15-20% in broader market.

Macquarie Research’s India strategist Seshadri Sen says: “We do think there is lot of scope for this theme over the next couple of years. Several companies are looking at unlocking value in their subsidiaries, whose valuations could be boosted by the amount of funds chasing these assets.”

A key premise to expectations that this theme will play out in the future is the rich valuation that most companies enjoy currently, after the five-year bull run. Sharp rise in their stock prices in recent times will encourage promoters/majority shareholders to contemplate offloading a stake to strategic investors, hive off and list subsidiaries or even sell-off businesses. The proceeds are usually used to finance the company’s capital expenditure plans and also will unlock value for shareholders.

Though the current market conditions clearly favour sellers of assets, the corresponding buyers are looking to capitalise on the assets in the long run on the assumption that India’s economic growth may sustain over the next few years. With abundant money awaiting to finance acquisitions and strategic stake buys, analysts expect shares with such potential among the favourites of investors.

One domestic mutual fund has already launched a scheme specifically targeting companies that promise such opportunities, and industry watchers expect many more such schemes to be floated in future.

In 2007, several shares clocked stupendous gains amid talk of value unlocking, stake sale and related activities. Among notable instances this year, IFCI rose 575% in 2007 on talk of divestment of its 26% to strategic investors. Reliance Energy surged 315% amid talk of an initial public offer for its subsidiary Reliance Power.

Analysts said healthcare, information technology and telecommunications are among some of the sectors that present such opportunities. A fund manager with a state-owned mutual fund shares a tip to identify targets.

“These companies may not be in good health, where growth opportunities are stagnating, but they still have good assets in their books. Also, these stocks have underperformed in the last few years, as there were other good opportunities,” he said.

For the relatively risk-averse investors, analysts advise investing in companies where a prominent private equity has picked up a stake. They note that a good bet would be a stock trading at a discount to the investment by a private equity.

Interestingly, key beneficiaries of these investment strategies have been the deep-pocketed high net worth investors, who have accumulated a lot of such shares when the going was bad. It may be noted that these HNIs are now looking at opportunities in unlisted companies and expect to gain on their listing on the bourses. Though investments in news or event-driven stocks present the prospect of higher returns, analysts warn of the highs risks associated with it.

Macquarie’s Sen warns: “In the case of acquisition or take-overs, there may be cases where it is good. At the same time, the situation can be very risky, as there can be instances where a stock can be talked up, without any facts. Investors need to be wary of such instances.”

“We do not think it is ‘the theme’. The unfolding of the economy's underlying fundamentals continues to be the key factor for stock markets,” he adds.

RSWM - Bhilwara Energy connection

2008-01-03T10:02:00.000+05:30

Src:
http://news.moneycontrol.com/india/news/ipo-upcoming-issues/bhilwara-energypre-ipo-placement-likely-feb08/03/00/318142

Bhilwara Energy pre-IPO placement likely in Feb '08
2007-12-20 11:11:43 Source : CNBC-TV18

Riju Jhunjhunwala, Rajasthan Spinning & Weaving Mills has informed CNBC-TV18 that Bhilwara Energy will go for a pre-IPO placement & IPO in the next 4-5 months. The pre-IPO placement likely in February 2008, Jhunjhunwala said. The company is looking to raise USD 350-400 million via pre-IPO and IPO, he added. Bhilwara Energy will have 1800-2000 MW hydro capacity in the next 3-4 years, he said.

Excerpts from CNBC-TV18’s exclusive interview with Riju Jhunjhunwala:

Q: Can you start off by telling us a little bit about the plans on Bhilwara Energy and what happens to RSWM stake?
A: Bhilwara Energy is basically the power company of the group. It focuses only on hydropower. We have one project that is operational; it is a 100 megawatts project. Another 200 megawatts is in final stages of completion and will start next year.

Over and above this, we have more than 1,600 megawatts in the pipeline, which we will start construction over a period of now to the next two-three years. So, the next five years Bhilwara Energy, we really see it as a 1,800 to 2,000 megawatts hydro-only company.

Over there, the plans of fund requirements are huge. So, in the next 3-6 months, we are really planning something over there on how to get the first round of funding for Bhilwara Energy. RSWM holds a 26% stake in that, the balance is held by other group companies - HEG and the other promoter firms.

So, they should really see a value unlocking as and when that happens.

Q: You must have done some internal studies on how you value Bhilwara Energy as a company. Does it look like the most likely capital-raising road or the first step could be an IPO?
A: Most definitely; we are very keen to look at the possibility of an IPO. In fact we are already talking to some people now. We will probably be doing this in two stages, starting off with the pre-IPO stage and then finishing it off with an IPO - all within the next 3-6 months. The total fund requirement for our initial 18 months would be around USD 350-400 million, which we plan to split between the pre-IPO and the IPO of 30:70 kind of a ratio.

Valuations are anything, whatever deserves in the power sector today. We are trying to look at the pricing and all of that as of now.

Q: But still you would have some initial thoughts, leading up to the pre-IPO placement?
A: Three months back, we completed a process of private equity to New York Life and Wachovia Bank. That was done at an equity valuation of around Rs 1,400 crore for this company. At that time this company was more or less a 1,200 megawatt company. A lot has happened for us in the last six months, including the sector and our own projects that we have bagged. We expect it to be in multiples of that - without going into the exact number, definitely, significantly higher than that valuation.

Q: How much stake dilution does this involve for RSWM and for HEG?
A: The total promoter holding in Bhilwara Energy is around 92% today and anywhere between 15-20% of a stake dilution in phase one would be a comfortable number there. So, proportionately the stakes of these companies would also go down.

Post-IPO, we expect to hold around 20-21% of this company in RSWM.

Q: You would make the pre-IPO placement to the same investors, New York Life or Wachovia Bank or have identified some other investors?
A: That process will start now - the process of selecting the pre-IPO. Obviously, they have the right of first refusal as per the agreements. But then we are open to looking at other investors as well.

Q: What is happening with the core business; we understand you want to expand into the retail side as well?
A: Retail is not something that we are looking at in RSWM. It is more of a yarn play over there. Within yarn, we are amongst the top three players in India and we have significantly ramped up capacity over there, the effect of which will start coming in now.

All our expansions are now complete, including our 46 megawatt thermal power plant which is in RSWM as a captive generation. That has started commercial production just about last month. Come January, when the plant stabilises, you will see tremendous benefits on the cost reduction side coming on to RSWM itself and add it with the expanded capacity.

So, next financial year, we expect RSWM’s core business itself to give us very good jumps compared to the last one or two years. With the market scenario slightly improving in the textile side, we have gone through a bad patch over the last 6-7 months, but things seem to be changing now.

With that happening, I am sure RSWM core business itself for us is looking quite interesting as well.

Q: By when do you think this whole process will be completed: the pre-IPO and the IPO in 2008?
A: Pre-IPO, we are really targeting the month of February - completing the pre-IPO process. And IPO, I am not really in a position to say right now - whatever time it takes for the approval from Sebi. But we are working it at our end quite aggressively. As soon as possible, we would like to do that as well.

Sayaji Hotels - value vs price

2008-01-01T16:55:00.000+05:30

Sayaji Hotels has a couple of hotels in Indore and Baroda (http://www.sayajihotels.com/) and a new one being constructed in Pune. It has now entered the restaurant business through an unique concept in Barbeque Nation (http://www.barbeque-nation.com/). Plans to open 100 such restaurants by 2010.

Recently tied up with Tata group for Buffet Junction. even though we feel it will grow well, the CMP of Rs88 seems to be a bit high in these volatile times, we would rather wait than buy and hope it comes down to 60 or so ;-).

Sujana Towers Management Interview

2008-01-01T15:54:00.000+05:30

Src:
http://www.indiainfoline.com/news/showleader.asp?storyId=595&lmn=1&cat=1

Mr. VSR Murthy, Director, Sujana Group of companies
Nov 26, 2007

Sujana Towers Limited was originally incorporated on April 6, 2006 under the Companies Act, 1956 in the State of Andhra Pradesh under certificate of incorporation No.01-49743 of 2006 – 2007. Sujana Towers Limited was incorporated for the purpose of demerger of Towers Division of Sujana Metal Products Limited situated in Bollaram, Medak District, Andhra Pradesh having installed capacity of 1,28,125 TPA after expansion. The demerger was completed through a Scheme of Arrangement pursuant to the provisions of Sections 391 to 394 of the Companies Act, 1956 and Clause 24(f) of the Listing Agreement entered into with the Bombay Stock Exchange Limited.

VSR Murthy, Director, Sujana Group of companies, is a professional banker turned Group Director of the Group. Mr. VSR Murthy began his career in a leading Public Sector Bank (Union Bank of India). He held various field level positions including General Manager at Corporate office of the Bank in his 36 years of distinguished service and experience. Mr. VSR Murthy has played a key role in establishing and set up of the retail banking department of the bank. He has a wide experience in Corporate, Retail, foreign exchange and Treasury Operations, Planning, central Audit & Inspection etc. He was executive director of the Dhanlaxmi Bank Limited, Thrissur, Kerala, before Mr. Murthy joined the Sujana Group in September 2007. He is a member of The Technology Development Board, Government of India, under the aegis of the Ministry of Science and Technology. He has been associated extensively for Project Evaluation and for financing of various projects at Hyderabad, Bhopal, Chennai, Delhi and Mumbai and in the process has gained deep insight for evaluating varied projects and quality proposals.

Speaking with Anil Mascarenhas of India Infoline, Mr. VSR Murthy says, Our major focus is on manufacturing and we are not concentrating on contracts.

Give us a brief overview of the industry. What are the changing trends? What are the opportunities and threats for companies such as yours?
We manufacture both Transmission & Telecom Towers. As per current indications, both the sectors are expected to go at a faster pace at least for next 5 years. While the growing demand may create enough opportunities for new entrants also, sufficient skill & past experience in managing manufacturing of towers & managing are added advantages to us.

How do you compare with domestic and global peers? What is your USP?
As we understand, there is no other company with similar business focus as ours – may be operating both in Telecom & Power Transmission. We understood that even abroad companies operate only in one of the sectors.

What is the potential in the market and what share do you have at present? What steps are you taking to increase your market share?
As per our estimates, current market demand is in the region of 2 to 2.5mn tons pa for the Power & Telecom Towers together, some of which is met through imports and significant portion is not met. We are planning a further additional capacity of 1,00,000 tons in the current year. Present market share is estimated at 5% to 7% and we plan to grow to at least 7% to 10%.

What kind of synergy do you get from your group companies?
The core strength of the group is strong marketing skills. This enables easy migration of senior managerial staff from one company to other.

Your view on the mobile telephony and power sector in India.
Both the sectors are growing at a faster rate and investment in excess of Rs5000bn is planned in these two sectors over the next 4 to 5 years.

Name some of your big clients. What is the contribution by the top 5 in terms of revenue and profit?
A significant portion of sale of our Power Transmitting towers is to Deepak Cables. They together with Reliance, Airtel, EMC & Annapurna constructions & Transmissions account for 50% to 60% of our sales as well as profitability.

Brief us about your capex plan.
A new facility at Chennai with Galvanized capacity of 1,00,000 tons p.a. is planned to be implemented during this year at a cost of Rs1.50bn.

What is your current tower fabrication capacity? You plan some expansion in structural steel capacity. What about investments in other auxiliary products?
Current Towers capacity is 1,28,000 tons per annum. Additional Structural Steel Capacity is being planned as part of the Chennai facility. Chennai plant will have facilities to manufacture High Mast Lighting structures and Railway electrification structures.

There were reports that you acquired some land in Andhra.
We have not acquired any land in Andhra Pradesh

Brief us on your latest financials and your outlook going ahead? Any financial goals?
For quarter ending Sept’07, the company achieved a sale of Rs1.26bn and a net profit of Rs127mn. The turnover for current financial year is estimated at Rs6.25 to Rs6.50bn and estimated profit will be in the range of Rs600 to Rs650mn.

What is the revenue break-up likely to be going ahead between power transmission and telecom. How much is it currently? How are the margins in both these businesses?
Currently the sales mix is 60:40 between Power Transmission and Telecom. Gross Margins are similar in both the sectors. We do not expect significant change in the mix.

What are your gross margins. What is the outlook on margins?
Current Gross Margins are in excess of 15%; this includes the margin from the captive structural steel. We expect similar margins in the Medium term.

You have a number of popular names as investors. What is the latest shareholding pattern and who are the major investors?
FIIs continue to hold close to 45% of the equity. There is no significant change in the overall FII holding. 29.7% is promoters stake & the rest i.e. about 25% of equity is held by others including Mutual funds.

How confident are you of achieving your expansion on time? By when?
The expansion is targeted to be completed by June’08, subject to the required funding being in place.

What is the entry barrier in this business?
This industry requires good experience in production planning & control as well as working capital management. Retaining skilled labour is also another challenge being faced by smaller players.

What is your current order book? By when would it be executed?
Our major focus is on manufacturing and we are not concentrating on contracts. As delivery schedules are of highest priority to customers, we do not carry an order book beyond 6 months of production as a matter of policy.

What is your capacity and utilization? Post expansion what would be the utilization and capacity?
Our current capacity is 1,28,000 tons p.a. and is being operated currently at over 90% of our capacity. On expansion, it would go to 2,28,000 tons pa and it is possible to achieve the same capacity utilization.

Tell us more about your JVs.
We enter into JVs on case to case basis with different companies in the Power Transmission sector. These were entered into with Deepak Sales, EMC, ISOLUX, Annapurna Transmissions & INABENSA and others.

What is your dividend policy?
Is the company is currently in an expansion mode, no dividend was considered last year.

Your message to shareholders?
STL believes in strong shareholder value and is actively working towards the same goal.

Innovative Foods Limited

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Innovative Foods Limited (IFL) : Started tracking it before the Tata takeover and capital reduction. It would be a good idea if you have a look at the report I had written and also the updates which we have published. Both of them are at

http://www.equitybulls.com/contributor/trinity/trinity.asp

In case you are lazy like me to read the reports , let me give a brief introduction. Innovative Marine Foods is part of the Amalgam Foods group which was founded by Abraham J. Tharakan. Due to various reasons like set back of Shrimp aquaculture and ban on import of seafood from India by the EU, the company went into losses and its net worth was eroded. The company was referred to BIFR. As part of the Rehabilitation Scheme , the promoters chose Residency Foods & Beverages Limited (RFBL) , an associate company of Indian Hotels Company Limited (a Tata Group Company) as a strategic investor. As per the scheme, RFBL would invest Rs 24 crores into Amalgam Foods & Beverages Limited (AFBL). AFBL would use the money to pay off debts and use rs 15 crores as equity in the share capital of AFBL. The share capital of Innovative Marine was reduced by 90% (10 shares became 1) and AFBL was reverse merged with Innovative Marine Foods. The merged entity was renamed as Innovative Foods Limited (IFL) and RFBL holds 67.93% with Amalgam group holding 26%. 2 quarters have passed since IFL has come out of BIFR and has posted net losses of Rs 89 lakhs and Rs 96 lakhs respectively.

IFL is currently present in the frozen and ambient, Ready to Eat (RTE) and Ready To Cook (RTC) categories under the brand name “SUMERU”. The company has a range of products (Seafood, Parathas, Breaded Snacks, Samosas, Springrolls & curries). These products are available in the Indian market through a robust retail network.

Loss making company trading at 90 odd rs???. The premium is not for the earnings but for the pedigree of a Tata company. The Tata group has made Sheila Nair as the director of IFL. She was a person who has worked with Krishna Kumar of Tata group. She was responsible for setting up the IndiOne (what is now known as Ginger Hotels) . Have a look at the link below to know more about Sheila Nair.

http://www.tata.com/0_careers/what_we_offer/tata_voices/20050917_sheila.htm

With Sheila Nair at the helm of IFL, there can be no dearth of Vision and Mission for IFL. All the above points were covered in our report and the update. Have come across a couple of updates which I wanted to share.

www.sumeru.net.The web site is a proof of how the new management plans to leverage the SUMERU brand. As per the site, the Sumeru brand deals with the following RTC cook items

Quick Snacks - Samosas, Cutlets etc
Fine Dining - Parathas, Curries etc
Ocean Fresh - Prawns, Seerfish etc
Garden Fresh - French Fries, Green Peas etc
Farm Fresh - Sausages, Frankfurters etc.

IFL has 3 lines of businesses namely

Retail - wherein the Sumeru products are available in retail chains and shops
Food service - wherein the products are supplied to restaurants like McDonalds, KFC, Pizza Hut, and Marry Brown etc
Exports - wherein the products are exported to US, Europe, Middle East, Japan, Singapore, Fiji and Sri Lanka

In an article in Economic Times, the F & B strategy of Tata is discussed. Quoted from the article “We want to be a complete value-added foods company. Our strength is in processed foods and we may not get into dry snacks, but will look at bakery, frozen vegetables and fresh fruit,” Ms Nair says. So if IFL can get into bakery and fresh fruits, more value will be created.

Caveat emptor : IFL has passed a resolution some time ago about delisting the company from stock exchanges but then the Tata group does not short change the investors. And the financial turnaround will take a year or so.

Disclaimer : I hold the stock at a CMP of Rs72 ( bought pre - restructuring).

AIM of this blog

2007-12-30T12:02:00.000+05:30

Hopefully these are what my blogs will achieve or aim to achieve

posting my opinion or comments of the Indian companies / stocks which I follow.

business news about companies / stocks which I follow

feedback from readers about the companies I write about. Since I like to follow smaller companies not much information is there in the net about them, it would be a great help if readers who know about the companies give feedback about it.

for my alter ego to boast about if I make some success in the stocks I profile about.

readers get some value out of my blog

Lets see how it goes. "Luceat Lux Vestra" - Let your light shine.