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TRENDS: LEAD A Corporate Triangle If the government sticks to its decision to bar further foreign investment in tobacco, VST inviting bat to raise equity in it will make little difference to rival suitor ITC. By Debojyoti Chatterjee
This is what the situation was when BT went to press: In response to its open offer of Rs 125 a share, Russell Credit had about 10 per cent of the total share capital for a price of around Rs 15 to Rs 20 crore. Bright Star, which upped the ante on Russell with a Rs 151 counter offer, had managed to get its holding in VST up to 25 per cent. Independent of the two offers, VST's board went ahead and decided to invite bat to increase its stake. The Industry Minister, Murasoli Maran, meanwhile, had stated that no additional foreign investment in tobacco would be allowed, skewing the pitch for bat. Officially, the tobacco industry is open to foreign direct investment. But given the industry's negative image, the government does not want to draw public ire by seeming to encourage an industry, which in other parts of the world is an outcast. In fact, the annual hikes in the excise duty on cigarettes is part of that unwritten policy. For ITC, that's good news. With bat at bay, ITC can work on wooing Bright Star. Going by their reputation, the Damanis would not need much persuasion. For, Bright Star is in play only because it saw an undervalued company and an opportunity to make a quick buck. Earlier, it was hoping that ITC would pay the premium it wants. But with ITC refusing to concede a higher price (remember, Russell's offer price was Rs 125 apiece), Brightware was caught in a tricky situation. It would have spent Rs 50 crore on an 25 per cent stake, without any real management control.
Luckily for Bright Star, bat is now in the fray. But that's a big volte-face. Until Bright Star raised the price to Rs 151, bat was backing Russell's offer; understandable, given that bat is also the single-largest shareholder in ITC. So why this change of heart? Explains Prideaux: ''The situation was different at that time. With the Damanis coming up with an offer priced way above Russell's, the chances of Damanis building up a substantial controlling interest was fairly high. And bat obviously would not tolerate any erosion in its own shareholder value.'' A grateful Bright Star is licking its chops. Says John Band, CEO of ask Raymond James, which is managing the Bright Star offer: ''The situation has changed, and we have no fight with bat. We acknowledge their expertise in this business and appreciate the board's confidence in them. We are ready to talk turkey, whatever that may be.'' bat, however, isn't too sure. For it to make any headway, it will need a 'No Objection Certificate' (NOC) from ITC. At the moment, this is a grey area, with bat claiming that it may not need an NOC, although it could not explain why and merely said that it would take ''one step at a time''. People who ought to know in the FIPB say that bat may well have a point. But given that the industry minister has already made his intention clear, nothing short of a unanimous support from all parties concerned-including all the financial institutions, ITC, and VST-will make any difference. If there is no change in the government policy, what may happen is that bat actually pushes Bright Star towards the Russell offer. Why? Getting into a bidding war with ITC would mean that bat loses money either way. And allowing Russell to buy Bright Star's stake would only mean that bat, in effect, consolidates its own hold over VST. Still, it's early days to predict which way the fight will go. But what's not so hard to predict is this: there's one man who would still be laughing at the end of this messy battle. And he is John Band. STRATEGY It made waves with its Rs 500-crore Indiaworld deal. Now, with the dotcom surge long gone, Sify is perilously close to getting grounded. But Sify thinks otherwise.
When a company makes a Rs 109 crore loss on
sales of Rs 178.4 crore, conventional logic would suggest calling in the
undertakers and booking a plot in the local cemetery. But at Satyam
Infoway, India's largest Internet Service Provider (ISP), even as the
bottomline is soaked in red, the guys in charge earnestly tell you how a
turnaround is in the offing. Says coo George Zachariah gamely: ''Our
target is to break even by 2002.'' But can he achieve that target? Sify
has racked up cumulative losses that currently stand at Rs 300 crore. And
on the NASDAQ, where Sify got listed in September, 1999, its stock price
has plunged from a high of $110 in January, 2000, to $4 currently. And
despite Zachariah's brave words, few investors would be even willing to
spare a glance for Sify's stock. But it may still not be time to call for the hearse. Because despite its losses, Sify isn't dead yet. It has in its coffers cash amounting to $28 million (or Rs 131 crore) that it can burn to meet further capital expenditure and working capital needs. Not for long, though. At a monthly burn rate of Rs 13 crore, Sify's cash could run out in 12 months. It would then have to head for the markets again and no prizes for guessing how investors will respond if it doesn't start looking up operationally. Sify's business model is patterned on AOL's on the retail front. That is, its revenue streams follow AOL's model on revenues from consumer ISP services and portals. Sify has added corporate services and cyber cafes to this. As on date, Sify's individual subscriber base is 460,000, with an additional 600 corporate clients. Because margins are higher in its corporate business, Sify has increased the proportion of its corporate subscribers. To break even in 2002, it would need to double revenues to the tune of Rs 360 crore. Can Sify do that? If it wants to survive, it has to. Says Frost & Sullivan's country head for it operations, Monica Deveshwar, pithily: ''If Sify does not work on a quick turnaround strategy, it will be in deep trouble.'' But Deveshwar thinks Sify has a good business model that should be made more efficient. ''It is true that e-consulting and data centre businesses are generating good revenues, but this is not enough,'' she points out. In 2000-2001, corporate services contributed Rs 115.2 crore to the topline-twice as much as other businesses, and contributed to good margins. But that's still not enough to wipe out the burgeoning losses made by Sify's retail operations. The key for Sify is to ramp up its corporate services business, which has to generate enough cash to subsidise its other businesses, notably the retail subscribers. Industry trackers like Deveshwar feel despite the competition that can happen. Sify, for instance, can grow its data centre business from its small base by at least 40 per cent. For its portals business, things don't look that bright. Sify has eight virtual marketplaces (like plasticommerce.com, seekandsource.com, and teaauction.com) and has 20 more in the offing. Although Sify thinks these exchanges have a great future, they are unlikely to take off till another couple years, when payment gateways and digital certification systems are more firmly entrenched. ''It is difficult for third party providers like Sify to make a dent in these businesses,'' says Frost & Sullivan's Deveshwar. Last year, Sify's Indiaworld portal (for which it paid Rs 499 crore in June, 2000, in a part-stock part-cash deal) posted an estimated loss of Rs 34.04 lakh down from a profit of Rs 31.25 lakh in the previous year. But that doesn't faze Zachariah. ''Indiaworld was acquired after we sold 1 per cent of our equity-which fetched a very good price. Theoretically, the sale itself provided the return and anything that comes in by way of revenues is an extra,'' he says. But although the US GAAP allows acquisitions like Indiaworld to be amortised, although this would add to the net loss. And, as its stash of cash runs out, that's what Sify has to be worried about. -Nitya Varadarajan BRANDS Swiss watch companies are finding the going tough. The latest chapter in a rapidly growing book on MNCs who overestimate the size of the Indian market is devoted to Swiss watchmakers. The combined might of 50 Swiss watch brands has not even managed to make a dent in the market. The reason isn't premiumness-the Swiss have moved from focussing the premium to the Rs 1,000-plus segment. And to achieve some sort of price-parity with brands like Titan, Timex, and Casio, they offer basic models against the others' loaded ones. The result, says Bijou Kurien, V-P (Marketing), Titan, is that ''We often offer better value at the same price.'' The market itself is limited, 7-8 million of the 23 million watches sold in India. But reaching out to cities where this market is concentrated hasn't helped the Swiss. Worse, they are caught between an effective 70 per cent import duty and grey market imports. Still, none of the newcomers is looking at the bottomline. ''Our efforts are on brand-building,'' says Sunil Grover, Regional Sales Manager, Swatch. Such efforts may not cut ice with customers, but the duties will. So, watch this space. -Vinod Mahanta MEDIA Answer: that a new boss and his new plans will inevitably mean a change in status quo. Just ask Discovery Channel. One would think that a channel that has upped its viewership from 12 million to 21 million in three years, is doing fine. But not Deepak Shourie, a marketing maven who took over the reins from Kiran Karnik at Discovery Channel (India) in May. As if he came on board with plans, he's already busy shaking things up at the studious channel. One of the early fallouts: the exit of Ambika Srivastava, Head of Sales and Marketing, who was supposed to succeed Karnik at the top slot. The new managing director does not deny that a restructuring is underway, but prefers not to elaborate. ''Yes, we are (restructuring), but I will be talking (about it) only after a month or so.''
On top of Shourie's agenda is a proposal to team up with Sony Entertainment Television (SET) to expand its footprint from 21 million cable and satellite homes today to 30 million homes (of the total 35 million C&S homes) country wide. Simultaneously, Discovery is trying to launch separate Health and Adventure channels, say industry sources. So, it is looking for an aggressive marketing and distribution network, and this calls for a new management outlook. By all accounts, Shourie fits the bill. Discovery is in stiff competition with National Geographic Channel (NGC), almost half of which is owned by media mogul Rupert Murdoch's Newscorp. In India, NGC is beamed on the Star bouquet of channels, the latter being a Newscorp entity as well. Discovery understands the wide-ranging benefits of riding piggyback. The channel's bid to tie up with Sony, then, is a move towards that. Agrees Sanjay Khanna, Discovery's Head of Distribution: ''It would be nice if we could work with a bundled channel platform. The penetration of a bouquet is definitely the best.'' If the tie-up comes through, it will pose a challenge for both Star and Zee, which have their own slew of channels. Advertisers typically look for a warren of channels with multiple niches. In case the ''third front''-comprising Sony, SET, AXN, and CNBC-ropes in Discovery, it will send shock-waves across Star and Zee. As of now, Discovery together with Animal Planet (an equally-owned joint venture between Discovery and BBC World) reaches 22 million homes. Arch-rival NGC boasts of a 16 million reach. Discovery won't tell what it plans to do to attract and retain eyeballs. But so far, its strategy has been to grab the television-watching mother's attention first, and then win over the child through her. And it's understood that the mother-and-child duo will rope in daddy dear. This kind of strategy aids Discovery's family-centric positioning. Today, Discovery can be viewed across 1,600 cities in the country. Local language options are available, too. For instance, cable operators have the option of showing the channel both in English and Hindi. On Vijaya TV it is available in Tamil. Therefore, what Discovery may want to do after the revamp is tap the vast vernacular (if not very lucrative) market. The channel has recently revised cable rates from Rs 5 to Rs 6.50 per C&S home. It is to be seen how Discovery reacts to the revision after the proposed bundling up with Sony. The move is aimed at bringing Sony's rates on par with the amount charged by Star (Rs 30 for airing seven channels) and Zee (Rs 30 for a package of 15 channels). Knowing Shourie, a sign should come flying out of the window very soon. -Moinak Mitra
ASP A bank wants to make money as an ASP...
...And why not? The HDFC Bank, after all, helps 650 regional and cooperative banks with their cash management, trade and foreign exchange. So, last year when somebody said that the bank should set up a technology ASP, nobody sneezed at the idea. Least of all Aditya Puri, the bank's go-getter CEO. A joint-venture with, I-flex solutions (formerly Citicorp Information Technology) was set up, with the HDFC Bank (group) owning half of it. The JV, called Flexcel International, will provide all banking solutions, including corporate, retail, treasury and investment. The software will be housed in a data centre and customers-there are some 45,000 branches of public sector banks waiting to be wired up-will pay per use. Boasts Atul Gupta, I-flex's head of ASP business: ''Not one of the 25 banks we made a presentation to has said no.'' ASPs take note. -Aparna Ramalingam
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If there's one lesson that British American
Tobacco has learnt in its 80 years in India, it is not to take things at
face value. Six years ago when it tried to raise its 31.6 per cent stake
in Indian Tobacco Company (ITC), the move was badly repulsed by a fiercely
independent local management. And now that VST, another tobacco company in
which bat has an 32.6 per cent stake, has decided to spurn offers from two
suitors-ITC's investment company Russell Credit and Damani-brothers backed
Bright Star-and invite bat to raise its stake, there is little celebration
at bat's London headquarters. ''We are obviously pleased at VST's
decision, but we have long since stopped predicting how the FIPB or the
Indian government works,'' Michael Prideaux, Director, bat, told BT from
London. ''We are, of course, a lot more aware of our obstacles and
opportunities,'' he added.
Annamalai
Chidambaram Muthiah, 58, seen here in the picture above, is a happy
man. And why shouldn't he be? Under his stewardship, the BCCI (Board
of Control of Cricket in India) has just signed a Rs 100-crore
sponsorship deal with Sahara. Better, the Indian cricket team is
actually winning away from home. Of course, the performance of the
flagship company of his group, SPIC, should be worrying the man,
although he doesn't show it on his frequent appearances on the
telly. For the nine months ended December 2000, the company recorded
a turnover of Rs 1,675.34 crore, much less than the Rs 2,040.87
crore it posted for the nine months ended December 1999. The
company's net profit for the same period declined from Rs 28.55
crore to Rs 1.81 crore. The profits came from Rs 77.8 crore of other
income, through sale of SPIC's holding in SPIC PHI seeds to Pioneer
Industries Corp. Maybe the man should stick to cricket...
