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TRENDS: TWO-WHEELERS Two-stroke Good, Fourstroke, Better A fall in profits shames TVS-Suzuki into belatedly realising the market has moved on. And that it must too.
It's embarrassing for a company striving to be associated with speed to realise it is, in truth, slow. It's painful for this realisation to come from its financial results. For four halcyon years, two-wheeler-maker TVS-Suzuki enjoyed a dream run. But 2000-01 was truly annus horriblis for CEO Venu Srinivasan: the company's net profits dropped 30 per cent to Rs 61.25 crore in a year when the motorcycle market-about half of TVS' sales comes from this-grew by 20 per cent, and TVS' own topline by 15 per cent. The fall was caused by the company's almost obstinate dependence on two-stroke motorcycles at a time when the market has moved on to four-stroke ones. Last fiscal, 80 per cent of the bikes sold in the country were four-stroke; TVS' only model in this category, Fiero, accounted for just 17 per cent of the motorcycles sold by it. It isn't easy selling two-stroke bikes, not without discounts as Srinivasan discovered. And as production costs increased, TVS' profits declined. ''Not having enough models in the four-stroke segment is a major drawback for TVS-Suzuki,'' says Jigar Shah, the head of research at K.R. Choksey Research. ''To exacerbate things, its mopeds are also losing money. Things look tough for them.'' The market echoes Shah's sentiments: the company's scrip is trading at Rs 95 now against a 52-week high of Rs 295. Srinivasan isn't taking this sitting down; he has gone on the offensive. By September this year, TVS will launch two 100cc motorcycles in the Rs 35,000-45,000 range. Then, in November, it will launch a more stylised 110CC offering priced above Rs 45,000. ''Our bikes will be contemporary in styling, more powerful, and will come at a competitive price,'' says C.P. Raman, President, TVS-Suzuki. It is evident that the company isn't leaving anything to chance. The 100CC bikes are positioned in the largest segment of the market-perhaps a learning from TVS' disastrous experience with the Spectra, an expensive four-stroke scooter launched at a time when people were going off scooters (and certainly off expensive ones). The new models, Raman claims, will help boost monthly bike sales to 60,000, in two years, from the current 30,000. There's also talk of a four-stroke moped-that brings back memories of the ill-fated Spectra-and reworked versions of the Scooty, the best-selling scooterette from TVS' stable, and the Fiero. ''We will offer consumers a bouquet of choice. In 18 months, we will launch at least six new four-stroke two-wheelers,'' says Raman. The launches could help TVS Suzuki regain its lost marketshare in motorcycles, down from 23 per cent in 1998 to 16 per cent today. Only, competition is intense in the four-stroke segment. Apart from market leader Hero Honda, which boasts a 48 per cent share of the market, the segment has new entrants-the likes of Bajaj, LML, and a resurgent Kinetic Engineering. Srinivasan has managed to keep investments low by moving the entire production of the Scooty to the Mysore plant built for the Spectra. The lines thus freed at the company's Hosur plant will focus on the four-stroke bikes. That, and its much reported drive to source components from China, may keep TVS' costs down. To capitalise on its born-again focus, though, it will have to build the requisite marketing- and distribution-muscle. -Dilip Maitra INVESTMENTS Despite the crying need for a new refinery on the east coast, India Oil's ambitious greenfield project has run into trouble. It could well be curtains for the Rs 8,312 crore Paradip refinery project in Orissa. Work on the Indian Oil Corporation's eighth refinery project with a capacity of nine million tonne, has come to a screeching halt after the Orissa government reneged on its year 2000 promise of providing a 11-year tax holiday for the project. Without the tax break, the project's viability comes under a cloud. According to IOC, which has already sunk in Rs 700 crore in it, the refinery was supposed to get Rs 250 crore tax relief (at current rates) for 11 years from the date of completion. Explains a senior IOC official: ''Sales tax benefits were built in while calculating the profitability of the grassroot project. Without the concession, the refinery would steep into losses.'' But why did Orissa withdraw the sops offered? Under the original plan, Kuwait Petroleum Corporation (KCP) was supposed to partner IOC in the project. When KPC opted out, IOC decided to go ahead on its own. But Orissa is now shoving the rule book in IOC's face, saying that only private and joint-venture projects are entitled to tax breaks, state-owned projects are not. The Corporation's Chairman M.A. Pathan has written to the Orissa chief minister, Naveen Patnaik, asking for a 15 to 17 year tax holiday, citing similar tax incentives provided by the governments of Gujarat, Punjab and Karnataka to various petroleum companies. For instance, the Punjab government has extended a 17-year tax break to the Hindustan Petroleum Corporation Limited (HPCL) refinery at Bhatinda. Similarly, the Gujarat government has provided a 15-year tax holiday to Reliance's refinery in Jamnagar. Despite the efforts of the petroleum ministry to resolve the controversy by looking at both the economic viability of the refinery (due for completion in 2003) and the resource position of Orissa, no solution seems in sight. -Ashish Gupta TRADE Despite the political acrimony, India and Pakistan need to focus on trade to help each other. Here is a classic example of how bad politics can ruin perfectly good economics. Official Indo-Pak trade, which could have touched $5 billion now by the government's own admission, is wallowing at $200 million. Small mercy: unofficial trade between the two countries is estimated at least five times that, and growing. However, experts estimate that the unofficial trade could have been more than a billion dollars a year had not Pakistan banned imports of India-made textile machinery, spares, tannery equipment, and machine tools. Therefore, when Pakistan's CEO Parvez Musharaff arrives in Delhi, sometime in the second week of July, to meet with Prime Minister Atal Bihari Vajpayee, there will be plenty to talk about. For instance, on how to get the ban on imports eased. Since 1975, Pakistan has expanded the import list from 42 to 601 today. But many big-ticket items have been left out to the detriment of both the nations. Take the case of steel industry in Pakistan. A ban on the import of iron ore from India, which is a scarce commodity in the neighbouring country, has forced Pakistani steel producers to import the raw material from Brazil at prohibitive cost. The result: Pakistani steel is badly uncompetitive in the international market. A study by the Federation of Indian Chamber of Commerce and Industry on ''Prospects for India-Pakistan Economic Friendship'' reveals that just by allowing the import of Indian iron ore, Pakistan could lower its steel prices by 70 per cent and those of finished engineering products by 10 to 20 per cent. Similarly, a ban on a number of medicines from India has kept drug prices in Pakistan higher by 30 per cent (for comparable drugs). Even where items have been placed on the open-market list, tariffs have been kept so high that it is virtually impossible for India to export. For instance, while Pakistan makes just 2 lakh tyres a year against demand of 10 lakh, India cannot cash in on the shortfall because of a 47 per cent import duty. Ditto in the case of tea, which is imported by Pakistan all the way from Kenya, although Indian tea is more cost competitive. By same token, India has turned a deaf ear to Pakistan's offer to sell its surplus 10,000-mw of electricity to northern Indian states. While the need for a robust Indo-Pak trade is clear, it would be unrealistic to expect just one day's talk to wipe out five decades of acrimonious relationship. But try they must. -Ashish Gupta
ALLIANCE Just when you thought the LIC would quake in front of global competition, it is making mega moves of its own.
It's a bank! It's an insurance company! No, it's both! Long before it became fashionable to talk about convergence in the New Economy-sense of the word, players in the financial markets the world over have been trying to roll many roles into one. In India, institutions like the ICICI and the HDFC have over the last few years transformed themselves from being term-lenders or housing finance companies to financial superhouses, which offer everything from banking, insurance to consumer finance. Now, it could be the turn of the insurance companies. India's largest life insurer, Life Insurance Corporation, which already has a 12.32 per cent stake in Corporation Bank, is increasing its stake in the bank to 27 per cent. The deal will create one more umbrella organisation, rivalling not only firms like ICICI and HDFC, but also the State Bank of India, which tied up with Cardiff of France for an entry into the life insurance domain. Says K. Cherian Varghese, Chairman and Managing Director, Corporation Bank: ''The combined entity should run shoulders with big banks.'' More than just that, once the deal is finalised, LIC will extend its line to cover retail banking and merchant banking products. Says G.N. Bajpai, Chairman, LIC: ''If we have to retain customers, we must provide an umbrella covering a total range of products.'' The customer acquisition cost will come down drastically for both through cross-selling of products. The bank benefits too, by becoming a corporate agent and tapping the customer base of the bank to sell insurance products, ensures access to business from policy holders plus the staff and agents of LIC. Overnight, the bank can increase its reach from the current network of 700 branches to an additional 2,048 fully computerised LIC branches where it could have its own branches, extension counters or ATMs. LIC gets a bank; Corporation Bank an insurance company. Yes, you could call it a win-win deal. -Roshni Jayakar RECOVERY Having increased its stake, Astra Zeneca now plans to push R&D in India.
Back in 1999, for the $15 billion Swedish pharma major Astra Zeneca, its Indian joint venture Astra IDL was a headache. The Swedish company and the Hinduja-promoted IDL couldn't see eye-to-eye and that naturally affected the fortunes of the ill-fated JV. Speculation was rife that the Swedes weren't interested any more and would throw in the towel and exit leaving the Hindujas to try their luck elsewhere. But just as things were coming to a head in February, the Swedish major got a second wind. In a quick turnabout, it bought out its Indian partner IDL for $18.5 million (nearly Rs 85 crore), hiking its stake in the company from 25.75 per cent to 51.5 per cent. Next it swiftly revamped the management of the company, now re-christened Astra Zeneca, headed by a new managing director Lars Wallan. Wallan's brief: put the Indian operations back on track and, as quickly as possible, make up for lost time. The dithering in recent years, when IDL and Astra couldn't decide on the JV's business strategy, has cost the company dear. Although Astra Zeneca ended 2000-01 with a net profit of Rs 14.27 crore on a turnover of Rs 107.68 crore for the year ending March 31, 2001, things could have been much better. For instance, In the last five years, turnover has grown just 10 per cent and profits 8 per cent, against the Indian drug industry's average of 13 and 11, respectively. And, although Astra is a global leader in anti-cancer drugs, it is not even present yet in that segment of the Indian market, where its main revenue earners are anesthetics like Xylocaine and Sensorcaine, and cardiovascular drugs like Betolac and Ramace. But all that will change, says the affable Wallan, as he shows off the company's newly opened $10 million research centre in Bangalore. ''Our parent company has assured us of a minimum investment of $5 million for the next five years.'' Adds Head of research, T.S. Balganesh: ''Astra Zeneca is the world leader in cardiovascular, respiratory, pain control, oncology and maternal healthcare segments. However, the diseases of the developing world are tuberculosis, malaria and diarrhoea.'' That's precisely where Astra hopes its Indian R&D will play a role. Plus, of course, it will introduce the parent's core drugs in the anti-cancer segment. What's more, recently, the Swedish parent picked up another 5 per cent in its Indian subsidiary, hiking its stake to 56.5 per cent. Did someone say 'commitment'? -Venkatesha Babu
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Cellphone: Ericsson
R380-It has phone and organiser in one device. Helps me with
e-mails, SMS and organises my calendar. Particularly when I am
abroad, I am a big user of SMS for downloading news, stocks, and for
other requirements. Of course, I must have a couple of spare
batteries that come in handy, since I am a heavy user of the phone.
