|
|
|
|
       
|
When Nimesh Kampani dubbed Grasim's buyout of Reliance Industries' 10 per cent holding in Larsen & Toubro a ''win-win proposition'', the only way he could have said it better would have been to call it a ''win-win-win'' deal. For, to be sure, all three parties benefit. At a stroke, Grasim and L&T together control a fourth of the 110 million tonne Indian cement market. And if you include the ACC-Ambuja combine, four players control close to half of the cement industry. Consolidation has finally arrived. Reliance for its part couldn't have asked for a better exit route-at close to a 50 per cent premium to the market price for a zero-synergy holding, which Sailesh Haribhakti, coo of the Haribhakti group, describes as a ''distraction for the Ambanis today''. ''Now it's up to Grasim and L&T to reap the advantages of increasing efficiencies and reducing costs,'' says Kampani, Chairman of JM Morgan Stanley, which represented Grasim.
With a formidable marketshare and a couple of seats on the L&T board, Grasim can go about dictating prices, just as the Gujarat Ambuja-acc combine has done, thereby reaping reach rewards. ''The price cartel will become stronger, and prices will remain firm, which is good for the industry,'' says Ramnath Subramaniam, research analyst at Taib Securities. Kampani, however, points out that pricing power isn't the biggest benefit of the alliance. For him, it's logistics management. Both companies can now decide to sell cement in areas close to the plant, thereby saving on transportation costs. ''Each company can save Rs 40-50 crore by reducing their freight costs,'' estimates Kampani. Then, Kumar Mangalam Birla has also managed to keep the multinational cement majors at bay via the buyout. Worldwide, the cement market is controlled by four-five majors, including Lafarge, Cemex and Holderbank, which were all in the running for L&T Cement. Lafarge, for instance, would have instantly become a force to reckon with in India if it had got L&T, since that would have taken its capacity in India up to 20 million tonne. ''Only the cost-effective, best-governed and largest Indian companies will survive, and clearly this is a step in that direction,'' says Haribhakti. The cost per tonne of Grasim's 10 per cent stake in L&T works out to around $105 (Rs 5,040), which, Taib's Subramaniam says, is very much the industry benchmark these days. Still, if Birla agreed to a 50 per cent premium it is probably because he thought there was no point in having a stake in a company, where the Ambanis are shareholders too. Much of the acquisition is being funded via Grasim's cash flows of Rs 500 crore. Birla will have to raise some debt, which analysts say could increase his interest outgo by Rs 35 crore this year (along with borrowings for capital expenditure). Kampani, however, feels that the debt is not of huge magnitude, and can easily be repaid via surpluses from 2003 earnings. Would Birla have acquired L&T Cement, lock stock and clinker, by then? -Brian Carvalho DABHOL
In 1993, it was a case study of successful FDI in India. Today, to Enron Corp must go the dubious distinction of having messed up the single largest foreign direct investment in India, $2.7 billion (Rs 12,690 crore of which the equity component is around Rs 5,500 crore). As this magazine goes to press, Enron is on the threshold of being acquired by Dynegy for a reported $10 billion (Rs 47,000 crore); Kenneth Lay, the company's chairman has branded DPC a bad investment; and the 2,000 mw power project is an orphan in search of parents. Tata Power and BSEs have both evinced interest in trying to run DPC, and lenders are busy trying to make the best out of a bad deal. The transaction itself will depend on several variables that could go horribly wrong, or work out alright. Here's a listing. The first is the dollar-linked tariff. For DPC to make money, the tariff will have to be delinked from the dollar lowering it to a level acceptable to principal customer MSEB (Maharashtra State Electricity Board). The second variable is the Peak Load Factor (PLF) specified in the power purchase agreement. Few agreements will be viable at the 90 per cent specified. The third is the issue of whether there is enough reason to restructure the equity of DPC (and through this achieve some moderation in the project cost). And the fourth is about reports that the central government's counter-guarantee of a return on investment of 14 per cent will not be available to Indian buyers. However, the project itself won't prove too hard to salvage. The LNG terminal and the jetty can be delinked from the project, leading to a straight saving of $600 million (Rs 2,820 crore). And the project's capacity can be restricted to less than 2,000 mw. That should lower the financial burden on the buyers. Watch this space. -Debojyoti Chatterjee Executive Tracking
Sections of the media, including the publishing house mentioned in the next sentence may be cheering the government's decision not to allow FDI in print media, but that hasn't stopped them from seeking far and wide for talent. Bennett, Coleman & Company Limited has lassoed Ravi Dhariwal from Pepsi's Philippines operations. Dhariwal was part of Ramesh Vangal's start-up team for Pepsi in India and was expected to move to Pepsi's global headquarters. Now, in a surprise development, the man has moved to BCCI as Executive Director and will report to Samir Jain. Another high-profile media hire is that of Aniruddha Lahiri by the ABP Group. Lahiri moves to the company from Unilever's Rotterdam operations where he was Senior Vice President (Supply Chain Management). Before moving to Rotterdam, Lahiri had served as the head of hr and the head of operations of HLL. In other news away from media, the A.V. Birla Group continues its high-profile acquisition, sorry, hiring spree. Two recent hires are Vivek Soni, who's moved to the group as Chief Technology Officer from Polaroid where he was the global head of R&D (that's some catch) and Hamid Bhonbal who joins the group as a technology advisor from Solutia, a subsidiary of Monsanto. What's up Mr. Birla? LML
How different can a scooter be from a motorcycle? If you are talking about LML, very different. The Kanpur-based company- which made a stunning success of its peppy scooters from Piaggio only to find its fortunes fry when the Italian partner walked out-has been struggling to re-establish itself as a motorcycle marketer. Its 100cc Daelim-made bikes, Energy and Adreno, launched selectively in August 2000 and nation-wide in January this year, have fared poorly. From a high of 9,499 units in January 2001, sales of LML were dwindling month after month, until the company launched the 110cc, FX-variants of Energy and Adreno. The new bikes took the monthly sales up from 2,456 in August, to 2,848 in September, and to 4,063 in October. Says LML's CEO, Deepak Singhania, "Launching new variants gives the customer more choice within a brand." There are indications that it will launch a 125-cc bike in March 2002, and a 150-cc motorcycle in June. And it has also wired up its dealers and factory for better inventory management. With so much riding on the new bikes, LML can scarce afford a slip up. -Swati Prasad SKODA AUTO INDIA
After planning, reviewing, and re-reviewing its strategy over the last five years, the Czech automotive brand now owned by Volkswagen, rumbled into India last fortnight. Its debut car: the Octavia, which comes in two versions-one with a 1.9-litre diesel engine, and the other 2 litre petrol. At Rs 10.60 lakh apiece, the Octavia is competitively priced, and hopes to sell 6,000 units over the next 12 months. But this may not be the best of times to launch a car, especially one that comes effectively as a fully-built up unit and straddles two segments: C, where cars like Ford Ikon, Hyundai Accent, Honda City, Suzuki Baleno, and Opel Corsa compete, and D, that has Honda Accord, Hyundai Sonata, and Ford Mondeo. In fact, Imran Hassen, Skoda's India Head, says that there's no money to be made at this price. So, what's the 38-employee, four-dealer company trying to do? Hassen says there are big plans, and depending on how the Octavia fares, Volkswagen will decide whether or not to launch more cars. But by experimenting with a shoe-string operation, Volkswagen is taking a big risk. If its customers find that spares are not available or that its service footprint is limited, one of Europe's most reliable automotive brand will suffer. And in a growing market that has all the global big-wigs-DaimlerChrysler, Ford, General Motors, Toyota, and Honda-Volkswagen would be hard-pressed to make a comeback. -Swati Prasad
|
|
Issue Contents Write to us Subscription Syndication INDIA
TODAY | INDIA
TODAY PLUS | COMPUTERS
TODAY | © Living Media India Ltd |
 |
 |
