Hindalco's K.M. Birla: An eye on global greatness

It is one of the few Indian companies to advertise in Fortune magazine. And, judging from recent moves it has ambitions of figuring in the publication's list of the world's largest corporations. Right now, though,the Aditya Birla Group's Hindalco is nowhere close to that: # 500 on the Fortune list (Takenaka) had sales of $10 billion (Rs 49471 crore) in 2001; Hindalco's sales in 2001-02 were Rs 2,331 crore.

Still, K.M. Birla's announcement, on July 21, 2002, that Hindalco would acquire the copper business of its stable-mate Indo Gulf Corporation in the Rs 27,000-crore group, is indication-enough of its global aspirations. ''This restructuring exercise is a step in our ongoing effort to create a business that has the financial capability to be a global player,'' says Birla. That it does. The move also needs to be in the context of the impending privatisation of Nalco by the Government of India. Indo Gulf's Managing Director Debu Bhattacharya claims the restructuring isn't motivated by that but admits that ''the company would (now) be in a position to pursue global opportunities in aluminium''. And copper.

There's also the small matter of markets preferring the aluminium-copper combo. They have rewarded the Anglo-Australian Rio Tinto and bhp Billiton-both companies with a presence in copper and aluminium. ''Globally,'' explains Sumant Sinha, President and Head (Corporate Finance) of the Aditya Birla Group, ''consolidation in the metals business has been driven by the need to balance exposure to commodities''. That balance would, in turn, translate into a predictable and stable earnings stream. On the strength of this, and on that of its acquisitions Birla hopes to grow Hindalco to a Rs 18,000 crore company in three years. There's money in copper (and aluminium).

-Roshni Jayakar

RELIANCE
What Is Reliance Infocomm's Plan B?
Surely, the conglo with ambitious telecom plans must have provided for a non-CDMA future.

RIL's Mukesh Ambani: A contigency looms large

Is the cookie crumbling? Reports that Qualcomm has an option not to invest $200 million in Reliance Infocomm suggest it may be. For those who came in late, in January 2001, Qualcomm signed a Memorandum of Understanding (MoU) to acquire a 4 per cent stake in Reliance Communications (Now Reliance Infocomm) for $200 million. Seven months later comes the news that it has the option (read that word again, option) of reconsidering its decision-given that Reliance Infocomm hadn't fulfilled certain conditions.

In numerical terms $200 million may mean little to Reliance. The group is pumping in close to $4 billion into its telecom initiative. And RIL (post its merger with RPL) boasts a turnover of Rs 58,971 crore ($12 billion), far higher than Qualcomm's $2.6 billion.

There was, and still is, good reason for Qualcomm to take a stake in Reliance Infocomm. The former earns the bulk of its revenues from royalty on CDMA technology. And the latter is making among the largest CDMA plays in the world.

If Reliance hasn't fulfilled some conditions-BT learns Reliance Infocomm is yet to place orders for CDMA switches (switches, for the uninitiated, form the heart of any telecom network)-it is with good reason. The software has been bought, enough fibre has been pumped into the ground, LG has reportedly bagged an order for phones, but of the switches themselves there's been no news. That's because switches constitute the bulk of a network's cost and Reliance is loath to invest in them while the future of CDMA in this country is still in question.

The specifics: a case on the legality of fixed service operators providing mobile services is still pending before the Supreme Court (the next hearing is scheduled for September 6), and another, before the Telecom Dispute Settlement Appellate Tribunal (TDSAT, and the next hearing is on September 16) on whether basic operators going the will (Wireless in Local Loop) way can use anything other than a version of CDMA that doesn't allow for roaming or other value-added services.

If either rules against the use of CDMA to provide limited mobility, Reliance, analysts point out, may want to redraft its telecom strategy. One, it could use a standard terrestrial route to wire up houses and offices in the 19 circles in which it has a basic telephony licence and supplement this with CDMA in geographically sparse areas where the technology is economically viable for fixed telephony. And it could start shopping for cellular licences (its presence in cellular telephony is limited to Himachal Pradesh, Madhya Pradesh, Bihar, Orissa, Assam, West Bengal, Kolkata, and the North East). Given Reliance's plans for the telecom sector-basic and cellular and data services and value-added services and domestic long-distance and international long-distance rolled into one whopping whole-the company may have no option but to do so.

SELF WORTH
Riding The Centaur
C-E-N-T-A-U-R may spell M-O-N-E-Y to the government, but it does R-E-S-P-E-C-T to hotelier-in-the-wilderness Ajit Kerkar.

Kerkar's Komeback: The Juhu Centaur holds the key

Even today, five years after the event, more people remember Ajit Baburao Kerkar for his acrimonious exit from the Tata Group-he headed Indian Hotels then-than for what he achieved in his 27-year long reign as CEO.

Kerkar's company Tulip Star Hotels isn't an everyday name. In its previous avatar it was Cox & Kings Travel & Finance, a company managed by Kerkar's son Peter until the UK-based travel company decided to do its own thing in India. In 1999, the company, now rechristened Tulip Star, launched its hotel management and consulting services. Today, it owns three hotels-one each in Kerala and Goa, and the Juhu Centaur, which it recently acquired from the government-manages eight others, and its stock quotes at Rs 21.20 on Bombay Stock Exchange.

So, when the 70-year-old handed over a cheque for Rs 153 crore to Minister for Civil Aviation, Shahnawaz Hussain, for Juhu Centaur the question on most people's minds wasn't why, but how: Tulip Star's revenues for the year-ended march 2001 were Rs 3.42 crore; its net worth, Rs 16.38 crore.

''How'' is a valid question. Apart from the Rs 153 crore, Kerkar will spend another Rs 87 crore on refurbishing the hotel. The mechanics: Tulip Star created a special purpose vehicle, Tulip Hospitality Services for the acquisition. Kerkar, Tulip Star, and the company's overseas associates put up the entire Rs 44 crore equity of the SPV. A eight-year loan (13.5 per cent interest calculated quarterly) from a consortium of six banks brought in Rs 129 crore. Mumbai-based Millennium Capital Management, one of Tulip Star's advisors in the transaction is busy working on a $8 million (Rs 39.20 crore) line of credit from a European bank. And Kerkar is leveraging his resume-he spent 35 years at Indian Hotels, a period in which the Taj brand grew from one hotel to 50 (owned-or-operated) hotels around the world-to raise some more money from non resident Indians in Singapore and Australia. Good, clean, arithmetic, but for the source of the Rs 44 crore equity (Tulip Star's equity is a mere Rs 3.61 crore).

When this writer caught up with Kerkar, 37 days after he signed away Rs 153 crore, he was busy poring over floorplans for the 50,000 square metre Centaur with Harish Lamba, a confidant from his days at the Taj. ''Hoteliering is what keeps me young,'' grins Kerkar as he outlines his audacious plans for Juhu Centaur, now to be called Tulip Star Juhu (we'll stick with TSJ): a modern conservatory lobby, 300 rooms and suites, a 10,000 square metre shopping mall, a 5,000 square metre spa, and 40-50 apartment blocks. Revenues from the last three will help to unlock value from the property and enable TSJ subsidise room tariffs; Kerkar's aim is to peg them at 35-40 per cent less than the competition's.

The born-again hotelier's ambitions don't stop with TSJ. He is eyeing properties in other cities; Tulip lost out in its bid for two government-owned hotels in Delhi, Kanishka, and Indraprastha. ''Tulip Hospitality Services will be the vehicle to acquire all the assets and these will be managed by Tulip Star HoteLs,'' explains Mahesh Gandhi, Chairman, Millennium Capital. ''This will create a consolidated holding structure and later help raise capital from the private and public sale of equity.''

Thirty years ago, the young Kerkar predicted that Goa, Rajasthan, and Kerala would soon emerge as popular tourist destinations and insisted on putting down hotels in these locations. The gamble worked. Now he's risking his little-all on an ingenious redevelopment strategy. Maybe if it works, people will remember Kerkar for this.

-Roshni Jayakar