MphasiS' Rao: Guarded optimism

Going by the buzz in Bangalore, just about everybody is in the race to snag Baring Private Equity Partners (India)'s 36 per cent stake in the Jerry Rao-managed it and ITEs company, Mphasis. That includes other private equity and venture capital funds, and several large domestic and overseas it services companies. According to sources in the know, Barings is asking for about Rs 420 per share, which is 57 per cent more than Mphasis BFL's closing price of Rs 267 on May 16, when BT went to press. Will Barings get what it's asking for? Given that a few early wooers-which are said to have included Wipro and CapGemini, among others-have already dropped out, it appears that at least some buyers think the overall valuation of Rs 3,300 crore is too high.

It's hard to brush aside the concerns of such investors. Once considered, including by this magazine, a candidate for the IT top league, Mphasis has been hard-pressed to grow its it services business, despite a spate of acquisitions. Although 62 per cent of its revenues come from it services, its BPO business is growing faster. Even that may now get hit because of a recent employee-related fraud at Msource, the BPO division. While the management dealt with the situation promptly, some analysts feel it'll put the division on the backfoot when it pitches for new customers. (Mphasis, however, has projected an overall 25 per cent growth in revenues and 30 per cent growth in net profit for this year.)

Given those issues, who'll be brave enough to buy Mphasis? At this stage, it's easier to say who's unlikely to buy Mphasis. According to market watchers, both EDs and IBM can be ruled out. Why? In EDs' case, it is busy shutting over 20 of its global delivery centres, so buying Mphasis would go against the strategy. As for IBM, it has already achieved significant scale in BPO with its purchase of Daksh eServices, and it clearly doesn't need Mphasis to bolsters its IT services business. What's likely is that another private equity firm, like Temasek or Blackstone, buys Mphasis and clubs it with another it services company in its portfolio to create critical mass. Watch this space.

-Rahul Sachitanand

MUNCH
False Alarm

When finance minister P. Chidambaram announced his fringe benefit tax proposal in Budget 2005, he sent India's budding meal voucher industry into a tizzy. Would companies stop doling out meal coupons to employees and thus kill the Rs 250-crore industry? was the question. The answer is finally out: it won't. The Finance Bill as finally passed exempts meal vouchers from the tax. Says Ravi Saxena, Managing Director of the Rs 170-crore Sodexho Pass India: "With adequate support from the government and corporates, the industry is likely to grow." Thanks to Chidambaram, there'll still be free lunches going around in corporate India.

-Priyanka Sangani

The Music Never Stops
But Indian music retailers are just beginning to see the colour of money.

On a high note: Steady revenues brighten the music retail scene

The international music industry had a bad 2004, and, contrary to expectations, it wasn't the popularity of iTunes (it sold its 150 millionth song late in the year) that caused this. According to Dave Kusak and Gerd Leonhard, authors of The Future of Music: Manifesto for the Digital Music Revolution, of the 30,000 music titles released in 2004, 25,000 sold fewer than 1,000 copies. According to a report carried in The Economist in October 2004, the main reason for this, on the basis of a study done by a music major, was the quality of music itself.

India, fortunately, is on a different page. "The revenues of music companies did not fall for the first time (in four years) in 2004," says Savio D'Souza, Secretary General of the Indian Music Industry, an industry lobby. And with organised retail making its presence felt in almost all product categories, analysts such as Fitch Ratings' Priyamvada Balaji predict "an annual growth in the short-to-medium-term of 25-30 per cent", for music retail chains.

Piracy still remains an issue (for every legitimate copy of a popular piece of music sold in India, there are between three and five illegitimate ones sold, assuming the price of a pirated version to be between a third and a fifth of the original; however, last year 708 people were convicted for music-piracy related crimes), but every company in the business is in investment mode. The RPG-owned Music World will add 58 stores by end-2005, the Bennett, Coleman & Company Limited-owned Planet M, 95 in the next 18 to 24 months.

The good news for such companies is that the ratio of CDs to cassettes sold in India is a healthy 1:1 as opposed to the 1:7 it was a few years ago. However, it is still not clear whether the market can support (or needs) 10 outlets in a city. Hemu Ramaiah, Managing Partner, Landmark, a book-and-music retailer, is betting that they won't and is investing in large-format destination stores. "Music has to be sold with flair," she insists. That won't be easy. Most retailers complain that placing orders with the Big Five (Sony, Universal, BMG, Warner and Virgin) is followed by a frustrating wait for titles. And dealing with small regional music companies comes with its own set of challenges. "The smaller distributors need to evolve," says Ajay Mehra, CEO, Planet M.

Most organised retail players, however, are oblivious to the big threat. Digital music sales are already happening in India (some Rs 50 crore worth in 2004), through mobile telephony companies (users subscribe to a service that allows people who call them listen to a particular song). With India set to have 200-250 million phones by 2007, that, not piracy, is the big threat.

-Amanpreet Singh

Making News
Mumbai's new newspaper markets itself like none before.

Eyecatching: A DNA hoarding tries to hog the Mumbaikar's attention

Mumbai's newest marketing blitz is hard to miss. You see it staring back at you from bright yellow hoardings all over the city, and you even find it sitting atop tables at tony restaurants and pubs. No, the high-decibel marketing isn't for a new car, a new mobile phone or a new show on television. Rather, it's for DNA-Daily News & Analysis, the newspaper to be launched in August by the combine of Zee and Dainik Bhaskar. "The scene is changing on a daily basis and so has our advertising budget-we started out thinking Rs 10 crore would be enough, but that's obviously not been the case," says Suresh Balakrishnan, Head (Marketing), DNA. What explains DNA's big ad budget? Mumbai is a Times of India (TOI) city; it has the largest circulation, and an overall print advertising share of 56 per cent (Tam Adex figures for April-March 2004-05). So DNA, headed by former TOI honcho Pradeep Guha, will need all the help it can get. Says Kamini Banga, a marketing consultant: "By showing the sort of people who TOI would want as its readers as saying that they want another newspaper, DNA is making sure it hits where it hurts most."

Apparently, Dainik Bhaskar had adopted a similar strategy during its own launch in Surat to good effect. Will the publishing group do an encore with DNA in Mumbai? "The involvement bit may work well as a gimmick, but sampling is only the beginning of the marketing effort," says Meenakshi Madhvani, Managing Partner, Spatial Access, a media audit firm. Indeed, as any marketer will tell you, the biggest risk any hi-profile campaign runs is falling short of the consumer's hyped-up expectations. In other words, Guha has crafted a successful advertising campaign. He now needs to craft a better newspaper.

-Priyanka Sangani

SPIN
Can GM India Stay On Track?

Coming soon? Chevrolet Aveo

Just about the time general Motors (GM) in Detroit was desperately trying to renew its credit lines from banks to stave off bankruptcy, the auto major's new boss in India, Rajeev Chaba, was busy unveiling his vision for the local market. A 10 per cent share by 2008, he announced. Given that GM in India has an overall market share of 2.75 per cent, Chaba will need a near-miracle to deliver those numbers. By Chaba's own admission, the company will need new cars to get its cash registers ringing. So plans are afoot to launch, "as many as five new cars within the next 30-36 months", says a GM India (GMI) spokesperson. He isn't telling what these cars will be, but industry sources expect both the Chevrolet Spark (the old Daewoo Matiz) and the Chevrolet Aveo (another Daewoo product to replace the old Opel Corsa) to be two of the cars. With the parent struggling, will GMI be able to execute on its plans? "The problems with our parent concern do not affect us," says the spokesperson. Funnily enough, that's exactly what Fiat said three years ago-before its sales plummeted from 32,111 units to 5,407 units last year.

-Kushan Mitra

Wal-Mart Checks Out India
The retail behemoth gets a feel of the country ahead of setting up shop.

Welcome on board: Wal-Mart's Menzer (third from left) meets PM Manmohan Singh

It's a twin event that retailers in India have been dreading for long: one, the opening up of retail to foreign investors and, two, the coming of the $288-billion (Rs 12,67,200-crore) Wal-Mart. Past fortnight, both events seemed closer to happening. Union Commerce Minister Kamal Nath reiterated the government's plan to open up the retail industry in a phased manner, and Wal-Mart's President & CEO of international business, John Menzer, came courting the Indian government, meeting Prime Minister Manmohan Singh, among others.

While Wal-Mart's head of international corporate affairs Elizabeth Keck told BT on the eve of the high-powered team's departure that the visit was mainly meant for Wal-Mart's 80-person global sourcing office in Bangalore, it is unlikely she had anyone fooled. Wal-Mart has actually been meeting potential partners, including, it is said, the Mahindras (they deny it) and Anil Ambani of Reliance Industries. Ambani's elder brother Mukesh, too, is said to be interested in setting up hypermarkets with his close aide Hetal Meswani.

Wal-Mart's interest comes at a time when competitors like the $43-billion (Rs 1,89,200-crore) Target are more interested in growing their home market rather than venturing overseas. The chairman of Target Technology Services India, Paul Singer, told BT recently: "We are only in 47 of the 50 states in the us. So our focus is likely to remain on expanding our presence at home." Meanwhile, another American retail giant Sears Roebuck Kmart is set to join the party by opening an India liaison office soon.

-Rahul Sachitanand

Volkswagen In India
It could be plonking down $1 billion on a plant in Vizag.

Audi India's GM Stefan Hamberger: Indian calling

On May 2 this year, officials from the government of Andhra Pradesh went to Volkswagen's headquarters in Wolfsburg, Germany, and they've returned with some good news: The German carmaker, best known for its iconic small car, the Beetle, is coming. It plans to set up a manufacturing facility in the port city of Visakhapatnam at a cost of about Rs 5,000 crore. Two of VW's divisions, Skoda and Audi, already sell their cars in India. According to D.A. Somayajulu, Advisor to the state government and who was part of the team that went to Germany, the carmaker has proposed 90 per cent indigenisation at the manufacturing plant. It obviously means that VW plans to introduce more mass market (read: small or compact) cars in India. It's almost a decade late to India's automotive party. Let's see if it can still make heads turn.

-E. Kumar Sharma