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JUNE 19, 2005
 Cover Story
 Personal Finance
 BT Special
 Back of the Book

Sabeer Bhatia
The poster boy of the Internet boom is back, this time with a collaborative software product that he is touting as the next big thing.

Biotech's Allure
The Aditya Birla Group is reportedly mulling a foray in biotech. What is it about the sector that's drawing India's big industrial houses like the Tatas, Reliance, and now the Birlas?
More Net Specials
Business Today,  June 5, 2005
The Row At BPL
This soap opera shows no signs of ending.
BPL Communications' R. Chandrasekhar (left) and BPL patriarch T.P.G. Nambiar: Murky family soap turns more dramatic

The bad blood between BPL group patriarch T.P.G. Nambiar and his son-in-law, Rajeev Chandrasekhar, is intensifying. On May 10, 2005, the Company Law Board (CLB) rejected Nambiar's petition seeking a stay on the sale or transfer of a 57 per cent stake in BPL Communications owned by his son-in-law. The Chandrasekhar-controlled BPL Communications is the holding company for BPL Cellular Ltd (which holds licences for the Tamil Nadu, Maharashtra, Goa, Kerala and Pondicherry circles) and BPL Mobile Communications (which holds a licence for the Mumbai circle). There have been reports that Chandrasekhar is planning to sell a portion of BPL Communications to either Vodafone or Essar. The exact shareholding pattern in BPL Communications is unclear, with both sides claiming a controlling stake.

Nambiar needs money. The BPL Group is bleeding and is saddled with high-cost debts of about Rs 1,200 crore. A comprehensive debt restructuring (CDR) package, which has been in the works for the last three years, has been held up because Nambiar and his son Ajit have been unable to bring in Rs 120 crore for a one-time settlement, which will result in a portion of the debt being written off.

Choice Of Sparklers
No Full Stops Anymore
A New Synergy

This is where BPL Communications, which has 2.6 million subscribers, comes in. In January 2005, Morgan Stanley estimated its enterprise value at $1.3 billion (Rs 5,720 crore). If the Nambiars can get a slice of this cake, their funds crunch will be resolved. "The mobile business was funded by BPL. It was our brand equity that helped it grow. We will pursue all avenues to protect our interests," say sources close to Nambiar.

The Chandrasekhar camp will have none of this. "On two occasions in the past, they (the Nambiars) decided not to participate in (BPL Communications) rights issues. Now that it has started making good money, they want a piece of the action," sources close to Chandrasekhar point out. But is he really selling out? The man himself avoids a direct answer. "We are talking to various players for a strategic investment partner," he says.

The next act in this family soap will unfold on July 11, when the CLB takes up Nambiar's arguments. Keep watching this space.

Choice Of Sparklers

DTC's Penny: Rolling out the stones

Diamonds are forever, are a girl's best friend, and all that, but diamonds aren't soap. Why then has the Diamond Trading Company (DTC), the marketing arm of the De Beers Group, introduced so many brands of diamond jewellery in the Indian market? First there was Nakshatra, then came Asmi, followed by Arisia and, more recently, Sangini. After all, when buying a diamond you would assume that consumers are most concerned with its intrinsic value, unlike when, say, picking up a Dove soap.

Gareth Penny, Managing Director of the London-based DTC, explains: "It's a way of creating excitement. We should be able to sell emotions like love and commitment, rather than just a commodity. We offer marketed products, and focus on design, beauty and elegance." He reveals that DTC spends $8-10 million (Rs 35.2-44 crore) annually on marketing in India.

It's easy to see why: India is the third-largest market after the US and Japan, and is growing at 20 per cent annually, even as global demand chugs along at 7-8 per cent. Small wonder then that Penny can't get the "India Shining" slogan out of his system!

No Full Stops Anymore
The government is determined to push financial sector reforms through.

On May 21 this year, finance minister P. Chidambaram sprang a surprise. He announced that the government would go through with, and complete, banking and financial sector reforms by September-end. Speaking at the national meet of the Confederation of Indian Industry on May 17, the 59-year-old lawyer-turned-politician said: "The first thing we have to do is complete the agenda of financial sector reforms and end all the uncertainties in this sector."

The Monsoon Session of Parliament (beginning in July) is packed with economic Bills (see Bills In The Pipeline) that are likely to change the face of the Indian financial sector. Doing away with the 10 per cent cap on voting rights for private sector banks through an amendment of the Banking Regulation (Amendment) Bill, 2005, for instance, will encourage foreign banks to raise their stakes in private sector Indian banks and bring in much-needed foreign capital. Similarly, The Reserve Bank of India (Amendment) Bill, 2005 gives the Reserve Bank of India the flexibility to set a new cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for stronger banks. This will release massive amounts of productive funds into the market.

The Reserve Bank of India (Amendment) Bill, 2005 Provides more operational flexibility to the central bank to fix SLR and CRR for different banks so as to make available more funds for productive growth
The Banking Regulation (Amendment) Bill, 2004 Removes the 10 per cent cap on voting rights. Will encourage foreign banks to set up subsidiaries and attract foreign investments
Special Economic Zone Bill, 2005 Makes units within SEZs eligible for 100 per cent tax exemption for the first five years and 50 per cent for the next five.
The Pension Fund Regulatory and Development Authority Bill, 2005 Introduces a new regulatory mechanism for a "defined contribution" pension scheme introduced from January 1, 2004
Credit Information Companies (Regulation) Bill, 2004 Help banks to deal with NPAs by providing information regarding creditworthiness of various categories of customers
The Factories (Amendment) Bill, 2004 Provides flexibility in the matter of employing women workers on night shifts in factories
The Securities Laws (Amendment) Bill 2004 Demutualises stock exchanges and enhances penal provisions to protect investors' interests
Insurance Regulatory Authority Bill, 2004 Increases the FDI cap from 26 per cent to 49 per cent in private insurance companies

Again, amending the Insurance Regulatory and Development Act, (1998) to increase the foreign direct investment (FDI) limit in insurance companies from 26 per cent to 49 per cent, and passing the Pension Fund and Regulatory and Development Authority Bill, 2005, will unshackle these sectors.

The passage of these Bills (the Left parties and the BJP willing) will enable India to attract more FDI (the country received $4 billion, or Rs 17,600 crore, in 2003-04) and, hopefully, close the gap with China, which attracted $60.63 billion (Rs 2,66,772 crore) in foreign investments in 2004.

Empirical data shows that foreign investments in sectors such as information technology, business process outsourcing and car making, among others, have made Indian companies more productive and turned some of them into formidable global competitors. Consumers have benefited from lower prices, higher quality and greater choice. And domestic demand has soared as thousands of new jobs were created.

The Finance Minister is hoping that these stories will be replicated in the financial sector, and, because of its linkages across the economy, in other sectors as well. China, here we come!

A New Synergy

Exports ho! Divi's unit near Hyderabad

What are pharma companies doing setting up export-oriented units (EOUs)? Murli K. Divi, Chairman and Managing Director of Hyderabad-based Divi's Laboratories, has just inked a deal with a us-based pharma major for the supply of a specialty ingredient and is setting up a dedicated EOU for this customer alone. The investment: Rs 30 crore; the location: Vishakapatnam. Divi's is not alone. The Ahmedabad-based Dishman Pharmaceuticals & Chemicals has two such facilities in Bavla, near Ahmedabad, that manufacture Eprosartan, an active pharmaceutical ingredient used in the manufacture of an anti-hypertension drug, under contract for Solvay Pharmaceutical B.V. of the Netherlands. "We hope to add two more such EOUs in the next month," says Vikram Oza, Vice President (Finance), Dishman. Adds Divi: "We are working with close to a dozen global pharma MNCs and hope to replicate this model in other cases." But why an EOU? "These units don't pay any income tax, sales tax or excise duties till 2010," says Oza. That's why other pharma companies, like Matrix Laboratories, which do not have dedicated customer-specific contract manufacturing units, have also opted to set up EOUs.




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