Tata Tea's Siganporia: Ready to take on the US market

Celestial seasonings, honest Tea, Tazo, The Republic of Tea, Traditional Medicinals, Stash Tea...these are only a sprinkling of the hundreds of specialty tea brands that are doing thriving business in the us. And that's where Tata Tea- which is today entirely concentrated on brands, having defocused its plantations business-now wants to be, with perhaps one or two such brands in the bag. MD Percy Siganporia says the proposed acquisition needn't necessarily be of a specialty tea (which are typically value-added brewed beverages like herbal teas), but could also be of the conventional variety, or of tea in the ready to drink (RTD) form. "We are looking at acquisition opportunity in the arena of tea in all its myriad forms. What we will be examining is the scope for ensuring the business and the brand as a strategic fit with our current portfolio and which allows us to grow the business, thereafter," explains Siganporia.

Whilst the us tea market is relatively small in terms of tonnage of black tea, it is one of the largest markets for tea sold as a beverage, in the form of RTD brands, with double-digit growth rates spurred on by consumers who've recognised the health benefits of tea. Siganporia names two such brands, Snapple and Arizona, which do much larger turnovers than most black tea brands. The black tea segment is estimated to be as large as Rs 48,000 crore, and the market for green, specialty and herbal teas and infusions is just under Rs 50,000 crore. But it's the hot and cold beverage format market- which includes everything potable, including colas-that's the largest, estimated at some Rs 1,28,000 crore, and this could well be where Tata Tea has trained its sights.

The US tea market isn't exactly consolidated, with just a handful of significant acquisitions taking place over the past five-six years. These include the buyout of Oregon Chai by the Irish-based Kerry Foods, and Starbucks acquisition of Tazo Tea way back in 1999. Tata Tea could well be the next buyer in the us-it's received shareholder approval for investing Rs 500 crore via its subsidiaries to execute its acquisition game plan. Cheers to that.

-Brian Carvalho

VALUATION
Lots In A Name

Tata's Ratan Tata: Pricey surname

How much is your surname worth? it may not be worth the exercise, but in the case of Ratan Tata, it clearly is. In 1997, when the Tata Group carried out a brand valuation exercise (involving TCS, Tata Tea, Indian Hotels, Tata Steel and Tata Motors, and done by UK-based brand consultancy Interbrand), the Tata name was worth $1 billion (Rs 3,600 crore). Eight years on, its value has soared to $6 billion, according to R. Gopalakrishnan, Executive Director, Tata Sons. (Rights to the Tata brand reside not with Ratan Tata, but with Tata Sons). Needless to say, the dearer brand is due to Tata's forays into sunrise businesses like insurance and telecom, besides strong performance in automobile and steel. The listing of TCS, too, has helped. Says Gopalakrishnan: "The challenge before us in the 90s was to make the Tata brand contemporary and ensure that it retained its basic values." A job well done.

-Krishna Gopalan

BMW In Chennai
The German car maker finally decides to invest in a facility.

A BMW 3 series car: Finally, stepping on the gas

It was one of the last few car majors that did not have a manufacturing presence in India. Even if belatedly, BMW has moved to correct that anomaly. Last fortnight, the Foreign Investment Promotion Board (FIPB) approved a proposal from the German luxury car maker to invest Rs 100 crore in a facility in the 'Detroit of India', Chennai. Initially, the company will import completely knocked down (CKD) kits and assemble them at the new plant. Depending on the sales volume, BMW is expected to ramp up manufacturing. Although BMW has a strong image in the luxury market (some consider it superior to the Mercedes marque), in India, it will face stiff competition from the existing players. The market for luxury cars is not just shockingly small, but also slow to grow. According to the Society of Indian Automobile Manufacturers, a bare 5,356 premium segment cars (where the BMW 5 series should compete) were sold in 2003-04, with the number going up to 5,708 the next year. So far in this financial year, 1,764 of these cars have been sold, representing a 6 per cent drop over the same period last year. The market leader in this segment is the Honda Accord. Therefore, it's unlikely that BMW will be in a hurry to invest in expanding its manufacturing facility in India. "We cannot comment on any concrete plans until our negotiations with the government are closed. We are, however, definitely coming to India," says BMW's spokesperson Eckhard Wannieck.

BMW's belated enthusiasm has to do with India's potential as a car market. While at one million units it is considerably smaller than many markets in smaller European nations, it offers something that few markets worldwide offer: Growth. "We don't think we are late in entering the Indian market. We do everything step-by-step and we now feel that there is potential in the Indian market for the luxury cars that BMW makes," Wannieck says. BMW's challenge, like in the case of other luxury car makers like Mercedes, is to build a viable business in India.

-Rahul Sachitanand

AUTO
Load It Up, Baby

Hot wheels: Make mine top-end

God may still not be in the business of buying people a Mercedes (sorry, Janis Joplin), but that isn't stopping buyers from picking the very best in their respective segments. Take the Honda City, for instance. Around 60 per cent of these cab-forwards sold are the fully-loaded, top-end variants, never mind that at Rs 7,62,891 (ex-Delhi showroom) it's Rs 1.10 lakh more expensive than the base model. Ditto with the Honda Accord. The automatic V6 alone fetches 45 per cent of the sales, leaving the other variants to make up the rest. If you thought only the buyers of expensive cars were less price sensitive, you are mistaken. Hyundai Santro's higher end XG and XS account for 54 per cent of the small car's sales, and the Getz GLE, priced Rs 60,000 higher than the entry model, accounts for more than two-thirds of the model's sales. In the case of Maruti Swift, the top-end ZXI, which comes with automatic climate control and keyless entry, accounts for 30 per cent of the Swift sales, although it is Rs 1 lakh costlier than the base model. What was that about the 'price-conscious' Indian consumer?

-Swati Prasad

Cracking The Portability Problem
Telecom solutions provider Siebel Systems says it can be done, but at a cost.

Siebel's Drucket: Knows the answers

For sometime now, it has been the mobile phone consumer's pet wish: a number that stays with her as she switches service providers. Cellular phone companies, however, have been ambivalent about such number portability, given that it entails substantial investment in technology. The market, however, seems eager. The number of cellular phone subscribers in India has grown to over 60 million users, and quite clearly number portability will ensure that the service provider with the best quality network gains.

Solutions provider major Siebel Systems, in a white paper, outlines factors such as network coverage, switching costs and penetration levels that will affect number portability. "It has been introduced in countries like the UK, Hong Kong and the us, where the proportion of post-paid users is very large," notes Siebel's Senior Vice President and General Manager (Communications, Media and Energy), Reid S. Drucker. In fact, when it was launched in Hong Kong and the US, as much as 95 per cent of the markets comprised post-paid users. In India, the scenario is quite different, with barely a quarter of the market being accounted for by post-paid users. Understandably, number portability is easier to work in a post-paid market since it has more user loyalty and a higher level of stickiness. "In a prepaid market, you do not even know your user and to that extent, it is difficult to have an interface with him," explains Drucker. "Besides, how many service providers will be willing to invest in number portability if they were going to lose their subscribers in the process?" asks a telecom official. That, in fact, is the biggest stumbling block to number portability.

-Krishna Gopalan

R&D
IICT's Breakthrough Aviation Lube

IICT's Yadav: Certainly worth the effort

For a country with $144 billion (Rs 6,33,600 crore) in foreign exchange reserves, saving on dollars may no longer be the primary motive behind import substitution. But the domain knowledge and self-reliance that such a strategy affords still guides research at government-owned laboratories in the country. The Hyderabad-based Indian Institute of Chemical Technology (IICT) is a case in point. After spending Rs 17 crore and a little over 12 months on the project, the institute has finally developed a synthetic aviation lubricant that the country currently imports. The Rs 100 crore in annual imports that it will save is not the big pay-off. "The fact is that it has strategic value and it can be produced indigenously much cheaper," says IICT's Director, J.S. Yadav. The fuel is fairly unique for its properties. It can withstand temperatures as high as 140 degree C and as low as minus 40 degree C, and is made by a highly guarded technology. So IICT's breakthrough is nothing to sneeze at.

-E. Kumar Sharma

The BT 50 Index
Between the highs and occasional corrections, markets are likely to remain steady.

The rally in the markets has not seen any significant movement over the last few days and the 8,000 mark still seems a while away. Barring a steep fall of close to 150 points, there have been no jitters and the consensus is that there is still some breath left in this rally. The next few weeks leading into the corporate numbers for the September quarter may just end up being crucial.

Our flagship free float methodology-based index-BT 50-has completed two years now. The free float methodology has several advantages: first, it considers only the value of stocks freely available in the market (after excluding the part held by promoters and other strategic investors) and the weightage assigned to individual shares is more representative than the market capitalisation-based methodology; second, it takes care of the perpetual selection dilemma regarding closely-held companies. For instance, the inclusion of these companies may distort the index based on total market capitalisation methodology, but dropping them altogether may reduce its representative character. The free float methodology facilitates inclusion of large closely-held companies but assigns them a lesser weightage. After the success of our broad market free float index (that the Sensex subsequently decided to adopt this is testimony to the efficacy of the free float method), we decided to launch sector indices using the same method. While the general index captures the overall movements (covering several sectors), sector indices capture the movements in individual sectors. All these indices have a common base period (January 1, 2002). The weightages are reassigned every quarter after companies declare their ownership details. The base value of all BT indices is 100.

-Krishna Gopalan