Shell's Bressand: Bullish on India

Vice-president, global business environment, and head of its Future Global Scenarios Group at Royal Dutch Shell PLC, Albert Bressand, spoke to Business Today's K. Sai Srinivas on what his crystal ball has to say. Excerpts:

On the debate over alternative fuels: This issue cannot be separated from the debate over nuclear energy. Coal is another obvious source of energy, but we need to develop environment-friendly technologies to tap it. Gas is another option, but for India, Qatar and Iran may not be the best sources. And sexy alternatives like solar and wind energy, I think, are over-emphasised.

On who will control oil: The control of oil will vest in the hands of the global markets, some of them energy markets, other financial markets and markets for carbon. I think world power will reside in a network of such markets.

On India and China: I see an integration of South Asia and East Asia, two regions that are now very distinct and separate. India is playing the competitiveness card like a developed country; it is going for productivity gains and high value-added activities in a way most Chinese industries still do not. Groups like the Tatas and the Mahindras, among others, are several steps ahead of their Chinese counterparts when it comes to developing their brands and their global presence. A large part of the Chinese growth story is led by foreign-owned companies operating in China.

On the future of the labour market: We are moving towards an integrated global labour market where companies outsource and offshore to and access labour from different markets. Some of that labour is in countries like China where some essential mechanisms, like market determinants for the yuan-dollar or the yuan-euro exchange rates, are not yet in place. So, the key question in our scenarios is the extent to which the market logic will prevail; depending on the extent, salaries in currently low-cost countries can rise rapidly, and ultimately, lead to a much more integrated global labour force. India has its foot in both systems. The country has low-cost but highly sophisticated labour, and people operate under open market conditions. So, you can expect the labour market in India to fully reflect world demand and this will lead to relatively rapid increases in salaries. Therefore, India's strategy has to focus on preparing for higher value-added functions and not prolonging the period when cheap labour provides the key competitive advantage.

CSFB's Nemesis
SEBI hauls up the securities firm for a sin of yore.

SEBI's Damodaran: Tough guy

For Credit Suisse First Boston (CSFB), stock market regulator SEBI's latest order couldn't have been worse timed. Some top CSFB officials were said to be in Mumbai last fortnight to try to restart their India operations, after SEBI refused to renew the FII license of CSFB (Mauritius). Earlier, in April 2001, SEBI had suspended CSFB India on charges of price manipulation. The recent stricture against CSFB, involving a fine of Rs 10 lakh, relates to alleged short selling of Reliance Industries shares in December 2002. The alleged violation took place at a time when CSFB (Mauritius) (to be precise, it's then subsidiary Kallar Kahar Investments) was exiting India. Even today, FIIs are not allowed to short sell securities. They can transact only on the basis of securities bought and sold.

SEBI officials wouldn't comment on the issue, and all that a CSFB spokesperson would say is that "this is a historic issue and it has been going through the appropriate channel at SEBI. A conclusion has now been reached and we have nothing further to add on the matter". How soon SEBI okays CSFB's return to India is hard to say, but with the stock market roaring, the FII must be licking its wounds. And, by the way, there have been reports that SEBI may allow institutions to short sell in the market. If that happens, CSFB's travails would have been in vain.

-Mahesh Nayak

Head Hunting Gets Global
Another global search firm opens shop in the country.

Ten years after it first considered coming into India, Spencer Stuart-one of the three largest executive search firms-has finally decided to open shop. The us-based firm, with presence in 26 countries, has roped in Anjali Bansal from Egon Zehnder, where the 36-year-old Columbia B-school alumna was in charge of the private equity practice. Ironically, Spencer Stuart's first choice 10 years ago was the duo of Rajeev Vasudeva and Sanjiv Sachar, who now head Egon in India. Besides, more recently, the firm was in talks with Hunt Partners, but things didn't work out. With the American market having only recently recovered from a long slump, Spencer Stuart must have figured that the booming search market in India was important enough to go solo in.

-Amanpreet Singh

India's Aircraft Buying Spree

It's been a record year in terms of the number of aircraft purchased/ordered by airlines in India. Here's a look at the $1-billion-plus orders:

Air-India
15 Boeing 777-300ER
8 Boeing 777-200LR
27 Boeing 787-8 Dreamliners
Cost: $8 billion (Rs 36,000 crore)

Jet Airways
10 Boeing 777-300ER
10 Airbus A330-200*
10 Boeing 737-800
Cost: $7 billion or Rs 31,500 crore*

IndiGo
100 Airbus A320 family aircraft
Cost: $6 billion (Rs 27,000 crore)

Kingfisher Airlines
5 Airbus A380-800
5 Airbus A350-800
5 Airbus A330-200
4 Airbus A319
30 Airbus A320 family aircraft
20 ATR 72-500
Cost: $3.9 billion (Rs 17,550 crore)

Air Deccan
30 Airbus A320
30 ATR 72-500
Cost: $2.5 billion (Rs 11,250 crore)

Indian Airlines
19 Airbus A319
4 Airbus A320
20 Airbus A321
Cost: $2.1 billion (Rs 9,450 crore)

SpiceJet
20 Boeing 737-800
Cost: $1.2 billion (Rs 5,400 crore)

* Including options Break-up not available
Caveat: All prices are either list prices or estimates; aircraft orders do not include those currently leased; orders also include sale-leaseback and signed contracts with leasing companies for brand new aircraft.

-complied by Kushan Mitra

From Boil To Simmer
Oil prices are unlikely to go below $55 per barrel despite higher inventories and supplies.

Brr it's cold: But crude will stay hot

Global crude oil prices fell nearly 17 per cent from a high of $67.26 (Rs 3,026.70) per barrel in August to $56 (Rs 2,520) per barrel in the last week of November on the back of high inventories and adequate supplies by the Organisation of Petroleum Exporting Countries (OPEC) countries. But large-scale punting by speculators, ahead of the winter in the US and Europe, has resulted in oil prices moving up again. In the first eight days of December 2005 alone, the spot prices of IPE Brent crude have jumped nearly 5 per cent to $58.67 (Rs 2,640.15) per barrel from $56 levels. In intra-day trades, crude oil prices have again crossed the $60 (Rs 2,700) per barrel psychological level. What does the future hold for this critical commodity?

Global crude oil prices are on the rise once more despite concerted efforts by various important players to talk it down. OPEC has said it will be comfortable even if crude prices fall to $40 (Rs 1,800) per barrel levels. The us Department of Energy, too, has got into the act; it has repeatedly said its oil stockpiles position is comfortable and can meet any higher-than-normal demand during the approaching us winter. The department also announced that us heating oil supplies were 5.3 per cent above their five-year seasonal average and that crude and gasoline inventories were also up. OPEC is also pumping more oil this year, leading to increased supplies and at least partially compensating for the reduced output of crude from the Gulf of Mexico.

However, the tone of the global crude market this month has been distinctly contrarion. Says Gurunath Mudlapur, Managing Director, Atherstone Institute of Research: "I feel crude oil prices will touch $70 (Rs 3,150) per barrel over the next three months due to speculation by punters ahead of the winter in us and Europe." Besides, robust demand for oil from both the developed economies and developing ones like China and India will ensure that crude prices will continue to simmer, even if they don't come to a boil. Therefore, don't let OPEC's sweet talk fool you; oil prices are unlikely to fall below $55 (Rs 2,475) per barrel in the near-to mid-term.

-Mahesh Nayak

Killing Fields

ICICI's Renuka Ramnath: Big gain

Private equity players are among the main beneficiaries of the spate of initial public offers (IPOs). The investors, who had entered unlisted companies at low prices, are cashing out at hefty premiums following the post-IPO listings. Says Aditya Sanghi, Country Head (Investment Banking), YES Bank: "Private equity investors are encouraging companies to list even though they may not need the capital infusion immediately." Adds a merchant banker at a foreign brokerage firm: "They are cashing in on high secondary market valuations." The Western India Trustee of India Advantage Fund-I (part of ICICI Venture) will be offloading 20 lakh shares of PVR following its ongoing IPO that concludes on December 14, 2005. Its estimated profit: Rs 40-48 crore. Similarly, HPC Mauritius and Citicorp made huge profits from the sales of their stakes in HT Media and Suzlon Energy, respectively, following their IPOs. Private equity players also made killings on the sales of their stakes in UTV Software, Patni Computers and Indiabulls Financials, among others.

-Mahesh Nayak

Q&A
"We Are Language Indifferent"

As the chairman of the euro 1.55-billion or Rs 8,525-crore (in sales) Independent News & Media Group, Sir Anthony O'Reilly runs a media empire that boasts 165 titles across the world. In Delhi recently to announce his foray into India, the former Heinz CEO and one of Ireland's richest businessmen, spoke to BT's Archna Shukla. Excerpts:

Why India, where media consumption is one of the lowest in the world?

The newspaper market here is one of the fastest growing in the world, whereas those in the West are stagnating. Apparently, the circulation fell in America and Europe (by 0.2 and 0.7 per cent, respectively) last year, whereas it grew in emerging markets like India (8 per cent). My belief is that as this market matures, media consumption will rise. The 40 per cent population that doesn't read any newspapers today, when initiated, will only bring new growth.

Why did you ally with Jagran Prakashan, a vernacular newspaper and not some English daily, which is your core competence?

We are language indifferent. All we look at is the future growth prospect of our ally. It was the simple statistics in case of Jagran that aroused my interest in the group. It reaches around 102 million households, whereas the total number of households in the US is 120 million. Then, in our interaction with the group, we found we had common ethos and goal.

What stake have you finally picked up in the company?

Around 20.8 per cent. We have invested Rs 150 crore in the group.

Any plans to look at the English, or the broadcast space?

The Hindi readership market in India is growing at 30 per cent. It is the fastest growing market in the world. English readership is not growing that fast. There are no plans for the broadcast business, but any collaboration, if it happens, will happen with the Jagran Group only.

TV and internet are gaining at the cost of print. What'll happen to print?

According to me, internet and TV will not be able to do any harm to newspapers in the longer run. New technology products will soon induce an element of fatigue in the minds of time-starved, information-laden consumers. They will seek out simple and easy information again and thus, turn back to newspapers. In the next two decades, newspapers will be at the top of the pyramid (in the media industry).

Satyam's Leadership Factory

Satyam's Cohen: Minting leaders

How is an IT company, growing at 30 per cent year-on-year, to keep up with the demand for executive leadership? Why, set up a leadership institute of its own. That's what Satyam Computer Services has done, and it has roped in a hi-profile head for it: Edward S. Cohen, who founded consulting firm Booz Allen Hamilton's Centre for Performance Excellence in 1999. Says Cohen, 47: "Any organisation experiencing rapid growth is bound to face shortage of leaders. Therefore, it needs to put in place a leadership engine early on."

The school will operate out of a state-of-the-art facility near Hi-Tec City in Hyderabad, and has Harvard management professor Krishna Palepu as its strategic advisor. Satyam's Chairman B. Ramalinga Raju clarifies that it is not a new wisdom that has dawned on the company. "This is not a step function, but a continuum," he says. To start with, the institute aims to train 1,500 of Satyam's executives in what the company's HR chief A.S. Murthy calls "full lifecycle leadership model". "It's an attempt to build an institution that nurtures the best-in-class entrepreneurial leaders faster than competition," says Murthy. (Some competitors like Infosys already have their own leadership institutes.) Meanwhile, Cohen needn't worry about the relocation disrupting his family life. His wife, Priscilla Nelson, is to be the General Manager of 'Multicultural Diversity and Coaching Programmes' at Satyam.

-E. Kumar Sharma

Day-dreaming On Dalal Street
A CLSA analyst considers what it would be like to merge Ranbaxy and Dr Reddy's Labs.

Game? DRL's Executive Vice Chairman and CEO G.V. Prasad (left) and Ranbaxy's CEO & MD Brian Tempest

Het's not talk about industry reaction-that will be of outrage-but the idea: A merger of Ranbaxy Laboratories and Dr Reddy's Labs (DRL). Proponent of the idea: CLSA Research's Mumbai-based analyst, Ajay Sharma. His argument is compelling-from an economic perspective. Ranbaxy is India's largest pharma company with revenues of Rs 5,333 crore and DRL is the second largest, with a topline of Rs 1,629 crore. Both are the closest of rivals, have similar business models, and similar products and services. But both have been going through tough times, with their margins dipping and R&D costs galloping. Sharma's report says that if the two companies were to merge, there could be substantial savings in costs-like R&D, and sales and marketing expenditure-to the tune of $120 million (Rs 540 crore), which in turn would boost their (combined) market cap by $2.4 billion or Rs 10,800 crore (at a p-e multiple of 20) to $7.1 billion (Rs 31,950 crore).

The report points out huge synergies in the US, a key market for both the companies, where they can bring in substantial savings if they join hands. For instance, both have overlaps in their pipeline of blockbusters like Pravastatin, Sertraline and Fexofenadine. Then there are several overlaps in DMF filings (approval for bulk drugs) and ANDAs (for generic drugs) too, which can result in significant savings, since it costs anywhere between $150,000 and $300,000 (Rs 67.5 lakh-Rs 1.35 crore) per ANDA filing. Ranbaxy has more than 100 filings while DRL has half of it.

Then there are competitive factors in the international generics market, where Israel's Teva is giving them a run for their money. The report further makes a case for the merger by comparing DRL and Ranbaxy with Sun Pharma and Cipla, which have a less riskier business model. For instance, in early 2004, the combined market cap of DRL and Ranbaxy was $7 billion (Rs 31,500 crore) while Sun Pharma and Cipla's was $3 billion (Rs 13,500 crore). Today, Ranbaxy and DRL's is down by 33 per cent to $4.7 billion (Rs 21,150 crore) while Sun and Cipla's rose by 90 per cent to $5.6 billion (Rs 25,200 crore). As separate entities, DRL and Ranbaxy have suffered huge costs and market risks. But the report concludes that a merger could solve most of these problems for the two companies and also create a stronger generic company. Of course, don't expect the Singhs of Ranbaxy and the Reddys of DRL to take the report too seriously. Or should you?

-Sahad P.V.