Discovering true value: ADAE's Anil Ambani (L) and RIL's Mukesh Ambani

The market has taken note of the Reliance Industries (RIL) demerger. The Bombay Stock Exchange and the National Stock Exchange held a special one-hour session on January 18, 2006-reportedly a first in the world of stock trading-to discover the price of the post-merger RIL scrip. The special trading session on Wednesday saw the scrip shed Rs 225.25 per share to Rs 702.90 per share, compared to Rs 928.15 per share on January 17, 2006.

As is well known, following the demerger, RIL shareholders will get shares in all four Anil Dhirubhai Ambani Enterprises (ADAE) companies. For every 100 shares of RIL, the shareholders will get 100 shares each in Reliance Capital Ventures (RCVL), Reliance Energy Ventures (REVL), Reliance Communications Ventures and Global Fuel Management Services (GFMS). However, ADAE has already merged RCVL and REVL with the listed Reliance Capital and Reliance Energy, respectively. After the merger, the RIL shareholders will get five shares of Reliance Capital and 7.5 shares of Reliance Energy for every 100 shares held in RIL.

If an investor had bought 100 shares of RIL at Rs 928.15 per share on January 17, 2006, would he have made a profit from the demerger? Amit Rathi, Director, Anand Rathi Securities, says: "Yes. In fact, the shareholders benefit from the demerger. That is why we had recommended that clients purchase RIL stock for 8-10 per cent appreciation."

Gurunath Mudlapur, Managing Director, Atherstone Institute of Research, is, however, cautious. "The valuation of Reliance Infocomm will determine if investors benefit from the demerger," he says. Mudlapur is worried following reports about Reliance Infocomm writing-off about Rs 4,500 crore from its books, thus, bringing its net worth down to Rs 12,000 crore from Rs 16,500 crore. The write-off reportedly relates to residual bad debts, inventory losses from handset sales and any penalties that may arise due to disputes with the government. "Till we see Reliance Infocomm's balance sheet and get a fix on its valuation, it will be difficult to say if investors have made money in the current scenario (see chart)," he adds.

There are indications that two of the ADAE companies, GFMS and Reliance Infocomm, will be listed by the first quarter of 2006-07. The companies have equity bases of Rs 611 crore each. If we consider FGMS to be listed at its par price of Rs 5 per share, then Reliance Infocomm will have to be quoting at over Rs 151 per share for investors to make any money.

R. Sreesankar, Head of Research, IL&FS Investsmart, says: "There is uncertainty regarding the value of Reliance Infocomm and GFMS. If the enterprise value of Reliance Infocomm increases between now and when it lists (as a result of a possible increase in its subscriber base), it will fetch better valuation to investors. Till then, it will be difficult to judge whether investors are making money or not."

-Mahesh Nayak

Tuning Into FM
Bidders go gaga over FM licences.

The media boom in the country notwithstanding, the market for radio, both in terms of advertising as well as audience, has been quite limited so far. Radio had a minuscule 2.4 per cent share of the total Rs 13,200-crore advertising pie in 2005; the year before, the figure was 1.9 per cent of Rs 11,600 crore. And being free-to-air, radio must depend on ads for revenue. Yet, the industry's modest income hasn't deterred a wave of fresh interest. The first three rounds of the second phase of bidding for fm radio licences saw around 100 companies pitch in from across the country.

Reliance Entertainment-backed Adlabs has emerged the most aggressive bidder, winning 41 frequencies out of the 165 allotted so far. It is estimated to have paid the government around Rs 137 crore in licence fee. A total of 338 frequencies for 10 years across 91 cities are on offer in the second phase. "Ours has been value-bidding. In North, which is quite a lucrative market, our average cost of acquisition stands at around Rs 1.25 lakh per frequency per month. That's a good bargain," says Rajesh Sawhney, President, Reliance Entertainment. Other prominent winners include Radio Today (part of the India Today Group, which publishes Business Today), Radio Mid-Day, Entertainment Network (Radio Mirchi of Bennett, Coleman & Co.), ht Music, Radio City and South Asia fm.

The government's takings so far: Rs 661 crore by way of one-time entry fee. "The remaining two rounds for western and southern markets are expected to be more productive because these are quite developed markets," said a top official of the Ministry of Information & Broadcasting. The government had raised around Rs 100 crore in the first phase of bidding.

By 2007, there will be 359 stations operating in the country. Will Indian advertising grow enough to sustain these many stations? "The radio market in India is underserved, both on the audience and the advertisers' front. Private channels are likely to grow both," says Sawhney. Globally, radio's share in total advertising is around 6-8 per cent and analysts expect the Indian market to catch up with the global average soon. "Indian advertising should be around Rs 20,000 crore by 2007 and radio's share in it will be comfortably around 5 per cent," says Sunil Kumar, who runs a new media consultancy called Big River Radio. And radio being a low-cost business, that should be enough to sustain all, he adds. At the moment, that's just the sort of calculation the new players seem to be making.

-Archna Shukla

Drug Discovery: Pharma's S-Spot

Indian CROs: Can you spot the dollars?

Pick up the latest report 'drug Discovery Outsourcing Market in India and China' from Frost & Sullivan, and you'll be shocked to see the numbers the research agency has come up with. It says that the drug discovery outsourcing market for India was worth $2.81 billion (Rs 12,645 crore) in 2004, and could grow to $7.54 billion (Rs 33,930 crore) by 2011-a CAGR of 15 per cent. Of the $2.81 billion, the pre-clinical discovery and development market, estimates Frost & Sullivan, was worth $1.18 billion (Rs 5,310 crore) and the clinical development market, $1.63 billion (Rs 7,335 crore). By 2011, they will be at $3.18 billion (Rs 14,310 crore) and $4.35 billion (Rs 19,575 crore), respectively.

Pharma investors had better not lick their chops yet. Sure, drug discovery outsourcing is a pharma sweet spot, but not as big a one as Frost & Sullivan says. Kiran Mazumdar-Shaw of Biocon for one puts the total outsourced R&D business (including clinical trials, discovery and bioinformatics) at $180 million (Rs 810 crore). A more realistic McKinsey-Ficci study puts the outsourced R&D opportunity for India at $3.9 billion (Rs 17,550 crore) by 2010. But everybody is agreed on one thing: "This is certainly a huge opportunity for India," says Deepanwita Chattopadhyay, CEO of ICICI Knowledge Park in Hyderabad. Only, Frost & Sullivan got carried away a bit.

-E. Kumar Sharma

Business Dailies: Two More On Anvil
HT Media and DNA eye new segment.

HT's Shobhana Bhartia: There's still space for business

The Indian media space, in general, is buzzing with action. The print media, in particular, is witnessing cut throat competition in almost every market across the length and breadth of the country. But the loud noise in the marketplace hides one crucial fact-readership in India is among the lowest in the world; only 19 per cent of the total population reads publications of any kind. Business newspapers account for an even smaller slice of the pie: 1.4 per cent of this 19 per cent. According to the second round of IRS 2005, the readership of business newspapers, mainly four, came down to 1,135,000 in 2005 from 1,285,000 in 2003. The readership of business magazines, on the other hand, grew from 1,673,000 to 1,785,000.

So what explains ht Media and DNA's enthusiasm to get into the business segment of the print media? While ht Media plans to launch a new business daily, DNA proposes to hive off its business section, DNA Money, into a standalone newspaper. "It's the absence of a quality product in the market," says Suresh Balakrishnan, Chief Marketing Officer, DNA. "The market leader, accounting for over 50 per cent of the total readership, has lost its steam over time. We intend to give readers a better option," he says.

Even advertisers agree that the business space needs new players. And there is definitely space for a strong #2. "So far, business readership was restricted to metros and Class A towns. But with the stock market booming, even small towns are talking stocks now and there is clearly a need to service their needs," says C.V.L. Srinivas, CEO, Maxus, a Group M media agency.

According to estimates, business dailies get only about 8-10 per cent of the Rs 6,000-crore advertising that goes to the print media. Analysts expect the new players to expand the market.

-Archna Shukla

Cafe Coffee Day: Heading Abroad

New flavour: Going places

Café Coffee Day (CCD), the chain run by the amalgamated bean company (ABC), is going global. As a part of this exercise, CCD recently opened its first outlet in Vienna. "Real estate is the single biggest cost in our business. And we were really surprised that rents in Vienna are lower than in Bangalore or Mumbai, while price realisations are 10 times as much," says Naresh Malhotra, Director, CCD, wryly. Three more outlets are set to open shortly in what Malhotra calls "the eastern part of Western Europe. We will be present in Prague, Munich, Salzburg and Switzerland in the near future". In India, ABC has a chain of 263 Café Coffee Days spread across 61 cities (across all states, except Bihar), 350 Coffee Day Express counters (which are typically put up in BPOs and IT companies) and 8,000 Coffee Day takeaways (vending machines) across the country. Says Malhotra: "We have 35 million unique visitors per annum at all our outlets combined. Having established ourselves firmly in the domestic market, our aim now is to emerge as a global player."

-Venkatesha Babu

ebookers Ver. 2.0?
Its two executives launch a new online firm.

Yatra's Shringi (left) and Amin: All for the common man

The emergence of no-frills airlines really expanded the size of the air travel market in India, and brought it within the reach of the Indian masses (well, almost). Now, online travel services company Yatra Online is taking this a step further. Says Dhruv Shringi, co-founder of the company: "There has been no significant effort to look beyond the higher end of the market. Our objective is to get to the bottom of the pyramid, i.e., the common man."

Shringi and his partner, Manish Amin, who till recently managed European online travel business ebookers Plc, before selling out to Cendant Corporation for $410 million (Rs 1,845 crore), recently roped in the tv18 Group, Reliance Capital and Norwest Venture Partners (NVP) as investors.

Cash apart, each of the three investors brings some specialist expertise to the table. Says Haresh Chawla, CEO, tv18: "Transaction-based processing is a huge market. We have a large internet franchise and are keen on addressing that audience." Vab Goel, Partner, NVP, adds: "The middle class is today willing to spend money. And this is a huge market that is waiting to be addressed. And apart from our investment in Yatra, we are looking seriously at online transactions, media, mobile services and real time information."

This is obviously a good time for the Indian traveller. In a statement to the stock exchanges recently, tv18 said it estimated that the travel-related business in India will touch $40 billion (Rs 1,80,000 crore) in 2006 and $50 billion (Rs 2,20,000 crore) by 2009. Yatra will facilitate airline, railway and bus ticket bookings, reserve hotel rooms and rent cars across 5,000 cities, towns and villages across the country.

-Krishna Gopalan

Q&A
"We'll Touch $1 Bn soon"

Bernd Bohr, automotive Group Chairman of Bosch GMBH, was in India recently to take stock of the e42-billion (Rs 2,26,800-crore) German MNC's four subsidiaries (including Mico and Bosch Chassis Systems). "In the last 10 years, we have quadrupled our sales here," he told BT's Kumarkaushalam. Excerpts:

How close is the Bosch Group to building a m1-billion presence in India?

We are growing at 25 per cent per annum. We have a solid relationship base with Indian customers. If we have three-four good years in succession, we will be a $1-billion company in India.

How does India compare with China and Thailand?

Our Chinese operations ($1.4 billion or Rs 7,560 crore) clock twice as much in sales as our Indian companies. For us, China is 60 per cent automotive-in line with our global trend. In India, the share of our automotive group is higher, at 90 per cent share. We have a very small presence in Thailand.

What is different about the Indian market?

I'll call it challenges. The average car price is significantly lower than what you would find in Europe or the US. Therefore, our engineering needs adjusting to the overall cost level of the market. Secondly, the time-to-market is very short. When India moves, it moves very fast. A typical European customer will take 36 months to optimise an application, whereas in India it is 12 to 18 months.

So Bosch is now building fresh capabilities?

Yes, we are investing $325 million (Rs 1,755 crore) between now and 2008. The funds will be used for common rail injection system manufacturing; we have also used it to increase our stake in Kalyani Brakes from 40 to 80 per cent. We also need additional capacity to service the export market.

Jingle All The Way
The new BCCI team is in overdrive, raking in money from every conceivable source.

BCCI's Pawar: This pitch seems fine

The board of control for Cricket in India (BCCI)- that's such a long-winded and headline-unfriendly name; why can't it be shortened to Cricket India or something similar?-may or may not get a Chief Executive Officer sitting atop a corporate structure, but it is certainly being run like an aggressive and nimble-footed marketing hot shop.

Since assuming office on December 1, 2005, the new BCCI team has sewn up sponsorship and endorsement deals worth Rs 550 crore, making Team India the most-sponsored team in the world.

"All rights are being unbundled and sold individually," says Ratnakar Shetty, Executive Secretary, BCCI. The mantra: maximise revenues. Thus, television, fm radio and satellite radio rights are being marketed separately. The Sahara Group has again won the right to be team sponsors for four years, paying a sum of Rs 313 crore, a 400 per cent increase over its previous three-year contract. The BCCI has also signed a five-year, Rs 196.99-crore deal with us-based sports goods giant Nike for apparel sponsorship. As part of the deal, the Nike logo will feature on the sleeves of the players' non-leading arm. Nike will also be allowed to sell Team India merchandise like shirts, caps, socks, wristbands, sunglasses, travelgear and headgear worldwide. BCCI's share: 10 per cent of total revenues. This is expected to rake in Rs 45 crore over the life of the contract.

"We reckon there are many more ways of making money," says Shetty. The BCCI is reportedly keen on tying up with official travel, hospitality, communication and media partners. "The BCCI is taking path-breaking initiatives to lure new clients to cricket," says Preeta Singh, CEO of Percept D'Mark (India) Private Ltd.

But all these figures will probably look like small change once the television rights are awarded by next month. Doordarshan had won the 1999-2004 rights for Rs 248 crore. Zee TV and ESPN bid more than five times as much in 2004 before a series of acrimonious lawsuits scuttled the entire process. The process is expected to resume soon, and net the BCCI a sum of at least Rs 2,000 crore over five years.

This is not at all surprising considering the popularity of the game. "Only cricket matches featuring India can rival the popularity of programmes such as Kyunki Saas..., Kahani Ghar... and KBC II," says Singh. The average television rating points (TRPs) for cricket matches featuring India were at 7 per cent during prime time for general audiences and 9 per cent for males in the 15-44 age group. In 2005, the total spend on cricket-related advertisements on television was Rs 540.34 crore. This is expected to increase at least 25-30 per cent this year.

No wonder new BCCI President Sharad Pawar's team declared the Board and Team India to be the richest sports association and team in the world, respectively. That is not true. The National Basketball Association of the US, which has a $2.4-billion (Rs 10,800-crore), six-year television deal with ABC/ESPN, is the rightful claimant to the first title. And European football clubs like Chelsea and Manchester United, despite getting less sponsorship money than the BCCI, still earn massive sums from the sale of merchandise. But despite this, the Board, which has been the richest cricket board in the world for some time now, is putting some more distance between itself and others in the cricketing world.

-Ahona Ghosh