A.V. Birla Group's Birla: He has an idea

Bharti Airtel, Reliance Infocomm, and..., Idea Cellular? In terms of number of circles that could well be; Idea has applied to the Department of Telecommunications for unified licences in 12 additional circles. With the eight circles in which the telco already operates, and the three where it is close to commencing operations, that will take the company's overall presence to 23 circles and bestow it with a pan-Indian presence, something that only Bharti and Reliance can claim today.

That presence should translate into more subscribers (indeed with the GSM telephony market growing at over 4 per cent a month or close to 50 per cent a year, all a company needs to do, it would appear, is just be there and not go wrong with the basics), and, in turn, into more revenues.

By some estimates, Idea's revenues for 2004-05 were Rs 2,409 crore and earnings before interest, taxes depreciation and amortisation (ebitda), Rs 874 crore (for the first nine months of 2005-06, revenues were Rs 2413.8 crore, while net profit was Rs 95.1 crore after a one time additional depreciation of Rs 65.2 crore). The company is also believed to be orchestrating an entry into national long distance (NLD) telephony, which would mean that it can carry long-distance calls originating on its own network on its own NLD network.

That's a significant statement of interest for the Aditya Birla group that owns a 98 per cent stake in Idea, after its June 20 acquisition of the Tata Group's 48.14 per cent stake in the company (following a rather acrimonious battle between the two firms). At one stage, the group had decided to exit the business, and only reconsidered its decision because the regulatory environment became much clearer.

"We were in exit mode, but thought that under the new circumstances, it made sense to keep telecom as a strategic business," the group's Chairman Kumar Mangalam Birla had told Business Today in the course of an interview last year. Only, with the application for new licences, Idea Cellular is clearly no longer a strategic investment or business for Birla. It is one that holds the promise of growth.

Birla acquired the Tata Group's stake for Rs 4,406 crore, giving Idea a valuation of Rs 9,150 crore. A pan-Indian presence should increase that significantly, and enhance the attractiveness of the company some, a definite benefit should an initial public offering be on the way (Business Today learns it is).

Birla couldn't have picked a better time or a better sector. Not too long back, the Hinduja Group offloaded its 5.11 per cent stake in Hutchison Essar to Hutchison for Rs 2,070 crore. And according to a recent report released by Voice & Data magazine, the telecom services market in India was worth Rs 87,962 crore in 2005-06, up from Rs 67,523 crore in 2004-05, a growth of 30 per cent. And the mobile telephony market in 2005-06 was worth Rs 35,879 crore, a 63 per cent growth over the previous year's Rs 22,011 crore (for the first time in India, mobile telephony services earned more than fixed telephony ones).

Then, these very facts-the growth in the Indian telecom market and the zooming valuation of telcos-are probably the very ones that convinced Birla, a commodities czar, of the inherent sense of not just having a play in the business, but investing enough money to make it a significant one.

Idea, originally Birla at&t was a joint venture of the Aditya Birla Group and AT&T, was part of the first wave of de-regulation in the Indian telecom sector, when companies bid for and were awarded mobile telephony licences.

Subsequently, the Tata Group merged its GSM interests (the group has a significant play in telecom on the other technology platform, CDMA, through Tata Teleservices, under the brand name Tata Indicom) with this firm to spawn Birla-Tata-AT&T. In the early 2000s, Birla-Tata-AT&T and BPL Communications agreed to merge their mobile telephony businesses, something that could have created a behemoth that could have held its own against the might of Bharti Airtel, Reliance Infocomm, and Hutch. The merger, which was announced with much fanfare, never happened. Birla-Tata-AT&T decided to go it alone, rebranded the offering Idea, and launched services in new markets such as Delhi. However, in 2005, Cingular, which acquired AT&T Wireless globally, sold its stake in Idea to the Indian promoters who then embarked on a battle for control. In the process, Idea didn't just lose out on realising its growth potential in a market that was seeing the subscriber base doubling almost every 12 months, but also couldn't tap a stock market hungry for quality IPOs.

All that has changed with Idea now coming under the complete control of the Aditya Birla Group; the applications for new licences and the proposed foray into NLD reiterate that. Idea Cellular (it is headed by Vikram Mehmi) declined to speak with Business Today for this article, but the buzz in Mumbai's financial circles is that the company will soon make a formal announcement on placing 33 per cent of its equity with financial investors. That should give the company some serious currency to fund its growth plans. This, it would appear, is an idea whose time has come.

Something's Ticking At HMT
Why is the loss-making PSU's stock up?

HMT's Zahed: Reason to smile

For the chairman of a company that reported Rs 113 crore in losses on revenues of Rs 931 crore in 2005-06, M.S. Zahed is full of beans. But then he's got good reason. In the three-and-a-half years that he has been at the helm of Hindustan Machine Tools (HMT) as its Chairman and Managing Director, Zahed has seen the PSU stock rise five-fold to Rs 62 (on July 10). The losses at the company-which makes everything from watches to tractors to machine tools-are down from a record Rs 300 crore in March 2002-03, and a raft of restructuring moves, including sale of land, downsizing, and a strategic partnership with Godrej & Boyce for watch marketing, has raised hopes of a turnaround at HMT. "We have repositioned the company's product portfolio towards high technology machines in the machine tools segment and that is yielding results," says Zahed, alluding to the fact that HMT is still a significant player in the machine tools industry.

The government, on its part, has already pumped in Rs 335 crore for a revival plan for the bearings and Praga tools division. The board for reconstruction of public sector enterprises has cleared an additional Rs 835-crore package for the other five HMT units. Besides, HMT has earned Rs 500 crore by selling some of its real estate. "We will use the funds infused by the government to retire high-cost debt and towards capital expenditure to upgrade technology and enhance market presence," says Zahed. There's plenty more of real estate left to go at HMT (actually, some 3,000 acres of prime land across the country), but Zahed says that "we will use that only as a last resort". A real turnaround may be a long way off at HMT, but the land stock is really what HMT's investors may have their eye on.

-Venkatesha Babu

ESPN-Star's Goaaaaaaaal
Pity the Fifa World Cup happens just once in four years.

Grabbing eyeballs: ESPN STAR Sports never had it so good

Notwithstanding a presenter who was as comfortable with football as perhaps Zinedine Zidane was with fair play, ESPN star Sports scored big gains in the recently concluded FIFA 2006 World Cup. The channel garnered a unique viewer base of 2.4 million during the first two days of the tournament, according to tam media Research, an agency that clocks television viewership. Some 4.4 million viewers watched the Germany vs Costa Rica opener. And it's never been as good. According to tam, FIFA 2006 registered an 83 per cent jump in viewers over the previous World Cup four years ago. Says Shashi Sinha, CEO, Loadstar Media, a media planning and buying agency: "So far, it was only cricket, now football figures have gone up dramatically. It is a good sign for them (ESPN star)." Adds R.C. Venkateish, MD, ESPN star Sports: "We had a bit of a dry patch last year." The World Cup came as a boon.

It took some doing, though. Before the tournament started, ESPN star embarked on a series of marketing and promotional initiatives to create awareness on the world's most popular game. It roped in two presenting sponsors and six associate sponsors who poured in around Rs 31 crore. The channel had bulk deals for its ad sales and sold all 64 matches together. An official reveals the channel had 15 minutes of ad space per match; a 10-second spot was pegged at Rs 80,000-1 lakh. Total airtime of 960 minutes (57,600 seconds) of all 64 matches raked in revenues of a little over Rs 46.08 crore (and that's a conservative estimate). In comparison, for one-day international cricket, 4,500 seconds airtime is sold for each match, with 10 seconds going for Rs 1 lakh to 1.5 lakh.

The channel also found a new revenue stream in big screens, installations of which commanded a separate fee. Affirms Venkateish: "There were a number of commercial establishments who took rights from us but this route constitutes only 2-3 per cent of our revenues. It is a small but growing market."

TAM data reveals that ESPN star's good showing rubbed off on other sports channels, all of which registered viewership gains during the World Cup. ESPN star itself registered a 76 per cent gain on the first day of the tournament, up from just 29 per cent the previous day. The ratings also look better when compared with the 2002 World Cup, 3.31 points vs 2.48, a 33 per cent increase.

So, can ESPN star hold on to its new viewers? Venkateish hopes to with more football (the English Premier League) and-surprise surprise-more cricket. "Our calendar is choc-a-bloc; we have the India vs South Africa match coming up in November and about five cricket series lined up over the next 18 months."

-Ahona Ghosh

Fund Frenzy
MFs are spending on brand- building. What about returns?

Lotus AMC's Bagga: Sees potential

If India is the flavour for institutional investors, it would seem like only a matter of time before the domestic investing fraternity moves away from traditional avenues for returns and parked their stash in mutual funds (MFs). The Indian mf industry is still grossly underpenetrated-so far, the penetration level of the industry is around 3 per cent of the total investor saving, of which, 70 per cent comes from urban regions and 30 per cent from semi-urban and rural India-and if the long-term India story is for real, there's plenty of potential waiting to be tapped. A number of global financial goliaths believe so, which explains why a number of them, including jpMorgan, AIG and Dawnay Day Financial, are preparing to set up asset management companies (AMCs, which are mandatory for launching MFs). In the past one year, global mf powerhouse Fidelity also started up an AMC, and domestic players like Optimix, Quantum and Lotus AMC (a joint venture between Fullerton and Sabre Capital) are also joining the mf rush.

The potential may be huge, but the returns don't exactly match up. According to sources, overall return on assets in the AMC business globally is just 0.3 per cent; for bank deposits it's five times that number. That, in fact, is one of the reasons for Citibank selling off its AMC business worldwide to Legg Mason. What's more, the world's #1 AMC, Fidelity, has incurred a loss of Rs 22 crore in the first nine months of its India operations (although it must be said that a mf is a long-gestation project). Should that faze the new entrants? Not at all, says Ajay Bagga, CEO, Lotus AMC. "The Indian mf industry is underdeveloped and untapped."

Adds Roger Hepper, Project Sponsor, Managing Director & coo, Asia Pacific, JPMorgan. "We always had plans of entering the Indian mf industry at the right juncture." Internationally, JPMorgan is one of the largest asset management businesses with over $873 billion (Rs 40.16 lakh crore) of assets. In India, JPMorgan AMC, which hopes to break even in five years, will have a presence in nine metro cities. What doesn't quite work in JPMorgan's favour is brand recall, which is certainly not as high as a Fidelity (the buzz is that Fidelity has set aside Rs 50 crore this year for brand-building). As Milind Barve, MD, HDFC AMC, says: "The brand is very important in our business. If you don't have a good brand, money spend is the only alternative. Another option is a unique product, but that isn't easy."

Acutely aware of the deep pockets of players like Fidelity and JPMorgan, domestic house Quantum AMC is doing things differently by not taking the distributor route (thereby, saving on brokerage payments). Currently, with a corpus of Rs 25 crore and two products-one equity and other liquid-the AMC is not in the business of boosting AUMs. "By not paying distributors, our expense ratio is lower, which bodes well for investor returns. When our AUM touches Rs 70 crore, we break even," says Ajit Dayal, Director, Quantum AMC. Dayal's given the big boys something to chew on.

-Mahesh Nayak

Round II Begins
Hostilities escalate over Bhai Mohan Singh's will.

Bad blood seems to boiling over in the Singh family. New fronts are being opened almost every other day in the dispute over the late Bhai Mohan Singh's will. The latest twist is a complaint filed by Nimmi Singh, wife of late Parvinder Singh, with the Delhi Police on July 4, alleging that Max Healthcare Managing Director Analjit Singh's men had manhandled and threatened her when she tried to stop some construction by them at her residence.

Bhai Mohan Singh's will, as has been widely reported in the media, granted Analjit control over his properties and trusts. At stake, among other assets, are 24 lakh shares of Ranbaxy worth Rs 125 crore and three residential properties in Delhi's tony Aurgangzeb Road and South End Lane, which, a "public notice" published by Analjit's lawyers says, "are one property". The late Mohan Singh had leased #1 South End Lane to Ranbaxy (and, in effect, to Parvinder Singh and his family), #2 South End Lane to Max and another part of the combined property (the exact portion is not mentioned) to the Bhai Mohan Singh Foundation. The entire property belongs to a company called Delhi Guest Houses (DGH), which is in Analjit's custody. The public notice alleges that Ranbaxy had stopped paying rents to DGH in 1993, following which Bhai Mohan Singh had filed an eviction suit, which is pending before the Delhi Rent Controller's court.

The public notice further alleges that it was Nimmi Singh, in fact, who trespassed into the property leased to the Bhai Mohan Singh Foundation and threatened staff there. Neither branch of the family wanted to comment on the matter, but BT has gathered that Malvinder and Shivinder Singh, the two sons of Parvinder Singh, have filed objections against their uncle's claims in the probate court. Bhai Mohan Singh's youngest son, Manjit Singh, meanwhile, is also planning to file his objections to the will this week. "We will challenge the will for sure," he says.

Analjit Singh had told BT two months ago that he was very hopeful of an out-of-court settlement with his nephews. That is now unlikely anytime soon.

-Archna Shukla