Godrej Agrovet's Vijan: A passion for fruit

It's an industry that thrives on cheap labour, and a tropical climate, and every developed market, including the US and Europe, wants a big piece of it. This unlikely domestic theme of high global interest is fruits, and some of corporate India's biggest names have been quick to seize the opportunity. The Mittals of Bharti, the Mahindras, ITC, Godrej and the Adanis, some of the reputed business groups that are producing and selling fruit, in the local market as well as overseas.

They have some very good reasons to do so. India produces an estimated 50 million tonnes of fruit annually (10 per cent of the world's fruit production), valued at over Rs 10,000 crore. It ranks second to Brazil in the world in production. In certain products like mangoes, sapota, banana, pomegranates and acid lime, India is the largest producer. There's more. India produces about 54.2 per cent of the world's mangoes and 11 per cent of its bananas. About 50,000 tonnes of pomegranates are produced every year, of which only 1 per cent is exported. In grapes, the country has recorded the highest productivity per unit area in the world. And virtually any fruit can be found in the Indian basket: Apricots, pears, peaches, citrus, guavas, melons, pineapples, plus the exotic variety like starburst, avocados, artichoke and olives.

Yet, the country has not been able to capitalise on this advantage, so far. That's because "almost the entire production, logistics and trade of fruits and vegetables is dominated by the unorganised sector, leading to large inefficiencies and wastages," says S. Sivakumar, Head (Agro) at ITC. "Post-harvest losses continue to be high," adds Vikram Puri, CEO, Mahindra Shubh Labh Services, an agri-venture of the Mahindras that focuses on grapes.

But as Sivakumar of ITC explains, the potential for companies entering this sector arises precisely from these weak spots in the Indian fruit story. And for many groups, the synergies do exist. Points out R.S. Vijan, Executive Vice President, Godrej Agrovet: "It's a logical extension for us to complete the loop since we have been working with farmers for many years."

Bharti company FieldFresh has a vision to 'Link Indian Fields to the World'. The company has started exporting mangoes, grapes, pomegranates and litchis. "More products will be added in due course of time," says a FieldFresh spokesperson. Tobacco major ITC has decided to deal with a complete basket of fruits of common consumption. "Some fruits like apple, mango and banana automatically get included in any basket of common consumption," says Sivakumar. Ravindra Jain, President at Adani Agrifresh, which started selling apples in the domestic market, says: "We are studying high-volume and high-value fruits like mangoes, grapes, pomegranates, bananas and exotic fruits. We will look at any fruits with reasonable volumes and broad-based demand." Meantime, Pepsi is contracting with farmers to procure oranges, and Wal-Mart is looking at sourcing mangoes from India.

Clearly, the export opportunity is virtually limitless, but one challenge for corporate India's fruit sellers is to understand markets and ship the relevant produce to the relevant markets. For example, Mahindra's Puri says the Europeans don't have a sweet tongue. "It's a question of taste and flavour." There are other challenges, too, like dealing with issues like quality, people and the supply chain. Today, 20-30 per cent of the fruit produce goes waste due to inefficiencies in the farming and supply chain. That's why FieldFresh is introducing technology to fruit growers, along with new irrigation techniques. The company also plans to introduce modified atmospheric packaging, vapour heat treatment and colour-grader facilities, all aimed at reducing spoilage. The Adanis are focussed on building a global-quality supply chain. That's vital as fruits typically have a short shelf-life, and the seasons too don't last too long. The Himachal apple season normally lasts for two months, and most marketers would want to make the fruit available round the year. So they need to be stored in a controlled atmosphere to retain the quality and freshness for at least a year. The fruits may have short shelf-lives, but the corporate players producing and selling them are clearly in it for the long term.

SEZ Who?
The Finance Ministry, that's who.

FM P. Chidambaram: Tread carefully

This isn't the first time India's ministries of Commerce and Finance have disagreed on something to do with special economic zones (SEZs). Commerce Minister Kamal Nath can't have enough SEZs and is looking to relax the ceiling on the number of the same. He is clearly on a high: earlier, the Group of Ministers (headed by Defence Minister Pranab Mukherjee) had seconded the Commerce Ministry's view on issues such as tax concessions, land use and the future of existing export-oriented units (the Finance Ministry had a differing point of view on almost every one of these; for instance, it had argued that the government would lose out on revenue with some existing units shifting to SEZs). Now, the Finance Ministry has warned that if the SEZ policy takes off in its present form, where there are no criteria for selecting the developers of SEZs, the government could be exposing itself to the threat of lawsuits. In the absence of selection norms, goes the argument, developers whose applications have been rejected could go to court. Current norms place restrictions only in terms of land use (to prevent the occurrence of land scams where companies merely use an SEZ as an excuse to trade in land) and export obligations. Evidently, the Finance Ministry isn't trying to scuttle the SEZ initiative; an official in the ministry says it is merely engaging the Commerce Ministry in a policy debate to help develop a mature SEZ policy.

-Balaji Chandramouli

Lawyers' Poker
Does a booming economy result in increased litigation?

Essar's Shashi Ruia: Will he settle out of court?

You would not be complaining if you were a lawyer representing corporate India. The legal fraternity in India is a busy lot these days, as some of the biggest Indian corporations find themselves embroiled in litigation. In many cases they're battling each other-Reliance Industries (RIL) vs National Thermal Power Corporation (NPTC), Jet vs Sahara, Essar vs Hutch, to name just three high-profile slugfests-and in a few it's all in the family (as in the tussle for control of Jagatjit Industries). Observes Senior Advocate Mahesh Jethmalani: "Every case that is being heard today is of a different nature; these range from contractual disputes to issues over due-diligence. Much of this would have to do with the high growth phase that corporate India finds itself in."

In sunrise sectors, that growth opportunity has only just been unleashed. And two of the older players in this sector, Jet Airways and Air Sahara are crossing swords over a mega-transaction that fell through at the 11th hour. The deal broke down, with Jet Airways backing off. Sahara duly went to court. Jet Airways had initially paid a sum of Rs 500 crore out of the total amount of Rs 2,300 crore. This was against a pledge of 100 per cent of Air Sahara's shares. Jet Airways had also parked Rs 1,500 crore in an escrow account. As things stand, the matter is still in court even as there is continuous talk of an out-of-court settlement between the two parties. The case involving Hutchison Telecom of Hong Kong and the Ruias of Essar, the joint venture partners in cellular telephony play Hutchison-Essar pertains to the JV's decision to acquire BPL Mobile Communications. This is another acquisition that's stuck, and an out-of-court settlement doesn't appear unlikely here too; the court for its part has directed that an arbitration panel be set up to settle the dispute.

Another dispute in a high-growth sector is the one between Mukesh Ambani's RIL and the state-owned NTPC, over an agreement to supply gas to the latter's power plants at Kawas and Gandhar. RIL wants to revise the price upwards for the gas it had committed to the thermal power producer. If RIL is able to do so, not just NTPC, but brother Anil Ambani too will have to pay more, as the gas deal for his power project in Dadri, Uttar Pradesh, mirrors the RIL-NTPC agreement. Such an eventuality would of course disrupt the economics of the Rs 15,000-crore Dadri project.

Often, matters may not reach the courts, but that doesn't take away from the seriousness of the differences. Consider, for instance yet another conflict in the high-valuations world of telecom: The tug of war between the Tatas and the Birlas over Idea Cellular, which eventually ended with Aditya Birla Group Chairman Kumar Mangalam Birla buying out the Tatas' stake in that company. The matter didn't end there, with Birla, recently resigning from the board of Tata Steel. As Jethmalani puts it: "The stakes are just too high."

-Krishna Gopalan

Conversion Pangs
FCCBs lose favour with companies.

Last year, the equity markets were on a roll, the rupee was becoming stronger and foreign currency convertible bonds (FCCBs) were a preferred fund-raising instrument for several companies. FCCBs behave like bonds and give regular interest and principal payments. Yet, they are also convertible into equity shares; when the markets are booming, buyers are usually willing to settle for a lower coupon rate; the higher share price, at the time of conversion, the reasoning goes, should make up for this (the conversion happens when shares touch a certain price). By the second half of 2005, FCCBs had become very popular: between October 2005 and May 2006, when the equity markets went into a tailspin, 67 companies raised a total of $6.244 billion (Rs 29,346.8 crore at today's rate).

Unfortunately for companies, the dollar has gained against the rupee in the past few months and the US Federal Reserve has taken an interest-hardening stance. "With the stock market crash, the FCCB market is not as bullish as it was a few months ago," says Prithvi Haldea, Managing Director, Prime Database. "The real impact is on pricing," adds Gunjan Shah, Partner, Amarchand Mangaldas. "Zero coupon bonds are not marketable anymore." New issues, then, are happening at higher interest rates and redemption premia, making them far less attractive. The worst-hit are small cap (market capitalisation) companies that raised the maximum amount possible, 25 per cent of their market value at that point. They issued FCCBs at prices close to their peak prices and at a significant conversion premium of between 30 per cent and 40 per cent; with prices having corrected by around 20-30 per cent, the conversion premium has zoomed. "The negative impact has already been factored into their stock prices," says Anil Chopra, Group CEO, Bajaj Capital. However, it will be closer to the maturation date that the full impact on the balance sheet will be felt.

-Shalini S. Dagar