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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.
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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?
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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
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