Future Goup's Biyani: Food, glorious food!

» JV with Blue Foods for food-retail outlets » Presence in Pantaloon stores and other outlets » Reach to Tier I and Tier II cities » Explore options for liquor retailing

The next frontier for pantaloon Retail, part of Kishore Biyani's Future Group, would appear to be food and drink. The company has forged a 50:50 joint venture with Blue Foods, which runs fine dining restaurants Copper Chimney, Bombay Blues, and Noodle Bar, all in Mumbai. The company, named Pan India Food Solutions, will run food courts, specialty restaurants, coffee shops, bakeries, and the now-in-vogue gelato bars in Pantaloon stores across the thirty cities where the chain is present, and in other locations within these cities and beyond.

At the time this magazine goes to press, less than three weeks after the announcement, Pan India Food has put down 18 outlets across Mumbai, Bangalore, Ahmedabad, Hyderabad, Lucknow, and Indore. The space? Some 50,000 sq. ft. By the end of the year, Pan India hopes to have 40 more outlets. "Our main aim is to capture the eating-out market," says Sunil Kapur, CEO, Pan India Food. The company's plans include setting up the country's largest food court, over 16,000 sq. ft. in Delhi's Rohini area (it will, however, remain so for just a short duration as the company plans to follow up with a 40,000 sq. ft. food court in Noida). Kapur refuses to talk about the numbers, but it is likely that Pan India will benefit from not having to directly invest in real estate, the single largest component of any retail business model, for at least some outlets (the ones in Pantaloon stores).

Biyani would seem to be on to a good thing. A recent study by market research firm acNielsen says Indians are increasingly "outsourcing" their dining needs to restaurants and convenience stores. "We strive to maximise our share from the customer's wallet be it in spending or saving," says Biyani. "To this end we evaluate new categories and try to be present there; eating-out is one such area." The man also has plans for liquor-retailing and is talking to Diageo, the company that owns brands such as Smirnoff, Guinness, J&B, Johnnie Walker, Baileys and Captain Morgan to create a shop-in-a-shop concept. "Pantaloon's retail model is just the thing we need and we will be quite pleased if the talks end in a positive manner," says Diageo India managing Director Asif Adil. By 2010, a study by the Federation of Indian Chambers of Commerce and Industry says, the organised food retail sector in India will be worth $30 billion (Rs 1,41,000 crore). Biyani clearly wants a piece of that.

-Pallavi Srivastava

Chasing Fees
Hardening interest rates have banks eyeing other revenue.

As long as the retail financing boom was on, banks had it easy. Now, with interest rates hardening and consumers becoming conservative banks are looking at fee-based offerings. "Consumer demand is still there," says V. Vaidyanathan, Country Head, Retail Banking, ICICI Bank, "but speculators have dropped off." "People are postponing their purchases," adds Huzaifa Suratwala, Research Analyst, Emkay Shares and Stock Brokers. To compensate, banks are marketing insurance, distributing mutual funds, and offering corporate advisory services. "The focus is on increasing fee revenues," says G.V. Nageswara Rao, CEO, Commercial Banking SBU, IDBI Bank. Nitin Rao, HDFC Bank's Senior Vice President, Private Banking, is betting on the mutual funds distribution business to grow at 30 per cent a year and Arvind Jain, Senior Vice President, IndusInd Bank, sees insurance as the thing. Suratwala expects the contribution of the fee-based revenues segment to grow at over 40 per cent for most private sector banks this year. The adventitious benefit: it helps banks offer complete wealth-management solutions.

-Ahona Ghosh

The Cairn IPO
So, why is Cairn really making an IPO in India?

Caim Energy's Dhir: D-street on his mind

In 2006's fortune global 500 listing (which ranks companies by revenues), five of the top ten spots are occupied by the oil majors, exploration and production firms Exxon Mobil (#1), Shell (#3), BP (#4), Chevron (#6), and ConocoPhillips (#10). Oil companies dominate any listing on the basis of market capitalisation also: three of the top 10 companies by market value in 2006's Forbes 2000 are oil firms (Exxon Mobil at #1, BP at #5 and Shell at #6). Even in India, an exploration and production company, ONGC, is #1 in terms of both revenues and market capitalisation. Thus, even when a small oil firm, already listed on LSE (market value: $6.33 billion or Rs 29,751 crore; revenues in 2005: $262.6 million or Rs 1,234.22 crore), announces that it is going to make an IPO in India, it is big news.

Cairn Energy Plc is the company in question, and the simple fact that 90 per cent of its current market value can be traced back to its Indian operations could be one reason for the company's decision to list in India. Another could be the company's decision to invest $1.5 billion or Rs 7,050 crore (on behalf of the whole project), over the next 30 months in Rajasthan where its discoveries add up to a significant 1 billion barrels (recoverable oil); at its peak production, the company's Rajasthan fields should produce a little over 54 million barrels a year. Neither of these reasons, however, seem to be relevant. International investors seem to understand the oil business better and value firms in the sector higher (ONGC's forward price-earnings multiple, for 2006-07, is a mere 9.49 by some estimates); and Cairn recently tied up some $1 billion (Rs 4,700 crore) in debt to fund its plans for Rajasthan.

The real reason, claim analysts who point out that Cairn is "an M&A amenable company", is that the IPO could serve as a valuation exercise in the run-up to a sell-off. Rahul Dhir, CEO, Cairn Energy India, pooh-poohs such suggestions and proffers the fact that Founder-CEO Bill Gammel is yet to sell out two decades after founding the company. "The decision to hive off the Indian business as a separate one preceded the idea of listing in India." Yet, at various times, the buzz in D-street has had everyone from Shell to ONGC looking at the Indian operations of Cairn for a possible acquisition. At least initially, the India-listed entity will merely be a holding firm for the company's India assets that are on the books of other companies listed in several 'tax-efficient' countries.

Despite concerns over the quality of oil in the Cairn finds-it is waxy and will probably sell at a discount of $10 (Rs 470) per barrel, say some analysts-it is likely that the IPO itself will do well. The $40-45 million (Rs 188-211.5 crore) increase in capital expenditure projected by analysts towards pumping inferior oil will be more than offset, explains Dhir, by the fact that this is "shallow oil that is onshore and close to markets." Then, in oil-hungry India which imports 70 per cent of its requirements at prices close to $70 (Rs 3,290) a barrel, any oil is good oil. Dhir skirts the issue of the size of the offering, saying it could be anything between 25 per cent and 80 per cent (it will likely be less than 50 per cent), and analysts expect the issue to mop up anything between $2 billion (Rs 9,400 crore and this looks the likely number) and $3.5 billion (Rs 16,450 crore) depending on its size. Still, rumours of a last minute offer from an integrated oil company, which will pre-empt the late-2006, early-2007 IPO persist.

-Shalini S. Dagar

A Finance Play
That's what Tata Sons' investment in the Nagarjuna refinery is.

Barely two months after it divested the majority stake in its 1,015 mw power project in Mangalore in favour of Hyderabad-based infrastructure firm Lanco, the Nagarjuna Group has now roped in Tata Sons as an equity partner for its much-delayed refinery in Cuddalore. Tata Sons is to pick up a 26 per cent stake in Nagarjuna Oil Corporation for a consideration of Rs 350 crore. The entry of Tata Sons is expected to turn things around for the beleaguered refinery project. "We hope to achieve financial closure in the next couple of months," says K.S. Raju, Chairman, Nagarjuna Group, which, through Nagarjuna Fertilizers and Chemicals, its flagship company, will have a 51 per cent stake in the project (total cost: Rs 4,700 crore) after the Tata Sons investment. With this deal (and the Lanco one that preceded it), the Nagarjuna Group appears to have got its act together in its energy business. The Rs 4,300 crore power project where Lanco holds 74 per cent and the Nagarjuna Group 26 per cent should achieve financial closure by the end of this year.

-E. Kumar Sharma