Hutch Essar's Asim Ghosh: Who gets BPL now?

Whichever way the spat between Hutchison and Essar over BPL Mobile Communications is resolved, the crucial question (which nobody seems to be asking) is this: how can the two partners ever work together again?

For now, all attention is on the legal battle between the two. As things stand, the Bombay High Court has asked both parties to settle the issue through arbitration. This directive made by the court on August 10 calls for an arbitration tribunal to be set up in 30 days; this tribunal will "consider and verify" whether Essar should be restrained from selling BPL Mobile Communications (essentially the Mumbai circle operations of BPL Mobile) to a third party. The order also prevents Essar from selling BPL Mobile to anyone in this period.

Essar acquired BPL Mobile from the Rajeev Chandrasekhar-promoted BPL Communications and then entered into an agreement to sell it to Hutchison Essar. The deadline for obtaining approvals from the government for this transaction was July 31 and Hutch-Essar's inability to get the go-ahead resulted in Essar terminating the share purchase agreement (SPA).

The eventual plan was to merge the Mumbai operations into the Hutchison Essar fold which also would have made the deal the first intra-circle merger in India (regulations are vague on the issue of intra-circle mergers making government clearance a necessity). The buzz in telecom circles is that while the Department of Telecommunications (DOT) has given the approval for the transaction, it came after the July 31 deadline and was only for the eventual merger and not for the acquisition of BPL Mobile by Hutchison Essar (for the record, DOT's stand has always been that the acquisition doesn't require its approval).

Meanwhile, there has been some talk of an out-of-court settlement between the two parties. "That seems a sensible option since the arbitration exercise could take a long time," says a Mumbai-based lawyer. However, it is certain that the spat has soured relations between Hutch and Essar. The two partners will likely not be able to work together in harmony; then, there is also the question of Hutch Essar's proposed IPO.

India is a key market for Hutchison Telecommunications International Limited (HTIL) which now owns a 67 per cent stake in Hutchison Essar. In its results for the first half of 2006, HTIL has stated that 45.2 per cent of its overall global revenues comes from India. In terms of numbers, the turnover for India for the said period is HK$7,085 million (Rs 4,235 crore) with an EBITDA (earnings before interest, taxes, depreciation and amortisation) of HK$2,316 million (Rs 1,384.6 crore). That is at stake now.

-Krishna Gopalan

Pay By Mile
General Insurance gets ready for detariffing.

Full throttle: Are we ready for the new insurance play?

Pay by mile is a motor policy in us for senior citizens who don't drive their car frequently. You pay for every mile you drive. Come January 1, 2007, India can get ready for such concepts. Touted as the second round of liberalisation in the Rs 20,500 crore non-life insurance industry, the pricing freedom that companies can exercise from that date in motor, fire and engineering policies-constituting almost 70 per cent of the business-will rewrite the rules of the game. The most action is expected to be in motor insurance which constitutes over 40 per cent of the portfolio of most of the companies under tariffed products.

"Today, good subsidises bad," says N. Eswaranatarajan, Head (Motor Insurance), ICICI Lombard General Insurance Company. "If I'm a good driver, I end up paying more because the bad driver is also in the basket." From January 1, detariffing will allow companies to assess the risk and accordingly fix the premium for different products, not an easy job in a country as diverse as India. "We are building our own rating engine for each product," says Kamesh Goyal, CEO, Bajaj Allianz General Insurance. "We have lot of existing claims data that we are analysing rigorously." The companies will no doubt access data from their multinational partners (all have alliances), but as Uttara Vaid, National Head (Marketing), Tata AIG General Insurance, points out, "Indian data will be paramount."

Thus, non life companies are looking at data such as flood and earthquake history across various parts of India. And residents in some of Mumbai's low-lying areas such as Mahim, Matunga or Goregoan will end up paying more for a household policy than people in other suburbs.

The real challenge in a de-tariffed regime will concern underwriting profits as the premium will vary according to market dynamics. Executives in the industry expect premia to vary 20 per cent both ways (a range of 40 per cent).

With a claims ratio of over 30 per cent, profit margins in the motor insurance business will probably be impacted if there are any mistakes in fixing the premium. Private insurers see the public sector firms that enjoy a 70 per cent share of the general insurance business losing out on the retail side. The biggest gainer, like it should be, will be the consumer.

-Anand Adhikari

New Friends For Old
West Bengal's Salim-group fixation could offend the Japanese.

Even before west Bengal and Kolkata's industrial-renaissance began, the Japanese were believers in the state and the city. The state has been a significant recipient of Japanese Overseas Development Assistance (ODA) and received some Rs 33,147 crore of this between 2001-02 and 2005-06.

Interestingly, West Bengal also happens to be the state that has attracted the single-largest investment (foreign direct investment or FDI) made by a Japanese private sector company anywhere in India, some Rs 2,600 crore by Mitsubishi in the early 2000s.

All that could change, courtesy the state government's new-found relationship with Indonesia's Salim Group which is rapidly emerging the largest investor in the state with plans for housing and roads, even a two-wheeler project.

In August, 2006, the government decided to award a project to construct a bridge across the Hooghly at Haldia (cost: Rs 4,000 crore) to the Salim Group which has a clutch of other investments in the state.

The catch? Japan International Co-operation Agency (JICA) had already been invited by the state government to conduct a feasibility study and had spent around 40 million yen (Rs 1.60 crore) on the same, presumably in the understanding that a Japanese firm, probably Marubeni whose execs met with the Chief Minister to discuss the project, would be awarded the contract.

Japan's Consul General in Kolkata Yoshikazu Takeuchi was offended enough by what he saw as a slight to go public at a conference organised by a local chamber of commerce. "It is a pity that the government has made such a move after inviting Japan to undertake construction of the bridge."

He has also hinted that the flow of ODA to the state could be hit. "They (the Japanese) were taking too long," counters Chief Minister Buddhadeb Bhattacharjee. "We got a better proposal and accepted it."

Takeuchi, meanwhile, has asked the government for a formal clarification, and says Japanese investors "will have to be more careful in the future."

That could bode ill for the city's much hyped light transit system for which Japan External Trade Organisation (JETRO) and Japan Railway Technical Service (JARTS) were carrying out a feasibility study. Japan's loss may well turn out to be West Bengal's as well.

-Ritwik Mukherjee

27001 Reasons
Indian BPOs discover a new mantra.

See the man: He is 27001-compliant

India's much vaunted strength in it services outsourcing was built, at least in part, on the back of a Level 5 certification on the Capability Maturity Model (popularly abbreviated as CMM-Level 5), a methodology developed by Carnegie Mellon University that is now used universally to assess process efficiency and efficacy in the software industry. India arguably has more CMM-Level 5 certified firms than any other country in the world.

Now, it would appear that the country's Business Process Outsourcing (BPO) industry has discovered its own equivalent of the certification, ISO 27001. This certification essentially deals with digital and physical security and if BPOs across the country are scrambling to acquire one, blame it on incidents such as last year's fraud perpetrated by several former employees of Msource (Mphasis' BPO arm) and the recent one perpetrated by a HSBC employee. Dismissing these as stray incidents Kiran Karnik, President, India's National Association of Software and Service Companies, says: "Security standards are in place and it is a globally well known fact; Indian BPOs need have no fears." Still, he adds, "compliance to such certifications always helps and it should be seen as an investment that pays off in the end." "Security in the IT enabled services business is a significant issue as firms have to understand the twin issues of enterprise security and consumer privacy," adds Ashish Taneja, CEO, Vertex.

Essentially, ISO 27001 specifies the requirements for establishing, implementing, operating, monitoring, reviewing, maintaining, and improving a documented Information Security Management System within the context of a company's overall business risks. It also lays down guidelines regarding workplace hygiene and employee safety; several customers have expressed concern over the two issues in the context of Indian BPOs. "In such an environment, a certification such as ISO 27001 will not only help vendors instill greater faith among clients but also improve internal customer confidence," says Taneja. That it should.

-Amit Mukherjee

A New MPV For M&M
The company's auto-renaissance continues.

M&M's Goenka: Building on Scorpio's success

The scorpio is an unqualified success in the Utility Vehicles (UVs) segment; the Logan project is well underway and the car will be launched at a price point that will target the lower end of the mid-sized passenger car segment sometime in 2007; now, Mahindra & Mahindra (M&M) is looking at entering a third segment of the market, Multi Purpose Vehicles (MPVs) with the 'Ingenio'. The company is ploughing in Rs 550 crore towards developing the new product as well as significantly enhancing the company's capacity at Nashik up from 80,000 today to 150,000 by 2008. The new capacity is to be shared by the 'Ingenio', the Logan as well as the Scorpio, demand for which continues to rise.

However, this will not be the company's first foray into the new segment. In the late 1990s it launched the Voyager which was produced in association with Mitsubishi Motors. The MPV was plagued with technical problems and a high sticker price, which a 2001 redesign could not resolve and it was quietly withdrawn. According to the Society of Indian Automobile Manufacturers (SIAM), there is only one vehicle classified as a MPV today, the Maruti Omni. Thanks to the increasing sales of UVs, those of MPVs have remained fairly stagnant over the last few years at around 2,000 units a month. The specifics: sales of utility vehicles have climbed disproportionately over the last few years, by 24.2 per cent in the first quarter of 2005-06 alone.

Pawan Goenka, CEO, Mahindra Automotive, insists that the 'Ingenio' will be different. "It is true that the Indian customer who looks for a degree of flexibility in his vehicles does not discriminate one category such as MPVs from another such as UVs," he says, "but in three years the market for such vehicles in the Rs 5,00,000-plus price range has more than doubled." He adds that M&M is certain it can "deliver a compelling proposition to Indian customers, because people are looking for value in this segment."

Goenka will not be drawn into the specifics of the vehicle. "I cannot tell you anything other than the fact that the design is frozen and we should have the vehicle coming off the production lines in 2008."

Thus, the 'Ingenio', which is a work-in-progress name, should follow the Logan into the market. M&M is also believed to be exploring upgrades for its other Utility Vehicles as well as launching new versions of the Scorpio (M&M already sells a Scorpio Pick Up in South Africa).

Meanwhile, M&M isn't the only one making noise about its plans for the Nashik plant. The M&M investment is being trumpeted by the Maharashtra government as yet another signal that the state (at least the western half) is increasingly becoming the destination of choice for auto manufacturers (Chief Minister Vilasrao Deshmukh was present at the ceremony announcing the investment).

The Rs 500 crore investment from M&M comes two weeks after General Motors announced a Rs 1,400 crore plant at Talegaon (near Pune); the proposed Tata-Fiat joint venture is expected to invest in the range of Rs 1,500-2,000 crore at a facility at Ranjangaon (near Ahmednagar). That makes it three in a row for a state that hasn't had too much good news to publicise. Deshmukh might not like the metaphor, but when it does rain...

-Kushan Mitra