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Videocon's Dhoot: Pursuing
integration via global acquisitions |
There's
no stopping the global ambitions of the Dhoots of Videocon on
the consumer electronics stage. After buying out the colour picture
tube (CPT) business of Thomson SA for Rs 1,260 crore a little
over a year ago, Chairman Venugopal Dhoot quickly followed up
with the purchase of Electrolux's Indian subsidiary, Electrolux
Kelvinator Limited (EKL) for Rs 330 crore. But the biggest bang
on the acquisitions front came last fortnight, when a consortium
led by Videocon Industries was named the "preferred bidder"
to acquire a 97.5 stake in the ailing South Korea-based Daewoo
Electronics. Dhoot's bid is reported to be in the vicinity of
$700 million (Rs 3,230 crore). Woori Bank, one of Daewoo's leading
creditors, named Videocon and RHJ International, the holding company
of us buyout fund Ripplewood, as the primary bidders for Daewoo.
Videocon's bid was preferred over four other interested parties.
"We have signed a non-disclosure agreement, and therefore
I am not at liberty to talk about the deal," Dhoot told BT.
A terse notice from Videocon Industries to the stock exchanges
said that a consortium comprising itself and RHJ International
has been named as the preferred bidder to acquire a controlling
stake in Daewoo Electronics. The transaction, say company officials,
should be complete by the end of the calendar year.
Once it goes through, the deal will give
Videocon a leg-up on three fronts: Global presence, product range
and technology. "Yes, there is an advantage when you have
a brand name like Daewoo, but the manufacturing facilities that
someone like Daewoo offers is of more strategic importance,"
says Harish Bijoor, CEO, Harish Bijoor Consults Inc. In terms
of manufacturing facilities, Daewoo has five factories in South
Korea, apart from regional headquarters in Europe, the us and
the Middle East. On the product portfolio front, it has offerings
in established and emerging segments like high-definition televisions,
digital televisions, DVD players, recorders, home cinema systems,
refrigerators, air conditioners and microwave ovens. According
to Bijoor, the deal is good news for Videocon as it gives the
Dhoots an extended global reach via a readymade and established
distribution network. "It is not easy to have distribution
and manufacturing facilities. On the distribution front, it is
even tougher for an Indian company to set up a network in an overseas
market," he adds.
The Thomson deal gave Videocon a place among
the largest CPT manufacturers in the world. This meant it had
manufacturing units in countries like Mexico, Poland and China,
apart from R&D facilities. Arun Kejriwal, Director of the
Mumbai-based KRIS Securities, thinks Dhoot is in an aggressive
frame of mind. "The Daewoo deal will protect him very well
against any kind of play. A business like consumer electronics
is all about visibility and the more number of brands you have,
the better it is," he explains. The acquisition of Daewoo
will also bring into Videocon's fold research institutes located
in Korea, France and Europe. This could pave the way for more
product launches, which will help the Dhoots enhance their portfolio.
The Thomson acquisition gave Videocon an opportunity to integrate
backward, and once Daewoo is in the bag, the Indian company will
become a fully-integrated consumer electronics player on the global
stage, which in turn will help it ride the advantages of economies
of scale and keep costs in check.
Of course, the Dhoots will also need to focus
on turning around Daewoo, which had a 94 billion won (Rs 470 crore)
net loss in 2005 on sales of 2.16 trillion won (Rs 10,800 crore)
But it's clearly the assets worth 1.65 trillion won (Rs 8,250
crore) that make the Korean consumer electronics giant attractive.
The Daewoo Group went bankrupt in 1999, and subsequently many
parts of the Korean chaebol were put on the block. Tata Motors
bagged Daewoo CV a couple of years ago, and has since successfully
integrated it into its commercial vehicle business. The Dhoots
look set to follow the same path, although Bijoor does sound a
note of caution. "Global businesses need to be managed with
a global mindset. Most Indian companies are great at acquiring,
but are terrible at managing." The Dhoots, for their part,
would have some experience at both.
Suzuki
Makes A Splash
Its new small car may make the Swift
look dull.
At
the 2003 Paris motor show, Suzuki Motor Company (SMC) showcased
the Project Hayabusa, later named Project K. This concept car
later went on to form the basis for the Suzuki Swift. At this
year's show, SMC is showcasing the Project Splash, a concept car
that will form the basis for the replacement of the WagonR and
Ignis and that will hit global roads by late 2007. This is also
likely to be the 'new small car' that Maruti Udyog Limited (MUL)
is set to manufacture from its Manesar plant from 2008 onwards
(as announced by Osamu Suzuki, Chairman, SMC (MUL's parent company)
at a media briefing in Delhi recently). The 'Splash' might also
form the basis of the small car that SMC (through MUL) will contract
manufacture for Nissan Motor.
Suzuki has not made details of the car public
as yet, though it has said the car will have a 1200cc petrol engine
with a mileage of 78 miles per gallon (close to 35 kilometres
per litre). And it is evident from the few official teaser pictures
released by SMC that the car will have an even 'edgier' European
look than the Swift. However, Indian customers should not get
too excited as yet; even the Swift in India does not come with
the engine it is sold in other markets with and the 'Indianisation'
of the vehicle might mean it loses some of its funkier features
(such as the bi-xenon headlights and wraparound taillights). But
everything said and done, the Splash just highlights how SMC is
going from a maker of some of the dowdiest (though reliable) vehicles
to a cool company!
-Kushan Mitra
Instruments Of Alarm
Don't ban participatory notes, just regulate
them better.
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SEBI's Damodaran: Wary of PNs |
For
the amount of foreign institutional greenbacks that come through
this route-40 per cent on an average, reckon market pundits-participatory
notes (PNs) ever so often keep coming under scrutiny. From M.
Damodaran, Chairman, Securities and Exchange Board of India (SEBI),
to Y.V. Reddy, Governor, Reserve Bank of India (RBI), regulators
have shown their concern about the inflow of money coming into
the country through PNs. Last month, the Tarapore Panel, in its
proposals for full capital account convertibility, even suggested
phasing out these derivative instruments. What is it about PNs
that spooks the regulating mandarins?
PNs are instruments issued by registered
FII brokerages in India to foreign funds (even hedge funds) or
investors who are not registered with SEBI, but are interested
in trading in Indian securities. FII brokers buy and sell securities
on behalf of their clients on their proprietary account and issue
such notes in favour of such foreign investors. PNs are mostly
used by hedge funds that are not welcome by SEBI and by non-resident
Indians, who do not want to directly invest in Indian securities.
SEBI's worry is that the ultimate owner or beneficiary of PNs
is not known as PNs are transferable. On a similar track, RBI
feels the non-transparent nature of these instruments make them
ideal money-laundering vehicles. The unstated fear of the regulators
is that money belonging to Indian residents is being 'round-tripped'
through the PN route.
"The FII regulation says that they (FIIs)
ought to give us monthly reports on who are the holders of PN.
They have all signed this regulation when they got this registration,
but some of them say we don't know because these are transferable
instruments and at a point of time (we don't know) who is a holder,
which isn't good enough," the SEBI Chairman told BT in a
recent interview. Now that's a valid concern, but then are the
transgressions so severe that they call for a ban on PNs? And
what would that do to the bull run on the bourses, fuelled as
it is almost entirely by foreign money? "The rise in FII
flows through PNs has been increasing due to India being a favourite
investment destination. The money coming into India through PNs
is not completely hedge fund money; there are FIIs whose registration
is pending with SEBI who are taking this route," says Gurunath
Mudlapur, Managing Director, Atherstone Institute of Management.
Since 2004, 446 new FIIs have registered with SEBI to take the
total to 963.
Mudlapur's view is that a certain element
of misuse will always exist, and as long as checks and balances
are in place to ensure that PNs are not abused on a large scale,
there shouldn't be such a flutter about the instruments amongst
the regulators. Speedy FII registration and stringent know-your-client
(KYC) norms are more prudent than a blanket ban, he concludes.
Damodaran too indicated to BT that the issue isn't as simple to
warrant an instant solution. "I think all of US (SEBI, RBI
and the Finance Ministry) together have to address this question
of how we regulate effectively all those who are significant to
the Indian market until such time when India becomes a market
where anybody can come in and invest. There are concerns about
(how much of FII investments are) 'round tripping'. At the same
time, why do you need to address the question of round-tripping
when there could be an NRI sitting somewhere, who has legitimate
money and wants to invest legitimately here can't. And he says
if a foreigner can invest in the market why can't I invest in
my motherland...There are no easy solutions." A ban isn't
one of them.
-Mahesh Nayak
Fuel For Thought
A crucial competitive bid in the power sector
comes a cropper.
The
lowest tariff that Gujarat recently received in a bid to procure
1,000 mw of power was Rs 3.25 per unit. Bidders quoted up to as
high as Rs 3.75 per unit. While this price matches the power purchase
cost from new private stations in Gujarat, it compares adversely
when pitted against public sector units like National Thermal
Power Corporation that produce power at as low as Rs 2 per unit.
Ironically, this response came from two bidders,
one of whom will procure coal at controlled rates from Coal India
Ltd mines while another has a captive mine.
The Gujarat government is now planning to
seek fresh bids. This time around, the conditions are likely to
be different. Instead of seeking a single tariff, the state plans
to bid out only one part of the tariff-that arising out of the
cost of the power plant. It is planning to source fuel for the
power plant, which constitutes the other part of the tariff. "We
believe the bidders are making huge margins on the fuel component.
Hence, we are planning to seek only the fixed cost," says
a senior official associated with the bid process. Whether it
goes through with its plans or otherwise, the bid results are
a reflection of the lack of deregulation in the fuel market in
the country-free mining is not allowed. This reflects adversely
on the power market since fuel constitutes over 50 per cent of
the cost of power generation.
The question then is: Will the Gujarat bids
leave an imprint on the power sector? Bidders argue that it could
since two large bids are expected in the market shortly, one each
in Andhra Pradesh and Haryana.
More importantly, if the Gujarat bids are
anything to go by, the government's expectation of eliciting bids
in the region of around Rs 2 per unit for the ultra-mega projects
might be belied. The first of the bids is expected to hit the
market by the end of the year.
Surely, the industry will not be enthused
by the bid results, argue analysts. For it only reaffirms its
faith in captive units, which often are not optimally efficient
as they lack scales. Equally so, it also points to the need for
a greater pace of reforms in the power sector, where aggregate
technical and commercial losses are in the region of 35 per cent,
crippling the viability of the power generation and distribution
businesses.
The Gujarat bid result was a 9/11 of sorts
for the power sector, and not just because the bids were opened
on September 11.
-Balaji Chandramouli
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