Spice's B.K. Modi: Spreading wings

The rush to kick off pan-India cellular operations via GSM technology is gaining momentum. A couple of months ago, it was the AV Birla group's Idea Cellular that announced plans to go up to 23 circles, up from its current nine. More recently, Reliance Communications, which operates in 21 circles largely via the CDMA route, reportedly applied to the Department of Telecommunications for additional GSM spectrum to operate mobile networks in 14 circles (it currently has GSM operations in seven circles). And last fortnight, Spice Telecom too joined the pan-India party, with its application for licences (via a unified access service) in 21 more circles, in addition to its operations in Punjab and Karnataka. As of today, Bharti is the only truly pan-India player with a presence in all of the country's 23 mobile circles. Reliance and BSNL are present in 21 circles (BSNL is absent in Mumbai and Delhi, where MTNL is the operator), whilst Hutch is present in 16.

Spice Telecom, in which Telekom Malaysia holds a 49 per cent stake and the Modi group-owned MCorpGlobal the rest, currently has a subscriber base of 2.15 million and is the #3 player after Airtel and Hutch in Punjab and Karnataka combined. The operator will invest $2.5 billion (Rs 11,750 crore) over the next three years to expand its footprint. The Modis hope to raise $250-300 million (Rs 1,175-1,410 crore) via an initial public offering (IPO) and another $300 million via a follow-up issue. The rest of the money, says Vice Chairman and President Dilip Modi, will come from multiple routes such as debt, vendor financing and internal accruals. Modi insists that the existing shareholding structure will not be disturbed, as both partners will dilute an equal stake via the IPO.

Financing the expansion won't be walk in the park (Modi refuses to put a number on the internal accruals), but there are many more uncertainties Spice will have to grapple with. Plenty, for instance, depends on the government granting licences to the company. And with eight other operators already in the fray in the GSM segment, there is the perennial problem of spectrum availability. The government is in talks with defence forces to vacate the 75 MHZ spectrum they have. But so far there is no clarity on the mechanism of release of the spectrum and compensation to be paid for it. Modi is hopeful. "Out of the spectrum that defence is expected to vacate, 20 MHZ is in the 1,800 MHZ band (required for GSM operations) and the government is evolving a method to make it available," he says. As far as the number of operators are concerned, he explains, "There is about 20 MHZ in the 800 band, another 25 MHZ in the 1,800 band, and 75 MHZ in the 1,800 band. This is sufficient to accommodate eight to 10 operators." Moreover, he says there is a willingness on the part of the government to let more players into the GSM segment. Sure enough, the government is eyeing a (telecom) subscriber base of 500 million by 2010, up from the current 164 million.

Meantime, Spice plans to leverage its position of being the only GSM operator in the country offering its own brand of mobile handsets. The company plans to build a retail chain, which will have "Spice touch points" to "facilitate customer and brand interaction". It has currently 20-25 such stores in Delhi. "Our objective is to have 1,000 stores in next three years," Modi says.

-Shaleen Agrawal

Going In At Deep End
Global tech giants are upbeat on Indian engineers.

For MNC technology giants such as Yahoo, Google, Adobe and Microsoft, India is fast evolving into much more than a software services and support centre, with their R&D centres being entrusted with the complete development of products. Yahoo, storage major EMC with its Virtuasa product line (and its recently acquired company RSA Security) as well as Adobe with PageMaker 7 and Captive 2.0 seem to have successfully proven that their Indian centres and Indian engineers can indeed move up the value chain. "Our centre has played a critical role in the development of products across business divisions and one-fourth of our engineers were closely involved with the development of Windows Vista," says Srini Koppolu, Managing Director, Microsoft India Development Center (MSIDC). While other MNCs may have begun their India operations with smaller and less critical support and maintenance operations, MSIDC trod a different, path focussing almost solely on products from the get-go.

There are others following down the same road. RSA Security, for example, has just opened its centre in Bangalore and says it will undertake complete product development from here. "The Bangalore Development Centre will take on full life cycle product development for products where expertise and talent can be drawn from the local pool. We will focus on RSA Security's Identity and Access Management product lines, specifically, Access Management and Identity Federation offerings," says Niranjan Maka, Head (Bangalore Development Centre), RSA Security. For Naresh Gupta, Managing Director, Adobe India, building products from scratch is nothing new in his 12-year stint, having supervised and participated in the development of PageMaker and Captive products. Adobe India has also been entrusted with being the global development headquarters for the Classic Imaging and Printing business it inherited when it acquired Macromedia. "Indian engineers have proven their capabilities in core product development successfully at Adobe and this has led to a rapid ramp up," says Gupta.

The initial success of product development from India has attracted its fair share of plaudits, especially from the worldwide CEOs of these companies. "We are delighted with the progress of our India centre," Joe Tucci, CEO of the $12 billion (Rs 56,400 crore) EMC, said recently, as he went on to announce a doubling of the $250 million (Rs 1,175 crore) investment and 1,200 headcount in the country. "I think Indian engineers have quickly broken the myth that they are only qualified to undertake services projects and have quickly transitioned to complete product development. We have transitioned several product lines to our India centre already and there's no reason why Flickr (the popular photo-sharing application) can't be developed out of here," says Pete Dumer, Chief Product Officer at Yahoo's India R&D Centre who recently hosted the portal's founder David Filo. German enterprise software giant sap has already made its India ops (sap Labs) the largest R&D presence outside its home base. "There is no question we will continue to expand our operations here. The question is how quickly we can move product lines to India and get infrastructure ready," Peter Zencke, Member of the Executive Board and President (Research and Breakthrough Innovation) had told BT on a recent visit.

-Rahul Sachitanand

Free, But Not Cheap
The TMT sector is attracting global buyers.

Jerry Rao

Even as a rash of Indian companies begins to gobble up businesses in the developed markets of Europe and the US, a number of transnational majors are quietly returning the compliment. With growth in Europe turning anaemic and us being a matured market, most global companies have little choice but to eye markets like India where the demographics are compelling, and purchasing power is rising. Those who aren't here already can ill-afford to waste time testing the waters and putting up greenfield operations. Rather, judicious acquisitions are a better bet. Over the past few months, the TMT (technology, media and telecom) space has witnessed hectic activity, with a number of international telecom, entertainment and it majors gobbling up Indian companies, or at least significant stakes in them. Last month, Walt Disney earmarked $44.5 million (Rs 209 crore) to acquire a 100 per cent stake in the kids channel, Hungama, and another 14.9 per cent in television software producer, UTV. More recently, the us-headquartered it services giant Capgemini bought out Unilever's business process outsourcing offshoot, Indigo. A few months ago, another us it giant EDs picked up 52 per cent in MphasiS BFL for $380 million (Rs 1,748 crore). And two telecom giants from Malaysia, Maxis and Telekom Malaysia have bought into two domestic cellular operations, Aircel and Spice Communications, respectively (Vodafone and Singapore Telecom are also partners in Sunil Mittal's Bharti Tele).

Of the total inbound and private equity investment of $8.9 billion (Rs 41,830 crore) so far in 2006, the TMT sector accounts for $3 billion (Rs 14,100 crore). S. Subramanian, Head (Capital Markets), Enam Financial Consultants, points out that the global interest in Indian companies is across sectors, but agrees there's a rise in activity in the TMT space. "That's because it's an easy target compared to other sectors, as there are many private equity players who hold stakes in companies from these industries. For instance, the majority holding EDs snapped up in MphasiS BFL was earlier held by Baring Private Equity Partners, along with other investors including Jerry Rao. "The acquisition of MphasiS BFL was crucial for EDs," says Gaurav Deepak, Executive Vice President, Avendus (an investment bank). "EDs needs the presence because most of its global competition, mainly IBM and Accenture, is well-entrenched in India." And the global it majors need to perfect the Indian delivery model if they have to be competitive against the Infosys' and Wipros of India. "India is the new kid on the block," gushes Rohit Kapur, Executive Director (Advisory) & Head (Corporate Finance), KPMG, who proffers another reason for the M&A burst in TMT. "TMT sectors depend a lot more on connectivity and the infrastructure is in place, hence there is less reluctance to do inbound deals," explains Kapur.

From domestic industry's point of view, there couldn't be a better time to cash out what with valuations parked in rich territory. What's more, the demand-supply mismatch in sectors like it and it-enabled services (ITEs) means that acquisition premium being coughed up by foreign companies is on the rise. This is reflected in the steadily increasing values of transactions. For the first eight months of 2006, the average deal size for inbound deals in the IT & ITEs sector has surged to $71 million (Rs 327 crore) from $53 million (Rs 239 crore) in the corresponding period of the previous year. Between January and August 2006, there have been 11 inbound M&A deals in the IT and ITEs sector, valued at $784 million (Rs 3,606 crore). Says Aditya Sanghi, Country Head (Investment Banking), yes Bank: "Valuations are not going to subside. Foreign companies will have to pay a high premium for their Indian counterparts as India is no more just a low-cost outsourcing hub; it's also a huge potential market for MNCs." For instance, the wireless telecom subscriber base in India is growing at 45-50 per cent annually. That's why Maxis shelled out $800 million (Rs 3,760 crore) for a 74 per cent stake in Aircel (Telekom Malaysia bought 49 per cent in Spice Telecom for $179 million or Rs 841 crore).

To be sure, there's plenty of action taking place in a slew of other sectors. Cement is one that's been witnessing hectic activity, with Heidelberg of Germany buying out Mysore Cement, and Holcim of Switzerland buying into acc and Gujarat Ambuja. Pharma too is expected to witness many more deals on the lines of Mylan Labs' acquisition of the Hyderabad-based Matrix, where domestic manufacturing facilities are the value-addition being sought by Big Pharma. "Going ahead the action for inbound M&A will be seen in sectors like IT & ITEs, auto components, retail, financial services, real estate and pharma," says Kapur. Clearly, it's boom time back home, even for promoters looking to cash out.

-Mahesh Nayak

China Tech Town
The central kingdom's Kolkata connection is revived.

Bengal Housing's Bagchi: Scaling up

Kolkata, which is famous for its China Town-home to a few thousand ethnic Chinese-is now set to have its own China Hi-tech Zone as well. Two Chinese firms, SunWoh International and Nanjing Hi-tech Zone, are in the process of creating world-class infrastructure in the Rajarhat area on the eastern fringes of the city. Chinese companies in the biotechnology, nanotechnology, ITEs (it-enabled services) and the hardware sectors will set up operations here. At least six Chinese hardware giants are expected to commence activities at the new facility, which is expected to be ready by 2008. The two Chinese infrastructure builders have teamed up with a local realty company, Bengal Peerless Housing Development Company Ltd, to put up this Rs 400 crore project on a 12-acre space. SunWoh and Nanjing are coughing up Rs 19 crore each whilst the rest will be put in by the Kolkata-based realty developer.

In a reciprocal gesture, Nanjing Hi-tech Zone has offered over two lakh sq. ft space to the Kolkata-based company for setting up a Centre of Excellence at Nanjing, which will house Indian it and ITEs companies, an area where the Chinese are perceived to be weak players. "This will be an ideal marriage," says Kumar Shankar Bagchi, Managing Director, Bengal Peerless Housing Development.

-Ritwik Mukherjee