Karma Capital's Seth: No panic

Few things can be scarier than a hedge fund in a free fall. Last fortnight, when news trickled into Dalal Street that us hedge fund Amaranth Advisors was going bust, it created a flutter on the BSE Sensex. The index crashed by nearly 240 points, ending that day 101 points lower. The following day the Sensex in the opening session plunged by 137 points. Amaranth Advisors' energy-trading desk had lost $5 billion (Rs 23,000 crore) courtesy a wrong call on the US energy market, as a result of which its assets under management halved to $4.5 billion (Rs 20,700 crore) overnight.

Now that's calamitous but did it call for the kind of knee-jerk panic that the Sensex witnessed? Sure, Amaranth did have an exposure to India, but a negligible one-estimated at $50 million, a large chunk of it in the foreign currency convertible bonds (FCCBs) of Prajay Engineering, which have a five-year lock-in. Says Rushabh Seth, Managing Director, Karma Capital Advisors, which at one time was an advisor to global hedge funds. "Hedge funds going bust will not have any impact on Indian markets. This is because of their minuscule exposure here." Rakshit Sethi, Managing Director, Fair Value Capital, an 'alternative investment' advisor, says a hedge fund going bust can in the worst case create a "psychologicalimpact", which best describes the sudden knee-jerk reaction on the Indian exchanges.

-Mahesh Nayak

Stitch In Time
VF Corp will offer more than Lee and Wrangler.

VF Corp's Wiseman: Bullish

In the $4.5-billion (Rs 20,700 crore) branded apparel market, small is king, with lesser known names occupying a lion's share of the industry and global names such as the world's largest vendor, VF Corp, struggling to make an impact. The Greensboro, North-Carolina-based company, has been a bit player in this sector, registering revenues of $40 million (Rs 184 crore), across its brands, including denim offerings such as Lee and Wrangler and more recently the leisure wear label Nautica and Kipling. "We are just beginning our growth in India and we believe that there's massive market for our products," says Eric C. Wiseman, President and coo for the $7-billion (Rs 32,200-crore) VF Corporation. In September this year, VF signed its first joint venture deal globally, when it inked a $33 million (Rs 151.8 crore) deal for a 60 per cent stake in Arvind Fashions, an Arvind Mills company. While the company has been in India for years with its denim and casual clothing lines, Wiseman believes that this deal "cements" the company's focus on the international and specifically the Indian market.

"We want to aggressively grow the contribution of our international operations every year and while we already have a quarter of our sales from overseas markets such as India we believe that this can grow to 30 per cent or more over the next couple of years," he says. While VF sells five of its brands in the Indian market, the 49-year-old Wiseman believes that there is scope for many more offerings from its 50-brand basket. "We have just launched two of our brands in India (Nautica and Kipling), so we would like to see how they scale up first and then, yes, we believe there is scope for many more of our brands," he argues. VF Corp, however, can expect some intense competition in the casual and denim wear market, with the iconic denim wear label, Levis Strauss, stepping up its presence in India, launching its Signature mid-market label and homegrown names such as the kg Denim Group (with Trigger) and Kewal Kiran (Killer) too sprucing up their product line over the last few months. "This is an industry that is growing at around 20 per cent annually, so it's inevitable that there is a lot of jostling," says Wiseman, adding that VF itself would consider acquiring a local brand if a viable opportunity arose. "VF Corp has been built through a series of acquisitions so we are open to doing the same here," he explains.

Despite VF's bullishness on the Indian market, executives are quick to point out a couple of hurdles that could give apparel makers and retailers (who sell their products) a headache in future. "Prime retail real estate rates have appreciated 200-400 per cent in the last couple of years, so just finding an affordable store front can be a problem," says Darshan Mehta, CEO of Arvind Fashions. That aside, counterfeiting of VF's popular labels remains a bugbear, despite Wiseman's attempt to brush it off. "Counterfeiting has become a back-handed compliment for us... but we are determined to stamp it out," he says.

-Rahul Sachitanand

Wind In The Willow
Cricket's back, which means Sony might well be too.

Deal time: Striking hard

Starting October, it is going to be cricket all the way on the tube. And unlike the past one year, most of the events lined up between October and December 2007 are high profile; hence an expectation of huge viewership and, thus, immense interest from advertisers. Cricket accounts for more than 90 per cent of the total sports viewership and ad spends. In 2005, sports accounted for 8 per cent of the total television viewership and its share in the TV ad pie was 9 per cent; corresponding figures for 2004 were 9 per cent and 10 per cent. Between October 2006 and 2007, the share of viewership and advertising is likely to go up to 10 per cent and 11 per cent, respectively, thanks to the exciting events lined up.

SET MAX, the sports and movies channel of Sony Entertainment Television (SET) that has the rights for ICC Champions Trophy and World Cup 2007, for instance, claims to have already closed in sponsorship deals worth Rs 300 crore and expects to net around Rs 550-600 crore from the two series. "Between the two events, we expect to double our revenues over the last time," says Rohit Gupta, Executive Vice President, Ad Sales, Revenue Management, Digital and Licensing, set. Remarkably, the World Cup is good five months away, yet set has closed in deals for presenting and associate sponsors. While Reliance and Nokia will be the presenting sponsors for both the Champions Trophy and the World Cup, Pepsi, Hero Honda, LG, Videocon, the A.V. Birla Group and Maruti will be the associate sponsors for the events. In addition, HP and ITC will be associate sponsors for the Champions Trophy and the World Cup, respectively. Put together, these advertisers are supposed to have already bought some 45 per cent of set's inventory, which is some 150-165 ad spots of 30 seconds each. "We have sold out the entire inventory for the Champions Trophy, whereas for the World Cup, 55 per cent of the inventory has already been sold," says Gupta.

Gupta could be exaggerating some bit because media buyers estimate that Rs 600-650 crore is all that all the cricket series between October and December next year will get. Says Sunder Raman, Managing Director, Mindshare: "set's two series are, indeed, most glitzy, but others are also quite high-profile." Here is a roster of some of the big ones in the offing: Champions Trophy in October on set max, India vs South Africa in November on ESPN-star Sports, Sri Lanka coming to India in January-February, 2007 on Neo Sports, World Cup in March-April on set max, India vs Bangladesh in April on ESPN-star Sports, India playing England in June-July on ESPN-star Sports, India hosting Australia in September on Neo Sports, 20:20 World Cup in September, for which the broadcaster has yet to be decided, India vs Pakistan in November on Neo and India playing Australia in December-January on ESPN-star Sports. According to advertisers, the going rates for a 10-second spot, as of now, are Rs 1.2-1.5 lakh. Zee Sports and Ten Sports might miss out on the cricket frenzy; the former, though, has television, radio and internet rights for BCCI matches played in non-ICC territories. It is happy days ahead for cricket broadcasters.

-Archna Shukla

Bring Out The Fireworks
Bumper earnings will add more sparkle to the festive season.

Just when you thought it was no longer safe to buy into Indian equity, Dalal Street was overwhelmed by a groundswell of good tidings last fortnight. Interest rates softened, as did crude oil prices and-best of all-India Inc appears set to show impressive report cards for the second quarter ended September 30. Reason for that optimism? A massive surge in advance tax payments by major Indian companies in vital sectors such as cement, metals, oil and banking. According to the data available for 22 large-cap companies, the advance tax payment for the September 2006 quarter has shown a jump of 68 per cent to Rs 4,316 crore, compared to Rs 2,576 crore in the corresponding period of the previous year. "The advance tax payment figures of major Indian companies are an indicator that the second quarter will be a bumper one. On an average we expect India Inc to report a growth of 33 per cent for the first half," says Tarun Sisodia, Director (Institutional Business), Anand Rathi Securites.

The cement sector promises the most on the earnings front, with acc reporting a rise of 2,400 per cent in its advance tax payment, at Rs 125 crore and Gujarat Ambuja Cements' tax payment up by 500 per cent, at Rs 120 crore. Even the state-run oil marketing companies appear set to join the quarterly party this time round. Indian Oil Corporation and Bharat Petroleum made advance payments of Rs 211.7 crore and Rs 105 crore, respectively. These oil companies had not made any advance tax payment for the quarter ended September 2005.

"The biggest surprise this quarter will be in the banking and financial space," says Sisodia. "Unlike the previous quarter, the net interest income margin will improve on account of passing of costs to the customers as well as profits from the investment portfolio due to falling interest rates." Within the banking and financial pack, the advance tax payments of ICICI Bank, Union Bank, State Bank of India, Bank of Baroda, HDFC Bank and HDFC have risen in the range of 24 per cent to 80 per cent. Sisodia also expects sectors such as hotels, it services, pharma, and metals to impress. Reliance Industries, Hindustan Lever, Tata Motors, Hindalco, Grasim Industries, Larsen & Toubro, Siemens and Glaxo, which account for 21 per cent of the total weightage of the broader S&P CNX Nifty, are reported to have paid an advance tax of Rs 1,161 crore, up 65 per cent over the previous year.

Interestingly, the Rs 22,587 crore of corporate tax collected in the first five months (April-August) of the current year constitutes 17 per cent of the budgeted corporate tax of Rs 1,33,000 crore for 2006-07. This indicates that the third and fourth quarters could be even more buoyant than the first two. Says Gurunath Mudlapur, Managing Director, Atherstone Institute of Research: "If oil prices and interest rates stabilise at these levels, I don't see any reason for the growth momentum of India Inc to slow down. If corporates can deliver an impressive performance in what is often the leanest quarter, then the third and fourth should be even better." For the full year, Mudlapur expects the market to post a profit growth of 30-35 per cent, and the Sensex an appreciation of 25-30 per cent to an EPS of Rs 667-695.

At the time of writing, the Sensex was in striking distance of its lifetime high of 12,671. But a few voices of moderation can still be heard. One fear is that, contrary to past trends, growth momentum in the second half may actually slow down thanks to a large base effect as well as the appreciation of the rupee, which will impact export earnings. "The Sensex is not cheap, quoting at a forward price-earning multiple (PE) of 18 times; a correction is long overdue," says Prateek Agarwal, Vice President & Head (Equities), ABN Amro Asset Management Company. With the earnings and festive season set to coincide in style in the days ahead, that correction won't happen in a hurry.

-Mahesh Nayak

Tune in But Don't Drop Out
Can niche FM channels bring back the radio star?

Radio Indigo's Prabhu: Focus on niche

Video killed the radio star," crooned The Buggles in 1979. When MTV launched in August 1981, this was the first video to be aired. That was then. Welcome to the rebirth of radio. Across India, the airwaves are getting jammed with new fm channels launched almost by the day. With nearly 150 players already having licences, and more vying to tune into the segment, choices for listeners in the fm radio segment are set to explode. Ramanujam Sridhar, a media and communication specialist, says that the action has just started. "However, the influx of a large number of players has meant there is a lot of noise and clutter with channels finding it difficult to distinguish them from the pack," he adds.

Bangalore, for instance, had four fm channels till recently: Rainbow (run by air), City (Music Broadcast Ltd), Mirchi (Times Group) and One (Mid Day Group). Rajeev Chandrasekhar's Jupiter Capital Venture launched its Radio Indigo in the third week of September. Is there room for all these players?

Sanjay Prabhu, coo of Radio Indigo, says: "If New York City can have 400 radio channels, then Bangalore can have at least 40. I am not saying all of them will succeed but there is definitely room for several players."

While other channels have gone in for 'mass' appeal, Indigo has decided to become a focussed, niche one. Radio Indigo will focus on contemporary international music and target English music afficionados by playing a wide range of genres like pop, classic rock, hip hop, jazz, and world music. Prabhu says that this is possible only in a cosmopolitan city like Bangalore. "With our USP being English music and targeted towards Sec A and B section of populace, we will be present only in Bangalore and Goa."

A strategy which Sridhar concurs with. Me-too players will find it tough to survive and each will have to develop its own branding, image, content and positioning. "Tune into any station today, it is the same hits being played across channels. People tend to switch stations and there is very little stickiness. Loyalty around individual radio jockeys is temporary, as they tend to jump a lot," adds Sridhar.

While mass-market channels will have their own strengths, there are only so many channels that can survive in an environment where advertising is the only revenue stream. Jupiter Capital through subsidiary Indigo Entertainment, however, has substantial plans not just in radio but the general entertainment and music industry. It has been capitalised with an outlay of Rs 100 crore and plans to get into events, music labels and even movie financing. "We will totally invest Rs 29 crore for Radio Indigo. We are currently examining suitable movie scripts for funding. The music label will also be shortly launched. We will also get into coffee table books. Right now the focus is on getting Radio Indigo off to a solid start," says Prabhu. Tune in or be left out.

-Venkatesha Babu