Kamesh Goyal: Profitability concerns

Come January 2007, the highly-regulated general insurance industry will be unshackled-"de-tariffed," as the Insurance Regulatory Development Authority (IRDA) terms it, which allows over a dozen non-life insurance companies to decide their premium rates-but few CEOs are in a celebratory mood. That's because deregulation is expected to be followed by a vicious bout of undercutting. Says Kamesh Goyal, CEO, Bajaj Allianz General Insurance Company: "The profitability of the non-life industry has been deteriorating every year and it is expected to get even worse post-de-tariffing."

Goyal is not the only one who feels this way. A recent study by rating agency CRISIL also points towards underwriting losses. It reveals that a projected 10 per cent reduction in own-damage premium for fire, engineering, and motor, accompanied by a 20 per cent increase in motor third-party (motor TP) premium, will result in the industry's underwriting losses increasing by 17 per cent. Krishnan Sitaraman, who heads e-financial sector ratings at CRISIL, says: "Underwriting losses will increase immediately after 'de-tariffing', as the benefit from the increase in motor TP premium will be insufficient to offset the impact of the reduction of premium levels in profitable segments." CRISIL expects the core business operations of industry players to remain unprofitable over the medium term.

CRISIL also believes that this is likely to increase competition in profitable business segments such as fire and engineering, translating into lower premium. In contrast, returns from severely loss-making segments, such as motor TP insurance, are likely to improve to some extent, as industry players raise premium rates to cover expected claims.

Yet, there are those who believe it is too early to predict a rate war. "The increase or decrease in TP motor rates has not yet been decided. It could be more or it could be less. It is too early to comment," says a cautious Dalip Verma, MD, Tata AIG General Insurance Company Ltd. But there are industry officials who counter that investments in manpower, real estate and distribution will ensure that costs of insurers will rise. As CRISIL sums it up: "Given their relatively short track record and lower current profit levels, access to continued capital infusion will be key to maintaining financial strength in a 'de-tariffed' scenario."

-Anand Adhikari

Bid or Blink?
Tata and CSN slug it out for British steel major Corus.

Ratan Tata: Steeling for a fight

The middle game for Corus had begun, at the time of writing. After Tata Steel opened with a 455 pence a share for the British steel giant, Brazilian steel major CSN got into the game with a counter-offer of 475 pence. Even as speculation mounted about the Tatas' prospects in a bidding war -or whether it would get into one at all-on December 11, the Indian steel behemoth sweetened its offer to 500 pence. Within a few hours, CSN was ready with its move-another counter-offer of 515 pence. While Tata Steel's increased bid placed the value of Corus at £4.7 billion ($9.19 billion or Rs 41,355 crore), CNS's offer has increased it by about three per cent to £4.84 billion ($9.47 billion or Rs 42,615 crore). Interestingly, Corus' valuation has increased by 13 per cent in 45 days. In a statement released to the media on December 10, Tata Group Chairman Ratan Tata said: "We remain convinced of the compelling strategic rationale of this partnership and the revised terms deliver substantial additional value to Corus shareholders."

December 20 is when Corus shareholders meet, which gives both parties more time to indulge in fresh rounds of bidding. When BT went to press, the billion-dollar question was: Who will blink first? "The deal looks potentially good (for Tata Steel) in the medium to long term and not so much in the short term since there will be a lot of debt on Tata Steel's balance sheet," says Anshukant Taneja, Director (Corporate Ratings), Standard & Poor's. CSN's track record at concluding M&A deals isn't great. That may explain its aggression in the bidding battle for Corus.

-Krishna Gopalan

Fossil Fashions an India Foray
The global brand acquires Oyzterbay, ties up with Rajesh Exports.

Oyzterbay's Nangia: New shine

Six years after he exited as coo of Tanishq, the jewellery arm of Titan, to set up Oyzterbay with the backing of ICF Ventures, Vasant Nangia has come full circle. His attempt at making affordable jewellery (mainly in silver) failed to take off and in March this year he had sold Oyzterbay's retail network of 36 stores to Rajesh Exports for an estimated Rs 11 crore. Last fortnight Nangia sold the Oyzterbay brand itself, to the $1.2 billion global jewellery and watches major Fossil for an undisclosed sum. Nangia will head Fossil's operation now in India as its new Managing Director.

Fossil has a number of well known watch brands in its portfolio including DKNY, Diesel, Emporio, Armani, Burberry, Zodiac, Adidas and Michele. Mark Parker, Senior VP (Asia) of Fossil said "Internationally jewellery and watches are sold together as both are fashion items." Fossil will be opening its first store in India in Bangalore in January.

Fossil India has also entered into a 50:50 JV with Rajesh Exports to source jewellery for the Indian venture. In turn, Rajesh Exports will also market Fossil's watch brands in its chain of Labh jewellery stores. Rajesh Mehta, Chairman of Rajesh Exports, says: "The arrangement is win-win for both of us. While they source jewelry from us we will be selling their watches at our showrooms."

Fossil, says Parker, is also examining the possibility of setting up a manufacturing facility in India. Nangia adds: "Fossil will continue to invest and grow the Oyzterbay brand and may take it international also. Once our first store is up and running we intend to roll out across the country."

-Venkatesha Babu

Going Against the Book
Reprints meant for the region are being sold for a song in the West.

Caught red-handed: A seized consignment of books

This story has its origins in a racket that first came to light some three years ago, when the Indian subsidiaries of some prominent American and British publishers registered a sudden spike in sales by as much as 40 per cent. Much to their chagrin, they found that educational books written by internationally well renowned authors such as Philip Kotler, Mikell. P. Groover and Ibrahim Zeid, which were reprinted in India and meant for sale at concessional rates within the subcontinent, were being bought in bulk, sold off via the internet, shipped to Europe and North America and being made available to university students there at ridiculously low prices. "We found that books that would typically cost $125-130 (Rs 5,625-5,850) in the us were available off the internet for as low as $30-35 (Rs 1,350-1,575), all shipping costs inclusive," informs Subroto Mazumdar, President and CEO, Pearson Education (India). This, say publishers, is in complete violation of all regulations, which prohibit the sale of these books outside the territories they are meant to be sold in.

An independent investigation conducted by the Association of American Publishers (AAP) concluded that the racket was being spearheaded by some of the top publishing houses in the country (which cannot be named for insufficient documentary evidence with this writer). The full scale of the matter came to light when customs officials in New Delhi seized a consignment of reprinted books being shipped to Lagos, a country they are not meant to be sold in. The representatives of the exporter, Indian Crafts Melange (ICM), which sources point out is a front organisation being operated by two of the biggest publishers in India, when contacted, refused to comment on the matter. (It is now understood that ICM has withdrawn the consignment unconditionally.)

The size of the Indian publishing industry is estimated at Rs 6,000-7,000 crore, of which the reprinting business is worth around Rs 1,000 crore. Publishers concede that the resale of management and engineering books in home territories would dent their revenues by just 4-5 per cent. "Our concerns are not so much monetary, but ethical and legal," says Manzar Khan, Managing Director, Oxford University Press, India. Moreover, they claim that within the subcontinent, India is the only country that has reprinting rights. Says one publisher on the condition of anonymity: "Countries like Pakistan have been asking for reprinting rights for a long time and if such business continues unabated via India, foreign publishers may be forced to start reprinting from other countries, something that will not augur well for Indian students for whom cheap access to international books is essential."

-Aman Malik