Prithvi launch: Next, private rollout?

India Inc is betting big on defence. Larsen & Toubro (L&T), Tata Power, the Kalyani Group and the Mahindras, among others, are setting up new companies or joint ventures with foreign companies to grab a share of the pie. At stake: orders worth an estimated Rs 17,000 crore a year to start with. The government, which opened up the sector in 2002, has been slow in awarding contracts to the private sector, but the players believe that there is now a perceptible change in its mindset. As a result, private sector participation, which has been limited to the manufacture of nuts and bolts, spares and washers, is now moving towards platform development.

Says M.V. Kotwal, Member of the Board and Senior Executive Vice President, L&T's Heavy Engineering Division, which has developed prototypes for various Defence Research and Development Organisation (DRDO) projects and recently secured a Rs 172-crore order for Pinaka multi-barreled rocket-launchers: "This is the first major production order placed with a private sector company and we hope it will be a forerunner to many more to come."

L&T, Tata Power and Mahindra Defence Systems have applied for Raksha Udyog Ratna (RUR) status, which will allow them to be treated at par with Defence Public Sector Undertakings (DPSUs) and Ordnance Factories (OFs) in the allotment of defence contracts and level the playing field vis-à-vis preferential taxes and duties enjoyed by the latter. "The RUR status will make us approved suppliers, give us access to technology from DRDO and allow us to take part in the primary manufacturing process," explains Brigadier (Retd.) Khutub Hai, chief Executive, Mahindra Defence Systems. Meanwhile, last fortnight, Tata Power's Strategic Electronics Division (SED) received seven defence production licences for electronic warfare, naval combat and air defence systems. These licences will make Tata Power a prime contractor to the Ministry of Defence for the design, development, manufacture, assembly and upgrade of systems. "Over the next five years, these licences will open up a domestic addressable market of over Rs 20,000 crore for Tata Power SED," says Rahul Chaudhry, CEO of the company, which will also look at opportunities in the systems design, engineering and testing spaces. "This will also open up the export market."

The move to allow private companies to participate in defence production follows the recommendations of the Vijay Kelkar Committee and the constitutional amendment to this effect in 2001. The Ordnance Factory Board and eight DPSUs-Bharat Electronics, Bharat Earth Movers, Mazagon Dockyards, Garden Reach Shipbuilders and Engineers, Goa Shipyard, Bharat Dynamics, Mishra Dhatu Nigam (Midhani) and Hindustan Aeronautics, which make fighter jets, helicopters, state of the art electronics systems, heavy trucks and tank transportation trailers, submarines, missile boats, destroyers, frigates, corvettes, fast attack craft, guided missiles and avionics-will soon face some serious competition.

"If the government allows private players to develop the equipment it spends billions of dollars importing, it will add an incremental 2 per cent to the country's growth rate," says a senior executive in a private sector company. The entry of the Indian private sector into defence production will also diminish the role of intermediaries and foreign firms and possibly reduce corruption in military purchases.

So, will defence production become the next big thing for India Inc? The early signs are encouraging.

INSTAN TIP
The fortnight's burning question.

Will the entry of Wal-Mart really spell doom for Indian retail?

Yes. Nilotpal Basu, MP, CPI(M)

This is a blatant back-door entry for foreign players into the Indian retail sector and will grant monopoly status to big retailers. But regulations specify that there is no scope for foreign investment. We think that there is room for a retail regulator.

No. Rajiv Kumar, Director & CEO, ICRIER

It's high time retail took off in India. The government should frame regulations to protect smaller players, while at the same time allowing big international players to enter through the front door.

Yes. Kishore Biyani, MD Pantaloon Retail

There are few large countries where a foreign retailer has a dominant presence. And the adverse impact of Wal-Mart on local communities and small manufacturers is well documented. Large MNC retailers are bound to indulge in predatory pricing and that can be quite detrimental to small, local retailers.

-Compiled by Aman Malik

Q&A
"Huge Potential for Belvedere"

Christophe Navarre, Chairman and CEO, Moët Hennessy LVMH Wines & Spirits, made a pit-stop in Mumbai last week. BT's Deepti Khanna Bose spoke to him about his plans for the country. Excerpts:

How is Moët Hennessy doing in India?

We have been here since 1997 and India has proved to be a very good market for us. Of course, there is this issue of taxes on liquor-it's the highest in the world-but we hope it will decline. That will give us the opportunity to bring in more of our brands. We think there is huge potential for Belvedere, the brand that created the super-premium vodka category in the United States, in India. Right now, Dom Perignon is doing very well in Delhi and Mumbai, as are Moët & Chandon and Glenn Morangie.

How do you promote and create awareness about your brands in India?

Our prime focus is through public relations and viral marketing, and that's our strategy globally-given the advertising constraints-not just in India.

How are you doing in China?

Extremely well. I'm very pleased to see the Chinese not just drinking but also loving their drinks-especially ours-as well.

Where Will this Bull Run End?

Will the sensex hit 18,000-20,000 within one year as is being speculated in some quarters? It took barely 26 trading sessions for the benchmark BSE Sensex to rise 1,000 points from 13,000 to 14,000. "It's sheer liquidity pressure that has been driving market northwards," says Ambareesh Baliga, Vice President, Karvy Stock broking.

The sustained inflow from foreign institutional investors (FIIs), especially new entrants who invested mainly in index stocks, is the primary reason for the one-way movement of the Sensex. Between October 30 and December 5, FIIs invested over $1.6 billion (Rs 7,200 crore) in the market. During the same period, the Securities and Exchange Board of India (SEBI) registered 20 new FIIs.

"It's an overvalued market, but so long as liquidity remains this way, one can't really say how high the Sensex will zoom. In such a scenario, fundamentals go for a toss. No one had expected the Sensex to surge 60 per cent from the June low of 8,800," says Baliga. "It's no longer a buyer's market; it's a trader's market. The Sensex is trading at 15 per cent over its fair value based on 2006-07 earnings and 5 per cent over its 2007-08 earnings."

Despite this, the market is rocketing higher on the back of impressive corporate performances that continue to surprise the market. "Beyond a point, liquidity can't drive the market. The only trigger for this market to sustain itself at these levels is corporate performance. If it beats streets expectations, valuations will change; otherwise, fundamentals will come into play and the market will get aligned with valuations," says Nilesh Shah, CIO, Prudential ICICI AMC, who feels that at the current level, there are more chances of a fall in prices than a rise. "At 17-18 times forward earnings, the market is costly; the Sensex will move in the range of 12,500-15,000. But despite valuations running ahead of time, the fundamentals are still intact. So, the long-term bull run is certainly not over yet," he adds.

-Mahesh Nayak

Measure for Measure

Is one common currency for media consumption research a better idea or do divergent tools present a better picture of media consumption habits of consumers? In the television space, Audience Measurement and Analytics, or aMap, is seeking to counter the "inefficiency" of incumbent, Television Audience Measurement (TAM).

aMap, in fact, was launched two years ago; the agency sought to provide a more relevant and in-depth analysis of data captured over a wider range. There was, and is, a section of media owners and buyers that is unhappy with tam. "TAM has three problems-a small number of peoplemeters (4,800) to measure the viewing habits of 112 million TV households, under-representation of certain sec demographics and no representation of rural audiences," says Meenakshi Madhvani, MD, Spatial Access, a media audit agency.

aMap took the initiative to address these issues, but hasn't found an overwhelming response from the clients. It has installed 6,000 peoplemeters in Delhi, Mumbai and Ahmedabad and proposes to increase the number to 11,000; its meters are digital and, hence, generate data overnight unlike tam's meters that churn out data after a week. "Ours is a more efficient system and also, has a better representation across socio-economic demographics," says Tapan Pal, CEO, aMap.

Yet, the total number of clients that aMap has been able to win in the past two years is a mere 10 against the entire universe that tam serves. Madhvani says even if aMap is not able to garner much client support, it will at least force the incumbent to pull up its socks. But the latter finds the debate futile. "Every one wants more and better data, but nobody wants to spend any resources on it," says L.V. Krishnan, CEO, tam Media Research. Or is it that everyone hankers for change but prefers status quo, especially when it suits them better?

-Archna Shukla

MOBILE MAKERS REACH OUT

Mobile handset major Nokia is considering microfinancing its entry-level handsets to generate greater penetration. A company spokesperson declined to share further details but confirmed that the proposal is, indeed, being discussed internally. Motorola, too, has a similar scheme. It tied up with GE Money late last year to offer zero per cent finance on its mobiles, and Samsung also is toying with the idea. About 60 per cent of handsets sales come from first-time users; so, handset makers are looking at this market very seriously.

"Today, communications is about selling a story which goes beyond just explaining features," says Lloyd Mathias, Director, Marketing, Mobile Devices, Motorola India. The company witnessed a surge in sales after it tied up with Bharti TeleTech last year for nationwide distribution of its handsets. It has also tied up with Hariyali Kisan Bazar and ITC's e-choupal to penetrate deeper into the mass market.

Samsung, too, is "investing aggressively on brand building through advertising and retail marketing initiatives," says Asim Warsi, Head, Marketing, Samsung India. It is also looking at ways to reach out to consumers, that go beyond just financing the handsets. "We will create an entirely new channel based on the media through which the people buy," claims Warsi, but declines to divulge details. "The strategy will be unveiled in the first quarter of the next calendar year."

-Shaleen Agrawal