AVB Group's Birla: Tapping retail success

With some of India's biggest conglomerates-the Tatas, Reliance and Bharti-unfolding their game plan for organised retailing, it was only a matter of time before the Rs 40,000 crore A.V. Birla Group got into the thick of the action. The group, which recently floated its retail arm, Aditya Birla Retail, has made its first move by buying over Trinethra Super Retail, a multiple retail store based in the South. The acquisition will give the A.V. Birla Group control over Trinethra's 170 outlets that are spread across Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. The stores have an average size of around 2,500 square feet. Trinethra bought over Bangalore-headquartered Fabmall India's chain of convenience stores about two years, which will now enter the A.V. Birla fold.

For the Birlas, this acquisition will be a useful starting point as far as a full-fledged retail foray is concerned. The group has decided that it will go in for a JV with a foreign partner and the rollout of the first store is expected to take place over the next 7-8 months. "This acquisition demonstrates our intent to be one of the leading players in Indian retail. We will commit the necessary resources in terms of funds, efforts and people to build a long-term and sustainable retail business," says A.V. Birla Group Chairman Kumar Mangalam Birla.

While the deal size has not been made public, Trinethra is expected to hit a turnover of Rs 350 crore (annualised) by March 2007, which will be double the previous year's turnover. The A.V. Birla Group has acquired a 90 per cent stake in Trinethra while the balance will remain with India Value Fund (IVF), which held 80 per cent prior to the deal. IVF is run by private equity fund GW Capital, which has investors like GW Capital's CEO, Gary Wendt, HDFC, Ambit Corporate Finance and IDBI. IVF's holding in Trinethra was bought from ICICI Ventures. "The value that Trinethra brings to the table is its strong footprint. By the end of this year, Trinethra should be touching a number of 200 stores," says Trinethra CEO Pranab Barua.

Clearly, there appears to be space in the fledgling segment of organised retailing for all the big players. After all, organised retailing is just 3 per cent of the entire Indian retail pie, and by 2010, Citigroup predicts that this pie will be worth $284 billion (Rs 12,78,000 crore)-currently it is estimated at $225 billion (Rs 10,12,500 crore)-with the organised slice accounting for $29 billion (Rs 1,30,500 crore).

-Krishna Gopalan & E. Kumar Sharma

Dark Cloud Ahead
Q3 results for the IT services sector will be subdued.

Results of the IT services bellwethers typically set the trend for stock prices every quarter. This time around, for the third quarter, the prognosis doesn't look good, thanks in the main to the rupee's 3 per cent appreciation against the dollar. According to analyst estimates from four leading brokerage houses-Merrill Lynch, ask Raymond James, Motilal Oswal and Batlivala & Karani- the top tier, comprising Infosys Technologies, TCS, Wipro, Satyam Computer, HCL Technologies and Tech Mahindra, is likely to post a 5 per cent increase in net profit and a 7.3 per cent rise in revenues. The corresponding figures for the second quarter are 13 per cent and 18 per cent, respectively. Says Sandeep Shah, an equity analyst with Motilal Oswal Securities: "A rising rupee, wage bill and stable billing rates will also have a negative impact on operating profits."

However, companies that generate significant revenues from Europe-like Mastek, Tech Mahindra and Infotech Enterprises-are better placed as the rupee has depreciated against the pound and the euro.

-Mahesh Nayak

Transmitting Value
Bharti is in talks to offload a stake in its towers business.

There's value locked in telecom towers-that's what India's cellular operators have realised. Bharti Airtel has plans to hive off its wireless towers (which are used to transmit cellular telephony signals) into a separate company, Reliance Communications (R-Comm) is spinning its infrastructure into a fully-owned subsidiary, and the Essar group, which holds 33 per cent in mobile operator Hutchison-Essar, has created Telecom Tower & Infrastructure to construct telecom towers, which will be leased out to private operators. There's also GTL Infrastructure, which is rolling out a pan-India network of 6,700 towers at a cost of Rs 2,030 crore.

According to T.V. Ramachandran, Director General COAI, the number of towers could be well over 300,000 towers if the present level of sharing does not increase, and the asset base of the Indian telecom infrastructure market alone could be worth over Rs 75,000 crore by 2010. Currently, there are more than 90,000 cellular towers, and another 200,000 will be needed in two years. By hiving off the tower business as a separate company/subsidiary, telecom companies stand to gain not only from revenues generated by leasing out the passive properties but by unlocking value for shareholders by aligning with foreign infrastructure companies. Bharti Airtel, for instance, is in talks with several such global majors as well as private equity funds to sell a stake in the soon-to-be-hived-off towers company. Bharti plans to retain a controlling stake in the proposed subsidiary. Bharti ended 2005-06 with 20,000 towers and aims to go up to 40,000 by March 2007. Motilal Oswal has pegged Bharti's estimated net assets at Rs 24,797 crore by March 2007. The new entity would manage not only the existing towers but will take care of the parent company's expansion plan. "We will continue to follow our tenet on infrastructure sharing as we believe it leads to significant cost savings related to towers, shelters, DGS and air-conditioning, which account for part of our overall capital expenditure," says Sanjay Kapoor, Joint President (Mobiles Services), Bharti Airtel.

US-based American Towers is one of the companies Bharti is talking to; it is also negotiating with Reliance and Hutch for a share in their tower business. Another company that Bharti is in talks with is Independent Mobile Infrastructure Mauritius (IMIL), which has lined up investments worth Rs 3,000 crore for India. Both foreign companies have applied for approval of the Foreign Investment Promotion Board.

Meanwhile, R-Comm, with assets worth Rs. 32,281 crore (as on September 30, 2006), and with 12,000 towers currently, will transfer the existing wireless towers (for CDMA and GSM) and related infrastructure of the company to a 100 per cent-owned subsidiary, Tower Company. "Henceforth, all new towers and related infrastructure will be set up by Tower Company (TowerCo), with independent financing, thereby reducing capex requirements and leveraging on R-Comm's own balance sheet," Anil Ambani, Chairman, R-Comm, said recently in a statement.

-Pallavi Srivastava