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FEB. 25, 2007
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Trading with ASEAN
In the recent Indo-ASEAN summit, ASEAN was, for the first time, on the defensive. India has agreed to bring down its negative list of imports to 490 items in the free trade agreement with the 10 ASEAN nations. But India’s step towards free trade was not matched by the ASEAN nations, as more than 1,000 items still figure in the negative list of the ASEAN. In 2005-06, India’s total trade with ASEAN was at $22 billion (Rs 99,000 crore), against just $7 billion (Rs 31,500 crore) in 2000-01.


Exchange Deal
Indian markets are on a roll. Global stock exchanges and financial institutions’ interest in the Indian stock exchanges goes to show the long-term growth potential of India Inc. The year has started on a positive note. The NYSE and three global financial institutions have each picked up a 5 per cent stake in the NSE. The deal will open exciting vistas in global co-operation for the NSE, and at the same time could improve the fortune of smaller exchanges in the country.
More Net Specials
Business Today,  February 11, 2007
 
Current
 
End Game, But No Winners
The Haldia Petrochemical stalemate may persist.

Whose win is it anyway? Soon after the Company Law Board (CLB) gave its verdict on the Haldia Petrochemical (HPL) case on January 31 (after a hearing that lasted for more than a year), directing the West Bengal government to sell its entire stake to joint venture partner Purnendu Chatterjee, many thought it was Chatterjee's victory over the state. The state thought it that way too. But 24 hours later it did a flip-flop, harping on the particular part of the CLB verdict which upheld the West Bengal government's allotment of 150 million of HPL shares to Indian Oil Corporation (IOC) for Rs 150 crore. The Chatterjee group obviously isn't celebrating any more, having found reason to be unhappy with the CLB offer. Result? The imbroglio over HPL's management control seems to be far from over even after the CLB order. Both Chatterjee's TCG group and the state are keeping open further legal options.

"An amicable solution is still possible, if the state so desires. We'll try not to do something that may antagonise the state," says a close aide of Chatterjee, trying to hide their disappointment over the CLB order. Nirupam Sen, West Bengal Commerce and Industries minister, adds: "We are not averse to selling out our entire stakes in HPL to TCG, provided they take it at one go and make upfront payment. But we are considering all legal opinions and not ruling out moving the Calcutta High Court, challenging the CLB order either." In the present scheme of things, the Chatterjee group has a 59.9 per cent stake in HPL, the state has 36.88 per cent and Tatas 3.2 per cent. However, if the state's stake sale to IOC is taken into account (which the quasi-judicial body has already upheld), then the equity structure on expanded capital would be TCG: 54 per cent, West Bengal Industrial Development Corp: 33 per cent, Tatas: 2.8 per cent and IOC: 9.6 per cent.

Another sour point is the CLB's directive that the price payable for the 520 million shares should be the fair price determined by the valuer appointed by it or Rs 28.80, whichever is higher. TCG has been demanding appointment of an independent valuer as per the original joint venture agreement. The stalemate continues.


Can You Spot The CFO?
Most media finance heads are obscured by their bosses.

E&Y’s Nendick: Spotlight on CFOs
For over 10 years, Ronald D'Mello was the Director-Operations and Finance (equivalent of a CFO) of media and entertainment major UTV Software Communications. In 2006, he moved up as Chief Operating Officer, and is today at the forefront of the company's growth strategy. "The media business is tough. Creativity alone does not make sense. Making money is equally important," quips the 42-year-old D'Mello.

D'Mello may be a rare example of a CFO in the Indian media & entertainment (M&E) sector moving up to the top operational position, but his elevation does highlight the increasingly important role of the Finance Chief in M&E companies. A recent global M&E survey by Big Four consultants Ernst & Young, dubbed Centre Stage: CFOs and Finance Executives in the Spotlight of an Industry in Transition, concludes: "In the current global environment no one has a more pivotal role than the cfos and other finance executives, who must execute a command performance everyday before a demanding global audience and all other stakeholders." The survey was conducted among more than 200 global finance executives, 46 of them CFOs and six of them from India. The survey highlights the larger role of the CFO, who has moved beyond the plain-vanilla finance function to assist the CEO in strategic decision-making, including scenario analysis, customer product analysis and investment optimisation. As John Nendick, Global Head (Media & Entertainment Practice), Ernst & Young, explains: "Rapid changes in the M&E industry have made it more complex and unpredictable. Along with several opportunities, there are risks as well that need to be considered. This makes the CFO's function critical, as he has to derive more value from existing investments and operations."

However, CFOs of Indian M&E companies may have still not made this crucial transition. "After speaking to the Indian CFOs of media companies we find that CFOs are still involved largely with budgeting and related activities. They are still not involved in the strategy of the company overall. It will be at least three years before Indian CFOs of media companies take centre stage," says Farokh Balsara, Head (Media and entertainment practice) at E&Y in India. That probably explains why only six Indian CFOs from the media companies participated in the global survey. Most CFOs who were contacted were not available. Clearly, the promoter's towering shadow looms large over most Indian CFOs.


Holding No Ace(r)s?
Taiwanese major needs some wildcards in India.

Acerís Rajendran (left) and Intelís Nair: Power duo
India has been a difficult market to crack for the $11.31 billion (Rs 50,895 crore) Taiwanese electronics giant Acer, which is struggling against entrenched competitors such as hp, Lenovo and HCL in the desktop and notebook segments. The company has just 3.6 per cent of the desktop market compared to over 30 per cent for both hp and HCL Infosystems. Even in notebooks, where it doubled its market share a couple of years ago, Acer slid backwards recently in the face of a strong onslaught from rivals, most noticeably from hp which signed on Bollywood star Shah Rukh Khan to promote its products. While saturated developed markets (especially in the us and Japan) compelled Acer to shift its desktop focus to rapidly growing geographies such as China and India (where, according to MAIT, the hardware industry body, pc sales for the first-half of this year grew almost 20 per cent to 2.96 million units), there has thus far been little indication that its switch in strategy has been successful.

"We have an almost invisible presence in the desktop market," admits S. Rajendran, General Manager (Sales and Marketing) at Acer India, who adds that the company is now witnessing strong growth in two key segments, education and e-governance, and expects an upturn in its fortunes imminently. In addition, Acer has also tried to create a new market niche with its Ultra Small Form Factor pc tower, which is a tenth of the size of a conventional 30-litre CPU and consumes one-third of the power conventionally used-all this without any compromise on power (with an Intel Core 2 Duo processor under the hood). It's also competitively priced between Rs 39,999 and Rs 49,999. "In the Indian market, desktops account for around 85 per cent of the market and we want to grow our presence in this market aggressively," says Rajendran. Acer's problem is that while it looks to go toe-to-toe with its much larger rivals in the Indian market, it has more immediate problems in the form of Zenith and Lenovo snapping at its heels. "We believe we offer customers a good mix of price and value and we have been able to grow our market share as a result," says Devita Saraf, ED, Zenith Computers.

To shore up its presence in India, Acer has overhauled its sales and marketing set-up, by giving its field staff more responsibility (and more accountability) than earlier. "We used to have individual sales reps for desktops and notebooks, but we've now moved to a model where we give them overall responsibility for a group of re-sellers in a specific location," says Rajendran. Acer's other issue is to get an uncluttered space in a crowded retail market, which aside from mainline vendors such as hp and Acer, also makes space for a raft of smaller brands and unbranded players. "We sell our products through 2,500 re-sellers and 106 exclusive outlets, but we are constantly fighting the clutter on the retail front," says Rajendran. With pc vendors throwing up launches every 30-45 days and HP and Dell expected to step on the gas in the next few months, the pressure is unlikely to ease on Acer anytime soon.


Faster, Higher, Stronger
Internet usage is driving the development of faster processors.

Intel’s Maloney: Genius inside
Bump into Sean Maloney, and he's likely to yank out Intel's latest 'Core 2 Duo Extreme' quad-core processor and ask you: "Did you think five years ago you would have needed that much computing power?" Before you finish shaking your head, the Executive Vice President & Global Head of Sales & Marketing at Intel will explain what's driving the development of faster processors. "People are spending more and more time online, and without the internet the personal computer is actually quite useless. Online video is already a big thing and the next big thing will be real-time delivery of video. From anybody, anywhere and from virtually any device." And this brings Maloney to one of his favourite topics: Mobile broadband. Maloney, who is being touted by some as the next potential Chief Executive of the world's leading processor maker, played a key role in the development of the IEEE 802.16 standard, or WiMax as Intel calls it. Recently, Intel started a pilot WiMax project in Baramati in Maharashtra (Business Today, December 17, 2006) and Maloney believes that governments across the world have to take spectrum issues more seriously. "Information is like water, and from a pure capacity point of view, mobile radio broadband through standards such as WiMax will be the driver to get more people, especially in countries like India, access to that information." And this Maloney says is what's driving the development of new processors from Intel, especially for laptops. "We are already working on the second-generation of WiMax standards called 802.16e, and our hope is to integrate the 802.16 and 802.11 (Wi-Fi) standards onto one processor."


Tapping Peter to Pay Paul?
PE may help the Ramoji Group repay depositors.

Ramoji Group’s Rao: Blackstone to the rescue
It's not often that a business group that's accused of financial jugglery gets a generous dose of private equity (PE). But then again the Ramoji Group, which owns Eenadu, Andhra Pradesh's largest circulated Telugu daily, television channel ETV and Ramoji Film City (the group also has interests in foods, hospitality and financial services), isn't your regular business conglomerate. Ramoji Rao, a key promoter of the group, is seen to be a supporter of the Telugu Desam party and, by virtue of that, an obvious baiter of the Congress, which is in power in the state. His newspaper and TV channels regularly go to town with stories on alleged wrongdoings of Congress partymen.

The Congress, for its part, never misses an opportunity to hit back-just as it did recently when one of the party's mp V. Arun Kumar raised questions about the manner in which Rao raised and held funds in Margadarsi Financiers-a Hindu Undivided Family Trust. The allegation is that the funds got invested in loss-making group entities. Arun Kumar felt it was time the group came clean on the solvency of its companies as that would help restore confidence of the depositors of Margadarsi Financiers. The state government has set up two official inquiries: One, to investigate the alleged financial irregularities of Margadarsi Financiers; and the other authorises an Inspector General of Police in the cid to gather details and to file applications in relevant courts to take appropriate action against Ramoji. The man has responded by duly moving the Andhra Pradesh High Court, challenging the authority of both the actions.

And of course his media channels-both print and television-are serving as perfect platforms from which to deny the allegations and attempt to reassure investors that the group has the capacity to repay them.

Perhaps these investors would have received a confidence booster last fortnight when PE major Blackstone said it would take a stake in Ushodaya Enterprises (UEL), the Ramoji group entity that controls Rao's media firms. As per the deal, said to be one of the largest single investments in Indian media by a global PE player, Blackstone is expected to acquire over 20 per cent stake in UEL and have representation on its board. UEL expects to raise $465 million (Rs 2,093 crore), which comprises Blackstone's investment of $275 million (Rs 1,238 crore) and $190 million (Rs 855 crore) of bank financing. No further terms of the deals have been disclosed. The transaction is subject to regulatory approval of the Foreign Investment Promotion Board and the Ministry of Information and Broadcasting.

For the year ended March 31, 2006, UEL posted a net profit of Rs 56.8 crore on a turnover of Rs 752.16 crore. A Ramoji group official explains that the funds have been raised for consolidation, restructuring and growth of the media businesses. He adds that the investment will help strengthen the group and unlock the promoters' investments, which could be used to repay depositors in Margadarsi Financiers. In an official statement, Akhil Gupta, Chairman & Managing Director, Blackstone Advisors India, says: "We believe that UEL is an ideal platform for Blackstone to play this highly attractive sector in India. We have been very impressed by UEL's management team and feel privileged that Rao has chosen Blackstone to be the company's partner as UEL enters this very important next phase of its growth." It's over now to the Congress.


Fuelled by Focus
With a bouquet of services, Starcom hits pay dirt.

SMG’s Ravi Kiran
When Ravi Kiran says "no media network in India offers as complete a solution to its clients as we do," you would be tempted to dismiss it as yet another adman's exaggerated claim. But the diminutive CEO of Starcom MediaVest Group (SMG) in India may actually not be guilty of overstating his agency's bouquet of services. "We realised early on (Starcom was born in 2000) that TV and print cannot be the only media that clients can look at in the long run. Our new game therefore was to take an inclusive view of media and develop specialised skill-sets aggressively. That is how we started setting up new and non-classical units. Our business structure is based on discipline, geography and sectors."

Discipline involves focussing on specialist business units such as digital and entertainment, with Starcom Digital & Entertainment, out-of-home advertising with Enhance and sports with Relay. Taking care of the geography bit is Expanse, which is focussed on small towns and rural markets, whilst sectors mean that Starcom will set up separate agencies for specific high-growth industries, or even for a single client operating in such sectors. For instance, recently Starcom and Kishore Biyani's Future group jointly set up FutureWorks, which will manage the media needs of all companies and brands belonging to the Future group. The size of the account is estimated at Rs 200 crore annually. In the US, Starcom has a similar arrangement with General Motors; it has a separate agency called gm Planworks, which exclusively manages the auto giant's $3.6 billion (Rs 16,200 crore) account, with six offices and over 500 people. More recently, Ravi Kiran announced the launch of 'C', the first Indian agency to cater exclusively to the lifestyle sector.

But it's not all about just specialist services. Starcom has also developed and inherited some proprietary tools. For instance, the agency strengthened its TV planning and buying last year by introducing TARDIS, SMG's globally renowned TV tool, which incorporates the world's smartest and post powerful TV optimiser. TARDIS, say Starcom officials, can save clients anything between 5 and 25 per cent in planning costs alone on their TV budgets, even as TV plans get dramatically superior. In 2005, Starcom also implemented a high-end transaction management system called StarScape, which allows smooth handling of large Agency of Record accounts.

Starcom is now working towards coming up with new divisions in the areas of Diaspora Marketing and Word of Mouth. Ravi Kiran says diaspora marketing will begin sometime during 2007 and that this unit will be based in Mumbai and help brands communicate with South Asians across the world. It will deal with 11 markets where 80 per cent of the non-resident Indian population lives.

With such specialist skills, it isn't surprising that Starcom says it's been growing in excess of 40 per cent over the past three years. Which is probably why Ravi Kiran can afford to be choosy when selecting clients. Currently the agency has a basket of 40 clients. "We believe we have a responsibility to keep up the servicing levels to clients and also allow our people the freedom and time to grow... Mindless pitching is a recipe for disaster. We have fairly well defined criteria on the basis of which we choose clients. In fact, many of our clients that we service today have given us business without a pitch. We are also clear that we want only those clients who have a forward view of consumers, brands and media," adds Ravi Kiran. And you thought they didn't exist!


Banking at the Back End
Now, agri-retailers eye the microfinance route.

Ramping up retail: New finance route
In a bid to shore up supply side linkages for their agri-retail businesses, in the rural and semi-urban markets, conglomerates like Reliance, Bharti-Wal-Mart, Pantaloon Retail and Subhiksha are all set to turn financiers. If media reports are to be believed, some like Reliance Industries (RIL) have already approached the Reserve Bank of India (RBI) for permission to institute Non-Banking Financial Companies (NBFCs), which would tap the microfinance route. RIL officials had no comment to offer on the matter.

While the companies themselves are circumspect about divulging their plans, reliable industry sources indicate that, to begin with, the total scale of operations would be a modest Rs 7,000-10,000 crore. Nonetheless analysts are bullish on the possibilities it may hold for the microfinance sector, which currently services no more than 8 million households and 70 per cent of whose operations are concentrated in the four southern states. "The only way companies can control supply chain dynamics is through the finance route," says Gokul Patnaik, Chairman, Global AgriSystems, "this therefore is a good strategic move." Adds Damodar Mal, President (Foods), Pantaloon Retail: "This is a lucrative space considering the scale of the operations involved and also because there are no real entry barriers."

But not everyone is convinced. Says Achla Savyasachi, Associate VP, Sa-Dhan, a Delhi-based representative body of microfinance institutions (MFIs): "Large companies have enormous overhead costs, which will be passed on to the customer. Moreover, these companies do not fully understand the dynamics of the microfinance space." In fact, industry is already rife with speculation on whether the biggies will go it alone or will partner or acquire existing MFIs. "We have to contend with issues related to creditworthiness and default on payments," admits a Bharti insider, "this will make it imperative to partner existing players in the MFI space." Cautions Kalyan Chakravarthy, Country Head, Food & Agri-Business, yes Bank: "Retailers would need to check the quality of MFIs they are partnering with or taking over. The business model has to be parameterised, one that adopts a participatory approach, as issues of ownership and security are interrelated in the microfinance space."


Harmonic Change
Saregama beefs up on the creative and technical fronts.

RPG’s Chattopadhyay: New music
When RPG group company Saregama hurtled into the red in 2003-04, Vice Chairman Sanjiv Goenka took a decision to de-risk the company's business model by diversifying away from the fickle business of Hindi music. The company has since turned around, and forays into home videos, online music distribution and film production have helped the 105-year-old company spread its risks. Now, however, Saregama is seeking to spread its wings within the music segment itself. Explains Subroto Chattopadhyay, President & CEO, Management Board Member, RPG Enterprises (Entertainment Sector): "It was decided that we would look at six verticals: Creation and exploitation of music in every single format, the creation of television content, films, radio content, events, and the sixth being the network business-as in, how do we get across to the consumer."

One way Chattopadhyay plans to exploit music is to go back to the languages and focus on regional markets-Bhangra for Punjab (and also London), Bangla for Kolkata, Telugu for Hyderabad and so on. Another way to do it is via the audio-visual medium. As Chattopadhyay puts it: "What we have done is embedded within the system people who understand the subject. That is the reason why for Hindi content we have people like B.R. Sharan, an advertising veteran, Vijay Laxmi, a veteran of radio and renowned film maker Aparna who bring creative and technical know-how on board." He also points out that with the introduction of these people, the capabilities of the company have taken a jump-shift. "We will support them, build little organisations around them, and then allow them to build their own eco-system." Adds Sharan, Chief Creative Officer, RPG Enterprises (Entertainment Sector): "What I hope to bring to the table really is the experience of advertising, to focus certain types of movies towards certain types of consumers."

 

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