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JUNE 17, 2007
 Cover Story
 BT Special
 Back of the Book

Rupee Rise
Though an appreciating rupee is a cause for concern for many industries, it is proving to be a boon for some, particularly those that have large foreign currency borrowings. A weaker dollar is making repayments cheaper. Also, state-run refineries and those in the aviation sector are well-positioned to benefit from the stronger rupee. The Indian currency is up 8 per cent this year and is Asia's strongest currency against the dollar in 2007.

The ECB Route
The cap on maximum external commercial borrowings (ECBs), an annual ritual for the government, is fast losing its significance. Since the bulk of the foreign borrowings is raised under the automatic route by companies, it is becoming difficult to enforce the cap. The government had raised the annual limit of ECBs last year from $18 billion (Rs 81,000 crore) to $22 billion (Rs 99,000 crore). Now, it seems that total inflows will cross the $22-billion mark.
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Business Today,  June 3, 2007

Birla Offers More
Consumers are spoilt for choice in organised retail.

After the likes of Kishore Biyani's Big Bazaar, RPG's Spencer's, and Reliance's Fresh, it's the turn of Aditya Birla Retail to launch supermarkets and hypermarkets within the ambit of organised retail under the brand name More. The first supermarket will be launched in Pune by the first week of June. The company is looking to make an investment of around Rs 9,000 crore over 2-3 years. At a press meet in Mumbai last fortnight, Kumar Mangalam Birla, Chairman, Aditya Birla Group, said his group will not have a joint venture partner for the project. "Retail is mostly a local business and we believe that to grow the business, we have the skill sets in-house," he told the media. He clarified that the money for the project will not come from any of the listed entities in the group.

So, what really is the opportunity that Birla has spotted in India's retail sector? "Organised chains account for a mere 3 per cent share and in the all-important food category, it is 1 per cent," he says. Sumant Sinha, President (Corporate Finance), Aditya Birla Group, will be the CEO of Aditya Birla Retail. According to Sinha, the plan is to have more than 1,000 supermarkets, although the number of hypermarkets has not been decided. "The supermarkets will have an area of around 10,000 sq. ft while the average size of the hypermarket will be around 75,000 sq. ft," he adds.

The first indications of the Aditya Birla Group's ambitions surfaced last year when it acquired South-based retail chain, Trinethra. Trinethra has over 170 outlets spread across Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. "Trinethra has given us more than half a million square feet of selling area. Eventually, Trinethra will also migrate to the More brand name," points out Birla. Trinethra has 3,000 employees while Aditya Birla Retail has 1,000 on its rolls. Apart from the supermarkets, Trinethra has a hypermarket in Mysore which has been a learning ground for Aditya Birla Retail's hypermarket project. With Wal-Mart poised to take the plunge, in a tie-up with Bharti, the action in organised retailing has clearly hit fever pitch.

Sweet Emotion
A Bollywood film-maker will start producing sugar.

He's known for making distinctive films like Gangaajal, Mrityudand and Apaharan. But Prakash Jha's latest production is more commoditised and in fact is totally removed from reel life. Jha plans to make sugar. Here's the reason why. "There is a huge opportunity in Bihar, which was once a big sugar belt. We had 27 factories in the state before Independence and this will be the first one since then," Jha told BT. The project will be under a holding company called P&M Infrastructures. The foundation stone for the first sugar factory-which will be under a company called Maurya Sugars-has been laid at Guruwalia in the West Champaran district of Bihar on April 28, 2007. "The plant will have an investment of Rs 240 crore. We are looking to start production during 2008-09," says Jha. This factory will have a cane crushing capacity of 3,500 tonnes crushed per day (TCD) which can be increased to 5,000 TCD. And that's not all. Jha is talking of opening another 10 sugar factories in the state which, in all, will entail an investment of Rs 3,000 crore.

Jha is not too worried about funding. "We are looking at a mix of debt and equity. We are also considering the options of a private placement or even going public," he says. For the first project, the promoters will pitch in with Rs 96.95 crore while the balance will come from a term loan. Apart from Jha, the promoters include Manmohan Shetty, Chairman, Adlabs Films and Chandir Gidwani, Vice Chairman, Centrum Capital.

Interestingly, Jha is also keen on getting a slice of the old sugar factories that the Bihar government intends putting on the block. "Our strategy will be a combination of putting up new factories and taking over the existing ones," he says, sounding like a true-blue businessman. It's not as if the current slump in the industry has missed his attention and Jha is quick to respond that there is still an opportunity. "The industry goes through its cycles. The fact is that too much of production has resulted in an oversupply." Jha adds that nobody is in an expansion mode today. "That's exactly why I think it's the right time," he says. Now that's strategy, Bollywood style.

Dabur's Fruit Punch
Can fruit drinks help it double revenues in three years?

Dabur's Burman: Eyeing a strategy to expand his consumer base

If you are part of the growing tribe that loves swigging a glass of 'oj' in the morning, then Amit Burman, Chairman, Dabur Foods, is frantically working to sustain that interest by keeping a lid on price. A clear and present danger for the company, considering the citrus canker disease that devastated the orange crop last year. Impact is being felt on the orange concentrate prices across the world, including India. "We have to deal with crazy price hikes of orange juice concentrate; it's shot up from around $1,200 per metric tonne to over $2,600. We have to deal with some serious pricing issue along with working on a portfolio strategy," he says.

But that's not where his worries end, he is now dealing with rising pineapple prices as well-concentrate prices have shot up from around $600 per metric tonne to over $1,100. Blame it on global warming and consequently the freak rains in Thailand which, along with the Philippines and China, accounts for most of global production. Mercifully for Dabur Foods, orange and pineapple do not constitute bulk of the fruit beverage/juice consumption as compared to mango, which dominates with up to a 70-75 per cent share. So, the company is now eyeing a strategy that will broaden its consumer base, and help it deal with cost and, therefore, margins. Along with ploughing deeper into areas like manufacturing and food services, this game plan is aimed at helping Dabur Foods achieve its stated turnover target of Rs 500 crore by 2010 (the company closed the year ended March 2007 with revenues of Rs 242 crore).

Says Amnish Aggarwal, Senior Analyst, Motilal Oswal: "The turnover target looks achievable considering the company has recorded a cumulative average growth in excess of 30 per cent over three years. The challenge for it will be to match the distribution strength of players such as Coca-Cola, Pepsi and Frooti-which I doubt if it can. It is already very well entrenched in the juice segment, hence, taste and price should not be an issue. All said, this launch (of Twist) is bound to add some incremental growth for it."

The launch Aggarwal is talking about is of Twist, which took place in March and is in the mass fruit beverage segment-valued at Rs 1,250 crore, and dominated by brands like Maaza and Frooti. "We are eyeing a much larger segment that has seen higher growth rate of 25 per cent, as compared to juice which is a Rs 350-crore category growing at 18 per cent," says Burman. A reason for that faster growth might just be competitive pricing, vis-à-vis colas. Dabur Foods has offered Twist (mango plus another fruit) at Rs 10 for a 200 ml tetra pak, and pet bottles in 600 ml and 1,200 ml at Rs 25 and Rs 45, respectively. (A fruit beverage is different from a juice in that it has a pulp content of less than 20 per cent).

Price is the real difference, avers Damodar Mall, CEO (Innovation & Incubation), Future Group: "Most consumers see no difference between juice and drink. To them, price and taste is all that matters. It's the brand owners and retailers that see the sharp cleave in segments. And often, most consumers who are drawn by price eventually graduate into the more premium-packaged juice category. So, it's a sensible strategy for Dabur Foods to look at the category with Twist," he offers.

In fact, the drink segment has seen a flurry of activity this year: New entrant Priyagold has launched Treat in 300 ml tetra packs; Coca-Cola has launched Minute Maid. "We will clearly see a lot of action in this category," Mall agrees. Dabur Foods, on its part, will look at 200 cities, where it is already present, but will deepen distribution inroads further to 1 lakh-plus outlets from its current 60,000 outlets.