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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

Irons in The Indian Fire
Lakshmi Mittal is keen to invest over $15 billion in India.
L.N. Mittal: It's all about mettle

Even as Lakshmi Mittal goes about the challenging task of making synergies work for Arcelor Mittal, the President & CEO of the world's largest steel company hasn't lost track of his plans for manufacturing in India. Mittal is looking to set up two greenfield projects in India in the states of Jharkhand and Orissa. The total investment across these projects is expected to be in excess of $15 billion (Rs 61,500 crore).

Announcing the first quarter results of Arcelor Mittal, Mittal in a conference call with the media said that discussions and negotiations were in progress with the two state governments in India. Responding to a query from BT on the status of these two much-talked about projects, Mittal said: "The negotiations are with respect to the allotment of land and also for the allotment of iron ore. Once these issues are resolved, we will start work on the construction site." He added that there was work in progress on a detailed project report. "We expect that this to be ready in 18 months."

Mittal, of course, knows he isn't the only one in expansion mode. Large players like Tata Steel, Essar Steel, Jindal Steel & Power and sail have already announced expansion plans. "We expect the total capacity in the steel sector to be at around 90-100 million tonnes by 2015 (from the current 40 million tonnes)," says Mittal.

Meanwhile, Mittal also gave an update on the Arcelor-Mittal merger and said the objective was to complete it as soon as possible during the course of 2007. "The integration process has been in line with our plans and there have been savings from synergies to the extent of $573 million (Rs 2,349.3 crore) during the first quarter of 2007. This is against our expectation of $500 million (Rs 2,050 crore)," he told the media. Mittal isn't called a steel magnate for nothing.

A Big Deal Indeed
A dream run for UBS on the cross-border front.

UBS' Girotra: Mega dealmaker

Last fortnight, when united Spirits succeeded in a $1.2 billion (Rs 4,920 crore) play for Scottish distiller Whyte & Mackay, it wasn't just Chairman Vijay Mallya and his head honchos who were clinking glasses. The deal makers at UBS Securities, who advised United Spirits on the transaction, also found another reason to celebrate. To be sure it wasn't UBS' first cross-border deal in 2007. On the Sunday of February 11, when two blockbuster global acquisitions were announced, UBS was firmly in the thick of things. One was Aditya Birla Group company Hindalco's decision to acquire us-based Novelis for a significant $5.95 billion (Rs 24,395 crore). Just a couple of hours later, the world's largest mobile company Vodafone announced it would buy Hutchison Telecom International's 52 per cent holding in Hutchison-Essar for $10.9 billion (Rs 44,690 crore). In one day, deals worth $17 billion (Rs 69,700 crore) had taken place out of India. Both the transactions had UBS as an advisor-the bank represented the buyers in both deals. Between the transactions for Birla and Mallya, UBS also found time to advise the Ruias in Essar Global's buyout of the Ontario-based Algoma Steel for $1.6 billion (Rs 6,560 crore).

"We spotted the cross-border trend early and saw the need to show Indian companies M&A ideas quickly," says Manisha Girotra, Managing Director & Chairperson (India), UBS Securities. According to Girotra, the combination of ideas with financing is what has made UBS' story compelling. "Globally, we use our balance sheet only when we use advisory. That is our sweet spot," she adds. While Girotra does admit that it has been a good phase for UBS, the challenge has been in executing complex deals. So, which one was the toughest? "I think the Hutch-Vodafone deal was complicated simply because it was really three deals rolled into one. There was the deal between Hutch and Vodafone, between Vodafone and Essar and finally between Vodafone and the regulator," says Girotra.

It's not just M&A activity that's keeping UBS busy. It's also got a few big-bang initial public offerings (IPOs) in the pipeline, including those of DLF Universal and Spice Communications, besides a rights issue from Jet Airways. "I think there is a fair balance between our M&A and capital market businesses," says Girotra. That's a balance any banker would be willing to give an arm and a leg for.

Low-Rise, High Price
Jeans are no longer for just inconspicuous beer drinkers.

VF Arvind's Mehta

They're the most versatile of garments, having moved from the decks of French ships to Californian mining communities, to where they are today-on high fashion runways in Paris, Rome, New York, Milan, and of course, Mumbai. There used to be a time when the only premium-priced jeans in the market were the result of up-scale fashion designers attempting to go mass. Like Darshan Mehta, CEO, VF Arvind Brands, says: "Five years ago, the costliest pair of jeans was made by Calvin Klein. When ck launched jeans at $70, he in a sense, revolutionised the market, because before that, jeans were comfort wear, and regular wear; it was what you grew up in. A good pair of jeans cost $40 and a basic pair of jeans cost $20, and that's what the market was all about."

But alas jeans were not meant to be just for cowboys and beer-drinkers, and the market duly got revolutionised with the entry of several young, new and hip brands with a premium price tag to boot. Brands like gas, Energie Miss Sixty, Replay, and Diesel have all broken the $100 barrier with what are touted as luxury jeans. Recently, all these labels made their debut in India, and priced at anywhere between Rs 4,000 and Rs 15,000. In contrast, humbler brands like Levi's and the even humbler Flying Machine are priced in the Rs 800-3,000 and Rs 350-1,000 range, respectively. Says Harpratap Singh, Managing Director, Indus Clothing, which is responsible for bringing brands like Miss Sixty and Energie to India: "I think the luxury jeans market is going to grow between 30 and 50 per cent year on year, but it also equally depends on what kinds of brands come in."

According to Mehta of Arvind Brands, which has brought Diesel into the country via a joint venture, 65-70 million pairs of jeans are sold every year in India. "Some 80 per cent of this market is priced at under Rs 500, which is what we call the economy level, the footpath level or the absolute mass level," says Mehta, who pegs the market size at Rs 1,800-2,000 crore. "There's already a Rs 200-300 crore market of very high-end consumers buying very high-end premium luxury jeans," he adds. Agrees Zohair Officewala, coo, gas India: "About 45-50 per cent is the unbranded segment; the other half is where the brand element comes in, and this includes both Indian and international brands, as well as absolute high-end designer jeans (which make up 5-7 per cent of this segment). Officewala goes on to explain that the lower end of this branded segment is shrinking as consumers aspire for premium brands. One wonders if the pot-bellied beer drinker, too, is a part of that aspiring mass.

In Control, For Now
Miditech denies selling out to R-ADAG.

Miditech's Nikhil Alva: Riding on a growth path

It's vindication of sorts for the Alva brothers-owned Miditech, whose latest show Indian Idol 3 has got off with a good opening on Sony Entertainment Television (set) with ratings averaging to 3.4 since it was launched early this May. "Indian Idol has put set into the top-five programmes list for the first time," points out Tarun Nigam, Executive Director, Starcom North (India and Pakistan). "This proves our ability on areas outside of documentaries," says Nikhil J. Alva, CEO, Miditech. This score comes at a time when talks of attracting private equity funds for its growth are hotting up, including reports that the Reliance-Anil Dhirubhai Ambani Group (R-ADAG) is looking to acquire controlling stake in it.

Currently, a fourth of Miditech's equity is held by ICICI Ventures, and Alva admits to discussions with other such players: "We are certainly looking at funding and our talks are on with most private equity firms, including players like R-ADAG. However, it would be foolish on our part to sell out a controlling stake to anyone. This could be an option for those where growth is beginning to plateau. We are on a growth path."

Miditech's prospects certainly look bright and according to C.V.L. Srinivas, Media Consultant and the former-head of Maxus, GroupM: "Miditech is definitely a quality player, and there will be room for such players to exist despite aggregation in this space. Content creation is not necessarily about scale and muscle alone. Content needs great ideas more than anything else. While bigger players may have the ability to build scale it doesn't mean they will consistently produce quality content."

Miditech has chalked out various centres that are developing skill sets pertaining to different requirements. For instance, Mumbai will focus on fiction-based shows like Parivar for Zee TV and Indian Idol. The Delhi and Singapore offices together will be a hub for kids programming and high-end documentaries, and Bangalore will focus on current affairs and lifestyle. "We are really ramping up and will surely require funds for growth, which is why we have chosen to diversify," says Alva.

Investors, too, look at multiple revenue-earning streams from such players and according to Srinivas "what is more important, going forward, is for content companies to be able to adapt their skill to newer media platforms, and capitalise on developments like media convergence to tap into newer market segments." For its part, Miditech has initiated talks with players such as Time Warner, Sony Pictures, Television 18, NDTV and also some global PE funds. Watch this space.