So, from here on the Faridabad-based group would focus on four core businesses: agri (tractors), telecom services (cellular telephony), IT and internet services and healthcare services (cardiac healthcare) under the Escort Heart Institute—managed by a trust until then, but transferred to a company to give it a focus. The key word: services. Says Nanda: ‘‘We want to be a consumer company offering products, which requires a consumer orientation. Services is a corporate culture on how you to make your company younger and sensitive to customers.’’ Fine. But it’s been almost 12-18 months since it identified these as core businesses, and Escorts is still grappling with the new economy initiatives.

The group’s IT—the group’s foray into software is yet to deliver results while Escosoft’s joint venture with Computers Associates for ECRM and billing solutions did not work—and internet services are yet to really take off, and Nandas’ dream of leveraging Escort Heart Institute brand equity to set up a chain of hospitals has been delayed. While Escotel (which operates cellular services in UP West, Haryana, and Kerala) has done well in terms of its reach and acquiring subscribers, it needs to raise resources to fund it’s growth and bid for 4^th licences in circles. Besides, as the difference between cellular and basic services get bridged, can the Nandas survive only with a cellular play?

Compounding problems for Escorts is the slowdown in tractors—while an overproduction of grains affected disposable incomes of farmers, which in turn, resulted in poor offtake for tractors, overcapacity in tractors and huge channel stocks drove down price realisations, affecting margins—the group’s flagship business which accounts for a chunk of its profits. The entry of transnationals like John Deere, Renault, and earlier Ford New Holland will intensify competition in a market which may not grow or grow at 3-4 per cent compared to an average growth of 12-15 per cent during the 1980s and 1990s.

Escorts, which has invested Rs 350 crore to upgrade its R&D and re-engineer its production lines, is trying to cope with it by developing higher horse-power tractors and pushing exports. Last year, Escorts acquired a 49 per cent stake in Long Agri Buiness, which will crash its distribution time to zero. But export volumes will remain small (around 2000 per annum), and the key challenge will be its ability to sustain its marketshare and margins back home. While tractors may not be as glamourous as its services business, it will continue to main source of its profits and still the most competitive of all its businesses. But how well placed are the Nandas in their new economy initiatives?

Escorts plans to leverage on the brand equity of escort heart institute, which has two hospitals in delhi and faridabad. Escorts is expanding the capacity of its delhi hospital from 220 to 350 beds and the faridabad hospital from 150 to 250 beds. It is also putting up a 50-bed hospital at Jaipur, and is close to acquiring 76 per cent stake in Amritsar Hospital Ltd, a 150-bed facility at Amritsar that specialises in cardiology and renal care. Besides, Escorts wants to develop a chain of tier-II set-ups, Heart Command Centres at Delhi, Jaipur and Amritsar. These will be the first port of call for heart partients and provide the same level of services a super-speciality hospitals.

Escorts plans to leverage on the brand equity of escort heart institute, which has two hospitals in delhi and faridabad. Escorts is expanding the capacity of its delhi hospital from 220 to 350 beds and the faridabad hospital from 150 to 250 beds.

While Escorts enjoys a good brand equity in cardiac care, it has gone slow after announcing that it plans to have a chain of hospitals across the country—the Jaipur hospital is stuck because the land for the same was allotted to the trust, and is in the process of being transferred in the name of the company. It would need Rs 150-200 crore over the next 2-3 years to bankroll these plans, but what’s comforting for Escorts is that they can be funded by entirely the cashflows of Escort Hospital and Research Centre; the company is sitting on a cash of Rs 78 crore, and generates Rs 44 crore per annum.

The group’s foray into IT and internet services is channeled through Escosoft Technologies (software) and Esconet Services (e-enabled services). The latter has developed 4-5 products (automatrix.com, a b2b exchange for autocomponents, cellnext, which will be provide internet access and services to users of mobile telephony, iserve, an ISP in Haryana, UP West and Kerala, a healthportal and Escolife, a portal for insurance agents (a baby of Rajan Nanda’s wife, Ritu Nanda). Says Rajan Swaroop, CEO, Esconet Services: ‘‘We have built these services based on our domain expertise in agro, health, and telecom.’’ Swaroop expects Esconet to generate a business of Rs 40 crore next fiscal, and Rs 130 crore.

Even as those figures appear a bit far-fetched, Escorts software venture does not provide much comfort. A personal study of 100 software companies by Nanda revealed that 70 per cent of them start making money by the third year, and the remaining 30 per cent do so beyond third year. ‘‘We are at par with them. What do you expect us to achieve within such a short time?’’ although he concedes that the joint venture with Computer Associates hasn’t succeeded, and he’s reapproaching the partner for alternate tie-ups. Luckily, Nandas’ exposure is low in Escosoft (Rs 7-8 crore) and Esconet ( Rs 25 crore).

It’s not as lucky when it comes to telecom, whose fate will increasingly dictate the group’s fortunes. Escorts has invested Rs 190 crore in equity and Rs 60 crore in subordinate loans as its component; First Pacific of HongKong, the joint venture partner, has invested a similar amount. As First Pacific is not in a position to invest more (it’s in a financial problem back home), the Nandas will have to invest more to fund the roll outs and bid for the 4^th cellular licences; it plans to acquire 3 more licences which are in contiguity with its circles. Or rope in strategic investors, which is unlikely to happen in a hurry.

Sure, Escotel has done well till now—it’s subscriber base of 310,000, has grown (124 per cent) faster than the industry (83 per cent), has one of the largest backbone (2000 km) and reach (130 towns), and has innovated well. The company is likely to achieve a cash break-even by mid-April 2001 (although delayed by one-and-half years (due to various governmental delays and poor offtake) athough its carry forward losses would tot up upwards of Rs 600 crore. Adds Nanda: ‘‘Although losses are beyond what we had planned, we are in the game of service and market ranking.’’ A recent estimate by Chase Manhattan valued the business at $760 million (Rs 3500 crore).

To make the business more robust, Nanda plans to invest in broadband and offer e-services like cellnext and iserve. But can Escotel survive through a pure cellular play as the difference between cellular and fixed line will dissappear? Says a Mumbai-based telecom analyst*: ‘‘The writing on the wall is clear. A pure cellular player will find it difficult to survive. Once someone offers WiLL services, Escotel’s marketshare can come down dramatically. If you are offering a bundle of services, you lose somewhere which you can gain somewhere.’’ Maybe. But the Nandas not only believe that a pure cellular stragegy is sustainable—citing examples like Vodafone which is highly successful—they feel that WiLL services will be unviable, if not die before its born as they contend it’s illegal.

To be sure, the fixed line business, per se, is unviable, if one examines the revenue construct. A fixed line operator like MTNL gets a rental of Rs 300 and a 60 per cent revenue share of long-distance calls and international calls originating in its network. The fixed-line operators use the STD and ISD rates to cross-subsidise local calls, at Rs 1.20 per call. Tariff for both STD and ISD calls are coming down—which means the operator who gets a 60 per cent share of STD calls today could get 30 per cent in due course—if STD/ISD rates come down, fixed line operators can’t cross-subsidise local calls.

Escotel also argues that the operating costs and capital expenditure (capex) costs will be higher for fixed line operator. The average capex per subscriber in a cellular network is around $150, which will be at least double of this for a fixed-line network. The reason: unlike cellular, where the call hold time is under 60 seconds, fixed lines have higher call hold time (you tend to talk longer on a fixed line). Explains Manoj Kohli, CEO, Escotel: ‘‘Call hold time has a direct proportional to the infrastructure cost as you have to build that much capacity. The opex and capex in fixed line networks are much higher than cellular networks. It’s a lobby game that’s happening.’’

And lastly, the issue of inter-connection charges, where the cellular industry is discriminated—the cellular operators get a 5 per cent revenue share for calls originating in their network. The Telecom Regulatory Authority is likely to study interconnect sharing principles soon, and Kohli argues if the cellular players are bought at par (get the same revenue share) with basic players, cellular operators would become more viable while the basic players more unviable. Argues a Mumbai-based analyst with a FII** ‘‘Èven assuming that the local call figure of Rs 1.20 per 3 minute call doubles to Rs 2.40 for WiLL services, it will will still be cheaper than cellular calls.’’

WiLL is not the only threat; the 4^th operator can also offer cheaper services, thanks to drop in equipment prices. For a new operator, the GSM infrastructure would cost $100 per subscriber as against an average cost of $200 for Escotel though it says the figure would be lower on a depreciated basis. But Kohli is confident of meeting the challenge: ‘‘Their capex could be lower, but marketing and development cost would be higher. We are ready for the competition. By the time they come, we will be more robust.’’ As Escotel plans to grow geographically, acquire 3 more circles, and take its total geographical coverage of the country from 11 per cent to 25 per cent. And as it grows from 3 to 6, it will raise more resources.