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May 30, 2006

Web Site on Valuations

Professor Aswath Damodaran of the Stern School of Business at New York University has an exhaustive web site on corporate finance related topics including valuation techniques. Interestingly, the web site has a detailed spreadsheet on Google's valuation.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 29, 2006

Why more Indian cos. are listing in Dubai and Singapore

Businessworld has an article on the trend of Indian SMEs preferring to list in exchanges at Dubai and Singapore rather than New York.
Remember, not a single Indian company has listed its shares in the US after Tata Motors’ 2002 listing. This being the record of large companies, it is not hard to understand why smaller companies are looking elsewhere. Says Sanjay Hegde, executive director, PricewaterhouseCoopers: “The choice of exchange is primarily driven by the depth of the market, availability of funds and the regulatory requirements of the exchange.

Indian companies have preferred Luxembourg mainly because of less stringent rules and also the time taken by the exchange for their review. The experience with Singapore is more or less like Luxembourg. Dubai is a new entrant, and is fast attracting attention.”

In addition to speed, another reason why companies already listed in India are attracted to the overseas market is the premium that they receive on their shares. “A follow-on public offer or a rights issue in India may not get a significant premium over the current price on the Indian bourses,” explains a merchant banker.

Proximity to India is also working in favour of exchanges like Dubai and Singapore. Local companies are increasingly getting attracted to the wealthy Gulf region. Institutional and private investors in the region hold more than $1 trillion in assets, so the demand for financial services is obvious. The biggest lure in Dubai, however, is a guaranteed zero corporate tax for the next 50 years. DIFX is all set to attract international institutional investors and foreign market participants with features — central counter party, linkages to international payment systems, market maker mechanisms — common to top global markets. Just six months old, this exchange is wooing small-and medium-sized companies across the globe.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Are FCCB issuers in a fix?

Businessworld has an article on how the current stock market correction could create trouble for companies which have raised funds through foreign currency convertible bonds (FCCBs) with a conversion price predicated on a rising market.
FCCBs are bonds that give holders the option to convert them into equity at some future date, usually at a premium to the price of the company’s share at the time of the issue. IVRCL Infrastructures & Projects, for example, mopped up $65 million in December through an FCCB issue. Investors who have bought the bonds can convert them into equity at Rs 1,170 a share over the next five years, which was a 55 per cent premium on the quoted price that day (Rs 754.95).

The drop in stock prices has hit companies like IVRCL very hard. Its share was trading at Rs 248 when this article was being written. The conversion premium has jumped to an astonishing 371 per cent. In other words, the IVRCL share will have to go up by more than 4.5 times over the next five years before the FCCB investors can exercise their conversion option.

And what if the share does not reach these heights? The bonds will remain as pure debt on the IVRCL balance sheet. The last audited balance sheet of the company shows that the company’s net worth was Rs 257.64 crore and the total debt was Rs 247.17 crore. The leverage was a modest 1.08. Now, if the FCCBs are not converted into equity over the next five years, debt and leverage will double.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 22, 2006

Profile of ICICI Ventures' latest moves

Business Standard has a profile of ICICI Ventures' recent investments and new funds.
Says Renuka Ramnath, managing director and CEO of ICICI Venture: "In the next two to three years we expect to raise another $2.5 billion in the realty space. Our expectation is to manage over $5 billion of real estate assets in the next five years."

But that is not the only area Ramnath and her team are putting their hearts into. Buoyed by the success of its India Advantage Fund, which returned 30-35 per cent on a compounded rate annually, the company has just closed a deal to raise over $1 billion for its India Advantage Fund II, the largest India-focused fund in the private equity market, from which it will retain $850 million.

At three times the size of the older fund, the new fund will focus on two key areas - management buyouts, and assisting Indian companies to acquire companies abroad, for which it will retain 50 per cent of the corpus.

ICICI is also working on two new possibilities: a specialised infrastructure fund, and a mezzanine fund for companies that don't want to lose control and so offer a combination of debt and equity against money.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

The future of investment banking according to Goldman Sachs

Bloomberg columnist Mark Gilbert quotes Goldman Sachs's annual report to provide a glimpse into "the future of investment banking". The key messages are that investment banks need to take more risks, commit more capital to their business, and start investing in the deals they recommend to their clients.
Why spend all those hours hunting for underleveraged balance sheets, mastering cunning tax wrinkles or crafting sale-and-leaseback deals just to give away all the gravy to corporate customers in return for a handful of fees? The Goldman imprint, though, is becoming ubiquitous in the M&A deals flooding the market this year. That suggests Chief Executive Officer Henry Paulson has been quicker off the mark than his competitors in putting Goldman's money where the firm's mouth previously was.

So far this year, Goldman has had a thick finger in buyout pies, including a $3.8 billion bid for Associated British Ports Holdings Plc, a $9 billion offer for U.K. broadcaster ITV Plc, $4.5 billion to buy real estate from German retailer KarstadtQuelle AG, $8.8 billion for a stake in General Motors Corp.'s commercial- mortgage unit, and the $3.4 billion purchase of Education Management Corp., which sells education courses.

The days when a bank could earn a crust by mediating between buyers and sellers are ending. Electronic trading makes it easier to find out what the other guy is willing to pay for the thing you would like to sell, or vice versa. There's no low-hanging profit left in the price-discovery process.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

A SINE of big things to come?

Businessweek has an article on IIT-Bombay's SINE incubator which helps students, professors, and alumni develop and commercialize their business ideas. Today there are 15 companies at SINE, all of them hoping to become new India's next big phenomenon.

Today there are 15 companies at SINE, all of them hoping to become new India's next big phenomenon. Perhaps the most exciting is called Webaroo. The company offers a service that lets you search for and download Web pages -- with, say, tourist information about London, or the latest news from several different sites -- to your PC, cell phone, or handheld. Then you can quickly access the content without being online.

"We need the best software engineers," says Rakesh Mathur, Webaroo's founder and an IIT-Bombay alumnus and veteran Silicon Valley entrepreneur. "Here, we have them." In spades. About 75 of Webaroo's 100 engineers are from the IITs, and all of them work in cramped quarters at SINE.

SINE is also a one-stop shop for venture capitalists looking for smart ideas coming out of India. And contrary to expectation, not all of SINE's companies are software outfits. A professor in earth sciences is building India's first geothermal power plant. A company called FEAST Software is writing programs that allow auto-parts makers to test the endurance of their components. And Eisodus Networks makes a low-cost broadband switch.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 21, 2006

Investing in India's energy sector

KPMG has produced a report on India's energy sector and the related investment opportunities. The report profiles the Coal Sector, Oil Sector, Gas Sector, Nuclear Energy Hydro, Renewable Sources and Electricity distribution.

A rapidly increasing population and growing urbanization has put
immense pressure on energy and natural resources in India, as traditional
sources of energy such as fossil fuel reserves are depleting. Alternatives
to traditional fossil fuel use are vital to help the country avert an impending
energy crisis.


Via Altassets
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 13, 2006

Companies headed by founders perform better

Research by Fortune magazine, found that the stocks of 26 Fortune 500 companies, where a founder still remains CEO - including Apple Computer, FedEx and Cardinal Health - "returned an average of 18.5 percent annually from year-end 1995 through 2005, which is 7% better than the Fortune 500's average return over the same period. Their profit growth has been superior, too, increasing at an average rate of 19.6 percent a year from 1995 to 2005, vs. 11.7 percent for the Fortune 500". (The Fortune list does not include Dell, Nike, Microsoft, and Starbucks, whose famous founders are now chairmen.)

Fortune's findings were backed up by the research of an Ohio State University professor, Rudiger Fahlenbrach, who found that such companies beat the broader market by eight percentage points from 1993 to 2002.
Fahlenbrach has a few theories on why founder-CEOs seem to be better corporate stewards. One is that they simply care more. Their companies are their life's work, so they're more likely to embrace long-term strategies. Supporting the theory is Fahlenbrach's finding that founder-run companies have bigger capital budgets and invest considerably more in research and development than nonfounder-run firms.

Fahlenbrach's thesis resonates with founder-CEOs we talked to. "I'm emotionally attached to this company, which means I'm going to do whatever it takes to protect its financial integrity," says Angelo Mozilo, who co-founded mortgage company Countrywide Financial in 1969. "There's no way a babysitter can feel the same way about a child as the parents."


Founders = Parents. Professional CEOs = Baby-sitters.

An interesting - data-backed - analogy indeed.
Fahlenbrach's other big theory on the founder premium: They tend to be industry experts, not managerial mercenaries. Sinegal started out in the supermarkets as a bagger, Kinder has 20 years in the energy biz, and L-3's Frank Lanza is an engineer by training who rose through the corporate ranks of Loral and Lockheed Martin before co-founding L-3 in 1997.

CEOs with resumes like these "tend to stick with what they know," says Fahlenbrach. That means they're less likely to make the kind of disastrous "diversifying" acquisitions that give M&A a bad name. L-3's Lanza says investment bankers are constantly pitching him proposed acquisitions that would move L-3 beyond the defense sector. "But we don't have the marketing or distribution know-how to do that," he says. "We've made a point to stick to our knitting." With L-3's stock up 110 percent since 2001, Lanza's shareholders are no doubt glad he does.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Details of Two Retail Giants-in-the-Making

Business Today has a good article titled "Biyani Vs Ambani" on the retailing plans of Pantaloon's Kishore Biyani, which has a head start, and Reliance's Anil Ambani, which is planning a rollout on a massive scale.

Over seven days in January, Kishore Biyani, the 44-year-old maverick Chairman of the Pantaloon Group of companies, was closeted in meetings with Mukesh Ambani, Chairman of Reliance Industries...the agenda was how Pantaloon and Reliance could carve out their own huge spaces in the retail sector, avoid head-on competition, and thereby jointly take on the multinational retail giants once they get the green signal to set up shop in India...A week down the line, however, sources in the know reveal the dialogue broke down abruptly, and the proposed non-compete clauses never saw the light of day.


THE SCALE OF THINGS TO COME


PANTALOON RETAIL
INVESTMENT PLANNED
Rs 500 crore by 2006-07
SALES TURNOVER
Rs 10,000 crore by 2010
RETAIL SPACE
10 million sq. ft by 2008
STORES
99 stores in 2005-06
EMPLOYEE STRENGTH
100,000 by 2010

RELIANCE RETAIL
INVESTMENT PLANNED
Initial investment of Rs 3,375 crore, scale up to Rs 15,000 crore by 2007-08
SALES TURNOVER
Rs 90,000 crore by 2010
RETAIL SPACE
Not available
STORES
1,575 by March 2007
EMPLOYEE STRENGTH
500,000 by March 2007

Rather than take on the Reliance might head on, Biyani is seeking to build size and scale beyond conventional retail, across the entire consumer space. This involves forays into an assortment of formats and businesses, right from mobile phones and storage products to health, beauty and fitness products, from pharmacies and salons to furniture and furnishings, consumer durables and electronics, and from gold and jewellery and footwear to the entire gamut of financial products. The objective is clear: To capture not just a share of the consumer's wallet, but virtually the entire wallet, not just in terms of consumption, but even savings (which is why Biyani has even bagged a licence for a non-banking finance company). The plan: To meet the entire family's need under one roof. The group objective these days is: "We will provide Everything, Everywhere, Every time to every Indian customer in the most profitable manner."

BIYANI'S CONGLOMERATE IN THE MAKING
He's calling it the Future Group, which will have six business pillars.

Future Retail
All the retail lines of business like food, fashion and home will come under this vertical

Future Brand
Custodian of all the present and future brands that are either developed or acquired by the group

Future Space
Will have a presence in property and mall management

Future Capital
Will provide consumer credit and micro finance services, including marketing of MFs and insurance policies, and management of real estate and consumer fund

Future Media
Will focus on revenue generation through effective selling of retail media spaces

Future Logistic
To drive efficiencies across businesses via better storage and distribution
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Will MindTree make it big?

Business Today has an article on MindTree Consulting, the VC-backed IT services company founded in 1999 by Wipro alumni, in the context of its revenues (for 2005-06) crossing $100 million

...it is one of the youngest Indian it companies to do so makes its feat even more impressive. The Big Three of Indian IT-TCS, Wipro and Infosys-had taken 29, 18 and 17 years, respectively, to reach this landmark...

...But TCS, Wipro and Infosys have revenues of about a couple of billion dollars (Rs 9,000 crore) and headcounts of 50,000-plus employees each. Can the relatively puny MindTree, with 3,200 employees, stand up to its bigger rivals?

...MindTree's net operating margins are believed to be significantly lower than those of the Big Three. The company, however, refuses to share these figures with BT, citing its status as a privately held one. "Yes, we are not in the high teens, but we are looking at increasing them," says Ashok Soota, Chairman and MD, MindTree. The industry average is 21 per cent for Tier-I players. Its topline, though impressive, also needs some qualification. It reached the $100-million landmark a year behind schedule, and fell short of projections by $21 million (Rs 94.5 crore) when it did. This is because the dotcom bust hit the fledgling company harder than most others as 75 per cent of its revenues came from dotcom-related businesses. Since then, of course, it has rallied around and diversified its offerings and customer base.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Hutch, Essar and the elusive IPO

Business Today has an article trying on the reasons behind the delay in mobile telecom services firm Hutchison Essar's much anticipated IPO.

Is all well between Hutchison and Essar? That's a question that has been doing the rounds for a couple of weeks now. If the buzz in Mumbai's investment banking circles is anything to go by, things are not hunky-dory between the two partners that make up Hutchison Essar, the mobile telephony joint venture (JV) that operates in 16 circles in India. Hutchison Telecommunication International Ltd (HTIL) directly holds a 42.34 per cent stake in the JV, and 19.5 per cent indirectly. The Ruias of the Essar group control 33.05 per cent, and could be in the hunt for 5.11 per cent more, currently held by the Hindujas. Even if Essar does move up to 38.2 per cent, Hutchison clearly calls the shots, being the largest shareholder on the basis of its direct holding; the indirect holding comfortably takes the Hong Kong telecom firm beyond 51 per cent, ensuring management control.

...Clearly, from the Hutch point of view, an IPO is an imperative, given that HTIL invested huge sums of money (this year, HTIL will invest around Rs 8,100 crore across all its operations globally, out of which about Rs 5,800 crore will be invested in India) last year in its operations across various countries. And as most bankers are quick to state, the IPO should have actually taken place at least a year ago. Essar officials maintain that the issue is not about control and that the IPO plans are on track. Hutch officials, when contacted by BT, declined to comment on any of the issues, but investment bankers point out that an IPO in 2006 from Hutchison-Essar appears unlikely. A source close to both the parties describes the issues as "if there is no unanimity between the shareholders, this IPO is not going to take place tomorrow".

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

The bifurcating consumer market and its implications

Knowledge@Wharton has a great interview with Michael J. Silverstein, author of the book, Treasure Hunt: Inside the Mind of the New Consumer.

Here is what the book is focused on: In the U.S. and around the world, the consumer markets are bifurcating into two fast-growing pools of spending. At the high end, consumers are trading up, paying a premium for high-quality, emotionally rich, high-margin products and services. At the low end, consumers are relentlessly trading down, spending as little as possible to buy basic, low-cost goods and services. Between both piles lies a vast range of mediocre, medium-range products that Silverstein claims is doomed to decline. What implications does this have for companies and their brands?

From the interview:

We came to the conclusion that trading up and trading down were big opportunities for companies and for consumers. The amount of spending on trading down was approximately twice the amount of trading up. Both ends of the market offered huge opportunities. Markets were bifurcating, which meant that the top and bottom were growing and the middle was in horrible decline -- and that is creating quite a few casualties. In every category we looked at -- and we studied 30 of them in detail -- there was this war. The war was for this consumer to either trade up or down or to evacuate. In the car business for example, the middle market has shrunk by 12 market-share points.

...In the car category, BMW has less than a 2% global share, but its market value is higher than General Motors, Ford and Chrysler combined.

...We have done shop-alongs with consumers in Costco. During the shop-along, the consumer knows what she wants to spend -- $200. She has a list of items she wants to buy: meat, canned goods, frozen items, paper products, and some drinks. Then it sort of clicks in her head that she has spent $180 and that was at least 10% less than if she had bought these products at a supermarket. So she pats herself on the back and says, "I can go to the wine section and buy that $20 bottle of Kendall- Jackson that I've never given myself."


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 12, 2006

Indians search the most for "venture capital"

More Indians searched for "venture capital" (the words that is) on Google than another other country in the world, according to data from Google Trends.



India was followed by - you guessed it - China. Interestingly, the world's largest VC market - the US - came in sevent in the top 10 list of regions "searching" for venture capital!

1. India
2. Hong Kong
3. Singapore
4. Ireland
5. South Africa
6. Israel
7. United States
8. United Kingdom
9. Canada
10. Australia

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 08, 2006

"Are VCs from Saturn and CEOs from Neptune?"

The US National Venture Capital Association (NVCA) and Dow Jones VentureOne has published “A Seat at the Table,” the first ever study of venture-backed company boards.

The survey comprises answers from more than 700 VCs and CEOs to questions such as:
* How many Board seats should a single venture capitalist hold?
* How many hours do you spend on Board-related activities?
* What are the top strategic concerns of your Board?
* What is the most common cause of conflict between a CEO and the Board? Between VCs?
* Is Sarbanes Oxley a concern to audit committees?

From the press release:
When it comes to the most common drivers of conflict between the board and CEO, the two groups diverged. Venture capitalists cited personality conflicts, exit strategies, and management changes as the top three issues while CEOs named valuation, burn rates, and exit strategies as being the most common causes for conflict. The most common reasons for changing leadership according to the venture capitalists are to find someone with more sales and marketing expertise (83%) and operational leadership (63%).

..As for the primary benefits venture capitalists provide to a company board, both parties agree that VC expertise in raising new rounds of financing is most important followed by the ability to help recruit top talent to the company. Both parties also cited VC counsel on governance issues as beneficial.

“Venture capitalists add value to boards through the rich experience they gain by working with multiple companies and the pattern recognition that comes from this experience,” observes Pascal Levensohn, founder and managing director of Levensohn Venture Partners. “VC’s can normally see the strategic opportunities and obstacles more readily because they go to numerous board meetings monthly and see hundreds of situations first-hand every year through their partnerships’ portfolios. This depth of exposure makes the context of what is happening more obvious to the VC than to the CEO in many cases. Strong communication between the VC and the CEO can maximize the positive contribution from this complementary relationship,” Levensohn added.


Click Here to download the actual data charts.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Will the KKR fund listing prompt other PE firms to go public?

Various international publications - including the UK's Telegraph and IHT - have articles on how Kohlberg Kravis Roberts's (KKR) recent listing of its unit is making other PE firms consider raising "permanent capital" for their funds from public investors. KKR's unit, KKR Private Equity Investors, raised $5-B (£2.7bn) on the Euronext exchange.

From Telegraph:
Blackstone and Carlyle are not the only funds examining the possibility of a flotation. Texas Pacific Group and the smaller Hg Capital and Close Brothers Private Equity are also considering the possibility of listing alternative asset vehicles. "After the size of the KKR flotation, all the big funds have the idea of a flotation on their radar," said a partner at one large private equity company. He added: "Although it is early days, we are all looking at KKR's performance from now on with interest."

Although private equity houses are not yet lining up to float their entire operations, 3i, which is the only private equity and venture capital group in the FTSE100, is viewed as a listed private equity success story. This week, 3i is expected to announce record profits, and has indicated it will return at least £500m of capital to shareholders, possibly via a B share issue. The company is expected to announce its strongest ever realised capital gains and income.

One of India's leading PE firms, IL&FS Investment Managers Limited, is a listed entity.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

India's fastest growing listed companies

Business Today has a profile of some of the fastest growing publicly listed companies in the country. The article includes a downloadable list of the companies. Not surprisingly, several of these companis have attracted PE financing in the recent past.

SOME SMALL CAP COMPANIES IN THE LIST
» Teledata Informatics
» Crew BOS Products
» Helios & Matheson
» KRBL
» Kei Industries
» Lloyd Electric & Engineering
» Surya Pharmaceuticals
» Zenith Computers
» Asian Electronics
» Sonata Software

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Genpact after the buyout

Business Today has a cover story on Genpact, the former BPO subsidiary of GE.

HEAD OFFICE: Gurgaon, India
CEO: Pramod Bhasin
REVENUE: $493 mn (Rs 2,218.5 crore) in 2005
EMPLOYEES: 20,000
OPERATIONS: Global delivery in 19 languages from 16 centres in six countries (US, Mexico, Romania, Hungary, India, China)
VERTICALS: Finance & accounting, insurance, analytics, sales & marketing, financial services collection, supply chain and procurement, IT services, enterprise application services, programme management and customer services
LONG-TERM TARGET: $10 billion (Rs 45,000 crore) in revenues by 2016
IMMEDIATE TARGET: $1 billion (Rs 4,500 crore) in revenues by 2008


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

4-D movies arrive in India

Businessworld has an article on the "4-D" movie theatre at MCorpGlobal's Spice World mall in Noida.
So, what in the world is this fourth dimension to watching a movie? What special features does a 4D movie have that set it apart from a 3D movie ? Sensory experience — that is the fourth dimension this theatre adds to the movie-watching experience.

In 3D movies, things only seem to touch you. But in 4D films, sometimes they actually do. Weird as it sounds, this theatre packs enough tricks to surprise even the extremely blasé, at least the first time. Like 3D movies, here too, the camera’s view becomes your view. But in 4D films, you can also feel the lightning, rain, bumps, etc., shown in the course of the movie. For example, if there is a waterfall in a scene, you will feel the water spray on your face; or if the scene has a swarm of rats scurrying past people, you will actually feel their fur tickle your feet and ankles.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

"Buy-ins more likely than buyouts in India"

"Management buy-ins rather than buyouts are more viable in India. (In a buy-in, a private equity investor typically brings in a new set of managers. In a buyout, the investor backs the purchase of a company by the existing management.) Senior managers here still do not think of taking over their employer’s business," says Nainesh Jaisingh, head of StanChart Private Equity in India, has an interview to Businessworld.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Biocon's game plan

Businessworld has an article on the plans of Biocon, India's best known biotech company.
In simple terms, Biocon’s game plan is this: look for interesting products to develop from all over the world. There would be companies that have discovered potential biotech drugs, but do not have the ability to develop them into full products. Biocon will develop them into drugs and jointly own the intellectual property. It will also manufacture the product for the Indian market and, if possible, for the entire world. Besides, it could have the marketing rights for India and some other regions. It is a unique business model for a biotech company at the moment.


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Reliance's SEZ plans

Businessworld has an article on Reliance Industries' plans to build four cities modelled on the special economic zones in China.

Mukesh Ambani is betting big. The investment in this project could well be more than the Rs 73,000-crore annual revenues of his flagship petrochemicals company, if one goes by the Rs 25,000-crore investment, both in the form of debt and equity, planned over a decade in just Navi and Maha Mumbai.

On the ground, this would mean four new mini-cities or large satellite townships with world-class infrastructure, built close to airports and national highways. The attraction for buyers would be the relatively lower rates — it entails potential investment of less than half the real estate costs of central business districts and upscale residential areas of bustling Indian cities.
Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 06, 2006

Forbes profile of Warburg Pincus

Forbes has a feature on Warburg Pincus with a focus on how it has been avoiding "club deals" (in which various leading PE firms band together to do buyouts).

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

May 01, 2006

Mobile entertainment takes off

Businessworld has a cover story on the boom in the mobile data services sector and its beneficiaries.

The Opportunities
As these three main protagonists — media, mobile and aggregators — get together, a Rs 2,300-crore market has been created, says a Lehman Brothers report. (This includes texting and is not just operator share.) Media companies are using mobile phones to interact with viewers, listeners or readers and, maybe, generate a little money. They could be using it to entertain them or promote a myriad products or services. This is where aggregators such as Activemedia Technology, Mobile2win or Hungama act as a link between media and mobile companies.



..Australia and India are the only countries in Asia that have collecting societies — the Indian Performing Rights Society (IPRS) and Phonographic Performance Limited (PPL). According to rates prescribed by PPL, anywhere between 25-40 per cent comes back to music firms. That has helped Indian mobile operators quickly hook on to music — the most natural (and lowest bandwidth hogging) driver for data services globally. “In other Asia Pacific countries, you have to go to each music company and collect separately,” says Sudhanshu Sarronwala, CEO, Soundbuzz. The lesson will prove to be important for other industries eyeing the mobile data market. If licensing is difficult, it puts off aggregators and operators, and leaves the market open to pirates like in Indonesia.

...The big media firms — Star, Sony and BCCL, among others — have set up entire divisions to plug into these 80 million consumers. Compare that to the number of TV homes (108 million) or Internet subscribers (7.5 million), and you get a true picture of its size and potential.

...At Rs 6 per minute, Airtel’s 646 services make much more money than the average Rs 1-2 per minute that voice does. Typically, data sells at anywhere between Rs 3-30. The Lehman Brothers report says that as data share goes up to 60 per cent or more, the earnings before interest, taxes, depreciation and amortisation (EBITDA) from data revenue could go up to 65 per cent or more. Compare that to 30 per cent or so from voice.

The Challenges
...With the limit on spectrum, operators’ scope to offer broadcast quality TV or other things is restricted. Then there is a limit to handset capacity. Just 15-20 per cent of the phones in India have colour screens and/or cameras (though the number is growing very fast). And there is a limit to what music and SMS can do.



Operators do put a limit to what they share with media companies — about 20-30 per cent. There is already a feud going on about that.... Currently, the Indian market is split roughly at 60:30:10 between mobile operators, media companies and aggregators. Mobile operators argue that they make the investment and control the consumer, so they should keep a lion’s share of the mobile data pie. Prasad of Reliance says that internationally, operators pay revenue share only on the basis of actual downloads. In India, the figure on which this is calculated includes network usage and subscription fee and, therefore, the percentage that comes back to the operator has to be larger. Media companies protest about this but are largely helpless....

Eventually, this will change. “In most developed mobile entertainment markets, we have seen operator share come down to the 10-20 per cent range. It has in consequence led to fantastic growth,” says Sarronwala. In Japan, the operator share is 9 per cent, in the Philippines, it is 60-70 per cent and in China, the second largest VAS market after Japan, it is 15 per cent. As the total amount of data revenues go up, the operator share goes down and his dependence on the content companies increases. So, expect the friction levels to rise as mobile TV and much more richer content come closer.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

Indian animation industry's new business model

Businessworld has an article examining the strengths and weaknesses of Indian animation - long touted as the "next big outsourcing story" - and concludes that the sector seems to have finally figured out a viable business model.
India’s first full-length animation film, Hanuman, has made cash registers jingle, having raked in Rs 16 crore already from the box office and DVD sales. Predictably, new animation movie projects are being announced almost every week. Animation-driven children’s channels are realising that local content is the way to business success in India...

...A consensus is emerging in the industry on a workable business model: a mix of outsourced jobs, co-productions and own intellectual property creation with an animation school as a useful add-on. Says Jayakumar: “Outsourced jobs give you initial revenue and exposure; co-productions allow you to learn development of intellectual property and global marketing; and having your own library of shows is the only way to become a Disney, Pixar or Dreamworks.”




...Nasscom estimates the animation development market for Indian studios to be worth $285 million now. More than two-thirds of it comprises entertainment and advertising revenues, and the remaining is distributed among training simulations, website designing, etc. Nasscom predicts that this market will treble by 2009 to $950 million as India gets a bigger slice of the worldwide animation development market, which is slated to grow from $55 billion now to $75 billion in 2009.

Sounds impressive, but there’s another side to the story as well...For starters, there is scepticism in the industry about Nasscom’s estimates. “The numbers being tossed about these days are a lot of hogwash. If you add the revenue of the top three animation studios in the country (DQE, Crest and UTV), you don’t get to even Rs 100 crore,” says Rahul Shah, managing partner, IL&FS Investment Managers, which has invested $1 million in DQE.

...VC fund WestBridge Capital Partners managing director Sandeep Singhal says that the fund is yet to come across an animation company that has crossed the $15-million revenue mark and one that looks like becoming a $50 million-60 million company in 10-12 years. Rahul Shah says he has not invested in an animation company since DQE three years ago because he has not seen potential for a prosperous exit. “I’ll consider investing in another animation company only after I can get a good exit from my existing investment,” he says.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

How to spot a good VC

Entrepreneur & CEO Matt Blumberg has list of characteristics that a great VC needs to exhibit.
- Major pattern recognition -- "I've seen this movie before, and I know how it ends...";
- Deep understanding of the market and/or customer set to add strategic value;
- Fundamental desire to be a product manager or marketing manager of your product, but also --
- Ability to stay out of the weeds with day-to-day details when the Board meeting ends;
- Complete transparency about the motives of his/her fellow GPs and LPs and ability/appetite for follow-on financings (and needless to say, no/limited blocking of transactions that are clearly in the company's best interests but might run counter to his/her firm's own short-term interests)

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.