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September 28, 2007

Riding the Rising Rupee

Knowledge@Wharton has an interesting article on the rising rupee on the Indian economy in general and another on how Indian IT companies had better change their business models in order to cope.
Instead, Indian firms should take advantage of this opportunity to adapt their business models. How can they do that? While the details of the two industries are quite different, the Japanese automobile industry can suggest some answers. Consider what leading Japanese firms like Toyota did as the yen strengthened against the dollar. For product lines where they made the highest margins, such as the Lexus, they continued production in Japan. However, for lower-priced models -- where their profit margins were lower and would have been eroded further by the rising yen -- they moved production to the U.S. They protected their margins on non-premium products by moving production -- and therefore shifting costs -- into dollar-denominated areas. They also reduced their vulnerability to further appreciation of the yen.

You may remember that during the 1980s, Japanese auto makers were facing a protectionist backlash in the U.S., and they were subjected to import quotas. Their strategy of moving production of lower-priced/lower-profit cars into the U.S. paid off in a couple of different ways. First, they were able to shift yen-denominated costs into dollars. Second, this was a quite savvy political move, because although these companies continued to gain market share in the U.S., there was little pressure to shut down their plants. Doing so would have meant a loss of American jobs.

I believe Indian companies should take a similar approach in response to this recent rising rupee regime. They need to consider how to adapt their business models. To the extent that they compete primarily on cost arbitrage, the rising rupee will work against them. One key question to ask is how to develop other sources of competitive advantage, such as building high-level capabilities which cannot easily be replicated by competitors, or how to change the mix of activities carried out in India versus other countries. Of course, in order to do this, they will have to change their mindset: They will have to stop thinking of themselves as Indian companies and think more like global companies of Indian origin. They will need to analyze their portfolio of costs and move production to where it makes the most economic sense. Notably, Indian IT firms are trying to address rising wage costs by moving production within India to lower cost regions -- Eastern India (Kolkata, Bhubaneshwar) and to Tier II and Tier III towns. However, this will only offset a rising rupee to a limited extent, since the costs will still be in rupees.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

September 27, 2007

VC Market

The following companies are seeking capital for starting-up / expanding their operations:
07-09-19-1: Bangalore based GIS maps-based local business information website seeks <$5-M for product development and marketing.

07-09-19-2: Bangalore based stealth-mode retail marketing firm seeks >$5-M for product development and launch.

07-09-19-3: Mumbai based public relations and corporate communications firm seeks <$100 K for development and expansion.

07-09-19-4: Chennai based Media Solutions Company providing Content Creation, Online Distribution, Online Exhibition & Advertising seeks <$5-M for product development and marketing.


For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

September 24, 2007

IT Services & BPO: Are the best years behind us?

There are now several voices raising concern on the future of the Indian IT Services and BPO sectors. Business Standard has kicked off a four part article series on the topic.
Rising wage costs, competition from countries like China, the impending withdrawal of tax incentives under the STPI scheme, the slowdown in the US and the rising rupee have all punctured the optimism of the industry.

With the dollar falling below Rs 40, the margins of IT companies have been cramped even more. Ashish Basil, a partner with professional services firm Ernst & Young, says the falling dollar has impacted the BPOs more than software services exporters because all their costs are borne in India.

“Most software firms have a large number of employees abroad. A falling dollar reduces the salary burden of these employees to that extent,” he said, adding, “For a two per cent fall in the dollar, the margin of a software firm will go down by 0.6 per cent and of a BPO outfit by 1.5-1.6 per cent.”

How are PE/VC investors viewing these developments?

I threw the "Are the best years over for the Indian outsourcing industry?" question to Sanjeev Aggarwal, Managing Director of Helion Ventures who was part of a panel that I was moderating at the CII-Connect 2007 conference in Chennai last week. This is what Sanjeev (who earlier founded and led pioneering BPO firm Daskh - before selling it to IBM in 2004) had to say:
Only a small sliver of the global outsourcing pie has actually moved to India. The penetration in IT services is just about 5% of the world market and in BPO it is even lower at 2-3%. Also, no other competing country has been able to demonstrate the same level of scale (as India). When I was at Daksh, we tried various locations, but found that countries like Philippines maxed out when the numbers hit 3,000-4,000. So, if we can tackle the supply side situation, there is a lot of headroom for growth.

However, (going forward), the growth will come not from horizontal services like application services management or call centers, but more from vertical industries like equity research outsourcing, business intelligence, LPO, etc. So, we are very optimistic. Out of the 11 investments we have made, five are in IT Services or KPO. And we feel the best is yet to come.

Basab Pradhan, former head of sales at Infosys and now Co-founder & CEO of Gridstone Research (incidentally, a Helion portfolio company), has an interesting blog post on the same topic providing some options for entrepreneurs in the industry:

* Diversify – ...Look at services where you can hire graduates and make it work. Also, BPO is not one service line. There is a large variety in the kinds of services, markets, and talent required, that all fall under the grab bag called BPO. * Look for growth outside the US...

* Specialize – ...Emerging technology areas like Open Source products offer good opportunities for specialization.

* Build IP...

* Invest in Sales and Marketing...

* Cash in – If you don’t have scale and you don’t have or don’t want to do any of the above – sell the company. You’ll still get a nice multiple today and save yourself a lot of trouble. You’ve built something of value. Maybe its future is better served as part of a larger enterprise.


For more on this topic, check out the post event newsletter of Venture Intelligence's recent conference IT Services & BPO Connect here.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

September 20, 2007

Real Estate funds begin to tap retail investors

Businessworld has an article on how more and more real estate funds are tapping retail investors (with Rs. 25 Lakhs as the minimum investment amount).
Realty fund deals are being downsized. They kicked off with great fanfare in 2005 as platforms for big ticket investors, but are now going retail. The latest domestic scheme, aiming to raise Rs 700 crore, from the Ajay Piramal-promoted IndiaReits, allows for a minimum investment of Rs 25 lakh. Two earlier schemes — a domestic realty fund of Rs 430 crore that closed in September 2006, and an offshore fund of $200 million (Rs 820 crore) — had minimum investment norms of Rs 1 crore and $200,000 (Rs 82 lakh) respectively. The new IndiaReits fund has also created a Rs 30-crore pool to purchase units from investors in case they want to sell earlier.

Two other new realty funds have also gone ‘retail’. The Rs 150-crore ‘Milestone’ Fund promoted by Ved Prakash Arya, a former associate of Kishore Biyani of the Pantaloon Group, first went to the market seeking a minimum investment of Rs 1 crore. When that did not click, Milestone revised the minimum investment down to Rs 25 lakh. The change in track succeeded. Similarly, ICICI Prudential, which is a mutual fund raising $100 million (Rs 410 crore) just for realty projects, has a minimum investment of Rs 40 lakh. And they could be getting smaller. “The trend is towards tapping the new asset class with Rs 5 lakh or more, which was not able to invest earlier,” says Arvind Pahwa, CEO of the JP Morgan Realty Fund.



Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

07-09-05-1: Delhi based Biotechnology Research & Training Institute seeks <$1M for expansion and marketing.

07-09-05-2: Sawai Madhopur, RJ based supermarket chain seeks <$100,000.

07-09-05-3: Ahmedabad based online travel portal seeks <$10,000 as seed funding.

07-09-05-4: Bangalore based aviation technology start-up seeks $1-5 M to develop products and towards manufacturing and marketing expenses.

07-09-05-5: Chandigarh based training and recruitment company seeks <$100,000 for marketing.


For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

September 19, 2007

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

07-09-12-1: Trivandrum based 500 person IT Services & KPO company seeks <$100,000 for expansion and research on embedded products.

07-09-12-2: Ahmedabad based media firm seeks <$1-M for expansion of publishing venture and cinema production.

07-09-12-3: Mumbai based website for car listings seeks <$100,000 for marketing expenses.

07-09-12-4: Bangalore based agriculture consultancy company seeks <$1-M for expansion and promotion of further projects.

07-09-12-5: Ranchi based online tutoring start-up seeks >$5-M for setting up operations and marketing.


For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

September 17, 2007

Moving first in Tier II

Business Today has an interesting article on companies that have successfully launched their operations in Tier II cities rather than the metros.
It's not just in China that global retailers are flagging off operations with forays into tier II and tier III cities instead of focussing on the big metros. In Russia, French retail giant Carrefour has announced its plan to enter the country via tier II cities by early 2008. Back home, a clutch of companies-both foreign and Indian, and not just retailers-is using small-town India as a launch pad for their products and services. These include players in financial services, broadcasting, and retail to name just three sectors.

Vishal Retail has over 50 stores in 18 states under the brand Vishal Retail Mega Mart. The cities where Vishal Retail has a presence include tier II and tier III outposts like Surat, Raipur and Siliguri. Then there's Prozone Enterprises, a retail infrastructure services provider that's a subsidiary of ready-made garments maker Provogue. Prozone has executed projects worth Rs 1,100 crore in tier II and tier III cities.

Beyond retail, Bajaj Allianz Life Insurance Co., the largest life insurer in the private sector, kicked off its India operations with a sharp focus on rural and semi-urban India with a popular unit-linked 'unit gain' product. That may be the reason for Bajaj Allianz being only the second player in the private sector to come out of the red. There's also Mahindra & Mahindra Financial Services, which began life by providing finance to buyers of tractors. That essentially meant the company had to have a rural and semi-urban focus. Today, M&M Financial has gone on to offer the entire gamut of financial services, right from two-wheeler financing to investment advisory. It's still focussed only on the non-metros. Consider finally DishTV India, an early bird in the direct-to-home (DTH) entertainment market, that leveraged its first-mover advantage by offering services in far-flung areas, essentially regions that haven't been touched by the onslaught of cable television.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Going for broke

Business Today has an article on the flurry of deal activity in the stock broking sector.
Underlying the frenetic deals in the industry is the realisation that the traditional model of broking, which was based on discount broking, doesn't work anymore. For one, broking commissions are down from 1 per cent to as low as 10 basis points (or one-tenth of 1 per cent). For another, customer needs aren't just increasing, but becoming more complex. More often than not, a brokerage firm is expected to provide all products and services at a single window. What do brokerages need to expand and add services? You guessed it: money. "The business has become highly capital intensive, and with competition increasing you have to be well equipped to offer all the financial services to your clients," notes Regi Jacob, Managing Director, JRG Securities.

Last month, the Kochi-based JRG Securities offloaded nearly 45 per cent stake to Baring Private Equity Partners India (BPEPI) for $35 million (about Rs 143.50 crore), making it the single-largest shareholder in the company. Why was Jacob willing to replace himself as the single-largest shareholder in JRG? "Equity is all about taking risk. To survive competition (from domestic as well as foreign players), we had to be self-sufficient with all offerings and that required money," explains Jacob. The money received from BPEPI will be used to expand JRG's branches, and enter into wealth management and institutional broking. "The money will also help us lend margin money to our clients," says Jacob.

...According to a recent survey done by Dun & Bradstreet, 68 per cent of the 200 brokerages polled said that they were looking to take on competition and expand into institutional and foreign institutional trading segment. With regard to competition, 40 per cent showed their interest in tying up or forming a joint venture with overseas brokerages, while 25 per cent preferred to go public. "Given the 'commission' market of $3-4 billion (Rs 12,300-16,400 crore) and the market growing 30-35 per cent in the last three years, one shouldn't be surprised why players are expanding their presence in India," says Rashesh Shah, CEO & MD, Edelweiss Capital.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

FirstSource's acquistion of MedAssist

Businessworld has some numbers on the $330 million acquisition of the US-based healthcare BPO.
Louisville-based MedAssist is one of the largest revenue management service providers to the US healthcare industry. It caters to about 1,000 clients, including hospitals, physician groups and alternate site providers. It handles billing and patient screening for their eligibility to government medical schemes. Nearly $700 million is spent in the US in this domain annually.

MedAssist has revenues of $99 million, and is growing at 8-10 per cent per annum with operating margins of 22-24 per cent. These margins are higher than Firstsource’s (20 per cent), but MedAssist also has to bear a 40 per cent tax burden.
The acquisition values MedAssist at 12.5 times its EBIDTA and more than 3.3 times its revenues.

...To fund the acquisition, Firstsource will be raising a debt of $270 million. It already has cash reserves of around $80 million, which will be used to part-pay the deal. “The debt is in various tranches and the interest rate on it varies from LIBOR plus 250 to 350 points,” says Mukherji.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Can you build a product company in Bangalore?

Riya.com's winding up of its Bangalore development center has created a lot of discussion online.

Now, there's going to be a interesting panel discussion on the same topic offline at the TiE Silicon Valley office on September 20.

The panel titled "Can you build Facebook in Bangalore?" will be moderated by Sandeep Sood of Monsoon Company and will feature Vaibhav Domkundwar of BetterLabs, Munjal Shah of Riya, Rashmi Sinha of Slideshare and Gary Swart of oDesk.

It’s a simple question.

You’re a CEO. An investor. A project manager. Maybe a developer.

In some capacity, you are building a remarkable software product or service. And you need a few good people. Or, maybe, a lot of good people.

Maybe you should use a global team. Thomas Friedman thinks it’s a good idea, right?

There’s a lot to think about. Just consider a few of the issues:
Location location location
Costs savings vs. migraine headaches
Making it work in a world of rapid iteration, quick launches, user participation, and many other web 2.0 buzz words
You sleep. They work. Reverse and repeat. Is that more efficient or less?
That bad taste in your mouth from the last time you tried it
Seeing your family at night (we’ve heard that’s a good thing)
Which brings us to the simple question:

Can you build Facebook in Bangalore?

We don’t know. But, we plan on talking about it for a few hours.

Come out and get the straight story. No sugar coating. No marketing pitch.

We’ll talk about the following:
Start-ups and global teams – outsourcing while small
Iterative development and the Web 2.0 model
Finding the right team
How to best manage offshore projects
When and what to outsource

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Nasscom, ICICI Knowledge Park to launch early-stage fund

NASSCOM and ICICI Knowledge Park have promoted the NASSCOM ICICI Innovation Fund (NIIF) to stimulate technology innovation in India through providing seed capital funding for opportunities in emerging technologies. The fund corpus will be Rs. 100 crores in the initial round, with an expansion of another Rs.100 – 150 crores in additional rounds.

The primary objectives of NIIF include:

· Promote innovation in emerging or frontier technologies through patient investment

· Encourage entrepreneurship through providing market access and mentoring

· Enable innovative start-up companies to reach a stage where they can attract follow-on venture capital funding

NIIF will focus on Intellectual Property (IP) asset creation in emerging or frontier technologies. A key criterion for identifying investment areas is the presence or expected emergence of sophisticated demand within India for either the core technology or applications based on the core technology.

Some of the technology areas presently identified for NIIF investments are listed below.

· Automotive infotronics
· Life-sciences
· Wireless
· Medical devices
· Intelligent Transport Systems
· Energy conservation fuels and devices

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

September 16, 2007

Old Lane's performance

Bloomberg has an article on how the Vikram Pandit-founded Old Lane (which was acquired by Citigroup recently) has performed post the sub-prime crisis.
Old Lane LP, the hedge-fund firm acquired two months ago by Citigroup Inc., lost 5.9 percent in August, quadruple the industry's average decline, as bond and emerging markets fell.

The drop left funds run by Old Lane with a 1.9 percent gain for the year, according to an investor report that was obtained by Bloomberg. The New York-based manager, which oversees $4.4 billion, trailed the average 1.31 percent loss for all hedge funds last month, the industry's worst performance since May 2006, according to Chicago-based Hedge Fund Research Inc.

...Pandit, 50, who founded Old Lane last year after leaving New York-based Morgan Stanley, became head of Citi Alternative Investments in July as part of the bank's purchase of his firm. The Citigroup division oversees about $59 billion, including real estate and private-equity assets. It has about $23 billion in hedge-fund assets, including client money allocated to outside managers.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

September 10, 2007

A new model of outsourcing?

Helion Ventures-backed Anatara Solutions has attracted a lot of media buzz including in a Businessweeek column around its "second generation" outsourcing model.

Extract from the Businessweek column:
They call their model Second Generation Outsourcing. Here's how it works: Anantara operates as a prime contractor and the interface with clients. It puts together a "solution," including strategy, business proceses, technology, and performance management. The company, with just 40 employees, has an ecosystem of 25 other companies, with a total of 2,500 employees, who are specialists in everything from Java coding to software testing. It draws on their skills to deliver the solution. Rather than focusing just on India, Anantara's ecosystem also includes companies from Russia, China, and Singapore. And it plans on expanding into additional countries. Anantara gets the advantages of high-level skills from Russian companies and very low programming costs from some in China--where labor rates are as low as $8 to $11 per hour. "For the past 10 years, the outsourcing business model hasn't changed, but the scale has expanded," says Prabhat. "We have a radical vision of how outsourcing can change."

You can see how this could disrupt the status quo. Rather than having huge fixed costs, like TCS, Infosys, and Wipro, Anantara pays for value received--and billed to clients. That is incredible leverage. And it can pick and chose among hundreds of small specialist firms anywhere in the world. That's a true global delivery model. With costs of real estate and labor rising rapidly in India, Anantara could quickly have gain advantages over its much larger competitors.

It has two main challenges, as I see it. 1) It has to establish credibility among potential customers, something that is typically only gradually won, and 2) it has to manage its ecosystem of partners and prove that it can really deliver higher-quality services at a lower cost.


Sounds a lot like "sub-contracting" to me - but there must be a specific reason why Anantara is avoiding using that word.

You could also listen to Anatara's Founder & CEO G.B. Prabhat explain the model in his own words in this interesting two part podcast with Kiruba Shankar.



Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Filling the "makaan" need of BPO workers

I recently came across an interesting angel-backed company, Woodstock Ambience, which has launched a residential hostel in Bangalore to provide accommodation specifically to bachelors who work at BPO/IT Services companies.

The Woodstock web site explains how such an special accommodation benefits both employers and employees.

Employer:
*The fleet management system also not coping well with scale and changing customer demands. Wide dispersal of employees over the entire city and outskirts adds to turn around times for fleet managers
* Equal opportunity employer – inability to attract more women from outside work city
*Diffident to increase exposure to liability by taking on employee housing but not left with many options
* Inability to attract OoT’s (Out of Towners) due to lack of proper accommodation availability
* Inability to find accommodation solutions for employees who are primarily short to medium stay (6 to 18 months)

Employee
* Need accommodation that is furnished and managed
* Quality of life issues outside of work premises


Woodstock's investors include M.J. Aravind, one of the co-founders of Daksh (a pioneering BPO acquired by IBM in 2004) who is now a VC with Artiman Ventures. Amit Shah of Artiman Ventures has also invested in the company.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

September 09, 2007

Organized retail vs. the middlemen

Businessworld has an article providing a spirited defense of organized retail against the violent protests and lobbying by the middlemen.

Traditional traders and middlemen are angry about the way organised retailers are changing the age-old rules of their business. For one, the retailers sell superior products at competitive prices in air-conditioned stores in which housewives are happy to spend time. At the other end of the supply chain, the companies’ willingness to pay farmers quickly and fairly for their produce is also cutting out the traditional middlemen. “Most farmers borrow from middlemen at high interest rates,” says C. Sushant Darekar, a farmer in Lonikhalbor near Pune. “They fall into a debt trap of unending repayments if the crops fail.” Darekar says he has doubled earnings since he started selling directly to the Wadhawan Group’s Spinach retail chain and avoiding the price cartel of middlemen in the APMC’s yards. In addition, Darekar is getting guidance on cropping patterns and seeds and fertilisers from Spinach.

Organised retailers do not pay too much in excess of mandi prices. Yet, because middlemen can take up to nine months to pay farmers and the companies pay immediately, farmers prefer to deal with the latter. “With organised retail, farmers get at least 75 per cent of the consumer’s rupee,” says Arvind Choudhary, CEO of the food business of Pantaloon Retail — the owner of Food Bazaar. “With a middleman, they hardly manage 30-40 per cent.”

...If these numbers don’t work, another kind might. After all, going by sheer numbers, the farmers’ vote bank is larger than that of the traders. And their first sound of support for organised retailing has already been sounded on the outskirts of Lucknow.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

September 04, 2007

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

07-08-29-1: Bangalore-based diversified group seeks > $5 M for investing in Hospitals, Mining Wind Farm, Hydel Power, & Reality Sectors.

07-08-29-2: Bangalore-based real estate developer seeks $1-5 M for a residential project en route new international airport.

07-08-29-3: Chennai-based product development firm seeks <$100 K.

07-08-29-4: Chennai-based custom software developer for Financial services clients seeks <$1M for marketing and new hires.

07-08-29-5: Old Westbury, NY (USA) based event management company, which produces Bollywood-focused events in North America, seeks $1-5 M for entering TV production.

For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

September 02, 2007

The towering opportunity in telecom infrastructure

Businessworld points out how Indian telecos are cashing in by spinning off their tower businesses.
For Indian companies, this serves two purposes. One, it unlocks the value that is stuck in these towers, which can be reinvested in expanding their subscriber handling capacities. This would also help them improve their profit margins, which have been under pressure as the average revenue per user has been falling.

At present, companies allocate about 40 per cent of their capital expenditure on these towers (each tower costs between Rs 12 lakh and Rs 35 lakh). The hiving off of the tower business makes it an independent company, whose assets can be shared by different telecom players. Such sharing reduces capital expenditure and operational costs, including maintenance, for companies. Besides, adding more subscribers will increase the topline.

Sharing towers also facilitates quick rollout of networks in rural India, where the density of cellphone users per square kilometre is much lower. But demand is expected to grow rapidly. The government aims to connect 100 million rural users, and is willing to offer tax breaks to attract companies to build towers.


UPDATE: Business Today has a more detailed feature on this phenomenon with emphasis on the rich valuations of deals in this sector.

The tower companies say there is going to be a huge demand given the growth in subscriber numbers and also the pan-India ambitions of many operators. Yet, the question persists: If all players are expanding their tower base, why would they need to share towers at all?

...the operator-promoter companies clearly have a head start over their third-party competitors, who have to start operations from scratch. But that's not dampening their growth expectations. "Our plan is to grow to 20,000 sites in the next three years," says Ajay Madan, CEO, Essar Telecom Infrastructure Company, which has set aside Rs 1,200 crore for tower expansions. For their part, the new players would appear better positioned to evolve a more integrated business model that can accommodate new wireless technologies. "We are talking to a few internet and broadband players who want to share our towers for deploying Wimax services," reveals Madan.

...Tower companies are valued at a multiple of earnings before interest, depreciation, taxes & amortisation (EBITDA). Companies operating in mature markets such as American Towers are valued at 16-17 times the EBITDA. "There is a case in India of taking a much higher multiple because the market in India is growing much faster than that in the US," says Venkat.

...Despite new revenue streams like Wimax and wireless broadband emerging, the tower industry will have to rely on voice traffic as its bread and butter for the next 3-5 years. And it's this dependence on a single revenue stream that will lead to a shakeout-just as in the us, where a dozen players got reduced to three giants, with the smaller firms going bust in the late '90s because of underpricing in anticipation of big volumes. "They (tower owners) just cannot price arbitrarily or abnormally. Any new operator will outsource a tower only if it makes business sense for him," warns Awasthi.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

"Forget software, the real opportunity is in exporting healthcare"

Are Indian companies going to be able to provide enough jobs for the increasing millions of young Indians that are going to graduate each year? If not, the oft spoken about "demographic dividend" is likely to turn out to be more of a "demographic curse".

In this context, Businessworld has an interesting article pointing out that the big opportunity in exporting healthcare workers from India to more advanced whose populations are ageing fast healthcare costs are zooming.
As critics of the demographic dividend thesis point out, the focus is all on the supply of labour, while very little is said about demand. Admittedly, the additional supply of labour does offer the potential for employment and growth. But there is no guarantee that demand would match supply and lead to more jobs and production. The fact is, India will have to provide employment for 15 million job entrants every year and not 10 million as estimated earlier. “We haven’t done even 10 million yet,” points out Debroy. One concern here is that nearly half of India reports itself as self-employed and this is not just in agriculture. “Therefore, we shouldn’t think in terms of employer-employee relationships alone; we need to look at skills, access to credit, land markets, healthcare, physical connectivity (roads, power).”

On the other side are experts who believe that the demographically dying countries of Europe (Germany, Italy, Russia) offer India a great opportunity to export labour. The ageing population of Europe means there will be tremendous demand for healthcare workers, from doctors, nurses and attendants. In 20 years, the world will be swamped by people of over 80 years, and this will be a huge chance for Indians if we provide them with the proper skills, says eminent demographer Ashish Bose, honorary professor, Institute of Economic Growth, Delhi, and member of the National Commission on Population.

...Bose, who leads the optimists brigade, says we need a more energetic policy to tap the potential. “Forget software,” he says. “Train our young people in healthcare. Give them a crash course in languages. The next quarter century is ours because India is a demographic giant.”

Elsewhere in the same issue of Businessworld, a column titled "Better Red Than Dead" by Kenneth Rogoff, a Harvard Professor of Economics and Public Policy and former IMF chief economist, shows how desperately the West needs to lower healthcare costs. He forecasts that the inexorable rise in medical costs will in the near future test the "moral, social and political support for capitalism".
Rising incomes, population ageing and new technologies for enhancing life have caused health costs to rise 3.5 per cent faster than overall income for many decades now in the US. Some leading economists project that health expenditures, which now constitute 16 per cent of the US economy, will rise to 30 per cent of GDP by 2030, and perhaps approach 50 per cent later in the century. Countries in Europe and elsewhere have shielded their citizens from a part of this rise by piggybacking on US technological advances. Ultimately, though, they face the same upward cost pressures.

...Many societies view healthcare as a right, not a luxury. When medical expenses constituted only a small percentage of income, as was typically the case 50 years ago, an egalitarian approach to healthcare was a small extravagance. The direct and indirect costs were relatively minor and affordable.

But as health expenses start taking up a third of national income, healthcare socialism starts becoming just plain Marxism: to each according to his needs. Even China’s authoritarion capitalism will someday feel the pressure, as its rural populations, who currently have little access to doctors or hospitals, eventually explode with discontent.




Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.