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September 25, 2008

"Consumers perpetrated the credit crisis"

Distressed asset investor Wilbur Ross (better known in India for his SpiceJet investment) has an interesting take on what caused the credit crisis in the US: the eagerness of the American consumer to live beyond his means.

Ross is also critical of the US government's "ad hoc" measures on who it would bail out and who it wouldn't. "If you are stupid but really big, the government will bail you out. But, if you are stupid but medium sized, you die,” said Wilbur Ross at the Reuters Restructuring Summit. This "slippery slope" we are getting into is "going to encourage some very bad behavior by some big institutions".

You can listen to Ross' view on this and impact of the crisis, at a Reuters conference here and 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 23, 2008

“The Best Years of Outsourcing Are Ahead of Us”

Despite the current challenges, the best years of outsourcing are ahead of us, according to speakers at “IT Services & BPO Connect ‘08”, a conference focused on the road ahead and investment opportunities in these sectors. The event, which was organized by Venture Intelligence on August 28 in Mumbai, brought together over 120 senior executives from IT Services, BPO and the investing communities.

Extract from the post event newsletter:

Srinath Batni, Executive Board Member at Infosys Technologies, was categorical in stating that the outsourcing industry had “a long way to go and there is still a lot of juice to be extracted”. The current challenges are not so much on the demand side, but on the supply side. “The fundamental drivers of outsourcing are not going to change overnight,” he averred. On the cost escalation front, Batni pointed how salary increases as a percentage of revenues for Indian companies have risen less than 5% over the last 10 years. Plus, wage costs in the client markets are also increasing and the number of students going in for technical education in those countries is decreasing. The differential is still attractive enough to drive outsourcing to destinations like India. On other parameters like quality and scalability too, the Indian outsourcing industry has built a strong foundation for itself. “Also, the requirement for customers to keep pace with technology – which is becoming more and more heterogeneous - for competitive advantage will continue. Customers will need technology-related support regardless of state of the economy.”

...Abhay Havaldar, Managing Director of General Atlantic, emphasized on the need for striking the right balance between scale and innovation. His firm was more interested in companies that attacked the operating expenses of businesses rather than the SG&A budgets. The challenge for such vendors is that it requires customers to re-engineer their processes – kind of like changing the wheels while you are still moving.

Other speakers at the conference included Aparup Sengupta, CEO, Aegis BPO; Nitin Shah, CMD, Allied Digital; Subbu Subramaniam, Partner, Baring Private Equity; Partha De Sarkar, CEO, HTMT Global; Shailesh Shah, Chief Strategy Officer, Satyam; Ranjan Bandyopadhayay, Global Head of HR & Strategic Initiatives, TCS; Dev Raman, Principal, Tricolor India; Sunil Kolangara, Director-Private Equity, UTI Ventures and Ashutosh Vaidya, CEO, Wipro BPO.

Would you like a copy of the full post event newsletter? Just email your official contact details to info@ventureintelligence.in.

Boom Towns to Gloom Towns

Bloomberg has an article comparing the woes of global financial "capitals" of London and New York.
While financial services firms account for about 12 percent of New York City employment, they represent almost 30 percent of total wages and salaries, said Marisa Di Natale, the regional labor market specialist for Economy.com.

Bill Kokkosis, owner of the Majestic Delicatessen Cafe across the street from the New York headquarters of Lehman Brothers, said he was missing about half of his usual lunch customers Sept. 15, the day the firm announced its bankruptcy. ``This definitely affects the whole area,'' Kokkosis said. ``It looks like 9/11.''

...``The top end of the London housing market is taking a hit,'' said London-based Howard Archer, Global Insight Inc.'s chief U.K. and European economist. ``And there are other spill- over effects because city people are big spenders in restaurants and on luxury goods.''

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 22, 2008

Deal Alert: Inventus, Ojas invest $2-M in Telibrahma

Edited Extracts from Press Release:

Inventus Capital Partners has closed an investment in Telibrahma Convergent Communications (P) Ltd., a leading mobile digital media company operating from Bangalore. Inventus led a US$2 million round, which saw Ojas Venture Partners co-lead with an equal amount of US$ 1 million. Samir Kumar of Inventus) and Pavan Krishnamurthy of Ojas will join Telibrahma’s board.

Telibrahma's solutions allow brands to deliver rich media content and interactive engagements with targeted users' mobile devices. Working independent of mobile operators, Telibrahma reaches user’s mobiles through Bluetooth networks that it has set up in leading shopping malls, retail stores, shopping streets and sporting stadia across the country.

The latest financing round will aggressively grow the company’s footprint across several locations.

Suresh Narasimha, co-founder and CEO of Telibrahma, said, “We’re delighted to have Inventus & Ojas as investors in our company, given their track-record of helping create significant value for a number of entrepreneurs. We specially liked the operating experience they bring along, and their experience of successfully mentoring entrepreneurs. We’re seeing rapidly increasing customer adoption of our Bluetooth-based solutions, and with this investment, we’re confident of accelerating growth, and cementing our position as the leading mobile digital media company in India.”

Inventus had recently announced its first fund to invest in technology-powered companies that address high-growth global and local markets. Inventus was founded with a team of experienced venture investors including Kanwal Rekhi, celebrated entrepreneur and mentor.

More about Inventus Capital:
Inventus supports ambitious entrepreneurs building the next generation of technology powered companies, particularly software products, services, embedded software, consumer internet, semiconductor and mobile services companies. The Inventus principals have successfully invested in over 90 companies through multiple venture cycles since 1993. They typically lead the first significant round of financing and play active mentoring roles on company boards.

To date they’ve supported entrepreneurs in building dozens of successful public companies or highly valued acquisitions, resulting in the creation of $30 billion+ in aggregate wealth and market value for respective entrepreneur founders and shareholders. Inventus Capital Partners was formed with the support of the highest quality institutional investors and top-tier US venture firms including U.S. Venture Partners (USVP). For more information on Inventus Capital Partners, please visit http://www.inventuscap.com

September 21, 2008

Update on the Cable TV landscape

Business Today has an article on the business of Cable TV networks.
Five players are slowly emerging in this space with geographic spreads that can be labelled, in a manner of speaking, “national”. These include the Raheja-controlled Hathway Cable & Datacom, the Essel Group’s Wire & Wireless India (known as WWIL), the Hinduja Group’s IndusInd Media, DEN Digital Entertainment Network (set up by GBN founder Sameer Manchanda and Network18 chief Raghav Bahl) and Digicable Network India (set up by Jagjit Singh Kohli). These five MSOs have managed to gobble up some small last-mile players, either through mergers and acquisitions or by converting some into franchisees.

They control, between them, access to a little over 20 million homes, or a quarter of the cable pie. This consolidation is attracting the attention of private equity players. “The cable industry generates annual revenues of more than Rs 10,000 crore. If you compare the revenues of other parts of the industry such as advertising revenue for broadcasters and revenues of films, then this is larger than both.

In the past, money has not come into this (cable) space due to the highly disorganised nature of the industry (which encourages massive under-reporting of subscriber numbers), but it has always been a profitable business,” says Vikram Nirula, Partner, India Value Fund Advisors (IVF). Incidentally, IVF has recently picked up stake in Bangalore-based Atria Convergence Technologies, which is a digital and broadband service provider. In the recent past, the Jagjit Singh Kohli and Yogesh Shah-promoted Digicable drew an investment from UK firm Ashmore Investment Management, which now owns a 49 per cent stake in the company. Similarly, Ortel (in Orissa) raised funds from New Silk Route (a Mauritius-based PE firm) and older player Hathway counts ChrysCapital as one of its shareholders.
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.

Profiles of L&T wannabees

Business Today has short profiles of mid-tier Engineering & Construction companies that are aiming to bag more Build-Own-Transfer infrastructure projects. Extract from profile of IRB Infrastructure that went public recently.
The prominent toll roads IRB has on its hands include the Mumbai-Pune Expressway, along with two highways that connect Pune with Sholapur and Pune with Nashik. The company also recently bagged toll collection rights for a 239-km highway between Mumbai and Surat. “Currently our toll collections are Rs 1.2 crore a day, and from next year, it will be Rs 3 crore,” says Mhaiskar.

In 2007-08, IRB’s revenues of Rs 785 crore were equally split between construction and BOT projects. When executing BOT projects, IRB functions as a holding company, and each project is spun off into a special purpose vehicle (SPV). These separate entities help diffuse risk and make capital-raising simpler.

To further mitigate risk, the company is looking at developing the area around highways. For instance, along with road development in Kolhapur city in Maharashtra, IRB has taken on a 99-year-lease a 30,000 sq. metre plot.

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.

Spotting the winners among the General Entertainment Channels

Business Today has an article on how the channels are faring post the launch of a rash of new entrants.
Given the clutter, it’s not surprising that all the new launches have been backed by huge marketing and promotion spends and very aggressive pitches to marketers. Even as STAR Plus has fought tooth and nail to retain the top slot versus ZEE, Sony is finding the No. 3 slot rather slippery for it. “We are seeing a close battle for the No. 3 slot,” says Indrani Mukerjea, Founder & CEO, INX Media. “Since April (this year) 9x, along with other channels, has been at the No. 3 slot at different times,” she points out. Adds Harsh Rohatgi, Executive Vice President (Revenue Management and New Ventures), NDTV Imagine: “NDTV Imagine is currently bunched in the second tier of GECs after STAR Plus & ZEE.” Of course, Sony doesn’t agree with INX or NDTV Imagine. “We are the third-largest player and there’s no dispute there, but there is a fight for space among all the new entrants,” says Rohit Gupta, President, Sony Entertainment Television.

Such skirmishes are just a tell-tale sign of the fierce battle that lies ahead for viewership as well as the advertising money, which drives every GEC’s business model. In anticipation of the bloody battle ahead, channels are experimenting with new ingredients to whip up a compelling concoction for advertisers.

...Just the same, being a new player, catering to a smaller audience set isn’t easy. That effectively means having to put compelling deals on the table for advertisers. The new GECs, for instance, are having to guarantee a minimum viewership, failing which the deal gets sweeter and sweeter for the advertiser. Earlier, Sathyamurthy N.P., Joint President, Lintas Media Group, had told Business Today that media planners were taking investment calls based on guarantees of viewership share from broadcasters. “Usually, we review this within four weeks of launch, and if the commitment has not been met by then, we get additional commercial time for our clients,” Sathyamurthy had said. Evidently, the viewership commitment gets reviewed in six months and then nine months. “If 70 per cent of the viewership commitment has not been met until that time, we get 30-35 per cent of our commitment money back,” Sathyamurthy had explained.

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.

Will RRB catch up with Suzlon?

Business Today has a short article on RRB's plans post its split with its joint venture partner Vestas.

Today, RRB is doing everything it can to catch up—not only in size but also in terms of public mindshare and recall. “We were shackled earlier by our joint venture partner (Vestas), which had a 49 per cent stake. We were bound by an agreement to restrict operations only to India,’’ explains Sarvesh Kumar, Deputy Managing Director, RRB. Things started moving after the promoters bought out Vestas’ stake in 2006, though technical support continued till May this year. With Merrill Lynch committing a PE investment of over Rs 200 crore (the largest deal in the renewable energy segment in Asia ) in November 2007, the company now has drawn up a clear cut strategy.

“When we were with Vestas, we could only achieve a turnover of Rs 500 crore. Today, it’s near Rs 800 crore. This has allowed us to invest in a state-of-the-art technology blade manufacturing plant in Chennai, which has been validated by several agencies as Asia’s best,” Kumar says.

The company plans to leverage the technological edge it claims it has over Suzlon. Already, its exports are growing—turbines worth Rs 35 crore were exported to the US, Canada and nearby Asian countries last year. While the company had committed a capex of Rs 100 crore last year, this year an equivalent amount is being invested; this will be further scaled up next year. The turnover target for the current year is Rs 1,500 crore, with exports estimated at 15 per cent. If Suzlon has already got high-power 1.65 MW wind turbines in its stable, RRB plans to go one-up by launching a 2 MW version in a year’s time.

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.

Will M-Banking live upto expectations?

The Mint has an article on the prospects for mobile banking firms.

Jostling with each other in this emerging space are Obopay Mobile Technology India Pvt. Ltd, Jigrahak Mobility Solutions Pvt. Ltd, Eko India Financial Services Pvt. Ltd and Mchek India Payment Systems Pvt. Ltd. The companies say though their basic concept is the same, the platform, dependence on phone firms, accessibility and revenue sharing pacts with partners will help them stand apart among themselves. Their investors, meanwhile, are moving cautiously on revenue models and await clarity on regulatory issues.

Industry estimates put customers for mobile banking services at between 50 million and 100 million over the next two years, by when India could be home to nearly half a billion mobile phone users, up from some 300 million today. Mobile phone users from rural areas—ideal customers for banking services on phone—account for about one in five of such customers and are expected to grow rapidly in the future.

...Jigrahak and its peers do not intend charging customers for most services, instead taking a fee from the service vendors—a bank, for instance—they partner with. The bank, in turn, pays out of the savings it potentially makes, which can be sizeable. A mobile transaction costs between Rs2 and Rs5 compared with Rs30-40 at a bank branch and Rs10-15 for an Internet transaction.

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.

5 Habits of Highly Effective Acquirers

In a new report titled “Doing Deals in Tough Times”, KPMG has separated 160 European and US companies into two groups: M&A Champions, which achieved their projected deal synergies more than 75% of the time; and Less Successful Companies, which achieved projected synergies less than 75% of the time.

According to the report, the five attributes and practices that set the most successful deal teams apart from their competitors are:

1. Using due diligence to examine a wider range of business issues.

M&A Champions spent a third more time on non-accounting issues during due diligence than the Less Successful Companies. This is achieved through greater use of business unit personnel who bring expertise on commercial and operational issues and also through more extensive engagement with external parties such as customers, suppliers and business partners.

2. Maintaining involvement of the M&A team post-deal

The more successful deal-doers assigned responsibility to the M&A team for many post-deal activities such as monitoring achievement of targets relating to revenue synergies and cost savings. Also, these M&A teams were required to conduct a formal review of the success of the acquisition, typically within 12 months of the deal.

3. Dedicating the right people to the integration team

M&A Champions were more likely to have dedicated integration teams within their organisations. Also, those assigned to the integration were more likely to become permanent members of the management team of the target, thus ensuring continuity between the integration efforts and the on-going business

4. Effective management of cross-functional interdependencies

The more successful companies recognised the complexity of integration issues and more effectively managed the inter-dependencies between functions as opposed to those companies that took a silo approach and dealt with integration issues in isolation

5. Focus on stabilising the organisation post-close

90% of the top acquirers considered the stabilisation of the business to be one of their top 3 post-deal priorities. The early introduction of major change is identified as a key part of this stabilisation as it eliminates uncertainty and allows for focus on the job in hand

The KPMG research also examined how M&A champions organised their deal-making units to help ensure that they execute these leading practices on every transaction. The study discusses a variety of organisational characteristics, including team size, reporting structure, skill composition, recruiting practices, tools and training, and compensation – among others.

You can download the full report 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 19, 2008

Profile of Serum Institute

Biocon is India's largest biotech firm, right? Wrong! According to this profile in Business Today, Pune-based Serum Institute of India, has the crown with revenues of Rs 987 crore in 2007-08 and accounts for nearly a tenth of the Indian biotech industry revenues. (Biocon's renuees are Rs 912 crore).

Started in 1967 by Cyrus Poonawalla, a commerce graduate, the institute commenced operations with Tetanus Antitoxin and anti-snake venom serums, which were in short supply in the country. By early 1990s, the company was manufacturing a range of affordable vaccines for rabies, measles, and hepatitis-B among other diseases. But, it was still largely focussed on the domestic market. The big break came in 1994 when the World Health Organisation accredited the institute and it began to export vaccines across the world. By 1998, the institute’s products were available in over a 100 countries.

Nearly 85 per cent of Serum Institute’s turnover comes from exports. Its largest clients are UNICEF and the Pan American Health Organization (PAHO). “Nearly a fourth of our turnover comes from selling vaccines like DTP, hepatitis and measles vaccines to UNICEF. Another 10-15 per cent of our revenues come from selling vaccines to PAHO,” says (Adar Poonawalla, Director-Operations).

The rest of its revenues comes from selling vaccines directly to various countries. For example, in 2004, the institute vaccinated over 33 million people with the measlesrubella (MR) vaccine in Iran— amongst the largest vaccination campaigns in the world. Poonawalla will not reveal how much these large-scale campaigns accrue; though he reveals that usually each country adds to 1-2 per cent of the company’s revenues. What’s perhaps stunning is the profit margins that the institute is pulling off. Adar reveals that the company’s net profit stood at Rs 380 crore (in 2007-08). “We simply make the lowest-cost, highquality vaccines in the world,” says he.

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.

Deal Alert: Mukta Arts acquires Mobile VAS firm Coruscant Tec

Edited Extracts From Press Release:
Mukta Arts Limited, a BSE-listed Media & Entertainment company has acquired a controlling stake in Chennai-based mobile content and application company Coruscant Tec.

Following this development Subhash Ghai, Chairman of Mukta Arts, said, "The acquisition of Coruscant Tec is a logical step towards launching Mukta’s web and mobile digital initiatives and entering the VAS space. Mukta is a content creation company and Coruscant Tec offers content delivery solutions in the new media space. We expect synergies arising out of short format content created by Mukta or Whistling Woods students and released through the tie-ups Coruscant has with various Telecom Companies such as Vodafone, Reliance, VSNL, Tata Teleservices as well as other Partners".

Ajay Adiseshann, Founder and MD, Coruscant Tec said, "Several players, wishing to consolidate or enter the mobile VAS space, have expressed interest in our company. We found that Mukta Arts with its command over the complete entertainment value chain in India, was the best fit to provide the necessary scale and boost to the business, which is currently a US$ 1 Billion market growing at 40% per annum and expected to become a US$ 4 Billion market by 2010."

The founders of Coruscant Tec - Ajay Adiseshann and Probir Roy - have also founded mobile payments company Paymate.

September 16, 2008

Deal Alert: South Africa's Sanlam Group invests $50-M in SMC Group

Extracts from Press Release:

India’s fourth largest securities brokerage house, SMC Group (“SMC”) has announced today that it had entered into joint venture agreements (JV) with Sanlam Investments, the investment arm of South African financial services giant, Sanlam Ltd. The agreement between the parties will see the setting up of two new businesses in India – a wealth management company and an asset management company.

The deal was made possible through an acquisition into the SMC group of companies, including warrants; which will ultimately create a 5% equity stake for Sanlam Investments in SMC and its two flagship companies – SMC Global Securities Limited & SAM Global Securities Limited. The total financial outlay by Sanlam Investments on this joint venture with SMC, as the warrants are exercised and the new businesses are capitalised, is expected to be upwards of US$50 million.

Sanlam Investments is the investment arm of South Africa’s leading financial services group, Sanlam. Sanlam Investments comprises 14 specialised investment management businesses each of which is a leader in its area. Key businesses include, Sanlam Investment Management, which is the group’s asset manager and Sanlam Private Investments, the private client business.

Singhi Advisors acted as exclusive advisors for the SMC Group.

NSRCEL's workshop on Finance and Biz Dev for entrepreneurs

Nadathur S Raghavan Centre for Entrepreneurial Learning (NSRCEL) at IIM-Bangalore is organizing two day workshops for entrepreneurs. The first - on Sep. 29 & 30 - will focus on Business Development Skills and the next - on Oct. 3 & 4 - will focus on Finance for Entrepreneurs.

For more information, contact:

Girish
Nadathur S Raghavan Centre for Entrepreneurial Learning
Indian Institute of Managment Bangalore
Bannerghatta Road, Bangalore 560076
Tel: 080-26993701, 3721, 3710
Fax: 080-26993769
nsrcel.orgnsrcel@IIMB.ERNET.IN

September 15, 2008

FCCBs: Are they a Time Bomb or a Blown Up Issue?

An article in Business Today examines the debate around one of corporate India's favorite funding instruments - foreign currency convertible bonds (FCCBs) - at a time when the stock prices of most issuers are trading well below their conversion prices.
India Inc. has issued FCCBs worth about $21 billion. Of this, bonds worth an estimated $19 billion (Rs 76,000 crore then) were issued between January 2004 and December 2007, when the stock markets were on fire and almost every share worth its name was ruling at, or near, its all-time high. Companies set conversion prices high on the assumption that the stock market would continue to move only in one direction—up. And foreign investors, keen to cash in on India’s growth, bought the story. “Emerging markets were where we had wanted to invest and India looked good,’’ says a senior executive of a UK-based financial institution, which has invested in Indian FCCBs.

...FCCBs were win-win instrument as long as the bulls had a free run of the stock markets. But with the bears now crowding the bulls out, India Inc.—or at least a large percentage of the companies that had issued FCCBs—may be sitting on a time bomb that is ticking away on their balance sheets. The fear: many of the companies concerned may not have sufficient funds to redeem their obligations. “They will have to refinance these borrowings from the local market at high interest rates. This will certainly impact their cash flows adversely and may even cause project delays,’’ says Ashok Jainani, Research Head, Khandwala Securities Limited, Mumbai.

...Then, there is also the question of how Indian companies treat FCCBs in their books of accounts. There is a justified complaint that by treating them as contingent liabilities, several companies are guilty of overstating their health and understating their liabilities. Vishal Goyal, an analyst with Edelweiss Securities, notes in an 18-page report on the subject: “Currently, most companies either reduce redemption premium from their net worth or treat it as a contingent liability. Thus, their profit & loss accounts do not reflect the actual cost of FCCBs. This issue is particularly relevant for companies whose current share price is significantly lower than their conversion price.’’ Infosys’s Pai agrees on the need for greater transparency in disclosures. “Rating agencies will, obviously, look at these very issues carefully.’’ Adds Raman Uberoi, Senior Director, Crisil Ratings: “We treated FCCBs as debt in our analysis and assigned it the appropriate risks in case conversion did not happen.’’

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 12, 2008

America demands another bubble!

The Onion has a hilarious "news item" on how recession-plagued Americans are demanding a New Bubble to invest in.
Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds. The manner of bubble isn't important—just as long as it creates a hugely overvalued market based on nothing more than whimsical fantasy and saddled with the potential for a long-term accrual of debts that will never be paid back, thereby unleashing a ripple effect that will take nearly a decade to correct." "The U.S. economy cannot survive on sound investments alone," Carlisle added.

..."Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."

..."America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."

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 11, 2008

Where would you like to go for your first job?

Angel investor Paul Kedrosky has sparked off a discussion on where-in -the-world an unencumbered 22-year-old American graduate
would like to for an exciting first job.
You want to be part of something big and dynamic, a truly dynamic economy where you're going to be able to rise up with it. The U.S. has long been that place, and maybe you think it no longer is -- or maybe you do. Whatever. Where in the world -- visas aside -- would you go?

I got that question the other day from a recent graduate, and I surprised myself with how quickly I could answer it. I knew immediately where I would go, hands down, with hardly a moment thinking about it. But how about you? Any city, any country, anywhere in the world. You're 22. Where would you go?

In the spirit of full disclosure, where would I go? Brazil. While I'm painfully aware of the many problems -- infrastructure, crime, capital, corruption, etc. -- that the country still has, I love the dynamism, growth, optimism (mostly -- see my trip notes for more), etc. And it doesn't hurt that the economic numbers are generally good too, with some exceptions.

Interestingly, there was a solitary vote for Bangalore and none for Singapore!
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, 2008

The booming OOH business

Business Standard has a feature on the outdoor advertising / Out of Home (OOH) media business.
City development in India is riding on the back of advertising support from OOH media companies. Local governments and municipal bodies have discovered value in making outdoor companies invest in basic infrastructure development in lieu of the media rights to those properties, a standard practice in much of Europe, the US and Singapore.

...Clearly, OOH action is gathering momentum. Even as city municipalities push their infrastructure projects through private-public partnerships with outdoor media companies, national and international players are pumping money into the sector. Projects worth Rs 1,200 crore to Rs 1,400 crore are being picked up by a host of Indian companies such as Big Street, Laqshya and Parivartan City Infrastructure Ltd, as well as foreign players like Stroeer, ETA Star Holdings and JC Decaux.

...The new infrastructure-related outdoor projects are priced too high. Outdoor companies invest the capital, maintain the property, and also pay a licence fee to the government. For instance, Parivartan, which has put up bus shelters in the Municipal Corporation of Delhi’s areas for about Rs 15 lakh each, is also paying the corporation Rs 1 lakh a month for each shelter as the licence fee. This is on the assumption that it is making money from the advertising rights. The trouble is that while the outdoor company pays the government in advance every quarter, its own income from advertisers has a 120-day cycle.

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 07, 2008

Profile of Jai Corporation's Anand Jain

Business Today has a profile of Anand Jain, promoter of the infrastructure-focused Jai Corporation and the real estate-focused Urban Infrastructure Fund.
That Jain is (Mukesh) Ambani’s lieutenant is quite clear, but that doesn’t mean he doesn’t have his own vision for his own company, Jai Corp. He is looking at developing real estate on the outskirts of the SEZs, along with independent townships, as the area within the SEZs will not be enough to cater to housing needs. “Every person would need an average of 50 square feet of office space and three times that for residential needs,” he explains. Jai Corp. is planning to develop two townships along the Mumbai-Pune Expressway, of 300 acres each. It is also planning a township in Talegaon and one in Nasik.

Of course, it’s quite likely that Ambani will also be an investor in many of such projects, including a port at Rewas (on the western coast), and a 2,000-MW power plant near the SEZs. The power unit will run on gas supplied by RIL. Some will see these developments as a backdoor entry by Mukesh Ambani into a business where his younger brother Anil is present—which may renege on the settlement agreed on by the two brothers that they will not intrude into each other’s businesses.

“The agreement is between the brothers and not with Jai Corp.,” quips Jain. Other than infrastructure, Jai Corp. has entered into financial services by setting up a real estate fund. The ‘Urban Infrastructure Fund’, which has Nikhil Meswani, Executive Director, RIL, as one of its advisory committee members, has a corpus of Rs 3,300 crore; it also advises a $550-million (around Rs 2,250 crore) offshore fund. From this business, Jai Corp. will earn a 2 per cent annual fee for the domestic fund and 1 per cent from the offshore fund every year till their maturity. In addition, the company will charge a 20 per cent fee at the time of maturity from the domestic fund. The Jai Corp. stock, for its part, has been shattering all records, rising almost 2,800 times in the last two years, ostensibly on the back of the upside that lies in the company’s new focus on infrastructure.

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.

Analysis of the Infosys/Axon deal

Businessworld has an analysis of Infosys' $750 million acquisition of UK-listed Axon.
The timing of the acquisition is also attracting attention. “Why acquire Axon now?” asks Peter Schumacher, CEO of Value Leadership, a US- based IT consulting company. “With the world economy softening, the IT services sector in Europe is expected to slow and valuations decline further. Did Infosys become impatient and pay too much?” A look at the size of outsourcing deals from European companies makes his question a valid one. This year not a single outsourcing deal in the range of $100 million or upwards has gone to the country’s top three IT majors, including Infosys. Majority of the deals have been in the $5million-10 million range, leading one to conclude that there are no big ticket deals at present in Europe.

However, Indian IT majors who have traditionally been getting about 70 per cent of their revenues from US are slowly gaining foothold in Europe, albeit with small deals. “Given that over 60 per cent of Axon’s revenues are derived from Europe, we expect Infosys’s consolidated revenues from Europe to move from the current 28 per cent to 28.6 per cent and 30.4 per cent in FY 09 and FY 10,” says Shah of Prabhudas Leeladhar.

Europe is an attractive growth market but one that Indian firms have found hard to break into. And the Infosys-Axon deal meets most of the strategic intent that Indian firms need to pursue. Says Avinash Vashishtha, CEO of Tholons, “Axon plugs a significant gap in Infosys’ geography diversification and presence in a high-growth market.” Adds Forrester’s Apte, “The deal brings, we estimate, over a hundred new clients and missing industry verticals such as public sector to Infosys’s fold.” He adds that despite Axon’s substantial employee base in Europe, it is Infosys that is better equipped to address the much-wanted European client demand of a “combination of local Europe presence and offshore scale”. According to Manoj Mohta, Head of Crisil Research, “When an Indian Tier-1 player makes an acquisition in the European market, which in turn leads to part of the work being offshored to India, it can lead to a 4-6 per cent improvement in margins through that acquisition over 3-4 years.” If Infosys could capitalise on this, its margins — which are already better than most domestic IT majors, should see an uptick.

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 06, 2008

Saudis go overseas shopping for farmlands

FT has an interesting article on how, alarmed by restrictions placed by food exporters (such as India’s curbs on exports of rice), oil-and hence, cash-rich countries like Saudi Arabia are shopping for agricultural land across Asia and Africa to secure their food supplies. And analyzes the impact this is likely to have.

Their plan is to set up large-scale projects overseas that will later involve the private sector in growing crops such as corn, wheat and rice. Once a country has been selected, each project could be in excess of 100,000 hectares – about 10 times the size of Manhattan island – and the majority of the crop would be exported back, officials say.

While Saudi Arabia’s plans are among the grandest, they reflect growing interest in such projects among capital-rich countries that import most of their food. The United Arab Emirates is looking into Kazakhstan and Sudan, Libya is hoping to lease farms in Ukraine and South Korea has hinted at plans in Mongolia. Even China – with plenty of cultivable land but not a lot of water – is exploring investments in south-east Asia.

...in Sudan – one country targeted by almost all Gulf investors – the World Food Programme, the UN agency that deals with food emergencies, is feeding 5.6m people. If the investment plans go ahead, Sudan, perversely, could be exporting to rich nations while its own population suffers.

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.