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August 31, 2009

Set up for a steep fall?

Writing in the Business Standard, Akash Prakash of Amansa Capital points out why, despite the seemingly unbreakable positive run the Indian stock markets have had so far this year, a significant dip is "only a matter of time".
The performance of Chinese equities is also a cause for concern, given that these markets have been leading indicators for global markets over the past 18 months. At one stage last week, they were down 20 per cent. The continued decline of the Baltic dry bulk index, despite the stabilisation of the Chinese equity markets, is also a worrying divergence.

...A combination of factors — cuts in GDP growth rates, rising interest rates and stress in rural India — does not equate with corporate earnings upgrades. Commodity prices have also risen in the last six months, which will offset much of the margin expansion we have seen in corporate India in the last quarter. The market is also not particularly cheap.

Supply of paper is seemingly limitless, and we have just seen one very large IPO have a disappointing listing. Policy traction from the government is still not aggressive enough, and not enough has been accomplished, despite the setting out of clear 100-day goals by many ministries.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Speciality Healthcare models take off

Businessworld has a cover story on the rise of specialty hospital chains - most of them Private Equity-backed including eyecare-focused Vasan Healthcare, urology-focused RG Stone and cancer-focused HCG - and the new business models they are experimenting with.
There are reasons, however, why things could just click for these protagonists. One, many of them are in specialties such as ophthalmology, day-care surgery and dialysis care involving lower capital expenditure. For instance, a cardiac hospital or a multi-specialty tertiary care hospital costs an average of Rs 60-70 lakh per bed, excluding the real estate cost, says Singh of Technopak. That works out to Rs 60-70 crore for a 100-bed hospital. Cash break-even typically takes about three years.

But the set-up cost for these specialties per centre would be within of Rs 10 crore. An important factor is that in-patient stay is rarely required since a number of these are day procedures. This minimises the need for support infrastructure. As a result, cash break-even can be achieved faster, usually under a year. Real estate “is not a relevant component for specialty”, says V.T. Bharadwaj, vice-president of Sequoia Capital, which invested in Vasan Eye Care, a chain of eyecare clinics, last year. “You just need a good location, rent it, and start growing.”

...The other advantage is the opportunity to partner with MSHs. One, for a number of these specialties, the cost per procedure is in the tens of thousands rather than the lakhs spent on cardiology, or joint replacement. It is not feasible for MSHs with their high overheads to offer them. But what they can do is farm them out to be run more efficiently by these niche providers inside the hospital premises. For instance, RG Stone runs the urology and laparoscopy centre in some Fortis hospitals. Two, a specialty such as cancer requires high level of expertise and investment that not all hospitals can afford. Here too it can partner. HCG, for instance, runs the cancer department in Delhi’s Shanti Mukund hospital.

Others like medical equipment maker Trivitron run by G.S.K. Velu, are forging JVs with a single corporate hospital. Alliance Medicorp, a JV between Trivitron and Apollo Hospitals, provides renal dialysis to patients awaiting kidney transplant. The target audience are people who are not critically ill but can lead a normal life provided they come in for dialysis a few times a week. A case in point is diabetics, whose sugar levels have impacted the kidneys. “Such patients would rather not go into a hospital and be clubbed with those fighting for life,” says a Trivitron manager at the Apollo Sugar & Dialysis Clinic, the JV’s first in Chennai where patients can undergo dialysis in a soothing and private ambience.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 27, 2009

The Bull and Bear Cases

Two CNBC TV18 guests - Jim Walker of Asianomics and Adrian Mowat of JPMorgan - present contrasting views on the medium-term outlook for the stock markets.

Jim Walker feels while corporate earnings will surprise on the positive side, the RBI is set to raise interest rates as early as in October. And he feels markets in developed countries will be in a bear markets for next 4-5 years and there is no way they will enter a lasting bull phase in just 4-5 quarters.
We all know that the Reserve Bank of India (RBI) is not a central bank that will sit back and let inflation takes its grip and will not sit back and let excess liquidity dictate .., they will take action. As a conservative central bank, my expectation (is that) we will see the beginning of the tightening process as soon as October.
Here' is Adrian Mowat's very contrasting take:
I still believe that central banks are going to continue this aggressive easy policy at this point in time and so is the buying opportunity.

...It is a mistake if you think that the markets are going to going to go down meaningfully; if you look out over the balance of 2009 you have three very powerful drivers for the global economy. The first is the delayed monetary stimulus...We have high grade corporate bonds in the US yielding just about 5%, which is actually a historic low level. So the funding cost in the US are now meaningfully lower for the corporate sector, so this monetary stimulus is coming through and that is a global event and it is great news for India, where India needs to import capital from abroad to grow rapidly. So I have got a monetary stimulus.

The next thing that is going on is that the profits are a surprise on the upside and that would mean that there is less business retrenchment and that the non farm payroll and the unemployment statistics will not be deteriorating as poorly as they have been, so that takes away a very important drag.

The final point to make is that when we look at the Q2 GDP globally, you are going to see the biggest ever decline in the inventories. We are now beginning to see the industrial production cycle turn even in the US. Industrial production (IP) turned positive last month and when the IP cycle turns with the inventory cycle, it tends to increase for more than a year and this is a very protracted event. In our view, you have got an absolute text book economic recovery occurring. Maybe what is not normal textbook is that the global economy will synchronize on the way down and it is also going to be synchronized on the way up. (What was) also unusual (was) the amplitude of recession and I think that people are going to be surprised by the amplitude of the recovery.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 24, 2009

Acquisitive Aegis

Business Today has an article on how the Essar Group's outsourcing arm, Aegis, has acquired its way into the top league of Indian BPOs.
The ITES onslaught can be traced back to 2003, when the Ruias made their first acquisition, of Aegis Communication Group in the US for $28 million. Another 12 followed in the years to come. Aegis was struggling with some $22 million in losses. The takeover trail hasn’t ended: Last fortnight, the Ruias picked up CCN Group of South Africa for $30 million. Today, Aegis BPO is valued at a billion dollars, with some 35,000 employees and 32 global locations. It is also profitable, say company officials. “Our ambition is to grow as big as we can in the services space… we are a value investor,” says Ruia.

...The core of Essar’s ITES portfolio for some time to come will be BPO, which had revenues of half a billion dollars last year, and which the company claims is the fastest-growing BPO in the world (at a rate of 50 per cent as against the Indian BPO industry’s growth rate of less than 30 per cent). NASSCOM has ranked it at #8 amongst India’s top BPO exporters for 2008-09, ahead of Infosys BPO and HCL BPO.

The Ruias will follow a growth strategy similar to that in BPO in its other businesses—of growing rapidly via acquisitions to build scale. The promoters are active investors in their ITES companies, not content at just writing out cheques. “Scale and size are something one learns from the group,” says Sengupta who meets the family at least 1-2 hours every day. “It’s very inspiring,” adds Sengupta, who is also a part of the global management committee (GMC) that charts out the business plan for the entire group. With a BPO operation that’s worth a billion dollars and plenty more irons in the ITES fire, the Ruias would clearly be in a mood to give this services prong of their diverse portfolio pride of place.



Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 20, 2009

Who will bag Gharda Chemicals?

Business Today has an article on the move to sell the Rs. 1,000 crore Gharda Chemicals, which manufactures agrochemicals, veterinary bulk drugs and high performance polymers, and the hurdles in the way of a deal. Forbes India has an interview with the firm's 80-year-old founder Keki Gharda on the same issue.

From the BT profile:
Gharda’s life story is one of such innovations that allowed him to make blockbuster chemicals in India, once they went off-patent. And he made them so cheap that often the original manufacturer was eventually forced to buy from Gharda Chemicals and supply to the world. Today, he supplies Chlorpyrifos, an insecticide, to the Dow Chemical Company, and makes a purer product than Dow ever made—even though Dow scientists had invented it. “Instead of the high-temperature chlorination of pyridine, we use a low temperature process and a pyridine derivative,” Gharda explains.

...But Gharda realises that, at 80, the greater part of his journey is done. With no children to bequeath his wealth to, Gharda now wants to give up his company to the right suitor and use the money in a foundation that will fund research, hospitals and education. And some big guns are in the race, right from Tata company Rallis, Godrej Industries, and United Phosphorus (its biggest competitor), to an Israeli firm that buys 40 per cent of Gharda’s production and private equity giant Blackstone Advisors.

...A partnership firm was formed and converted into a private limited company in 1967. Today, Gharda owns around 60 per cent of the company. He has bought out Coomi Warden, but the remaining stake is with his nephews, the sons of Jer and Rutton Kavasmaneck, friends—the Rebello family, the Patel family— and some employees. And there is the involvement of Godrej Industries, and its Chairman Adi Godrej, who lent some money to the minority shareholders in return for a pledge on 6-7 per cent of the shares. Godrej Industries refused to participate in this story as it is fighting two cases against Gharda Chemicals as well as one against the minority shareholders in the Bombay High Court.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 18, 2009

Consequences of the fracas over gas

CNBC-TV18 journalist Menaka Doshi has an interesting blog post on the latest feud between the Ambani brothers.
After years of hard work and tens of thousands of crores of rupees invested, Reliance Industries is about to reap a rich harvest from its gas fields - 80 mmscmd by 2010. The KG-D6 find is one of the biggest of its time and a block-buster profit earner for the company. Except that the Government of India has stepped in to decide both the price ($4.20/mmbtu for 5 years) and the customer list. What was meant to be a market determined price (that’s what the NELP promised) is now a government determined rate. And while today some may claim that it favours Reliance Industries , tomorrow it may not! Infact I’d like to argue that the government’s interference in gas pricing is going to hurt, not just Reliance Industries in the long run, but also India’s ability to attract investors in exploration.

...Instead, some misplaced sense of benefaction has turned a business-family fight into a national resources battle. Now, no matter which way the Government goes, either brother can accuse it of bias, creating an even bigger international scandal (already the international press is having a field day laughing at how the Indian Government is stuck between two brothers). Reliance shareholders can rue the day the company found gas and the rest of us will never know how our taxes are spent (eventually that’s the revenue that funds subsidies).

If only the two brothers had stayed together…there’s a good chance they would have ensured market pricing for the gas. The Government could then provide fertiliser companies a direct subsidy to offset the gas price. Power and steel companies would pay market rates for the gas - so if international gas prices decline, we would all benefit from lower power bills and cheaper goods. If international prices increase, so would our bills - but atleast we would know what we’re paying for as opposed to paying higher taxes, a large portion of which is lost in translation. Not to forget, market pricing would have considerable brightened the prospects of finding international investors for future NELP rounds. More investors, more exploration. More exploration, maybe more oil and gas finds?

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

The "Multiple Problems" of Acquiring Chinese Cos.

Mark Dixon of M&A advisory firm the1.com has an hilarious account in the New York Times of his efforts at arriving at the normalized profit (and hence the valuation multiple) for a Chinese company.
Generally Accepted Accounting Principles are not generally accepted in China. This is partly because the Chinese have their own accounting rules and partly because rules are for breaking. And it’s not just that some company owners are trying to confuse the tax authorities. It’s that, when they do so, they end up also confusing themselves.

The gymnastics they do with revenues and costs are so impressive that the Beijing Olympics should have added an event especially for accountants. Markets with developed gray economies, like Italy, are well known for the practice of keeping one set of accounts for the government and another for the owners so they know what’s really going on. Chinese companies often dispense with the second set, hence the confusion. That’s probably true of other “developing gray economies.”

...My Chinese interpreter couldn’t handle the term normalized profit, so I dropped it in favor of true profit. But that only caused offense because it implied the figure before adjustment was a lie, which indeed it was. I then tried the expression official profit, by which I meant “what it officially should be,” but that didn’t work because it got lost in translation with the false profit they were officially reporting. I finally explained it as “the profit you would have received if you had reported everything completely correctly,” at which point I added, “Let’s for simplicity just call it Profit X!” Now everyone understood what I wanted. But they couldn’t understand why I wanted it. “We’d only pay more taxes,” they explained.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 14, 2009

Will the "New July" deliver?

Forbes India has an article on Rajesh Reddy co-founded mobile technology firm July Systems' latest business model - to partner with media firms and reach content directly to consumers directly, thereby cutting out (July's former customers) the mobile operators.
Keeping the mobile industry as the only constant, he started looking for other customers for July’s solutions. The search led him to American media companies, many of which wanted to harness the mobile phone to reach more customers. “They were treated like chipmunks by mobile operators and made to sell wallpapers, games and ringtones. They did so grudgingly. Because their business was running direct-to-consumer channels, not selling wallpapers,” says Reddy.

...Today, Reddy claims July reaches 25 million users through its clients worldwide and generates over 1.7 billion page views (up from 350 million in 2008). Reddy also claims July Systems has, for the first time, started generating cash profits from the current quarter. Though he refuses to reveal his current revenues, he says July will be “in double-digit million dollar recurring revenues” from 2010 from its existing customers alone.

On record, his new investors say July Systems should be considered an 18-month-old company, and therefore its exit horizon is three to five years away. But in reality, there will be pressure to prove to the world that they can create a successful exit like an IPO at the end of that horizon. “My goal is to complete a karmic cycle of sorts,” says Reddy. “A lot of people have made bets on me. If I can build a successful business and ensure everybody gets good returns, the cycle will complete and validate me psychologically.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Profile of Peristent Systems

Forbes India has a profile of Pune-based Outsourced Product Development (OPD)-focused IT Services firm Persistent Systems. The company, which has raised capital from Norwest Ventures, has recently decided to strike a new kind of "risk-and-reward sharing" partnership deals with its customers (typically US software product firms).
Take, for example, the work Persistent did for a customer who brought an American product to India in June. Here, Persistent developed its Indian version. The product has now been released through banks in India and Persistent will get paid depending on the number of users that sign up. If the product flops, so does the company. “It shows our willingness now to put our skin in the game,” says Hari Haran, president of Persistent.

Shailendra Singh, principal at Sequoia Capital, who has invested in OPD companies such as Global Logic, talks about the enormous revenue opportunity in doing this. “OPD companies can really move the needle.” Kiran Karnik, former Nasscom president, agrees, saying the risk-revenue model is very appropriate for right now, and that it will even be the model going ahead.

For the model to work, Persistent will need to own the intellectual property. If it has to reinvent the wheel every time, it won’t travel far. Persistent builds drivers, the computer programs that allow higher-level computer programs to interact with a hardware device. “We used to just build drivers for one company. Now, we are building drivers for that one company, and for all their competition,” says Deshpande, smiling at the improbability of it.

...Nevertheless, the risk-reward model is a tough one to pull off. The model is most often used by risky start-ups. “They are interested in this model because they are cash strapped and haven’t done the market research,” says Haque. Competitors in the OPD market also say the model can never be the only revenue stream.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 12, 2009

Profile of Fortis Healthcare's Shivinder Singh

Business Today has a profile of Shivinder Mohan Singh of Fortis Healthcare
The 33-year-old Managing Director of Fortis Healthcare is targeting a top line of a billion dollars by 2012 by creating a chain of 40 hospitals with 6,000 beds. At the end of last fiscal, Fortis had revenues of Rs 630 crore (roughly $130 million), 28 hospitals and 3,300 beds.

He hopes to get there with an aggressive mix of organic growth, acquisitions and management contracts. Fortis is well-placed financially to pull off this growth gambit. After raising Rs 650 crore with an initial public offering in October 2006, Singh now has a Rs 1,000-crore rights issue on the anvil.

...Singh’s vision is to bring the Mayo Clinic or a John Hopkins experience to India. “For us a Mayo or a Hopkins Clinic stands for scale and super-specialty care,” says Singh, who is building an ambitious 1,000 bed hospital in Gurgaon, which will be India’s largest multi super specialty hospital.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 11, 2009

Boom time for Employability Training Cos.

Business Today has an article on how South India-based Employability Training companies are now getting businesses from colleges desperate to place their students successfully.
Cracking that job interview is the most important goal—but most edu-trainers who have tapped this market initially are now scaling up by introducing newer modules. Engineering colleges, in particular, are willing takers after a tough placement season, realising slowdown-hit corporates don’t have the patience or moolah to invest in employability training.

...Chennai-based N. Raj Mohan, a behavioural scientist running skill development outfit ‘Bodhi’ since 1998, is a veteran of sorts in the edutrainer market. In early years he focussed on corporates and now the market has turned bigger for him with colleges and schools beginning to show interest. Mohan expects a growth of at least 15 per cent in the current year from employability training in colleges for his business and expects the entire industry to grow.

Most of the edutrainers-entrepreneurs charge varying fees but the variation is not stark. Some entrepreneurs charge Rs 700 for a 60-hour module on average; others charge Rs 2,000 for a 100-hour module.

According to industry estimates, such ventures are only scratching the surface; the employability market potential is big. Vouches Amit Bansal, CEO, Purple Leap—part of Educomp and now Pearson—who understood the scope for employability trainers since starting Purple Leap in 2007 in Bangalore with three other professionals. Last year, the outfit trained 2,000 students; this year, it’s targeting at least 5,000 and will touch base with at least a 100 colleges.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Market Recovery: The View from 3 Different Camps

In a column for the Economic Times, Morgan Stanley's Ruchir Sharma highlights 3 different viewpoints that investors have regarding the global market recovery.
Camp 1: This is it, nothing comes next. While the inveterate bears are willing to concede that the worst is over, they believe that any recovery will be shallow since the still over-indebted global economy will take a long time to work off the excessive leverage in the system. The bears argue that the US consumer has just about begun the process of deleveraging and will refrain from any major new spending until the personal savings rate gets back to the historical norm of 8% from 6% currently.

...Camp 2: The cyclical bull market still has some way to go. This camp is willing to acknowledge the structural problems that plague the global economy but thinks that concerted policy actions by governments across the world will lead to at least a one year-long economic upturn. The cyclical bulls say a simultaneous expansion in the global economy is well underway with the US too coming out of a recession. The momentum should be strong enough to take the S&P 500 back to the pre-Lehman level of 1,250 before both economic growth and markets run into structural headwinds again.

...Camp 3: A full-fledged economic recovery is underway. The outright optimists argue that the discussion on the global economy’s future is much too US-centric and that in turn exaggerates the negative effects for the rest of the world arising from the relative decline of one major power. Back in the late 1980s, Japan’s economy too had become the biggest contributor to global growth, and its stock market accounted for half the world’s market capitalisation at its peak in 1989. Still, a sharp fall in Japanese economic growth and its stock market did not unravel the global economy.

...My tent is still pitched with the second camp: a cyclical upturn and a bull market this year followed by some sort of a relapse next year as structural problems of excessive leverage come back into play. But we all need to retain the flexibility to switch camps at the slightest sign of incremental change, especially with many financial market indices back at the pre-Lehman levels. For markets to move higher hereon, economic data needs to keep surprising on the upside for as goes the global economy, so go the markets.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 10, 2009

Bharti's "Professional Managed, Entrepreneur Supported" model

Extract from Sunil Mittal's interview to Forbes India.
When we started out, we were an entrepreneur-led, entrepreneur-promoted company. We did a great job. In some companies, this phase lasts forever. Nothing wrong. But in my view, if you do that, you remain small. You can’t manage a large company using this model. So we moved to the next stage — entrepreneur-led and professional-supported. Over the last four years, we’ve moved to professional-managed and entrepreneur-supported. And that’s where we want to keep it.

There is one more stage — professional-led and professional-supported. Vodafone is in this mould...No single shareholder is dominant...Parts of our organisation were moving to the professional-led and professional-supported model. I had to pull it back because I figured they were becoming too bureaucratic. Things didn’t move; too many approvals were needed; too many emails. That is something we want to avoid...You must feel like the deer in a forest, which is always afraid of being attacked. Else you’re dead.

...Entrepreneurs do it intuitively. For professionals, it is part process and part intuition. When we wanted to outsource our network, it was considered blasphemy. Akhil [Gupta] and I spoke about it many times. I know how many obstacles he had to face to take it through. Everybody was dismissive of the idea. Sometimes, seniors will not only say this isn’t good, they will work hard to ensure it isn’t good. I had to protect him. That’s where the professional-managed entrepreneur-supported model comes into play. I said let’s go...If I were a professional CEO and even if I had the guts to take on the board, I don’t think I would have got the approval. The board would have batted on the safe side.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 07, 2009

The Wal-Mart of Indian Hospitals

Forbes India has a profile of heart care specialist Narayana Hrudyalaya and how it is adopting Wal-Mart style "scale economics" to the healthcare business.
A heart surgery here costs Rs. 110,000, much less than what it costs elsewhere. Even so, you pay the full price only if you can afford it. Many don’t pay at all. In 2008, out of 6,088 heart surgeries at the Bangalore centre, only 1,232 were fully paid for. Yet, the hospital makes a tidy profit. The Narayana Hrudyalaya group had a turnover of close to Rs. 300 crore in 2008-09, up from Rs. 150 crore in the previous year.

Narayana Hrudayalaya is now moving to have the largest number of beds in the country, beating Apollo Hospitals which has 6,000. It is creating multi-specialty “Health Cities”. The Bangalore facility will be ramped up to 5,000 beds. In addition to the 1,000-bed heart hospital, it has new cancer, orthopedic and eye hospitals. In the next two years, it will add two more, one for women and children and another for tropical diseases. The Kolkata facility will also be expanded to 5,000 beds. The idea is to have a health city in every state of India and have a presence in every emerging economy of the world. Already work is on to set up facilities in Malaysia and Mexico. “Next year our turnover should be Rs. 600 crore and after Phase 1 of the Health Cities plan is complete in 2010, we should be closer to Rs. 1,000 crore,” says Sreenath Reddy, chief financial officer.

...Scale helped Shetty shave off costs of medical tests too. Take blood gas analysis. At Rs. 350-400 per test, it forms the bulk of the cost for an ICU patient in India. At Narayana Hrudyalaya it costs merely Rs. 8.50 per test! How? “Most hospitals do just 20, 30 tests in a day. We do about 2,000,” says Shetty. He used that to persuade manufacturers to merely “park” their machines in the hospital and instead make money from selling chemical reagents for the tests. It’s a win-win: Narayana Hrudyalaya saves on the cost of these machines (Rs. 12-15 lakh each) and the manufacturer does Rs 50,000 worth of business selling reagents every month.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 04, 2009

Deal Alert: Continental Warehousing raises Rs. 78-Cr from Aureos, E-Planet

Continental Warehousing Nhava Sheva Ltd. (CWNSL) has raised Rs. 78 crore from Aureos India and E-planet Ventures. Of this, Aureos invested Rs. 50 crore.

CWNSL operates container freight stations at the Mumbai and Chennai ports. Part of the NDR Group, CWNSL also has a wholly owned subsidiary, Kaveri Warehousing, which offers warehousing management services for corporate clients.

August 03, 2009

The curious case of struggling asset reconstruction cos.

The Mint's banking editor has an article on the curious and counter intuitive case of struggling asset reconstruction companies.
...banks have stopped selling their bad assets. There has not been a single auction of bad loans this fiscal so far. While the mismatch between what the sellers of such assets expect and ARCs are willing to pay is one reason behind this, the other and more critical factor is that banks are not generating enough bad loans. This is because the banking regulator has allowed banks to restructure loans to help individual and corporate borrowers tide over the impact of the slowdown that gripped the economy after the mid-September collapse of US investment bank Lehman Brothers Holdings Inc. and the ensuing global credit crunch.

...A loan recast on such a large scale is indeed a new phenomenon, but Indian banks have been restructuring corporate loans for quite some time now through a mechanism called corporate debt restructuring (CDR). This was started in 2001 when some large firms, particularly in the steel sector, got into trouble following a sharp drop in demand and prices. Till last year, 219 cases were referred to this cell, involving Rs94,735 crore of debt, and 174 firms had actually got Rs84,714 crore of debt restructured at the forum. In the recent past, many more cases have been referred to the cell, including the troubled drug firm Wockhardt Ltd and now defunct discount retailer Subhiksha Trading Services Ltd.

...ARCs are also planning to buy retail loans. But that’s not a solution because ARCs’ capability in recovering consumer loans on a large scale is suspect. Some of them will have to close shop while others may have to diversify into other businesses that a non-banking finance company can do. Of course, if the economic recovery gets delayed and the bulk of restructured loans turn bad, they will survive as banks will be forced to sell stressed assets to clean up their balance sheets. Also, if they are desperate, banks will stop haggling for a few rupees more while selling bad assets.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

August 02, 2009

How Sequoia changed the face of VC in India

Outlook Business has an article on how Sequoia Capital India (formerly Westbridge Capital) - among the few VC firms in India from the 2000-era which continue to make early-stage investments - has become the model for newer VC firms in the country.
It is different from the US Silicon Valley model, where venture capitalists necessarily back only technology product start-ups that promise 100-200% revenue growth year-on-year to achieve supernormal returns. In India, VCs invest as frequently in hospital chains and beauty salons as they do in Internet start-ups and software product companies. Sequoia India showed the way in 2005 when it invested $11 million in New Delhi-based diagnostics services firm, Dr Lal Pathlabs.

The firm’s exit track record so far bears out the unconventional investment thesis. Dr Lal Pathlabs is part of the 18 companies that Sequoia India backed from its maiden fund. BPO firm Indecomm Global Services, software testing company Applabs and Dr Lal Pathlabs are each projected to fetch 4-5 times the initial investment when it exits them over the next 6-9 months. It has already seen seven exits so far, of which four, Brainvisa, Firstsource Solutions, Zavata and MarketRX, have each returned between 2.5 times and 4 times the initial investment (See table: Portfolio). The fact that all these companies are in the cash-intensive services space (an absolute no-no in the Silicon Valley venture market), and are yet able to deliver venture-type returns, is a pointer to how differently venture capital works in India.

Another significant milestone is that two portfolio companies, Firstsource and Zavata, crossed $100 million in revenues (before Sequoia exited). Another two, Indecomm and Applabs, will get there in a few months. These companies were at $2-3 million revenues when Sequoia India invested in them. “That’s an amazing success rate in the venture business. In the US, where a normal portfolio is 40 companies, they may get two $100 million firms. We have four out of 18 and we invested much less in each,” says Chadha, who is currently setting up Sequoia’s New Delhi office. Sequoia India’s Fund I has already returned 70% of the original corpus.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Broadcasting higher losses

Businessworld has an analysis of the rising losses at TV broadcasting firms.



NDTV’s results too are nothing to write home about, but analysts have noted that the company has trimmed costs successfully. Though its consolidated revenues rose in the first quarter by 9.6 per cent to Rs 131 crore compared to Q1 of the previous year, NDTV turned in a net loss of Rs 81 crore. Revenue from news operations dipped 5 per cent to Rs 80.1 crore from the Q1 of the previous year, despite additional ad revenue from coverage of the national elections and the budget. An area of concern for the company is its English news channel NDTV falling behind Times Now, currently the No. 1. For the whole year, the company made an operating loss of Rs 484 crore.

...“I don’t expect ad revenues to improve before October this year,” says Raj Nayak, CEO of NDTV Media, who markets airtime for NDTV as well as several other channels. “With an increasing number of channels, audiences have got more fragmented, while the advertising pie has remained stagnant.”
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in