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December 29, 2009

Bajaj FinServ's bet on consumer finance

Business Standard has an article on the topic.
Where Bajaj Finance hopes to make the real difference is in service: It wants to disburse loans faster than its peers, allow customers to pre-pay loans from their desktops and return documents on loans against property in less than five days — an industry record. Of course, customers have round-the-clock access to its call centres.

The plan seems to be working. “The company is now stimulating demand for 8 to 10 per cent of LCD televisions sold in the country every month, a reflection of the strategy to pursue affluent customers,” says Jain. The loan book grew to Rs 3,500 crore at the end of September 2009 from Rs 2,500 crore a year ago. While it’s hard to look too far ahead, Jain is hoping to grow the book by 30 to 40 per cent over the next 18 to 24 months. Though provisions might depress profits in the current year, the business should become more profitable from next year onwards as costs come off their peak and spreads improve in a better macroeconomic environment.

Bajaj believes unsecured loans can fetch rates of 22 to 24 per cent, while loans against property can bring in 13 to 14 per cent. So given the cost of funds at 8.5 to 9 per cent, the spreads could be as high as 1,000 basis points for some products.

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

December 23, 2009

Gujarati snack maker who cocks a snook at Pepsi

The Economic Times has a profile of Gujarat-based snack maker Balaji Wafers which controls 70-90% of the state's Rs.600 crore market for wafers and namkeen leaving Pepsi-Frito Lays and North Indian snack giant Haldirams far behind.
Indeed, Balaji products like Chataka Pataka, Ratlami Sev and Sing Bhujiya, among others, suit the tastes of a specific market. The company offers masala wafers to cater to the Gujarati palate, chaat masala for the Maharashtra market and a range of spicy snacks for Rajasthan. Here, it scores over Haldiram’s, which too has flavours to cater to the North Indian palate, by a better understanding of the Gujarati consumer. Balaji’s pampers the Gujarati’s sweet tooth by keeping its khatta-meetha less spicy.

...Balaji MD Chandu Virani says volumes help him offer such prices. The pricing plan drove PepsiCo’s Kurkure down the same path, he says, adding that his rivals had to offer similar schemes to retain consumers. This strategy of marrying price, flavour and distribution is estimated to have catapulted the group to a 90% share of the state’s wafers market and 70% of the namkeen market. After beating local brands like Samrat & Real, Balaji has since spread to Maharashtra, Rajasthan and Madhya Pradesh, eyeing a bigger bite of the Rs 3,000-crore branded snacks market.

...PepsiCo has since been trying to convince Mr Virani for a sellout. The group is against the idea, focusing instead on an expansion overdrive. Plans are afoot to expand the snacks range and cater to the global 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

Forbes India profile of security services company Topsgrup

Extract from the profile
“We want to become the Shah Rukh Khan and Narayana Murthy of the security industry — humble, accessible and down to earth. And our aim is also to do $10 billion in revenue by the year 2020,” says (Diwan Rahul Nanda, Chairman of Topsgrup).

...Acquisitions are the standard operating procedure for most large security companies going global. Because security is a very local, relationship-led business, customers are loathe to entrust their security to a new entrant. Acquiring a local security provider is often the only way to expand into other countries.

Secondly, large multinational corporations prefer to give consolidated contracts spread across multiple countries. This helps them standardise vendor and contract management as well as drive down costs by dangling the volumes carrot before vendors. Therefore an India-only Topsgrup was unable to even bid for large security contracts of MNCs in India.

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

December 18, 2009

Debt-and-equity structure to encourage angel investments

Entrepreneur turned angel-cum-venture investor Alok Mittal has proposed a new funding structure that will help catalyze more angel investments. The framework aims to ensure that the angel investor receives an equity upside if the venture becomes highly scalable; if, however, it turns out to be "only" a "lifestyle" business (i.e., not scalable enough to generate an great exit for the equity investors, but nevertheless generates good cashflows), the investor would receive a good rate of interest for his risk.

You can view Alok's proposed framework and the discussions around the various likely scenarios as part of his post on the VentureWoods blog.

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

Forbes India profile of Opto Circuits

Forbes India has a profile of Opto Circuits, probably the only pure play listed medical devices company in the country. The company's stock incidentally has appreciated 10 times since January 2005.
Until now, Ramnani has made his living, mostly by selling “non-invasive” medical devices like electronic patient monitors and medical sensors. But it is Opto’s “invasive” product line, stuff like stents and balloons that go into patient’s bodies, which holds significant promise.

...The second reason Ramnani is where he is, is because he made some smart acquisitions. Apart from EuroCor in the invasive medical devices category, Opto acquired Bangalore-based companies Devon and Ormed. In the non-invasive category, which is where Opto started, Ramnani acquired Hindustan Lever’s digital thermometer division, the patient monitoring business at US-based Palco Labs in 2002 and Bangalore-based Altron Industries. In 2008 he acquired US-based maker and distributor of patient monitoring devices, Criticare Systems, for $70 million.

...Its decision to move back manufacturing of Criticare products from Taiwan (where it was being contract-manufactured) to Bangalore has already given it a 20 percent saving in costs. It also has plans to start manufacturing stents in India, an ambitious task no doubt, but one that can help it bring down the cost of each stent below its global counterparts.

...Continued investments in R&D — 12 percent of its income in 2009 alone — are beginning to pay off. Its drug-eluting coronary balloon, DIOR, launched in January this year was the first of its kind in the world. The company says DIOR’s potential market is 40 percent of the overall stent market with 25 percent coming from patients whose existing stents start failing and 15 percent from those who develop infections around an implanted stent.

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

December 15, 2009

Will Metahelix Bt Cotton plan succeed?

Forbes India has an article on how the VC-backed agri-biotech company is taking on the big daddy of the Bt Cotton space (Monsanto).
Sometimes in the midst of all these technologies we forget that farmers don’t grow cotton to kill pests, but to get a better yield,” says Narayanan. If Metahelix can engineer a hybrid that can grow faster, utilise nutrient-s more effectively or produce a better yield, that might be its differentiator. This opinion is shared by Suman Sahai, convener of rural advocacy group Gene Campaign. “The success of Bt. cotton in India owes as much to the hybrids developed by Rasi and Nuziveedu, as to Monsanto’s technology. In fact, Mahyco Monsanto Biotech (MMB)’s initial seeds which were the first to get government approval were spectacular failures,” she says.

...when it goes to the market next year, its strategy will be two-pronged: Convince farmers using Bollgard-1 cotton (the first generation of Bt. seeds) to upgrade to Metahelix’s seed which offers added protection against pests, and demonstrate to Bollgard-2 (second generation Bt. seeds) farmers how their hybrid varieties offer better yields while offering the same level of pest protection.

In order to do this it is organising demonstrations of its cotton crops in over 250 locations around the country, where farmers will be allowed to examine Metahelix’s claims through live crops. It is also combining this with village-level meetings where company representatives will explain the benefits of their products over the competition.


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

December 13, 2009

HomeShop18's deal with Korean firm

TV18 Group's television and online retailing venture HomeShop18 recently sold a 15% stake to GS Home Shopping, a Korean retailer. In this context, Businessworld has an interview with Tae Soo Huh, president, GS Home Shopping (earlier called LG home shopping), Raghav Bahl, founding-promoter and MD of Network18 and Sundeep Malhotra, CEO of HomeShop18.
You launched in April 2008 with a bang, but the business does not seem to have gained much traction...
Sundeep Malhotra: We started when there was a lot of scepticism because of the poor response to teleshopping. But HomeShop18 is not teleshopping. Initially, we had little domain knowledge about the market, and we did not know whether to focus on the metros, or the tier-II and III cities. Today, we are doing a sale every eight seconds with sales of Rs 1 crore a day. We are serving 2,750 towns and cities with 20,000 products and 600 employees.

Raghav Bahl: In the first year, with a commission-on-sales of 23.5 per cent, we made a net income of Rs 50 crore on sales of Rs 250 crore. We would have been happy with even half that figure...Home shopping did not click initially because the environment was not there. Average annual income has only recently crossed the $2,000-mark and it is now discretionary spending — which is what home shopping is all about — has taken off. The opportunities will be huge as India moves to become a $4-5 trillion economy.

Do people in Korea shop more on television or online?
Tae Soo Huh: Initially, 24 hour-television was the main platform, and then came e-commerce. The current sales mix is: television, 50 per cent; on-line, 35 per cent; catalogue buying, 15 per cent. But the products we sell online are typically different from those on television because the consumer is different. The high sales on internet show Korean society is highly wired-up. In India, too, we hope to ramp up e-commerce, and we will expand the product categories to focus on cosmetics, kitchen appliances, services and health and beauty that are currently missing. We will aim for the high-income households that will yield higher margins.

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

December 09, 2009

"Capvent keen to seed mid-market PE teams in India"



Varun Sood of Capvent

At a time when the fund-raising environment for Private Equity and Venture Capital funds is difficult across the world even for established groups, Europe- and India-headquartered investment house Capvent is actively scouting for opportunities to invest into India-dedicated PE/VC funds. In an interview to Venture Intelligence, Capvent Co-founder & Managing Partner Varun Sood said the firm was even keen to make seed investments into first-time funds. "We like to be contrarian in our approach," Sood said. "As a house, we are very focused on first- and second-time funds."

Founded in 2000, Capvent invests in the private equity asset class globally with a special focus on Europe, USA, India and China. It has 19 investment professionals in India across its offices in Bangalore and Mumbai, which are headed by Sood and fellow Managing Partner Rohan Ajila. Outside of India, Capvent has offices in Zurich and New York. The firm currently has investments in 14 PE/VC funds operating in India. Capvent runs its pan Asia operations out of India. "We feel Capvent's on the ground presence affords us real insight into markets that require local intelligence. This offers us a competitive edge over investors that are based out of the 'expat cities' of Singapore and Hong Kong," Sood remarked.

While there are far fewer teams attempting to raise capital currently, an encouraging trend is the emergence of smaller groups which are going in for specialisation (for example, funds focussed on the Education industry, etc.), Sood said in the interview. While its sweet-spot is mid-market growth PE funds, Capvent would also consider select VC opportunities.

(The detailed version of the interview will appear in the Venture Intelligence PE Roundup 2009 report. For more information on Capvent, visit http://www.capvent.com)

December 08, 2009

Deal Alert: HSBC PE, existing investors invest Rs.70-Cr in FINO



Edited extracts from the Press Release:

HSBC Private Equity and existing shareholders Intel Capital and IFC have invested Rs. 70 crores into Financial Information Network and Operations (FINO), a company that provides technology solutions to financial services firms operating in rural areas. As part of the deal, HSBC PE and Intel Capital have purchased the entire stake held by existing investor Legatum Ventures. Avendus Capital was the exclusive financial advisor for the transaction.

James Savage, Investment Director of HPEA in Hong Kong said, “FINO is a market leader and pioneer in providing technology solutions to financial institutions for reaching out to the under-served and unbanked sector in India. With more than 135 million households unbanked, the market has potential for exponential growth. We believe that FINO is well positioned to benefit from this opportunity.”

Alok Gupta, Investment Director of HSBC Private Equity Advisors (India) Limited in Mumbai said, “Financial Inclusion is a key component of our corporate sustainability initiatives and includes areas such as education, livelihoods and microfinance. We intend to work with FINO to further develop opportunities in financial inclusion, particularly with corporate agencies and business entities.”

“Fino is pioneering the use of technology in the banking industry, and we expect them to become a widely used platform for rural banking and NREGA payments,” said Sudheer Kuppam, Managing Director, Intel Capital India, Japan, Australasia & South-East Asia. “The FINO management team has demonstrated great operational skills in building a scalable business model, which works very well in the highly complex and dispersed Indian market environment. We believe FINO's technology and operational skills will be relevant in other developing markets where similar demographics exist, and we expect to support the company in its overseas expansion plans.”

From the Venture Intelligence Private Equity Deal Database : In January 2007, FINO had raised $20 million from IFC, Intel Capital, IFMR Trust, Legatum and other investors.

December 05, 2009

Securitization Enters Microfinance

Nachiket Mor of ICICI Foundation has triggered an interesting discussion via a blog post (on Ajay Shah's blog) on the importance of securitization for microfinance companies.
Over the years, the demand for funds in the microfinance industry has outpaced the growth in investment by banks. In addition, banks are not the ideal place for these assets, given the nature of cashflows and maturity of micro loans. Hence, even though MFI assets are part of priority sector lending, the excessive focus on bank capital has effectively raised the cost of capital for MFIs. The upstream funding for microfinance needs to be diversified to harness a diverse array of borrowers, so as to avoid the constraints and unique compulsions of any one source. However, at present in India, MFIs are not permitted to mobilise deposits, or borrow from international lenders, or from MIVs (Microfinance Investment Vehicles).

The ideal financing channel for them, in this environment, is securitization. Through securitization, a pool of loans across many borrowers (and ideally across many MFIs) would be turned into a tradeable securities that are targets of investment by a diverse array of investors, with different beliefs and compulsions.

In response to a (to be expected) comment on the "dangers of securitization" on the same forum, Mor replies:
There is no question that any such effort needs to be handled with a great deal of care and attention. We also however need to remember that while there are clearly lessons for us in India from the financial markets crisis in USA our markets are at a very different stage of development and our experiences with securitisations have thus far been quite positive.

We also need to be careful about what are the implicit alternatives we have in mind if we are concerned with these developments -- limited financial access, deposit taking by under-capitalised financial institutions to finance their assets, large institutions seeking to do direct origination using credit scoring without ever meeting the customer, much wider coverage of deposit insurance amounting to transfer of all risks to the tax-payer.

Related: See a detailed note by IFMR Capital on this topic here

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

December 04, 2009

"Sushil ji or Hi Sushil?"

In an article for The Economic Times, Jaspal Singh Sabharwal of Future Capital, provides some interesting views on how Private Equity firms can deal better with promoters of Indian SMEs.

On why SMEs?

In India, if you want to invest in a cricketer, go to the Ranji trophy venue (equivalent of junior league in football). Stop chasing the established international players because they are just too expensive and you won’t be able to influence the outcome. Imagine if you had put in your money on Sachin 20 years ago.

On PE-SME Alliances
A successful PE-SME alliance calls for very high degree of caution and due-diligence. First thing first - companies should get into PE alliances only when they need to, when going it alone will take too long or cost too much or when one is seeking very specific capabilities. Too many PE alliances are built on the assumption that a good business case will compensate for differences in values, style or culture. A good business case is not really good until the softer factors are folded in, even more in the case of family run businesses. Secondly, for any partnership to endure, cultural adaptation must take place and it is often more difficult to define.

...Imagine a 30-year-old investment banker calling a 55-year-old head of an Indian business by his first name—Hello Sushil! How are you doing? Shri Sushil Gupta is Sushil ji for the entire world and these unintentional gestures wreak havoc on the relationship (unintended consequences).

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

December 03, 2009

What went wrong at Champagne Indage?

A Forbes India article on the big troubles at listed wine maker Champagne Indage pins the blame on foreign acquisitions made by the company.
In June, Chougule admitted that sales volumes had fallen 60 percent since September 2008. Its stock price has crashed from Rs. 853 in November 2007 to Rs. 55 now. The company has stopped supplying to hotels. Salaries at the company have been delayed and on September 1 this year, 250 of the company’s 450 employees resigned en masse, underlining their disgust for a company that had not paid them since November 2008.

...Indage relied heavily on foreign currency loans for foreign acquisitions. A former employee in senior management at Indage said that 40 percent of its current debt is in foreign currency.

...Can Indage come back? The Chougule family recently pledged almost 98 percent of its 25.42 percent stake in the firm, proving it doesn’t think the show is over. On June 10, Indage announced its board had approved a plan to raise Rs. 2 billion ($42 million) via a rights issue. However, there has been no progress on that.


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