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Tata Tele to bill roaming calls per second

Reuters — Sun, 22 Nov 2009 18:10:00 GMT

Mumbai: Mobile services provider Tata Teleservices Ltd on Sunday extended its per-second billing scheme to roaming calls as well, as the tariff war in the world’s fastest growing wireless market heats up.

On Friday, industry leader Bharti Airtel Ltd introduced a new billing plan that cut mobile roaming rates by nearly 60%, depressing the company’s shares.

From Monday, Tata Teleservices, 26% owned by Japan’s NTT DoCoMo Inc., will charge one paisa per second for both incoming and outgoing calls made while roaming across the country, irrespective of the network used, the company said.

Firms wooing banks for foreign currency loans

Anup Roy — Sun, 22 Nov 2009 17:39:00 GMT

Mumbai: An increasing number of Indian corporations are raising foreign currency loans from local banks and converting them into rupees even as the overall loan growth in the banking system continues to be at a 12-year low.

Firms are finding foreign currency loans cheaper than raising loans in local currency directly because the London interbank offered rate, or Libor, an international reference rate for financial transactions, is attractively low.

Domestic banks raise foreign currency deposits from non-resident Indians, or NRIs, in the form of foreign currency non-resident (FCNR) loans. Currently, banks are paying 2.2-2.5% on one-year deposits. Interest rates on such deposits have come down substantially following the rate cuts by banks. The rate of interest for a one-year FCNR deposit was 3.12% in March.

Banks are lending such resources at 350-650 basis points over Libor, keeping a margin depending on the credit history of the borrower. One basis point is one-hundredth of a percentage point.

The three- and six-month Libor crashed to less than 1% earlier this year. The six-month Libor is now 0.4925%, and three-month 0.266%.

This, however, does not mean that the top-rated corporate borrowers are getting three-month loans at 4%.

This is because banks insist that the borrower must book a forward dollar contract to hedge the position. Since the three-month forward dollar now costs 2.3%, the cost of a three-month foreign currency loan for a top-rated customer works out to around 6.3%.

At current Libor, if a lower-rated firm takes a dollar loan, the cost comes to around 8.5%, which is much less than what a purely domestic loan would cost.

A senior banker with Union Bank of India told Mint that a firm which would get foreign currency loans at 600 basis points over Libor is eligible for a pure rupee loan at around 11%.

Forward cover is a sort of insurance against currency fluctuations. If the borrower does not take such cover and the rupee depreciates against the dollar, costs will go up substantially as it would need to buy dollars from the market for repaying the loan.

Under Reserve Bank of India norms, it is mandatory for borrowers to buy such forward contracts.

“We are seeing this trend for the last two months. As Libor has fallen to these levels, firms are increasingly asking us to give them such loans,” said a senior official with Bank of Baroda.

According to bankers, the not-so-well-rated firms are looking for such loans more than the top-rated ones, as they are the ones that will be faced with having to pay a higher price.

“Corporates are queuing up for these loans but banks are unable to meet the requirement of clients,” said N.S. Paramasivam, group treasurer of Essar Group. “They are giving the loans on a selective basis.”

“We look at the spread more than anything. If the bank is giving us loans at a lesser spread, this kind of loan always leads to cost savings,” said Paramasivam.

At the end of March, total outstanding deposits under the FCNR scheme stood at $13.21 billion, with another $975 million coming in over the first six months of the fiscal year ending March, according to an RBI publication.

Banks typically use these deposits to give loans to firms for their overseas needs. A portion of these deposits, however, is used for extending domestic loans as well.

Normally these are long-term loans with a reset clause every three to six months, linked to Libor. Firms have the choice of converting such borrowings into rupee loans after each reset.

Because RBI guidelines advise banks to avoid any asset-liability mismatch, they only extend such loans for less than a year because the foreign currency has to be returned to depositors at the end of that period.

Bankers said they deploy only 50-60% of foreign currency deposits for domestic loans. In the past, this limit was rarely reached as Libor was high and there was no cost saving to the borrower after banks added their margin and forward cover as a hedge.

A banker with another large Mumbai-based bank said that given the demand for such loans, lenders are exercising greater caution.

“We are generally giving these loans to our most-preferred customers, who have a good banking relationship with us,” said the banker who did not want to be identified because he is not authorized to speak to the media.

Despite the new-found popularity of such loans, they remain a cause of concern for borrowers because of the volatility of the foreign currencies involved, said Prabal Banerji, chief financial officer of Hinduja Group.

“For bridge loans or working capital needs, these loans are a very effective and cheap way of raising funds,” Banerji said. “But if you are betting on long-term loans based on this strategy, this is very risky. Since it is dependent on external factors such as Libor and foreign currency rates, any volatility in these makes the loan risky for long-term strategy making.”

NRIs can park their rupee deposits with domestic banks through non-resident external (NRE) accounts or non-resident ordinary accounts. They bank their foreign currency funds through FCNR deposits.

RBI has allowed banks to offer Libor plus 1% for FCNR deposits and Libor plus 1.75% for NRE funds.

Banks receive FCNR deposits in US dollars, pounds, euros, yen, Australian dollars and Canadian dollars.

The currency fluctuation risk is taken on by the banks in the case of FCNR; but in the case of other non-resident deposits, the risk is borne by the depositors.

anup.r@livemint.com

Sales boost only way to push profit

Ravi Krishnan and Ashwin Ramarathinam — Sun, 22 Nov 2009 17:32:00 GMT

Mumbai: The September quarter earnings of Indian manufacturing firms showed the best growth in at least the past 12 quarters, but with raw material prices rising and the Reserve Bank of India, or RBI, indicating that the days of easy money are over, companies will need to do more to make the numbers look good—they really need to drive up sales.

For 317 manufacturing firms that form part of the Bombay Stock Exchange’s BSE 500 index, the growth in net profit in the September quarter stood at 54.45%. Had there been no change in raw material prices and interest costs from the year earlier—when the credit crunch took hold, giving rise to stimulus measures—this would have been just 8.3%.

“From financial year 2011, topline (revenue) growth is necessary” to sustain earnings growth, said Rajat Rajgarhia, head of research at Motilal Oswal Financial Services Ltd.

Banks, oil marketing firms and service sector companies are not included in this analysis.

Oil and gas firms’ earnings depend on volatile international crude prices and a subsidy sharing mechanism by the government. Banks and financial institutions have a different earnings model as money is such firms’ raw material.

Here’s how we arrived at the figure: Raw material costs as a percentage of net sales fell to 42.52% for the three months ended September, compared with 45.13% in the year-ago quarter.

Similarly, interest costs as a portion of net sales fell to 1.79% versus 1.96% a year ago.

If these costs had remained in the same proportion to sales, the collective net profit of these firms would have been Rs31,406 crore instead of the reported Rs44,793 crore. In other words, the profit growth would have been reduced drastically to 8.3%.

“Margin expansion”, or the impact of cost cuts, was one of the main reasons for the good profit growth in the second quarter, said Rajgarhia of Motilal Oswal.

Prices of raw materials such as steel, aluminium and rubber declined sharply earlier this year due to the slump in global demand following the credit market seizure as markets crashed and US investment bank Lehman Brothers Holdings Inc. collapsed in September 2008. Most companies in the manufacturing sector benefited from the worldwide price reductions.

Indeed, on an absolute basis, raw material costs fell 16.54% in the three months ended September, the second sharpest decline in at least 15 quarters. The steepest fall of 22.79% was reported for the three months ended June 2009.

Second-quarter earnings “surpassed our expectations on operating profits and margins because of lesser- than-expected operating costs,” wrote Dhananjay Sinha and Komal Taparia of Centrum Broking Pvt. Ltd in an 18 November note.

On the interest rate front, too, companies benefited from the easy money policy of RBI, which cut rates and banks’ cash reserve requirement, or the portion of deposits kept with the central bank, several times to ease the credit crisis. Even though loan growth hasn’t really picked up in the economy, the liquidity infusion and rate cuts along with debt restructuring by companies have led to a smaller interest outgo for many firms. Interest costs in the September quarter fell 19.35%, the first time in 10 quarters when this metric recorded a decline.

Growth on track, but...

While analysts and economists are convinced that growth remains on track, they say that these factors can’t be relied on to sustain the earnings momentum.

For one, the central bank will reverse its easy money stance as inflation is rising. In its October review of monetary policy, RBI withdrew some of the special liquidity measures introduced last year and imposed tighter norms for realty sector lending. Most economists expect RBI to raise rates as early as January as wholesale price inflation may rise to as much as 8% by March from the current level of 1.5%. Higher interest rates and the draining of liquidity are the two conventional tools to fight rising inflation.

Secondly, commodity prices have risen from their lows this January. For instance, aluminium prices have increased 31% to $2,060 per tonne (Rs95,996). Prices of steel have also gained 5% while crude prices have risen by 65% to $76.72 a barrel.

“The effect of these factors will level off from Q4 (the fourth quarter),” said Apurva Shah, head of research at domestic brokerage Prabhudas Lilladher Pvt. Ltd.

Even if raw material prices increase, they won’t immediately reflect on costs for listed companies, most of which are big finished goods manufacturers.

“Intermediate pricing (such as for auto parts) remains low,” said Shah. “These companies are not in a position now to pass on raw material cost increases since everyone is sitting on spare capacity.”

Once demand revives, intermediate pricing, too, will improve and then companies will have to depend on revenue growth.

ravi.k@livemint.com

Big realty companies picking up stakes in distressed developers

Madhurima Nandy — Sun, 22 Nov 2009 17:19:00 GMT

Bangalore: The partial revival of the residential property market following last year’s crash and money raised from qualified institutional placements (QIPs) is allowing bigger real estate companies to buy out builders who haven’t recovered from the slump.

Real estate companies such as Ackruti City Ltd, Sunteck Realty Ltd, Orbit Corp. Ltd, Oberoi Constructions Pvt. Ltd and Sunil Mantri Realty Ltd are picking up stakes in distressed assets or taking over completely from smaller developers stuck with land parcels without the money to build on them. Such assets carry the added advantage of having approvals in place and therefore being quicker to complete.

Graphics: Sandeep Bhatnagar / Mint

“These are good associations for both the smaller and bigger builders because while the latter would not have money to buy new land, it’s a good construction and sales strategy for the former,” said Ramnath S., director (research), IDFC-SSKI Securities Ltd, a brokerage firm. “Also, many small players, (who) would have concluded land payments and now don’t have money to build, can depend on a big brand name to sell the product.”

“For us, any land which we buy has to be available at a reasonable price,” said Vimal Shah, managing director of Mumbai-based Ackruti City. The company, which has a debt overhang of Rs900 crore, plans to build residential projects with land it has acquired from distressed sellers. “These properties came to us at good rates.” The projects will be renamed and sold under the Ackruti banner, he said.

There are several such opportunities in a market where there is still a credit crunch and smaller developers are looking for a rescue.

Over the past few months, Ackruti has concluded three deals, picking up stakes in projects in Mumbai from small firms that have been stuck after buying land during the boom. The deals cover a total 2 million sq. ft, according to Shah.

DLF Ltd, India’s biggest developer, has gone the other way however, exiting land deals that were signed in 2007-09 during the property boom.

Ackruti is co-developing the Hindoostan Spinning and Weaving Mills Ltd property at Prabhadevi in south Mumbai with Chennai-based entrepreneur C. Sivasankaran after DLF exited the special purpose vehicle earlier this year, selling its 66% stake to the latter.

A DLF spokesperson said the aim of the company was to reduce debt through the sale of non-core assets.

“This property Hindoostan Spinning Mill was best suited for a hotel and since we are not too keen on hotels, we decided to exit from this,” said the spokesperson, who can’t be named. “Also, it was a readily cashable deal which worked for us.”

Shah said premium serviced apartments and a hotel are planned on the sea-front plot.

Orbit Corp. has set aside Rs150 crore, part of which was raised from its QIP in August, to buy distressed assets, which was one of the state aims of the fund-raising programme.

“We are negotiating with three developers who are also landowners for properties in south and north Mumbai,” said Pujit Aggarwal, managing director, Orbit Corp. “These are good opportunities for us because it reduces at least two years of work for us and makes it easier to start the project.”

The developers declined to disclose the names of their partners, citing confidentiality terms in their agreements.

Developers said that the pile-up of assets is the consequence of a three-year boom, during which landowners without any track record or expertise in property development, turned overnight into builders to cash in on the bubble.

“In the current situation, these firms, which are sitting on big land parcels, are scared to execute the projects and don’t have the money,” said Sunil Mantri, founder of Sunil Mantri Realty. The opportunities aren’t limited to the bigger markets such as Mumbai, he said. Mantri has completed deals for distressed assets in Hyderabad and Pune.

Large firms believe that it is a better business model to form joint development agreements with smaller, local partners rather than buying out the land or forming a joint venture, analysts said. While buying out usually proves to be more expensive, joint ventures result in an equal sharing of cost and value, which is not suitable for such partnerships.

“Joint development agreements, in such cases, are suitable because we acquire the property and then give back a percentage of the built-up land to the partner,” said Kamal Khetan, managing director, Sunteck Realty. “In such cases, the larger developer, of course, provides and looks after aspects like construction finance, marketing and sales of the project.”

Sunteck has entered into a joint development deal for a large, 2.6 million sq. ft slum redevelopment project along the Eastern Express Highway in Mumbai and is also negotiating for four such projects across the city, he said.

“It’s a win-win situation for both and small developers are smart in tying up with a bigger developer, which has a good track record and brand value, to joint develop a project,” said Vikas Oberoi, managing director, Oberoi Constructions.

Sustaining the level of growth is the challenge

Sun, 22 Nov 2009 17:09:00 GMT

Edited excerpts from an interview with Anand Kripalu, managing director, Cadbury India Ltd.

How have you led the charge in recent years?

Expanding reach: Kripalu says the firm aims at reaching more shops with the new Perk.

The last two years for me has been to raise the bar of ambition in the company. When I joined the company, the Cadbury brand was so much bigger in the mind than it was through the profit-and-loss statement. Historically, we have grown at about 10%. The ambition was to say if we are not growing at 20%-plus then we are not growing to potential.

Was involving the sales team in product development a key move?

Yes, even in the Perk mix, there have been wholesale packs, etc., that have been crafted based on retailer insights from the sales teams. Sometimes you create the whole marketing mix based on consumer insights and then the sales guy comes along and says, “Hey, this won’t work.” But that opinion comes in too late because we have to launch. We are trying to make sure that some of these things work if brought in much earlier.

What’s the agenda with the new Perk?

A key effort with the Glucose Perk is to get into shops where the old Perk never existed. In a market like India, you get a competitive advantage from being in traditional trade (grocery stores.)

How has distribution improved and what do you see as a challenge going ahead?

The number of wholesalers we reach has grown seven-eight times in the last three years. Chocolate is largely an urban thing, but we are going further. Each year, you get the lower hanging fruit but then you have to catch the higher hanging fruit to sustain the same level of growth. And that is the challenge.

Cadbury aims for a bigger bite of Indian market

Anupama Chandrasekaran — Sun, 22 Nov 2009 16:55:00 GMT

Chennai: Even as US-based Kraft Foods Inc. and other likely bidders emerge for the world’s second largest confectioner, Cadbury Plc is renewing its own bid for the Indian consumer with hopes to raise its market share in the subcontinent.

Over last three years, Cadbury’s Indian arm has logged higher profits by doubling sales growth through its presence in more retail outlets through a wholesale network that has grown as it increased reach into smaller towns.

Smaller packs and variants of existing brands starting at Rs2 boosted sales in the last few years, but the aim now is to energize the category by attracting new customers via a new avatar of Perk, the wafer chocolate introduced in the 1990s to counter Swiss multinational Nestle SA’s successful launch of KitKat.

The new Rs5 Perk, which is bigger than the version it replaces, boasts of having glucose energy and is aimed at bringing more on-the-go teenagers looking for a low-cost hunger buster.

Also See Growth recipe (Graphics)

“The increase in size is important for the new consumers,” said V. Chandramouli, director of human resources and strategy for Cadbury India Ltd. “At the same time, the product went through multiple rounds of evaluation to make sure we do not alienate existing buyers.”

Cadbury’s switch to the fast lane happened with the arrival of Anand Kripalu, whose mantra even at his former employer Unilever was to kick up not just market share but to lift the entire category.

“If you have super brands and star talent, then that combination has to make us bigger than what we are,” said Kripalu, Cadbury India’s managing director who interacts informally with his employees every quarter via an open house.

The London-headquarted company, which also sells bubble gum Bubbaloo and milk-food drink Bournvita, has dominated the Indian market for over six decades with around 80% share of the chocolate business in the 1980s.

With the entry of Nestle in the 1990s, its share slipped and now stands at 71% of the Rs2,000-crore chocolate market, according to research group AC Nielsen. Nestle, which is more popular for its dairy products, Nescafe coffee and Maggi noodles, has a close to 25% share of the chocolate pie, and Gujarat Cooperative Milk Marketing Federation, widely known for its Amul butter, milk and ghee, and imported chocolates take the remaining 4% share.

“While I would applaud Cadbury by saying that they have put up barriers to entry, I think that their position today is not so much of their own making as much as the fact that nobody has chosen to give them an iota of a fight in the market because competitors have other businesses that are far more profitable,” said Sharda Agarwal, a director at brand consultancy MarketGate.

Cadbury’s brand share in India may be the highest in the world but that ranking lacks sheen as annual consumption of chocolates by an Indian is just 54g, against 10.5kg in the UK and 5kg in the US.

So, three years ago, with a multifunctional team of sales people with distributor focus, marketeers intuitive of consumer needs and the scientists in the product and packaging research and development lab, the move to create a chocolate magnet for new customers that would push per capita consumption began.

Meanwhile, Sunil Sethi, Cadbury India’s director of sales, pedalled hard to improve supply chain efficiencies by chiselling away more than half of the distributors to remain with the most productive ones and connecting their computers to the corporate server, enabling electronic order placements and shrinking unreliable paper bills.

Next came offering-specific assortments, as against the entire brand basket, to retailers via distributors based on the customers they attracted, which reduced inventory at the distributors and also improved their cash flow.

The result: a 700% jump in the number of wholesalers that the distributors serviced and an average of at least 20% annual growth in sales along with a nearly 30% jump in profit.

“We’ve freed up money from blocked inventory, and as a result, you have made your distributor far more profitable,” Sethi said. “Today, most of my retailers are earning a 24% return on investment versus earlier when it would vary anywhere between 15-25%.”

With the launch of the new Perk, which has a more cost-effective recipe along with cheaper packaging, the firm expects to double its retail presence to two million outlets in another two-three years, inching closer to reaching all the 4.6 million outlets that stock confectionaries. It is also offering the new Perk in a more affordable Rs100 trade pack versus Rs145 earlier.

Graphics by Yogesh Kumar / Mint

Web firms try offline options to net customers

K. Raghu — Sun, 22 Nov 2009 16:30:00 GMT

Bangalore: Four Interactive Pvt. Ltd, which runs online local search portal Asklaila.com, now has an offline extension—agents assisting callers who seek information on restaurants, shopping malls and the like.

The phone-assisted service began a pilot programme on Thursday in Bangalore, where the local search firm is based, that will eventually expand to the 13 cities it covers now.

Accessible information: Four Interactive co-founder Kiran Konduri.

Three-year-old Four Interactive is not the only one attempting the so-called click and mortar model, a term for an online venture extending into the physical domain. Delhi-based Infocom Network Ltd, which has run online portal Tradeindia.com since 1996, connecting business users with suppliers of goods such as tyres and washing machines, set up a 15-member call centre to answer customer queries earlier this month.

“People in large corporations are comfortable looking online (for information), but our enquiries on the phone were from small and medium enterprises,” said Bikky Khosla, chief executive of Infocom Network. “By going through the phone, we also are trying to reach a bigger audience.”

In December, Internet firm Yahoo Inc., bought a 30% stake, for an undisclosed sum, in Chennai’s Info Network Management Co. Pvt. Ltd, which runs a phone-based directory enquiry service aimed at allowing the company to offer integrated phone and online local search services.

While some firms use agents, others such as Google Inc., offer voice-based search through an automated response system.

“It is very hard to build a virtual business in India,” said Kiran Konduri, co-founder of Four Interactive. “Mobile is the largest (opportunity) in the country, (but) it is not getting to the potential.” The firm will have 23 people round the clock answering about 2,500 calls from customers. Asklaila currently has search options via website, mobile Web, text message and digital satellite television and the phone-in service is an extension to expand the market, Konduri said.

Analysts say factors such as India’s low Internet penetration, cultural differences and the access that’s provided through knowing the local language, makes such firms to offer an off-line option.

“Not all online users are comfortable with all the online methods. Even now, there are a large number of cases when a call is made even when you are booking tickets,” said Diptarup Chakraborti, analyst at technology researcher Gartner Inc. “Cultural issues are still there, and the Internet in India is largely an English medium.”

India has between 34 million and 50 million Internet users, according to various estimates. On 16 November, Internet market research firm comScore Inc. said the country had 35.8 million Internet users as of September, but did not count the users who access the Internet from cyber cafes.

Just Dial Pvt. Ltd, which runs a phone-based service offering business information to consumers, has successfully travelled in the opposite direction, having seen its online service grow larger since putting the database on the Internet two years ago.

“Today, there is more traffic online with 250,000 visitors, while we get around 200,000 callers,” said V.S.S. Mani, founder and MD of Just Dial. “The future is definitely Web. But yes, there could be a hybrid, multi-platform text search.”

Google, which has a voice-activated search that can be used on mobile and fixed phones in India, says that it will continue to follow the automated route.

“For us, what we don’t want to do is be in the call centre business. That is not the Google model. (In that case) we can’t scale without adding people. If they (users) want to call and ask, let them make voice a modality as opposed to a call centre thing, where you need people on the other side,” said Vinay Goel, head of products at Google India.

LyondellBasell may lift RIL revenue, add heft

Bhuma Shrivastava — Sun, 22 Nov 2009 15:45:00 GMT

Mumbai: The attempt by India’s most valuable company Reliance Industries Ltd (RIL) to acquire bankrupt chemicals maker LyondellBasell Industries AF, if successful, will help boost revenue and reinforce its bargaining power with suppliers and customers, analysts said on Sunday.

But such an acquisition would bring limited value to RIL’s business in India, which has sufficient domestic capacity to meet demand, one analyst said.

RIL said on Saturday evening that it had submitted “a preliminary non-binding offer to acquire, for cash, a controlling interest” in Rotterdam, Netherlands-based LyondellBasell, without disclosing financial terms. Conditions include LyondellBasell’s emergence from bankruptcy proceedings, “conduct of due diligence, documentation and receipt of sufficient creditor support”.

If it materializes, the acquisition would be the first marquee overseas asset purchase by the oil-to-yarn conglomerate, owned by India’s richest man Mukesh Ambani. The offer is in the vicinity of about $10-12 billion (Rs46,600- 55,920 crore), Reuters cited a person with direct knowledge of the offer as saying. A second person said the offer was around the upper end of the band, the wire service reported, without naming the two persons.

RIL is aiming to attain global scale for its conventional energy platform—petrochemicals, refining and oil and gas exploration—and invest in its new businesses such as retailing and alternative energy, chairman Ambani said last week at the company’s annual meeting of shareholders. “RIL has no new projects lined up after commissioning its new (Jamnagar) refinery and KG (Krishna-Godavari) D6 (gas block) and this acquisition will at least prop up the top line,” said Maulik Patel, head of research at Mumbai-based brokerage KR Choksey Shares and Securities Pvt. Ltd. “Besides making it a global player in petrochemicals, it will also substantially add to the distribution network of RIL.”

An industry executive close to the deal said that the acquisition, if it materializes, will give the energy firm “much larger negotiating power with suppliers and customers” as well as add about half a dozen new petrochemical products to RIL’s product line-up.

Patel calculates that RIL can raise up to $11 billion keeping its debt to equity ratio one-to-one. It has $4.2 billion in cash and cash equivalent, and about $8.6 billion of unsold treasury stock, giving it a total and “ample elbow room” of $23.8 billion, he said. This would be far in excess of the $10-12 billion offer mentioned in the Reuters report, which said Bank of America Merrill Lynch was among the advisers to RIL.

LyondellBasell, a maker of plastics such as polypropylene and polyethylene, was formed in December 2007 when Basell AF paid $12.7 billion for Lyondell Chemical Co., which declared bankruptcy 13 months later. The firm, which has a crude oil refinery and other operations in Houston, is a unit of New York-based Access Industries Holdings Llc, founded by billionaire Len Blavatnik.

Lyondell Chemical and other US affiliates of LyondellBasell Industries filed for bankruptcy in January. Lyondell Chemical had assets of $27.1 billion, debt of more than $19.4 billion and more than 25,000 creditors, according to the petition filed in US Bankruptcy Court in Manhattan.

“I’m not very excited about RIL acquiring a chemical company. You can’t sell LyondellBasell’s products in the country as domestic capacities are sufficient; as for global markets, you will be selling the same products to the same customers and buying the same feedstock that they (LyondellBasell) were anyway buying...so where’s the value addition?” said a Mumbai-based analyst with a foreign brokerage, who did not want to be named. “It is just an asset on the cheap. Another question is how much debt RIL is going to take on its books and how much of a haircut LyondellBasell’s lenders will be willing to take.”

The attempt to acquire LyondellBasell, if successful, could “bump up RIL’s ranking” a few notches in Asia’s energy rankings, according to Vandana Hari, Asia news director for oil and gas at global energy statistics tracking firm Platts. RIL currently ranks fourth in Asia behind three Chinese firms based on assets, return on capital employed and profits, among other financial parameters.

“This is and has been a good time to buy for companies that are forward looking, are not concerned with the immediate downcycle in the refining segment and have been making domestic investments for a while anyway. RIL fits the bill,” said Hari. “Those late now will again be chasing expensive assets a few years later.”

Another analyst with the Indian arm of a foreign brokerage said that most energy companies were strategically getting out of, or de-emphasizing, the petrochemicals business, and the sector would be under-invested in the West.

“If you are getting the distribution network for a song, then why not? If anybody can pick this (LyondellBasell) up, it is RIL,” said the analyst, who didn’t want to be named.

Reuters and Bloomberg contributed to this story.

How to survive a bad boss

Jack and Suzy Welch / NYT — Sun, 22 Nov 2009 15:32:00 GMT

A bad boss can just about kill you—not literally, of course. But a bad boss can kill the part of your soul that is the source of your positive energy and commitment.

Your boss may make you want to surf the Web or call headhunters, looking for a job anywhere but where you are. You might feel very sorry for yourself.

But don't! You can't allow yourself to become a victim. When it comes to your career, this attitude will kill all your options.

Like every other unfortunate or unfair situation that befalls you in life, working for a difficult boss is a problem, but it's one you can solve.

To do so, ask yourself the following series of questions, the answers to which will help you navigate what is usually a painful experience—painful, but yours to accept, fix or end.

Why is my boss acting like a jerk?

Sometimes the answer is a no-brainer. Your boss is acting like a jerk because that's the way he treats everyone who answers to him. But it's an entirely different situation if your boss is nasty only to you.

In that case, you need to start asking yourself what you have done to earn his disapproval. Think hard about your performance and reflect on how you may have fallen short. Also consider your attitude towards authority, because that may be the source of your problem.

Maybe you're comfortable with authority, and the rest of your self-examination has you coming up empty-handed too. Then it's time to find out what your boss is thinking. If you're lucky, he'll come clean about your shortcomings and you can work together to correct them.

Also See Jack and Suzy Welch videos

As you improve your performance or attitude, his attitude towards you just might improve as well.

Ironically, you are in a much different situation if you find out that your boss is satisfied with your performance. That means he is being awful, simply because he doesn't particularly like you, in which case the next question is:

What's the endgame for my boss?

Sometimes it's obvious that a bad boss is on the way out. His superiors have signalled as much to the organization or he is making it clear that he can't wait to move on. In either case, you're playing a waiting game. Deliver strong results and maintain a can-do approach until relief arrives.

You are in a different boat if your bad boss is not going anywhere anytime soon. Many bad bosses are managers who have bad values, but deliver good results, and they are the most difficult to handle. They often hang around for a long time, kept on staff because of their results.

Most good companies know about these people and eventually move them out. But almost every company keeps these types of managers around for longer than is good for the organization.

If you feel that's the case, your next question should be:

What will happen to me if I deliver results and endure my bad boss?

If you think that a higher-up in your organization sympathizes with your situation, it's possible that you will eventually be promoted as a reward for surviving it. While you're waiting, hang in there and give the job your all.

But be careful. Suppress the impulse to complain about a bad boss to his colleagues and superiors. The big boss may be looking out for you when he scolds your boss for his behaviour, but you can be sure that your life will only become more unpleasant afterward.

There's always an element of uncertainty in this situation. All you know for sure is that going to work isn't fun. Which is why you need to ask yourself the following:

Why do I work here anyway?

Few jobs are perfect. If you have a bad boss and the situation isn't going to change anytime soon, you need to assess your trade-offs and ask, “Is this worth it?”

If the answer is no, then start constructing an exit plan that will get you out the door with as little damage as possible to your career and reputation.

On the other hand, if you expect that in the long-term your job will benefit your career, you really have no choice.

Focus on why you are staying, and understand that your bad boss is the downside of the deal you have made with yourself. This means you've forfeited your right to complain.

You can't consider yourself a victim anymore. When you own your choices, you own their consequences.

Is your job worth the price of enduring a bad boss? If the trade-off is not worth it, leave gracefully.

And when the time comes that you're in charge, remember exactly what made that boss so bad and how it made you feel. You'll never treat anyone the same way.

Write to Jack & Suzy

Jack and Suzy are eager to hear about your career dilemmas and challenges at work, and look forward to answering some of your questions in future columns. Jack and Suzy Welch are the authors of the international best-seller, Winning. Their latest book is Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today. Mint readers can email them questions at winning@livemint.com Please include your name, occupation and city. Only select questions will be answered.

Adapted from Winning (HarperBusiness Publishers, 2005) by Jack Welch with Suzy Welch.)

ICICI, Infosys among best firms for nurturing talent

PTI — Sun, 22 Nov 2009 07:44:00 GMT

New Delhi: As many as five Indian firms, including ICICI Bank and Infosys Technologies, have made it to the list of top 12 companies in the Asia Pacific region for being instrumental in building leadership capability within their organisation.

According to the list compiled by HR consulting firm Hewitt in partnership with RBL Group and US magazine Fortune, ICICI Bank emerged at the top, followed by China Mobile Communications Corp and TCL Corp, a China-based electronics goods maker.

Meanwhile, the Indian arm of global FMCG major Unilever, Hindustan Unilever, was ranked at the fourth spot, Aditya Birla Group was at the sixth spot, Infosys Tech was ranked eighth and another IT major Wipro cornered the 10th slot.

Among others on the list, agricultural products firm Olam International was positioned in the fifth place, beer and wine products producer Lion Nathan was at the seventh position. The New Zealand Refining Company was ranked ninth and TrustPower Ltd and British American Tobacco Berhad stood at the 11th and 12th positions, respectively.

Meanwhile, in the global top 25 firms list, there were as many as three Indian companies - ICICI Bank, Hindustan Unilever and Infosys Technologies.

Regarding the decent presence of Indian firms, Hewitt Associates Talent and Organisation Consulting (Business Leader) Ajay Soni said: “It comes as no surprise that Indian firms have a good presence in these lists. These companies are well-positioned for growth despite the economic challenges.”

In the global list, ICICI Bank was on the fifth spot, Hindustan Unilever stood at the 10th spot, while Infosys have made a space for itself on the 24th slot.

The global top 25 list was topped by technology giant IBM, followed by Proctor & Gamble, while General Mills and McKinsey cornered the third and fourth positions, respectively.

The others in the list include fast-food chain McDonald’s (sixth), US-based conglomerate General Electric (seventh), Titan Cement (eighth) and China Mobile (ninth), Colgate Palmolive (12th), Whirlpool Corporation (15th), Pepsico (20th), American Express (21st), Intel Corporation (23rd) and FedEx Corporation (25th).

On ICICI Bank, the survey said: “ICICI Bank doesn’t just have recruiters trolling for talent outside the company; it also has 600 employees who act as talent scouts internally, identifying coworkers with leadership potential.”

Hindustan Unilever, which has 15,000 employees, calls it a “70-20-10” model for developing its workforce that is 70% of learning happens on the job, 20% through mentoring, and 10% through training and coursework.

Wipro HR Head Prateek Kumar said, “We cannot build leadership overnight it is a continuous process, we have to nurture leadership within the organisation.”

Soni further said, “Indian companies come with a mix of cutting edge leadership practices, innovative procedures and the zest to create a robust leadership pipeline.”

Vodafone seeks more time to reply to Indian tax claim

AFP — Sat, 21 Nov 2009 09:05:00 GMT

New Delhi: British mobile phone giant Vodafone Group Plc has sought an extra two months to reply to a two-billion-dollar Indian tax claim over its purchase of India’s third-largest mobile operator.

Vodafone had been told late last month to explain by 16 November the reasons why it did not deduct tax when paying $11.2 billion to buy a majority stake in Indian mobile phone operator Hutchison Essar in 2007.

The company “has requested for further time till 29 January, 2010,” junior finance minister S.S. Palanimanickam told parliament in a written reply, news reports said on Saturday.

The company has now been asked “to show cause why it should not be treated as an assessee in default for its failure to deduct and pay the tax”, Palanimanickam added, according to the Press Trust of India.

The answer was tabled in the lower house of parliament late Friday.

Vodafone argues capital gains tax is usually paid by the seller, not the buyer.

But Indian tax officials argue Vodafone should have withheld two billion dollars for the Indian government from the sum it paid to a unit of Hong Kong’s Hutchison Whampoa for its Indian subsidiary.

In 2008, the Bombay High Court rejected Vodafone’s petition for exemption from the tax department demand. The Supreme Court declined to hear the case and ruled that the Central Board of Direct Taxes should rule.

The board is slated to take a “final view” after Vodafone replies to the tax notice.

Vodafone and the tax department are at loggerheads over whether the purchase of the Indian unit, which had been held by a company registered in the Cayman Islands, is subject to Indian taxes.

The company has said it “is confident that no tax is payable on this transaction”.

Indian tax department officials insist tax is payable on the purchase of the company as it is located in India.

Vodafone bought 67% of Hutchison Essar -- now called Vodafone Essar -- to break into the world’s fastest-growing mobile phone market as the London-listed company struggled with slowing sales in the developed world.

But cut-throat competition in India’s increasingly crowded cellular market has hit revenues from Vodafone’s Indian arm.

We were waiting for the market to get better, then raise money

N. Sundaresha Subramanian and Anirudh Laskar — Fri, 20 Nov 2009 17:51:00 GMT

Mumbai: Sushanto Roy, the eldest son of Subrata Roy, chairman and ‘managing worker’ of Sahara group of companies, has donned many hats, including that of Lt Vijayant Thapar in a Sahara One serial Mission Fateh in 2003, the year he became the CEO of the group’s media business. He now heads the group’s real estate and infrastructure businesses as the CEO of Sahara Prime City Ltd. His vision is to build 217 integrated townships, christened Sahara City Homes, across India in the next 10 years. He also wants to take the company public. Sahara Prime has already filed a draft offer document with the capital markets regulator for an initial public offer or IPO. He plans to raise Rs3,000 crore through the offer.

New landscape:Roy says the residential projects will be sold but the company will hold the commercial properties in perpetuity.

In an interview to Mint, Roy explains why there have been delays in Sahara City projects and what the future holds. Edited excerpts:

You are planning to grow aggressively and raise funds. And is the worst over for the real estate market?

If you are talking about the share market, yes we have waited for the lull to go away.

We have timed it in such a way that the recession is over and there is a little more vibrancy in the market. If you are talking about our business, we have been continuously doing business.

Had we been in bigger cities, we would have been affected. But we were in cities where there was demand for real estate. We have been the first mover in many of these places. We didn’t get affected. We were waiting for the market to get better to go and raise money.

You seem to be focusing on residential construction alone.

Yes, 90% is residential and only 10% is commercial---malls, hospitals and schools. It comes as an ancillary to the residential area to help people who are living in the townships we develop. But if you see the larger picture, you realize that we will end up with 217 schools and 217 hospitals, and so on. This means we will also have a commercial project at hand.

We are planning to build half a billion sq ft of residential property in 10-12 years. The focus is entirely on integrated townships.

Can you sustain a project that mainly focuses on residential projects?

The housing outlook report by (rating agency) Crisil (Ltd) estimates that 33 million houses are required in the next few years and most of them in urban areas. With this kind of demand in residential properties, you are looking at a profit margin of 50%. In commercial properties, the margin is around 14%.

The residential projects will be sold but we will own the commercial verticals in perpetuity, may be with a partner or two. There will be 217 schools and an equal number of hospitals but we are not experts in running them. We are talking to many players who have the expertise in these areas for possible tie-ups. Our expertise lies in building integrated townships.

Can you name any of these potential partners?

I am afraid I can’t name them. But we are in advanced stages of agreement for the hospital, though we are yet to sign (on) the dotted line. The talks have been on for past one and a half years.

What’s your revenue model?

I’ll give you a typical revenue model for one township. In a 100-acre township, there will be 300 houses. For the residential part, we will be spending around Rs400-450 crore. If you take a place like Nagpur or Coimbatore, we will generate close to Rs1,000-1,200 crore. That’s the economics for one township. A Solapur project will generate less than a Nagpur project.

What’s the time frame for making this kind of money?

We expect the construction of a township to be completed in five years and sales in three and a half to four years.

But the Sahara City Homes project started six years ago and you haven’t delivered anything as yet.

We started construction two years back in Lucknow, Indore and Nagpur. We are planning to give consumers their first possession next year. In the other six cities, we have started construction only a year back.

What caused the delay?

I don’t think there is any delay. We wanted to get good quality land in good locations. The approval and transfer process took a little bit more time than what we had anticipated.

Nearly 60-70% of your land reserves are yet to get the necessary clearances for starting construction work. How long you will take to get the approvals?

First we need the NA (non-agriculatural) approval (to allow the land to be used for non-farming purposes). After that, we need to get the layout and building plans approved. For a typical 100-acre township, it will take nine months to a year to get all required sanctions and approvals.

Our business model says aggregate land, pay for it and start selling and then start construction. We want to be sure we don’t need to stop work midway for want of sanctions.

How much are you diluting the promoter stake in the IPO?

The promoter group companies own 79-80% stake and the the balance is with our contractors. The dilution part has to be discussed with our merchant bankers. It is not decided yet.

How much do you plan to raise through the IPO?

We are raising about Rs3,000 crore with an option to retain 10-15% extra money.

You have three subsidiaries for land reserves, hospitality and retail businesses. How many of them are making money?

Sahara Prime City is generating revenue. The hotel is making money and the hospital is one vertical, which will take six months to start making profits. On a consolidated basis, the company’s turnover in April-September period was Rs179 crore and it made a gross profit of Rs28.3 crore

Is it true that there is a clear division of responsibilities? While you will look after the real estate and infrastructure businesses, your brother will take care of the rest.

I am looking after Sahara Prime City. My brother (Seemanto Roy) is looking after the Amby Valley project and he is also looking after the entertainment business. There are so many other senior people in Sahara who are taking care of other divisions.

Are you planning an IPO for Amby Valley also?

Yes, if Amby Valley decides so. I think they will do in near future. It is not part of this company. It is a different project with a different price point, which does not not many similarities with the township projects. That’s why we have carved it out and kept separately.

n.subramanian@livemint.com

Aurobindo Pharma aims to treble revenue by 2014

C.R. Sukumar — Fri, 20 Nov 2009 17:50:00 GMT

Hyderabad: Aurobindo Pharma Ltd aims to cross $2 billion in revenue, three times what it is now, over the next four years by March 2014, primarily driven by the strategic alliance with global pharmaceutical firm Pfizer Inc. and improved formulations sales supported by additional capacities.

Generics slant: Aurobindo chairman and MD P.V. Ramaprasad Reddy. Bharath Sai / Mint

The company expects to increase the contribution of formulations to total sales from 57% now to 80%-85% over the period with increased focus on high-margin products in regulated markets, said chairman and managing director P.V. Ramaprasad Reddy.

“We expect sales from the strategic alliance with Pfizer to contribute to some 25% of our total sales, or some $500 million, by March 2014, as we expect to grow at 30%-35% a year over the next four years,” he told Mint.

The Hyderabad-based pharma company, with its strong product portfolio for the manufacture of post-LOE (loss of exclusivity) products, had entered into an alliance with Pfizer in March.

Aurobindo agreed as per this to license and supply Pfizer some 80 post-LOE products across multiple markets. Aurobindo has a large manufacturing base -- 15 manufacturing facilities that include five formulations plants approved by several regulatory authorities across the globe -- and is marketing its products in over 100 countries.

Pfizer, with a global commercial presence in 150 countries, plans to exploit the sales potential of these post-LOE products of Aurobindo through the newly formed Established Products Business Unit. Aurobindo’s product range covers therapeutic segments such as anti-infective, cardiovascular and central nervous system (CNS) disorder drugs.

Under the agreement, Aurobindo gets an upfront payment of $110 million (Rs509 crore) and also enjoys revenue sharing over the next 15 years, Reddy said. Revenues from the Pfizer arrangement will start accruing from 2011-12 and were expected to peak at about $500 million (Rs2,314 crore) a year by March 2014, he said.

The company, which has already received an upfront payment of $43 million, expects to receive the balance in instalments over the next 8-10 quarters.

The Pfizer deal with Aurobindo is all-encompassing with a combination of exclusive, co-exclusive and non-exclusive products, said Ravi Agrawal, analyst with Edelweiss Securities Ltd.

“This deal is significant for Aurobindo with potential to emerge as a significant revenue driver in the near term. And the deal moved beyond a simple contractor based model, with Pfizer likely to engage Aurobindo as a strategic partner rather than as a cost plus vendor for its supplies.”

Reddy admits that his profit margins are now lower than most of his integrated peers such as Glenmark Pharmaceuticals Ltd, Sun Pharmaceutical Industries Ltd, Cadila Healthcare, Lupin Ltd, Dr Reddy’s Laboratories Ltd, Cipla Ltd and Ranbaxy Laboratories Ltd. “This is primarily because of our focus so far has been on unbranded generics and tenders for anti-retroviral drugs, whereas my peers have a substantial branded generics portfolio with better gross margins.”

Reddy said Aurobindo’s strategy would change with a shift in its product mix.

“We had invested heavily, some Rs1,000 crore in the last five years, into building capacities in formulations. This will boost our formulation revenues and the product mix will now be dominated by high-margin formulations, which will significantly improve the overall profit margins,” he said.

Formulations offer better margins of 55%-70% versus some 45% gross margins in active pharmaceutical ingredients, or APIs, says Agrawal of Edelweiss Securities, which has a ‘buy’ rating for Aurobindo stock.

Ravi Agrawal says Aurobindo is now in the process of consolidating its manufacturing assets and does not expect any major capacity additions, at least in the short term. He expects Aurobindo to now see the prime benefit of expansion in Ebitda (earnings before interest, tax, depreciation and amortization) margins since fixed assets are utilized more efficiently, thereby aiding in operating leverage.

Net profit margins, excluding dossier income, currently at 18%, are set to improve to 25% by March 2014, Reddy said. The improvement in profit margins will mainly come from increased formulations sales from additional capacities at a special economic zone (SEZ) near Hyderabad and at New Jersey in the US, apart from increased sales from ANDA (abbreviated new drug application) approvals in the US, he said.

For the US markets, Aurobindo had identified a basket comprising some 250 products and has already filed 156 ANDAs so far since April 2004. It plans to file the balance ANDAs over the next three-four years. Admitting that nearly two-thirds of ANDAs filed so far were for simple technology generics, he said one-third of ANDAs filed were differentiated products with high-margin potential. The focus going forward will be on differentiated products, he said.

Reddy said the company did not choose to go in for high-end ANDAs and Para-IV first-to-file category products as a strategy because it did not have deep pockets to fight legal battles.

From “now onwards, we will be filing ANDAs for more complicated molecules and differentiated products that will yield high margins,” he said.

The Edelweiss analyst said the US product pipeline is set to add a lot of value to Aurobindo’s business. “The company follows a ‘last to exit’ strategy, leveraging its cost strength on APIs to incrementally gain market share in existing products, despite ongoing price erosions,” he said.

Of the 80 ANDAs approved for marketing in the US market so far, the company has commercialized some 56 products and reached a level of about 12 million of sales a month. “We are expecting to reach a sales level of some $20 million a month in the next six-nine months,” said Reddy, adding that the sales from the Pfizer arrangement will be over and above this.

On Friday, the Aurobindo stock gained 2.16% to Rs 786.15 on the Bombay Stock Exchange, whose benchmark index, the Sensex, gained 1.41% to close at 17,021.85 points. The stock reported a year’s high price of Rs891.40 and a low of Rs103.20.

Bloomberg contributed to this story.

Ranbaxy recalls acne drug from US market

Bloomberg — Fri, 20 Nov 2009 17:36:00 GMT

New Delhi: Drug maker Ranbaxy Laboratories Ltd is withdrawing a single batch of a version of Roche Holding AG’s Accutane acne medicine from the US market for the second time this year.

Gurgaon-based Ranbaxy voluntarily recalled 40 mg capsules of isotretinoin, the chemical ingredient in Accutane, the company said in a statement on Friday. “A single batch was withdrawn from the US market earlier this year,” Atul Sobti, chief executive officer, said in a July investor call.

Roche, based in Basel, Switzerland, said in June that it was pulling Accutane from the US market because of competition from generic versions. The decision came after juries awarded at least $33 million (around Rs155 crore) in damages to users who blamed the drug for causing bowel disease.

Aircel plans $5.5 bn network expansion

Soraya Permatasari / Bloomberg — Fri, 20 Nov 2009 16:48:00 GMT

Kuala Lumpur: Aircel Ltd, an Indian mobile phone operator controlled by Malaysia’s Maxis Communications Bhd, plans to spend about $5.5 billion (Rs25,630 crore) in the next five years to expand its network in the world’s second largest wireless market.

Investing in growth: Chief executive officer of Malaysia’s Maxis Communications and Aircel director Sandip Das. Bazuki Muhammad / Reuters

“India continues to offer high growth opportunities for us and we expect to aggressively grow our presence and subscribers,” Aircel director Sandip Das said in emailed comments today, confirming a report on the firm’s investment plans in the Business Times.

The spending plan may change depending on market conditions and will be funded through debt and equity, said Das, who is also chief executive at Maxis Communications.

Aircel plans to start services next year in all of India’s 23 circles, or coverage areas, from 18 now, Das said. The Gurgaon-based carrier is vying with Bharti Airtel Ltd, the nation’s largest operator and nine other rivals, to gain share in the wireless market that is adding about 14 million users, on average, a month.

Four more competitors including Norway’s Telenor ASA are set to start services in the country of 1.2 billion people, where less than half have mobile phone connections. India had almost 472 million mobile phone subscribers at the end of September, according to data from the Telecom Regulatory Authority of India.

Telenor, the largest Nordic phone company, plans to start operations in India by Christmas and expects the Asian nation’s wireless market to double in three to four years, chief executive officer Jon Fredrik Baksaas said yesterday.

Aircel, 74% owned by Maxis Communications, had 25.7 million subscribers at the end of September, according to India’s telecom regulator. The Kuala Lumpur-based company, controlled by 71-year-old Malaysian billionaire Ananda Krishnan, recently raised $3.3 billion selling 30% of its domestic unit Maxis Bhd in the biggest public offering in South-East Asia.

Aircel plans $5.5 bn network expansion

Soraya Permatasari / Bloomberg — Fri, 20 Nov 2009 16:48:00 GMT

Investing in growth: Chief executive officer of Malaysia’s Maxis Communications and Aircel director Sandip Das. Bazuki Muhammad / Reuters

The spending plan may change depending on market conditions and will be funded through debt and equity, said Das, who is also chief executive at Maxis Communications.

Mobile number portability from 31 December

Devidutta Tripathy / Reuters — Fri, 20 Nov 2009 16:30:00 GMT

New Delhi: India will introduce mobile number portability (MNP) on 31 December, a move that could further intensify the stiff competition in the world’s fastest growing wireless market and push call chargeslower.

MNP, which allows users to retain their number even if they switch operators, will be introduced in two phases, the country’s telecom regulator said, first in the metro cities and the so-called category A telecom zones, and in other areas by 20 March.

Also see Trai order

The move will help in “increasing competition between the service providers and acts as a catalyst for the service providers to improve their quality of service”, the Telecom Regulatory Authority of India said on its website.

The regulator also notified certain charges associated with MNP and said switching charges for users must not exceed Rs19.

Four new firms, including ventures of international telecom operators Telenor Group, Etisalat and Batelco, are set to start services in India this year and MNP would make it easy for them to attract existing users of such services.

Separately, Bharti Airtel Ltd, the country’s largest phone company, launched yet another new billing plan on Friday, slashing mobile roaming rates by nearly 60% and signalling a tariff war was far from over.

The price war has raised concerns about telecom firms’ profitability.

Indians don’t know how to accept failure

Satish John — Fri, 20 Nov 2009 15:18:00 GMT

Mumbai: Chairman of Godrej and Boyce Manufacturing Co. Ltd, Jamshyd Godrej, is an evangelist for green businesses and green buildings. In an interview, Godrej alludes to the possibility of emulating Infosys Technologies Ltd chief mentor N.R. Narayana Murthy and setting aside funds to finance entrepreneurs. He is keen that the Godrejs, one of Mumbai’s oldest business families, also launch a venture capital fund to finance entrepreneurs dabbling in risky green business initiatives.

Jamshyd Godrej, Chairman, Godrej & Boyce Manufacturing. Abhijit Bhatlekar / Mint

The group has taken steps to convert its 37-year-old headquarters into a green building and is setting up a 1 million sq. ft. information technology building in the Mumbai suburb of Vikhroli incorporating environment-friendly features. Edited excerpts:

We hear that the group is doing some cutting-edge work in fuel cells with a foreign start-up.

This is an investment by (venture capitalist) Vinod Khosla and others. We are only hosting it at Vikhroli. But the idea was to develop a portable fuel cell appliance which, when connected to piped gas, acts as a catalyst to generate electricity to power other appliances used for heating and cooling. That is the idea and they (US-based Bloom Energy Inc.) are still at it. For five years we’ve been doing the R&D (research and development) in the Godrej colony. They needed piped gas for the experiment and so we chose our colony.

You have been very active in promoting green buildings and green ventures.

(The) Confederation of Indian Industry (CII) has been running an energy efficiency summit for many years. It has resulted in huge benefits for industry to reduce costs of energy. There is enormous scope to reduce cost of energy.

In the last five years, we’ve been promoting green buildings in a very sustained way, through the Indian Green Building Council. After the US, India has the maximum number of rated green buildings. We have (a) large number of platinum and gold buildings. There are 450 buildings, which are already rated or in the process of being rated.

Is this (Godrej headquarters) a green building?

This building was built in 1972, so at that time the concept of green buildings was not prevalent. But we have a roof garden here, which is one of the essential aspects of a green building. It gives a lot of insulation.

Secondly, this building will get rated as a green building, but it is still in the process of getting there as we have to change the windows. Air-conditioning has already been changed. We are already getting the benefit of 30% less power costs. Eventually this will be a green building. Our CII building in Hyderabad has zero discharge of water. Every drop of water is treated and reused.

What is the next step in this initiative?

To go beyond the corporate sector to government. The government is a very large constructor. They have schools, colleges, hospitals and courts, offices. We are trying to influence the public works department to adopt green buildings. We would like Central and state governments to pass legislation to ensure minimum characteristics of a green building. If a few states pass a law, it would be a catalyst. Andhra Pradesh and Karnataka have responded well. In Delhi, Sheila Dikshit, the CM, has already said she wants all government buildings to be green buildings. We want Maharashtra and Gujarat to respond favourably.

How would CII or industrialists encourage entrepreneurs in the space of green business or get businessmen to fund start-ups?

Our experience is that most entrepreneurs are able to attract debt even for risky and early stage investments. There are investors who provide debt, but very few who fund through equity. So what we want to do is to develop this market. The risk is always higher in new businesses. Globally, we know that 90% of new businesses fail.

We need investors with high risk appetite. For instance, Narayana Murthy recently cashed in some of his shares in Infosys Technologies to set up a venture fund. We need many more. In the US, because of (the) Silicon Valley, they have a very good system of early stage investors.

The tax system they have for early stage investors provides tax credits. We have to develop the whole system of early stage investors and a tax system around it. For every Google that has come on the scene there are hundred entrepreneurs who never did.

What impedes entrepreneurship in India?

We are not doing as much as we should. Individuals have to come forward. For example, Hemendra Kothari of DSP Merrill Lynch cashed in and invested in green projects. For a corporate, this is not easy. It becomes a governance issue because there are other investors. If I am an individual investor, it is my money. Our tax laws don’t encourage such investments.

On your interest in creating a family fund for new green ventures?

It’s an idea. I personally feel that it is better for individuals to do it than organizations because organizational means and needs are very different from individual needs. I hope it will happen. Let’s see how it works out.

But aren’t Indians always wary of failure?

It’s a cultural issue. We don’t know how to accept failure. Every investment we make is not going to work. We have to develop public opinion that failure as an entrepreneur doesn’t mean that you are a failure as an individual. Our laws must allow that to happen. Closure of businesses has been a grey area... We’ve been arguing for an exit policy.

Is there no solution in sight?

Because the trade unions don’t want closures. Though de facto, closures happen. There are thousands of people entering new businesses and thousands of businesses that are closing.

But the trade unions don’t want to accept it as a legally binding norm. Today if we have a legal closure, one can pay them (employees) off. But today there is no legal closure and therefore nobody bothers to pay them.

CII has a programme called new ventures that supports green businesses. Can you outline the programme?

“New ventures” acts as a catalyst. CII puts entrepreneurs and funders together through this programme, which is a collaboration between CII and World Resource Institute in Washington. At least Rs100 crore has been invested in 12 start-ups by a variety of investors. We are still in a very nascent stage. In China, one investment in itself is in the range of Rs400-500 crore.

We look for entrepreneurs with ideas in energy saving or water saving devices and then match them with mentors. We’ll have to fine tune the business plan till it is funded for both equity and for debt. The corpus is flexible.

Would CII involve Murthy and others like him for such projects?

We haven’t talked to him yet. We would love to explore how these ideas of CII can work with his own ideas. I haven’t talked to him after he set up this fund. We work with anybody who has interest in such ventures. As an entrepreneur there are millions of ideas that one can go into. We are limiting ourselves to green businesses.

How do you manage your time between green evangelism and running a business?

The time I spent on such initiatives is not that significant. I still have enough time for my business. Businesses are not run by individuals. Organizations have enough professionals to run the day-to-day affairs of the business.

Bharti slashes mobile roaming charges, shares fall

Devidutta Tripathy / Reuters — Fri, 20 Nov 2009 10:21:00 GMT

New Delhi: Bharti Airtel launched yet another new billing plan on Friday, slashing mobile roaming rates by nearly 60% and signalling a tariff war in the world’s fastest-growing wireless market was far from over.

The announcement accelerated losses in the shares of Bharti, the country’s top mobile operator. The stock fell as much as 3.3% but trimmed losses to 2.7% at Rs284.90 by 0825 GMT in a Mumbai market that was up 0.3%.

The price war, aimed at grabbing new users ahead of fresh entrants waiting in the wings, has raised concerns about telecom firms’ profitability. Four new firms, including ventures funded by Telenor and Etisalat, are set to start services this year adding to the existing 11 operators.

Bharti’s market value has slumped more than a fifth this year to about $24 billion and its stock is the second worst performer in the main index that has risen about 72%. Rival Reliance Communications has fallen about a quarter in 2009.

Bharti, whose about 115 million users account for more than 23% of India’s total mobile subscribers, in September cut call charges within its own network to 50 paise (US 1 cent) a minute and in October launched a low-profit per-second billing plan, reacting to competition.

Tata Teleservices, the No. 6 operator, was the first to launch per-second billing, deviating from the industry norm of per-minute billing. The offer was a roaring success and the firm has topped the new signings for three months in a row.

Bharti’s latest offer will allow users to recieve calls at 60 paise a minute while roaming, and they can make calls at 60 paise a minute within the Airtel network and at 80 paise a minute for calls to rival networks.

Analysts say Bharti still charges about 8-10% higher than Reliance’s call prices.

Bharti has said it would be competitive in pricing but had no intention to match the lowest price in the market.

Sony hopes online service will build brand loyalty

AP — Fri, 20 Nov 2009 10:01:00 GMT

Tokyo: Sony’s new online service connecting the whole range of its gadgets to downloadable content like movies and games should help build brand loyalty, a top executive said Friday.

Executive vice president Kazuo Hirai said the service, set for launch next year, highlights an advantage that Sony has over rivals like Samsung Electronics Co. and other manufacturers that don’t produce their own content. Sony’s business empire spans gaming, electronics, movies and music.

“That’s the kind of combination that I think is not seen anywhere else,” Hirai said in an interview at Tokyo headquarters. “That I think is where our core competence lies, and that’s a differentiator for Sony.”

The online service will include games, movie downloads and other interactive entertainment, which will be accessible on Sony products, such as Bravia TVs, Cyber-shot digital cameras and Reader electronic books.

But Kazuharu Miura, analyst with Daiwa Securities SMBC in Tokyo, said it was unclear whether online services will boost gadget sales.

“I understand what Sony is trying to do, and that’s the best way to showcase its strengths,” he said. “But whether that will really get people to buy a Sony camera or a Vaio computer all depends on what Sony does with the online service.”

Hirai said Sony already offers streaming video, comic delivery and a news service, but could expand into any of the gamut of services available for personal computers, such as fitness and financial services.

Sony is targeting annual sales of ¥300 billion ($3.4 billion) from its networked services businesses and 350 million network-connected products by the fiscal year ending March 2013.

Sony’s service for PlayStation 3 video game machines, which began three years ago, has attracted 33 million users. The new service will be expanded to other Sony products.

In outlining a turnaround strategy Thursday, Chief Executive Howard Stringer flagged network services as a major area where Sony hopes to grow, as well as 3-D TVs, new displays, electronic books and batteries for cars.

Sony is expecting its second straight annual loss for the fiscal year through March 2010, hurt by sliding prices, the global slowdown and the absence of blockbusters products like Apple Inc.’s iPod or Nintendo Co.’s Wii.

It has fallen behind in liquid-crystal display TVs to Samsung of South Korea and Japanese rival Sharp Corp. Sony is hoping to be profitable in that business by the fiscal year ending March 2011.

Hirai, who oversees games and network services, acknowledged Sony’s units didn’t communicate well in the past to coordinate their strengths.

That has changed under Stringer, he said. Stringer appointed a new management team earlier this year, including Hirai.

Hirai said the planned service was a chance to one-up rivals at a time when products are becoming commodities, with prices being the big way to compete.

“We want to increase the value, or the brand loyalty of our Sony products. There is no question about it,” he said.

Sony has a long way to go before a full recovery.

The maker of the Walkman portable player expects a ¥95 billion ($1 billion) loss for the fiscal year through March 2010, marginally better than the ¥98.9 billion loss the previous fiscal year, its first annual loss in 14 years.