Canvas Of An M&A Artist

Canvas Of An M&A Artist

Will Arun Sarin succeed in outbidding his competitors?

He's considered one of the top M&A artistes. He's handled a few of them during his career. So, when Vodafone's Arun Sarin purchased a 9.9 per cent stake in Sunil Bharti Mittal's Airtel, everyone expected the British telecom major to somehow increase its holding in the company by either forcing Mittal or his Singapore-based JV partner, SingTel, to sell. So, it was a surprise when Vodafone decided to join the race to take over Bharti's main competitor, Hutchison Essar. In fact, it wasn't really a surprise because Vodafone would do anything to land a firm footing in one of the fastest growing telecom markets in the world. An IIT (Kharagpur) graduate, with a post-graduate and an MBA from the University of California (Berkeley), Sarin has all the right ingredients to be a global CEO. He became the COO of AirTouch Communications, which merged with Vodafone in 1999. Sarin was the brain behind the tie-up, but didn't survive because of his ambitions. He wanted to become Vodafone's COO; the British major's head, Christopher Gent, thought he didn't need one. So, Sarin stepped away, but returned three years later as Vodafone's CEO. He pursued a series of M&As. But his colleagues and shareholders thought he was too aggressive in his bids, and willing to pay exaggerated prices for his potential targets. So, Vodafone's shareholders rejected the $650 million bid for SinglePoint and Sarin lost the race to acquire AT&T Wireless services because of apprehensions that his price may not be acceptable. Then Sarin looked East, as India was one of the few growing markets, with the West reaching saturation levels and China closed to outsiders. Now that he's got his opportunity, Sarin will need to play his cards right. Already, several investment bankers feel the possible price for Hutch will overstretch Vodafone, and also go against its avowed principles of earning a specified minimum return on employed capital. They also think Vodafone's shareholders are unlikely to back their CEO if the bidding war goes out of hand, as it's expected to be. Will Vodafone and Sarin be third time lucky in their bid to enter the Indian market? Will he be able to reduce his overall exposure in the Hutch bid by roping in Indian partners like Essar and Analjit Singh who has over 8 per cent stake? Can Sarin guide Vodafone onto a new eastward journey?

Kotak Wealth Builder

Kotak Wealth Builder

There is quite an appetite for capital protection-oriented schemes, now that the markets are in uncharted territory. Franklin Templeton’s Capital Safety Fund, the first of its kind, raised Rs 500 crore in its new fund offer (NFO). UTI Mutual Fund is now in the market with a similar fund.
One grievance about such schemes, however, has been that the returns may not be too exciting. In a three-year plan, for instance, only about 20 per cent of the corpus is put in equities, and so, the upside from an equity exposure is limited. Besides, if the market falls, investors end up with zero return.
To tackle these problems, Kotak Mutual Fund has launched a scheme that invests the equity component in the derivatives space to benefit from the leverage this segment provides. Kotak Wealth Builder series I is rated AAA (so) by CRISIL. About 78 per cent of the corpus will be invested in AAA-rated debt, and with the balance Kotak’s fund managers would take hedged positions in the derivatives market. When the markets fall, the fund could gain because of the position taken in the derivatives market. There could be instances when the call could go wrong, but the maximum loss would be the cost of the option bought for hedging purpose.
In sum, Kotak’s approach could generate returns very close to that of the stockmarket, at the credit risk profile of a AAA-rated bond.

TCS First Among IT Equals

TCS First Among IT Equals

IN less than three months, Tata Consultancy Services (TCS), India’s largest IT services company, will touch $4 billion (Rs 17,630 crore) revenues (and perhaps breach it), taking it well ahead of peers Infosys and Wipro.
A combination of strategic overseas buys and growth in new markets like Latin America and eastern Europe have put the company on course to its targeted $10 billion revenues by 2010.
Infosys and Wipro also turned in healthy numbers for the nine months of fiscal 2006-2007, but TCS’s $1.1 billion revenues in the third quarter alone gives the Mumbai-based firm a significant lead over its peers.
While TCS CEO S. Ramadorai declined comment on revenue projections for the full year, analysts estimate that the company will comfortably cross the $4-billion mark by March. Bangalore-based Infosys’s revenues are pegged to touch $3.09 billion by the end of the fiscal. Wipro has not given full-year projections, but it expects to clock $685 million revenues in the fourth quarter.
Like TCS, Wipro has also pursued an aggressive acquisitions-led growth strategy this year — it has bought eight companies for $250 million since December 2005.
Infosys remains at the top of the heap in terms of margins — 29 per cent in the third quarter ended December 2006 (TCS’s margins were at 26 per cent). However, TCS’s quarter-on-quarter topline and bottom line growth rates have picked up smartly in the past three quarters and are almost at par with arch rival Infosys (see ‘Staying Ahead’).
However, analysts say that among the Big Three, TCS has the highest percentage of end-to-end contracts and margins are bound to improve.
For TCS, its trademark ‘Six Bubble’ {IT services, business process outsourcing (BPO), engineering and industrial solutions, package enabled solutions, consulting and infrastructure services} strategy seems to be working well so far — the strategy has helped it move into new areas like engineering services, infrastructure management and consulting (see ‘Awake And Hungry’, BW, 21 November 2005).
It expects acquisitions and large contract wins ($100 million-plus) to continue to power growth for the next 18-24 quarters.

Vimal plans hip comeback to court the young

WITH his retail plans on track, Mukesh Ambani is planning a new lease of life for Reliance Industries Ltd’s (RIL) once-popular, three-decades-old textiles brand Vimal. Sources said the relaunch exercise, slated for early this year, will position the fading Vimal brand as younger and more contemporary brand to compete with rivals like Raymond, Reid & Taylor and Mayur. “To begin with, Vimal will be repositioned as a modern textiles and ready-to-wear menswear brand. This will be followed by a relaunch of the Vimal sarees range,” sources said. While RIL officials declined to comment on the relaunch exercise, sources said plans are being worked out to supply the Vimal range to Reliance Retail stores in new formats. “Details of the retail structure are being worked out, but the objective is to create consumer pull with a renewed marketing thrust,” sources said. Vimal is currently available across 60-75 exclusive franchisee-operated stores, in addition to multibrand outlets. RIL does not intend to set up additional exclusive Vimal stores. Advertising for the new-look Vimal has been handed over to Grey, on a budget of close to Rs 20 crore. RIL is considering roping in either a Bollywood star or cricketer to endorse it. RIL and Grey are currently researching on whether or not to continue with the brand’s earlier successful Only Vimal ad jingle. Vimal, which used to specialise in blended and worsted suitings, had peaked around the late eighties, with a sizeable exports business as well. However, over the years the brand’s equity has eroded and its current market share of is pegged at not more than 5-10% of the formal menswear market. Industry estimates peg the overall domestic textiles market at over Rs 100,000 crore. Pointing out to the reasons why Vimal failed, sources say, “RIL did not give enough marketing support to the brand, with textiles ceasing to be a focus area through the late 1990s. Besides, readymades began eating into suitings market with shifting preferences.” RIL’s attempt at the readymade segment too failed to take off for lack of marketing support. In early 2001, the company had even tied up with Bangalore-based Indus League, with RIL planning to outsource garments. RIL is exploring the ready-to-wear women’s market, where brands like Allen Solly and, to a small extent, Raymond have made inroads. As of now, Vimal’s women’s range, comprising of sarees and dress materials, is almost non-existent, with limited distribution in a regional markets. RIL’s textile business is based at Naroda, near Ahmedabad. Besides Vimal, the other brand under the RIL stable is home textiles brand Harmony.

Microfranchising: the next big thing
The phone women of Bangladesh are microfranchisees of an MNC. Indian businessmen need to take to microfranchising too. The big opportunity at hand is rural telecom, says Swaminathan S Anklesaria Aiyar.
AFTER Mohammed Yunus of Bangladesh’s Grameen Bank won the Nobel peace prize, microcredit has hogged the headlines. We now need to focus on the next big thing: microfranchising. Microcredit has certainly empowered poor women and helped alleviate distress in South Asia, but has severe limitations. Borrowing Rs 5,000 at an interest rate of 30% cannot move millions out of poverty. It can be a good beginning, but something extra is needed to take people to the next level. That something extra is microfranchising. Mohammed Yunus pioneered this too, using poor women to operate mobile phones as public call offices (PCOs) in rural areas. Grameen Telecom, Yunus’ nonprofit outfit, took a 38% stake in GrameenPhones, a commercial provider with a national cellular licence. Grameen Bank members with the best track record of running small businesses and repaying loans were trained and financed to acquire cellphones. Today Bangladesh has over 260,000 village phones, and Grameen Telecom is replicating the experiment in Uganda and Rwanda. What is not widely publicised is that 62% of the equity of GrameenPhones is held by Telenor, an Oslo-based multinational. This MNC has operations in Scandinavia, Eastern Europe, Pakistan, Thailand, Malaysia, and Central Asia. So, the phone women of Bangladesh are not just products of Yunus’ generosity. They are microfranchisees of an MNC. Without the financial and technical clout of Telenor, GrameenPhones could not have gone far. Yunus demonstrated, unwittingly, that microfranchising could connect the poorest people in the world to the richest MNCs for mutual profit. NGOs, romantic pastoralists and leftists will hate to hear this. But it is a fact. Another example of microfranchising has been highlighted in a recent issue of The Economist. Scojo Vision, an American company, is using microfranchsing to sell spectacles to poor people in developing countries. Scojo provides a “business in a box” along with training for rural vendors, who learn to use simple testing charts for vision and then make appropriate spectacles. The vendors’ cost of production is $2 per pair of spectacles, and they sell these at $3 each. This is affordable for Indian villagers, yet yields a decent profit for both Scojo, intermediaries, and rural vendors. Hence the scheme is viable, and can be scaled up to cover thousands, possibly millions of vendors across developing countries. Scojo has sold 50,00 pairs of spectacles so far, and hopes to sell one million by 2016. Just as Telenor needed a local partner to reach phone women in Bangladesh, so too does Scojo. In Bangladesh, its partner is BRAC. In India, one of its partners is Drishtee, the company that initially designed the Gyandoot programme in Madhya Pradesh, and now operates commercial rural internet kiosks in several states. Other prospective partners are ITC and Hindustan Lever, who also run rural electronic kiosks through their e-choupal and i-shakti initiatives. Hewlett-Packard has a different microfranchising scheme for rural camera women. Wedding photos are a growing business in rural areas. Hewlett-Packard has trained rural women in Andhra Pradesh to use digital cameras to cover weddings and other celebrations. The photos are printed out on HP colour printers. This is a logical extension of the phone women experiment in Bangladesh, and will help HP promote use of its photoprinters. But rivals like Sony or Panasonic should consider training women to use digital video-cameras to produce videofilms of marriages, and then burn these onto a CD. That will produce an affordable but prized memento. THERE could be hundreds of other forms of microfranchsing. As C K Prahalad says, companies can tap a fortune at the bottom of the pyramid if only they devise ways to slash costs dramatically, organise logistics, and thus create millions of customers who never existed earlier. Telenor, ITC, Hindustan Lever and HP are all examples of multinationals becoming partners with a new breed of rural businesswomen and businessmen. But Indian businessmen need to take to microfranchising too. The big opportunity at hand is rural telecom. Till recently, BSNL had monopoly access to the USO fund available to subsidise rural telecom. But now private sector cellular providers are also going to have access to the USO fund. So, an explosive growth of rural cellular telephones is coming. This will be an opportunity to create millions of Indian telephone women, a la Bangladesh. Rural towns in India already have PCOs using landlines. But many parts of rural India will be reachable only or mainly by cellphones. In these places, a million phone women can bloom. As in Bangladesh, microfinance institutions can finance the phones and identify women with a track record of running businesses repaying loans. Commercial banks like ICICI Bank may also finance phone women at low interest rates. The prospect should excite all cellular providers — Reliance, Essar, Idea, Airtel, the lot. It should also excite handset producers like Ericsson and Nokia, who can hope to sell lakhs of additional phones to phone women. And it should excite those who can think out of the box, and envisage an entirely new way of gaining fame and fortune. Anil Ambani, are you listening? Ever since the split between you and your brother, Mukesh has tended to get the bigger headlines. Here is your chance to go one up. Instead of simply aiming to raise billions for takeovers of Hutch or whatever, why not aim to empower one million phone women in rural India? Why not aim to convert them into internet providers and new knowledge centres of the 21st century? The mobile phone is rapidly evolving into a mini-computer that could soon make ITC’s e-choupals obsolete. So, strike while the iron is hot. Instead of just aiming to make millions, why not aim to make a million millionaires out of poor rural women? At the end of it all, Mukesh may still have bigger chemical plants than you, but you might just win the Nobel Prize for Peace.

LCCs board gravy train for patrons
Railways Too Crafts Its Own Wooing Game

LOW-COST airlines are stepping up efforts to woo rail passengers by taking the battle to the trains, but a clearly bemused railways is already crafting a counter strategy. In their bid to lure ‘chic’ train commuters, budget players like Air Deccan, SpiceJet, GoAir and IndiGo are all set to advertise in Rajdhanis and Shatabdis. They have also begun to offer incentives to rail ticket agents to draw the top 3% of rail passengers to the skies. On its part, Rail Bhawan has taken note of the development—its counter plan will roll out via the forthcoming rail budget. According to sources, the budget may see “rationalisation” of Shatabdi and Rajdhani fares, introduction of more low-cost AC trains and revamp of catering services. The airlines, however, have their game plan clear-cut. SpiceJet plans to advertise inside Rajdhani and Shatabdi while rival IndiGo has already rolled out a campaign comprising pamphlets, posters and billboards at railway stations. Air Deccan too plans to kick off a similar campaign soon.

Marketing strategy

ABOUT3% of railway travellers are high-paying commuters, who can easily afford to fly a low-cost carrier (LCC). Even if 1% of them start using airlines, the aviation sector could grow at about 35%,” said a senior Air India official. “We have tied up with specific travel agents selling rail tickets, which has resulted in many passengers shifting from railways to airlines. We are also planning to advertise inside Rajdhani and Shatabdi trains,” said SpiceJet VP (marketing & planning) Sanjay Kumar. Added IndiGo president & CEO Bruce Ashby, “We are using pamphlets, posters and billboards to lure railway passengers to airlines. We don’t know how effective this marketing strategy will be, but there is a conscious attempt to attract upper class rail passengers.” Air Deccan‘s campaign will be aimed at railway passengers and first-time travellers. “We want to take people out of villages, off the trains and into the planes,” said Air Deccan COO Warwick Brady. According to an ICICI Securities aviation sector study, LCCs plan to target the 49 million upper class rail trips against the 19.4 million air trips seen last year. The study estimates that by 2008, the air-to-upper class rail passenger ratio will increase to more 75% from the present 40%. This will be driven by conversions and the overall increase in air travel, which, in turn, will largely be due to cheaper fares. But Indian Railways has its own plans. According to Rail Bhawan sources, besides the cost rationalisation in Rajdhani and Shatabdi fares, the ministry intends to roll out 35 air-conditioned (AC) lowcost trains to wean away passengers from LCCs. All AC train fares, expected to connect all important Indian cities, will be 40% cheaper than the present AC three-tier tariffs. That’s not all. Rajdhani’s catering services will also be improved. “Stringent quality control will be implemented in catering. We hope to spend about Rs 2 crore in improving food and services in trains between Delhi, Mumbai and Kolkata,” Indian Railways Catering and Tourism Corporation CMD PK Goel said. But airline companies argue that low fares and lesser travel time, coupled with extra comfort, will ensure speedy migration of railway passengers to the skies.

Merger of arms imminent: SBI chief

STATE Bank of India (SBI) is open to merging seven of its associate banks with itself in a move to emerge as a big bank. This was indicated by SBI chairman OP Bhatt, who was speaking at a CII seminar here. There is already a virtual merger between SBI and its associate banks in terms of common technology platform, HR policies and loan appraisal techniques. “When the time is right, the merger can take place. These firewalls can be broken,” said Mr Bhatt. The SBI chief indicated that despite being the country’s largest bank, it does not have the bandwidth to finance bigticket acquisitions like the Tata-Corus deal. Therefore, the Tatas have to tie up with foreign banks, because they have the size to leverage their balance sheets. Besides the Tatas, there are several other corporates that are looking at acquisition in overseas markets which most Indian banks are unable to fund. All such big-ticket M&A deals are financed mostly by foreign banks. The SBI chief said that this is one reason why the country’s largest bank needs to grow bigger. Further, consolidation of SBI with its associate banks is imminent given that the country’s largest bank does not figure even in the top 100 banks in the world. Mr Bhatt said that by 2009, RBI is committed to allowing freer access to foreign banks in India. “When they come, they come with deeper pockets, top of the line technology and huge range of products. They will target our richest customers and we need to guard our turf,” he said. “In today’s gloabalised market, there is a mania for M&As. There is no business activity where corporates are thinking of becoming more competitive without going through the M& A route,” he added. But at the same time, he stressed that big banks would not necessarily mean that the bank is efficient and best in services. He recalled his experience in America during his posting that a single branch bank could also be far more efficient than big banks. But, at the same time, he said that technology can play a very crucial role in growing big. Technology is very expensive, but how many banks can spend that kind of money and how many can reinvest that kind of money again when the technology becomes absolute. TEAM SPIRIT SBI does not figure in the list of top 100 banks in the world Despite being India’s largest bank , SBI is not in a position to fund big-ticket M&As RBI’s commitment to give freer access to foreign banks by 2009 is set to increase competition

Homework before a raise

IT’S that time of the year again — filling out appraisal forms, tackling performance management tools and the nagging thought of a raise. If you want a bigger performance bonus or a fat pay hike, now is the time to start working on it. Here are five simple steps to help you break out of the 5% increment rut: TIMING Most companies start making performance decisions months before they dole out raises, which means you better start self-promotion right away. You might hate to brag, but the boss should know you have been working all year long. Take advantage of opportunities to highlight your accomplishments. If you receive a complimentary letter from a client or a co-worker, forward it to key decision makers with a note saying you wanted to share the good news. BUILD YOUR CASE Many firms settle on a set range of pay raises beforehand. Start by knowing what the market is paying for your position. Work out how much to ask and then build a solid case for yourself. You must prove to your boss that you are worth the money. As raises become tied to performance, be sure to promote yourself. Keep a diary of accomplishments and talk up the most impressive ones. Focus on the value of the contributions you have made in your position. Speak about the impact you have had on the organisation. Emphasise on your proven commitment, enthusiasm and future contributions. Think strategically — how much money have you saved the company, or how much revenue have you generated? OFFER-COUNTEROFFER One of the quickest ways to try to get a hike is to get a competing job offer. But playing that card, of course, means you had better be willing to jump ship. Recruiters caution against doing this without thinking about consequences first. Don’t say you’re thinking about leaving unless you mean it, because your boss might call your bluff and the whole thing might backfire on you! TIMING ONCE AGAIN Don’t ask for a pay hike when your company is financially hurt. This is easier if you work for a publicly-held company but for a private company, rely on your network and investigative skills. If the boss says budgets are tight and money isn’t available, you might want to try some creative repartees like: “Would you like me to work fewer hours until the company’s financial situation improves? Will you give me the raise next quarter?” ALTERNATIVES If you can’t negotiate a better pay, experts suggest proposing non-cash benefits to puff up your pay package. Things like working flexi-time, working from home, increased vacation or ending your Friday a few hours earlier are all chips to bargain over. Consider creative options, phased salary hike and other benefits to improve the case. Before talking to your boss, know what your back-up plan is so that you can approach negotiation with confidence and not back yourself into a corner.

Campus fests add spice to youth power

FEW years ago, it was about fun, a welcome break from studies and time for some camaraderie among students. But rising corporate interests and growing youth power are increasing scale, raising stakes and adding colours and flavours to the campus festivals across the country. Whether it’s IIMA’s Chaos, Unmaad at IIMB, IITM’s Saarang, IIT Kharagpur’s Spring Fest, Malhar of St Xavier’s, Mumbai, or IIMC’s Carpe Diem, corporates are eager to keep their date with the latest culfest. Be it Levis, Hutch, Motorola, Hero Honda, Radio Mirchi, Sony, Apple, Microsoft, Esprit, ABV, Philips or Cafe Coffee Day, firms are hitching a ride onto the fest bandwagon. The increased interest and swelling sponsorships are translating into growing budgets. At IIML, Manfest 2006 saw a budget increase from Rs 33 lakh to Rs 63 lakh. IIMC fest saw a jump of 50% while sponsorships at IIMA grew from Rs 30 lakh to over Rs 40 lakh. The budget for XLRI Jamshedpur’s Ensemble 2007, too, grew by 60% to Rs 16 lakh this year. Sponsorship for IITB’s MoodI went up from Rs 50 lakh to Rs 75 lakh this year while IITD’s Rendezvous collected Rs 35-40 lakh. Companies are exploring multiple ways for beefing up industry-academia partnerships. Festivals offer an ideal alliance platform. These events present an ideal opportunity for companies to target students as potential consumer and build brand relationships. “Most companies invest in our festival because we are able to deliver such a sharply-defined target segment in such large numbers that it makes perfect advertising ROI sense for them to invest in our festival,” says Vinay Singh, cultural secretary, students affairs council, IIMB. Sumit Kulkarni, events coordinator of IIMC fest, feels such events represent a great marketing avenue for youth-oriented brands. Student participation in these festivals has been rising. “Two years ago, the number of participants in Chaos was over 500. It’s growing by over 20-25% every year,” says Ravi Srinivasan, secretary, Chaos 2007. Whereas earlier, Chaos only had students from leading management, design and technology schools, now even government colleges are participating in the event. IIMC fest registered over 5,000 footfalls this year while XLRI fest had participation from 33 B-schools, up from only 15 last year. IITB’s MoodI saw the student turnout hit the 55,000-plus mark this year, compared to 50,000 last year. IITD fest pulled in close to 15,000 students, with the maximum crowd-puller being the pronite. Kaushik Ghosh, head, marketing Radio Mirchi, said: “These fests are a major youth connect platform. It gives us a chance to be visible which could be done in various ways like becoming the media partner, conducting quiz competitions and so on.” The firm uses 30-40 colleges to connect with the youth.

Reliance Retail hires over 100 a day

FOURTEEN months into the business and the headcount stands at over 6,000. It’s hiring over 100 people a day, touching 3,000 people a month and this is just the warm-up phase. That’s what happens when a group that thinks big and executes fast decides to put its muscle and might into a red-hot sector of the new economy. This is the revving up of the Rs 25,000-crore Reliance Retail. If the rollout goes as per the plan, employee count will touch a million by 2010. Reliance Retail has roped in who’s who of Indian retailing. One of the imperatives for a business that would need many shopfloor staff is putting in place a robust internal process of recruiting, training and retaining talent across all functions. Sources say that it’s systems-oriented HR team numbers more than 500. Backing it up is a research team which tracks the best practices of Fortune 500 firms to assimilate learnings and incorporate them into its own processes. The venture may be just 22-stores old now but Reliance retail has readied the framework to scale up towards 1,500 stores across verticals from food and groceries to consumer electronics. “Within HR, there is a team responsible for researching and collating the best practices from MNCs like Wal-Mart, Tesco and Citigroup. The processes have been created by analysing the HR practices of existing players within Indian retailing and also MNCs,” sources said. The system ensures that every detail is documented. “Details like hiring a car, uniform of store personnel to even requisition for office stationery have been incorporated and put on board the technology platform. Employee retention tools like stock options and referral programmes, like each one bring 10, have been instituted as part of talent engagement and sustaining employees,” sources said. Reliance Retail sources told ETthat in the last 14 months, the firm has been readying its HR strategy with emphasis on recruitment, training, retaining and sustainability of employees. “The roadmap was created, processes have been developed and have been mapped on board the technology platform,” sources said. They added the system put in place can handle recruitment of one million employees all over India in four-five years, from the current base of 6,000. Though Mukesh Ambani announced plans for the retail business as late as June 2006, it is understood that plans to create the necessary internal process were put in motion much before that. While professionals like Bijou Kurien from Titan, Gunender Kapur from Unilever, Raghu Pillai from the Future group were roped in for various verticals to be rolled out under the initiative, the group brought in Bijay Sahoo, former global HR head of Wipro as president and chief people officer to create the framework for recruitments. Reliance Retail has roped in Susan Bloch, chief cultural and diversity officer, HR. The move to hire Bloch, former partner at Whitehead Mann and director executive (coaching) with the Hay group consultancy, comes as the group is emphasising on creating leadership skills within, enabling them to create opportunities for employees to move up the ladder. PEOPLE COUNT Employee count likely to touch a million by 2010 Co’s systems-oriented HR team already numbers more than 500 A research team tracks the best practices of Fortune 500 firms to assimilate learnings In the last 14 months, the firm has been readying HR strategy with emphasis on recruitment, training, retaining & sustainability The system ensures that every detail is documented

Pantaloon Retail subsidiary acquires Officedge

MUMBAI: In a bid to gain advantage in the domestic office products market, Pantaloon Retail on Monday said its wholly-owned subsidiary Future Office Products has acquired Officedge, an online B2B office products firm for an undisclosed amount. Future Office Products, part of the Future group, has acquired the operations and management of Officedge, which currently serves more than 80 large corporate customers across six cities, offering close to 1,200 office products, Pantaloon Retail said. “This acquisition fits in with our strategy of being present with different business formats to capture increased spend levels by customers. We have over the years pioneered many concepts where we interact with end customers. Officedge is a unique organisation and gives us the necessary traction in a growing market,” Pantaloon Retail director Rakesh Biyani said about the acquisition.

Videocon NEXT in durables retail biz

INDIAN durable major Videocon has quietly moved into the consumer durables retailing space through NEXT, a chain of stores across the country. Videocon promoters are keeping a lowprofile to avoid sending conflicting signals to trade partners such as Vijay Sales, Sony Mony or Vivek’s in the country. NEXT is the revamped and scaled-up version of Plugin Sales, the Vijaypat Singhania-backed Raymond’s durable retail chain which has now been acquired by the Dhoots for an undisclosed amount. Videocon is focusing on leasing and acquiring real estate for aggressively scaling up the venture, sources said. When contacted, Videocon chairman Venugopal Dhoot was reluctant to discuss the venture. “We are in it only as investors. It is being run by a professional team,” he said. Launched in 2002, Plugin failed to take off in a big way since it did not have the required deep pockets. Raymond had planned to scale it up to have a pan-India presence, a venture now handled by the Dhoots. Raymond had a 60% stake in the venture with the balance divided equally between N Gupta and Plugin’s CEO Nitish Tipnis, both ex-Videocon hands. Mr Gupta floated the venture when he was working for Raymond as group president and whole-time director. Videocon has now completely bought over the stakes held by all the promoters. Consequently, Videocon now holds two-thirds of the stake in the retail venture while marginal stakes are held by a couple of foreign funds. The company maintained the brand name Plugin for a while but has now integrated all the outlets under the NEXT brand name. However, sources said since Next is a multi-brand stores which stocks every brand in the business and therefore, not a Videocon exclusive chain of stores, the conflict of interest does not arise. Apart from retailer’s margins, Videocon will also have the manufacturer’s margins to drive scale and profitability in the retail venture. Videocon’s other in-house brands include Sansui, Electrolux, Akai, Hyundai, Kenstar and Kelvinator. These brands are stocked by the current crop of retail chains in the market. The pricing strategy in the Plugin store was also not too competitive and therefore faced low footfalls. Industry watchers say the venture was probably too early for its time. For now, organised durable retail chains across the country are not too many, especially in the non-metros. Existing chains are also not keen on selling their businesses at the first sight of competition. The Tata group recently launched its first national chain of multi-brand outlets of consumer electronic and durable products Croma in a technical and sourcing agreement with Australian retail giant, Woolworths.

Madura Garments lines up two-way split

AV BIRLA Group (AVB) is set to split Madura Garments, the country’s largest branded apparel business, into two companies. AVB would carve out separate entities for lifestyle and mass brands out of the unlisted company. The group is poised to unveil MG Lifestyle Brands & Retail Business — a new fashion brands company operating with key brands like Louis Philippe, Allen Solly and Van Heusen — besides lifestyle retail formats such as Planet Fashion and Trouser Town. It is learnt that SF Jeans, which marked Madura’s denim foray, and the international licensed brand Esprit will also be part of this new entity. The other company, MG Popular Brands & Retail Business, would operate in the mid-pricedto-mass category with brands like Peter England. Both the new entities will be divisions of AV Birla Nuvo. However, unconfirmed reports suggest that AVB would look at the possibility of taking the lifestyle brands company public in the future. “The move is aimed at putting in place strategies for our growth in the next 5-10 years. This will help us in focused brand building and to be on road for profitable aggressive growth,” AV Birla Nuvo director Vikram Rao told ET. He said the 400-odd staff of the existing company would be re-aligned in line with the re-structuring. Madura Garments president Hemachandra Javeri will become senior executive president reporting to Vikram Rao who is overseeing the fashion brands company even as Ashish Dixit, who is currently with group chairman Kumarmanglam Birla’s office, will move in as president of the same company. MG Popular Brands & Retail Business will have a separate president who will also report to Mr Rao. Madura Garments is expected to report revenue of around Rs 600-650 crore during the next financial year, and is currently a clear leader in the domestic apparels space with annualised growth of 20% in recent years. AVB acquired Madura Garments from UK’s Coats for Rs 236 crore in 1999. The fashion brands company, which will also include Allen Solly Womenswear and Van Heusen Womenswear, is likely to report a topline of Rs 450-480 crore, while the standalone Peter England is likely to show up with Rs 180-crore turnover in FY’07. It must be mentioned that Peter England which sells over 3 lakh pieces every month, is arguably the largest selling menswear brand in India. Besides accelerating the overall growth of the branded apparel business, sources said the latest move is also in sync with market dynamics and AVB’s own retailing plans. For instance, Peter England could play a critical role in AVB’s proposed hyper market retail venture. A separate company for the mass brands assumes significance in this context.

Asean agrees to push use of biofuels
Cebu (Philippines): Asian and Pacific leaders signed an agreement on Monday to help reduce their dependence on conventional sources of energy and promote biofuels. The Cebu Declaration on East Asian Energy Security was signed by leaders from Southeast Asia, Australia, New Zealand, India, Japan, China and South Korea after a three-hour summit in the central Philippine city of Cebu. The agreement lists a set of goals for “reliable, adequate and affordable” energy supplies essential for sustaining economic growth and competitiveness. The East Asia conclave came two days after Asean completed its annual summit in Cebu, vowing to strengthen political solidarity, fight terrorism and create a free trade zone by 2015. The Asean leaders and their counterparts from six Asian economic powerhouses also pledged to pursue investments in regional infrastructure through greater private sector involvement. The declaration calls for moves to improve energy efficiency and reduce dependence on fossil fuels.

Citigroup goes for brand facelift
Citigroup, the global banking giant, is shrinking but only its name. Executives are prepared to rebrand the company Citi and to fold up its familiar red umbrella and use a logo with a stylised arc above the name. The new name and look, which follows a 14-month review of the banks brand, will be presented to the Citigroup board this week, according to several executives close to the process. No final decision has been made and it could still undergo some minor changes. “We continue to work on our branding effort and will announce our decisions when it is completed,” a spokeswoman, Leah Johnson, said. If adopted, the revised Citi brand and logo will be used at nearly all the vast financial services company’s businesses, including retail branches and its investment bank concentrated in the New York area and showcased around the world. The design is similar to the citi logo that now appears on much of its consumer advertising, office buildings and credit cards. A rollout could begin as early as next month. The plan to unify Citigroup’s businesses under a new, single brand is part of an ambitious campaign by the chairman and chief executive, Charles O Prince III, to better integrate the banks sprawling parts after years of acquisitions, a strategy investors are still waiting to see pay off. Symbolically, it also marks the end of an era. Just as a new name became one of the signatures of a transformative deal by the former chairman, Sanford I Weill, a more coherent brand strategy signals Prince’s plans to shift the focus of a company sometimes seen as a deal machine to one largely powered by internal and international growth. The brand makeover comes out of the playbook of other big companies. Apple Computer shortened its name to Apple to emphasise its broader ambitions for other technologies, like the new iPhone. Several years ago, Morgan Stanley ditched the suffix of Dean Witter, and Federal Express became just FedEx. By shedding the suffix and red umbrella, Prince is severing the banks’ most tangible ties to Weill, Citigroup’s patriarch, who made the old Travelers Group logo a key term of that company’s landmark 1998 merger with Citicorp and who is rarely seen without a small umbrella pin affixed to his lapel. Prince hopes to unify the company under one global name at a time he is urging more cooperation between businesses. Since October 2005, a panel of senior Citigroup business leaders and executives has been evaluating future of the brand. At the time, Prince said he believed that the company could benefit from a more coordinated approach to dealing with one of our most important assets. The company hired Landor Associates, a brandconsulting firm owned by the WPP Group, and put Ajay Banga, a co-head of its consumer businesses, who helped build PepsiCo’s Pizza Hut and KFC franchises in India, in charge of the review. Many in the company were divided. Top investment bank executives, some of whom had been campaigning for the resurrection of Salomon Brothers name, initially thought that the adoption of the consumer brands Citi logo would cheapen their image. In the end, however, Citigroup’s brand committee decided to drop the 137-year-old symbol, which has adorned the banks pitch books, buildings and business cards as well as some executive attire. NYT NEWS SERVICE

Foreign project firms need to pay tax in India

Mumbai: The Income Tax Appellate Tribunal (ITAT) has ruled that foreign companies doing project-specific work in India are liable to pay tax even if they do not have a permanent establishment when they actually receive the income for projects carried out earlier. Under international taxation norms, the permanent establishment (PE) — which could be a branch, an office, a factory, a warehouse or a sales outlet of a foreign company — forms the basis for taxing the income of a foreign company. The provision is to avoid double taxation. For instance, if company X provides services in India without having a PE, then its income is taxed in its home country. However, its income will be taxed in India if it has an establishment here. The income-tax department has been facing situations where foreign companies were not paying tax on income earned in India on the grounds that they did not have permanent establishments when the income was received. A division bench of ITAT, consisting of G C Gupta and G E Veerabahdrappa, held that, ‘‘There is no condition that PE should be in existence in India in the year of receipt of the amount by the enterprise.’’ The ruling was passed in the case of Van Oord Dredging and Marine Contractors BV, formerly known as Ballast Ham Dredging BV, one of the largest dredging companies. In the assessment year 2001-02 (financial year 2000-01), Van Oord executed various contracts in India and it maintained a project site office. In the tax returns filed by the company in 2000-01 it did not add Rs 30.78 crore received from New Mangalore Port Trust (NMPT) to its income. Van Oord said it was for a project completed in 1995-96 and for which there was no PE. In 1994-95 and 1995-96, Van Oord carried out maintenance and capital dredging work for the development of additional facilities at NM Port for which, the company had set up a project site which qualified as a PE under Article 5(3) of the relevant Indo-Dutch treaty. In 1995-96, NMPT project was completed and the site office ceased to exist. Van Oord made a claim of Rs 89.25 crore for additional work. NMPT, however, made counter claims leading to arbitration and later, court proceedings between the two players. TAXING TIMES It is not mandatory for a foreign company to have an existing permanent establishment in India when it actually receives the income for the work carried out A PE forms the basis for taxing a foreign company’s income in the country where such a PE is present Foreign companies, which had a PE in India, were not offering their income earned in the country for taxation saying such income were received when these PE had ceased to exist The ruling puts an end to this ambiguity

India, Asean to give another shot at free trade pact

New Delhi: Ahead of this week’s Asean summit in the Philippines, India on Sunday said its “sensitivities” should be addressed in the ongoing negotiations with the 10-member trading bloc for a comprehensive economic cooperation agreement for freer trade in goods and services. “India has certain sensitivities which must be reflected in the Asean pact,” commerce minister Kamal Nath said. India and Asean have been unable to agree on a negative list of products, where New Delhi will not be bound to cut tariffs due the adverse impact it could have on its farmers and industry, which is proving to be a stumbling block. India has offered to prune this list to 490 from 563 as the latest offering to the South-East Asian trading bloc. But even the revised list is short of Asean’s demand which wanted the negative list pruned to 387 products. Nath will go to Philippines before Prime Minister Manmohan Singh reaches there for the summit to make efforts to forge a consensus . India had offered to allow duty free import of 4,021 items of which tariffs would be removed for 3,073 items by 2011 and for the rest by 2015. The 850-odd items taken away from this list have been put on a sensitive list, where duties are to be cut to 7.5%. Asean wants zero duty export for another 350 items to India. Certain Asean members like Vietnam and Indonesia also want more market access for farm goods like palm oil and pepper. India has offered to keep the import duty on these items unchanged during the first five years of the pact and then reduce tariffs gradually. Asean wanted tariff cuts to start immediately and wants duties be brought below the 50-60% level.

mobiles cost more than Steel

Mobiles cost more than steel

Cellular firms may be doling out connections virtually for free these days while steel prices are ruling above $500 a tonne, but in the parlance of M&A street, acquiring one mobile user is far more expensive than buying a tonne of steel. To be precise, it costs close to $1,000 to acquire one cellular subscriber against $600 for one tonne of steel manufacturing capacity, going by the bids quoted for mobile operator Hutch-Essar and steel maker Corus. For the purpose of analysis, the minimum price of $14 billion that Hong Kong-based Hutchison Telecom has quoted for its 67% stake in Hutch-Essar would require any buyer to shell out at least $950 for each of the company’s 22 million subscribers. In contrast, the winning bidder for corus — between Tata Steel and CSN — would be paying a price of less than $600 for each tonne of steel produced in a year by the Anglo-Dutch steel maker, which has an annual output of about 19 MT. The difference could be greater if reports that suitors for Hutch-Essar are willing to pay a much higher price than $15 billion used in calculations here are to be believed. On the other hand, the two bidders for Corus are moving cautiously before sweetening their offers further. Notwithstanding the high price the suitors in both the cases are willing to pay quite high, the prospective suitors can take solace in the fact that previous deals in respective sectors have been even more expensive. India-born steel tycoon LN Mittal, who won a long-drawn battle to acquire European giant Arcelor last year, ended up paying over $35 billion, much more than its own size. Still, the deal resulted in a price of about $1.3 billion for per million tonne of steel produced by Arcelor, which has an annual production of about 45 million tonnes. Compared to Arcelor-Mittal deal, Corus could be a value for money with a price of less than $600 million per million tonne of steel. Even in telecom sector, when US cellular giant Cingular wireless acquired AT&T wireless for $41 billion in 2004, it acquired the target company’s nearly 22 million subscribers at a price of close to $1,900 each. Interestingly, Vodafone, which is one of the suitors for Hutch-Essar, was one of the interested parties in acquiring AT&T wireless. Analysts believe that Vodafone’s current ambition, which also comes at a lower price, is a much better bet than AT&T as India is a fastgrowing market and US mobile market has almost saturated. Vodafone had also paid a price of about $1,000 per subscriber when it acquired a 10% stake in Bharti Airtel for about $1.5 billion in 2005, an industry study shows. Previously, global private equity fund house Warburg Pincus had also paid a price of close to $1,000 when they acquired a 9.3% stake in Bharti for $873 million. Despite the high price, analysts believe, buyers are lining up for Hutch-Essar, which boasts of an average revenue per user of Rs 373, higher than market leader Bharti Airtel’s arpu of Rs 348. Besides, Hutch-Essar has the highest revenue per minute and best minutes of usage per user per month, beating rivals Bharti and Reliance Communications, analysts added.

BSNL opens optic fibre gateway to Nepal
Bandwidth Rates In Nepal Likely To Fall More Than 75%
PUBLIC sector telecom company Bharat Sanchar Nigam Ltd (BSNL) has opened its optical fibre gateways to Nepal allowing the land-locked neighbour to connect its telecom, IT and internet networks to other countries through the PSU’s network. For Nepal, so far dependant on expensive satellite communication for telecom and IT data transfer, the move would result in over 75% drop in current bandwidth rates. According to sources, Nepal is also set to ink a similar deal with the country’s largest private operator — Bharti Airtel, for an additional 34 Mbps of bandwidth and for using is fibre network to connect to other countries. Following this, Nepal feels its internet rates can be slashed even further to about a fifth of the current tariffs. Additionally, Nepal will also be able to set up its proposed superhighway for cross-country data transfer, as bandwidth from BSNL and Bharti will help reduce costs of internet services, making it affordable and accessible for its citizens to connect to the national network. BSNL executives said that as per the agreement, the PSU has opened up its gateways located in Birgunj and Bhairahawa to Nepal Telecom last week. Besides, this will also enable telecom and IT traffic from Nepal Telecom to ride on BSNL’s undersea cable to Colombo (Sri Lanka) and subsequently to other countries. In the first phase, Nepal Telecom has purchased 16 Mbps of symmetric bandwidth (8 Mbps each from the two gateways), at Rs 16 million, compared to the country’s prevailing market rate of Rs 64 million for this capacity. Nepal Telecom will soon announce a 60% tariff cut for high-speed data service meant for business purposes, sources said. The tie-up with BSNL has also resulted in considerable increase in Nepal Telecom’s total bandwidth to 20 Mbps of upstream and 34 Mbps of downstream capacity. Prior to the deal, Nepal Telecom had an upstream capacity of 4 Mbps and 18 Mbps for downloading purposes. Nepal Telecom executives also said that fibre connectivity to India would be a big boost to small companies requiring high-speed data connectivity and aid small Internet Service Providers. It will also boost Nepal’s IT sector by helping such companies to upload huge amount of data and by providing web hosting facilities, they added. Nepal Telecom provides internet services in 59 districts. Nepal has 46,201 internet and e-mail users with the average monthly revenue per user at Rs 1,227.

HLL, Pepsi rethink as tea gets cold

HINDUSTAN Lever’s marketing alliance with Pepsi Foods for hot and cold beverages in the country is under review. The marketing alliance, forged about three years ago for ready-to-drink tea and other tea-based beverages, has only got lukewarm response from the consumers. When contacted by ET, an HLL spokesperson said: “The mix is being reworked with the Pepsi team for the Indian market. We will roll out the new mix in the current year.” When the marketing alliance was first thought of, the plan was to leverage HLL’s strength in hot beverages combined with Pepsi’s extensive on-premise sales and distribution infrastructure. As part of the initial strategy, beverages such as ice tea, green tea, herbal tea and even diet tea were to be retailed through vending machines and fountains, in different packaging formats like glass and PET bottles as well as tetrapaks. Three years later, only Lipton ice tea is being retailed through tetrapaks and vending machines in cinema theatres, modern trade and eateries. The HLL spokesperson said Lipton ice tea has been growing at 15-20% in modern trade channels. While a source said the alliance is likely to remain on the slow burner, another source added that the two companies will rework the business model and the positioning this year. “There’s a business plan for it. The marketing pact still stands,’’ he added. However, ice tea, as a category, has not taken off in a big way in India and even players like Nestle and Coca-Cola’s Georgia brand have found limited success with the category. “The effort is to create the habit of drinking ice tea and it will take some time, given the fact that India is a predominantly a hot tea-drinking market. Even in developed markets such as the US and Western Europe, success came over a period of 8-10 years,” HLL and Pepsi said in a joint statement. It must be pointed out that Unilever and Pepsi operate through a joint venture for hot and cold beverages in several global markets, while in India both companies teamed up through a marketing alliance.

Nestle set to share the bounty

NESTLE India's shareholders have a windfall headed their way. The multinational foods major will join a select set of Indian companies who have utilised their net worth to return cash to shareholders. Nestle plans to use part of the general reserves and share premium account of the company for distribution to shareholders. The company on Tuesday announced that its board will meet on January 15 to consider a scheme of arrangement. Its share price closed 4% higher on Wednesday at Rs 1,205. In the past, to return cash to shareholders, the Sections 391-394 (of Companies Act, 1956) route has been used by companies either to issue bonus debentures or to buy shares back. But a Nestle spokesperson said in an emailed response to ET: "There is no compulsion on the company for a buy back or bonus debenture. The details can only be announced after approval by the board of directors." HLL was the first company to issue bonus debentures, and more recently Astra Zeneca Pharma is proposing the same. Nestle plans to use a scheme of arrangement under Sections 391-394 of the Companies Act, with Sections 100-102. Sections 391-394 deal with capital restructuring including mergers, amalgamations or demergers, anything which alters the capital structure of a company. Sections 100-102 deal with reduction of share capital. Companies return cash to shareholders when they have adequate cash on their books to meet their requirements, and don't have any huge investment plans in the foreseeable future. By returning cash, they lower their own capital employed and thus improve their asset utilisation ratios. Funds can be returned to shareholders in many ways. One of them is through paying dividends. Apart from normal dividends, companies pay out special dividends. But paying special dividends does not require the application of these sections except when the retained profits available for distribution are not enough. "Nestle pays out substantial dividends and has very little distributable profits left. So this scheme could be for paying a special dividend too, to be paid out of reserves," said an FMCG analyst with a leading brokerage. RETURN GIFT Dividend Most common form of distributing profits to shareholders Buyback There are two routes—market and tender. In market, shares are sold through the stock exchange. Tender buyback is directly to the company. Tender buyback price is fixed. Market buyback is capped, i.e. company will buy up to a certain price Alteration/reduction of capital Once requisite shareholder/creditor and court approval is received, all shareholders will be compulsorily part of it. Could be done in various forms. Reduction of share capital by buying back a portion is one option. Issuing bonus debentures created out of reserves, and then redeeming them after some time is another. Both have the effect of returning cash to shareholders