the number of retail investors in India needs to increase from the

Transcription

RNI No.35850/80; Reg. No. MCS-123/2015-17; Published on: Every alternate Monday; Posted at Patrika Channel Sorting office, Mumbai-400001 on every alternate Monday-Tuesday
MAY 11-24, 2015
`40
n
Modi in China
n
Upgrading our arsenal
n
Dewan Housing Finance
n
Videocon D2H
Where
art
thou?
The number of retail investors in India
needs to increase from the current
50 lakh to 5 crore by 2020
From the Publisher
B u s i n e s s I n d i a u t h e mag a z i n e o f t h e c o r p o r at e wo r l d
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The bse is the oldest stock exchange in Asia. And we have a long history
of old but small capital markets. Yet, in spite of this history, and in
spite of the fact that our markets are vibrant and performing, retail
participation in our markets is abysmally low. Less than 2 per cent of all
Indians own shares, directly or indirectly. This contrasts with over 50 per
cent in the US and over 40 per cent in the UK.
While fiis have been very bullish on India and have helped drive our
markets to all-time highs, does it make sense for a major economy like
India to rely, to such a large extent, on fii flows? Yet, the truth is that fiis
account for less than 25 per cent of the total market capitalisation.
Sadly, in the entire run-up of last year, the retail investors missed out.
Successive governments (and sebi chairmen) have declared their intent to
encourage much larger numbers of individuals to enter the market. But
almost every opportunity has been missed.
Globally, disinvestment campaigns by governments have been used to
draw in retail participation. Mrs Thatcher’s vastly successful privatisation
programme 30 years ago spelt out very clear and simple lessons. Yet our
governments, focussing on either strategic sales or seeking to squeeze
out the highest price available immediately have failed to draw in the
investing public and divest meaningfully. Without leaving enough on the
table for retail investors, why should they want to take a risk?
In other developing markets many retail investors invest through mutual
funds rather than directly. Should it be the same here too?. While our
mutual funds have grown significantly for the last few years, given the
size of our markets, they are very small. Moreover the number of mutual
funds available is much too few for a market our size.
No one advocates that any individual should put more than a percentage
of his savings into shares. But equity markets have been able to provide
a remarkable edge against inflation. And have allowed for significant
capital growth. Business India has consistently advocated the benefits of
shares as an asset class.
This brings us to the question as to why we should be encouraging retail
investors at all. The reality is that there is no developed democratic
society without a developed, widespread capital market. And capital
markets, with the widest participation, have strengthened democratic
societies. When the largest number of people, recognise and assert their
economic interests, it leads to much larger numbers getting involved
in public life. Developing capital markets is one way of expanding the
middle class. So apart from driving investment and economic growth,
capital markets also strengthen the democratic processes.
This is the opportunity that the Modi government must capitalise on.
Distribution India Book House Ltd
Newsstand `40
This issue consists of total 92 pages including cover
We Are On www.businessindiagroup.com
u3u
M AY 11-2 4 , 2 015
Contents
•
No. 970
COVER FEATURE
34
Where art thou?
The number of
retail investors
in India needs to
increase from the
current 50 lakh to
5 crore by 2020
u
F O C U S u
u
CO R P O R AT E
R E P O R T S DEWAN HOUSING FINANCE
u
53
dhfl bets on a range of products for the next
level of growth
VIDEOCON d2h
DIAGEO
Diageo is accusing
Vijay Mallya of
corporate governance
lapses
u
Upgrading our armoury
India takes concerted steps to modernise and upgrade its
military
48
u4u
M AY 11-2 4 , 2 015
56
Videocon d2h
wants to be
most loved by its
customers
60
MERGERS & ACQUISITIONS
62
• Birla strengthens its
retail business
• Biyani looks at
growth through a
merger
u
No. 970
•
Contents
u
S P E C I A L
R E P O R T
u
Will Modi sway China? 44
The PM’s visit to China will
be a tightrope walk
u
I N T H I S I S S U E u
Associations
76
Banking
65
Business Notes
25
Businessmen in the News
22
Column
32
Corporate Reports
53
Cover Feature
34
CyberNews
21
Editorials
u
Government & Politics
• Real Estate Bill caught in
political war
29
Banking
Doha Bank establishes
full scale operations in India
Advertising & Marketing
66
65
Editorials
u
• Vivimed kept its word to go on stream
by FY13
•M
an Infra has been gradually shifting
from pure epc to a mix of epc and asset
ownership
Business Notes
72
• T he Bengal
government has
auctioned off its stake
in five tea gardens
7
• T he stage is set for renewal of India-UK ties
•T
he valuation of e-commerce sites defies
valuation
•C
rowd-funding could be an alternative
way for financing businesses
u
Tourism
• Royal Caribbean
targets the growing
• A hujasons
Indian cruise market
goes global
to meet
demand
u
Follow-up
u
uAssociations
76
• Entrepreneurs’
• Kutchina has successfully
Organization comes of
age in India
tapped into the
contemporary kitchen
market
uStates
77
• Home
ministry peeved over
resource transfer
•E
nvironment ministry makes
geac redundant
u
u
18
nabers certification outside Australia
u
u
25
Market News
80
• Investors will do well to go bottom fishing
in troubled times
• Indiareit Apartment Fund looks for
opportunities in sluggish market
conditions
• A nup Bagchi suggests that every dip in the
market should be used as an opportunity
to buy
90
Interview
Sitaram Yechury, the
new general secretary of
the Communist Party
of India, vehemently
disagrees with the Modi
government’s policy
framework
• Developers refrain from new launches
as inventories remain high
•T
he domestic baby-care market gains
momentum with global brands
•P
aharpur Business Centre is awarded first
u5u
M AY 11-2 4 , 2 015
7
Executive Focus
84
Executive Track
86
Focus
48
Follow-up
18
29
Guest Column
64, 70, 74, 78
Interview
Letters to the Editor
90
6
Listening Post
11
Market News
80
Mergers & Acquisitions
62
Newscast
14
Panju’s Page
42
People
88
Portfolio Talk
83
Selections
87
Special Report
44
States
77
Tourism
72
Issue No. 970 for the fortnight MAY 11-24, 2015.
Released on May 11, 2015.
Printed and published by Ashok H. Advani for Business India.
Printed at Glaxy Asbestos and Fittings Pvt. Ltd.,
D-125 TTC Area, Navi Mumbai-400 706
Published at Wadia Building, 17/19 Dalal Street
Mumbai-400 001.
No reproduction is permitted in whole or part without
the express consent of Business India
To order reprints contact: Business India Production Cell,
14th floor, Nirmal Building, Nariman Point,
Mumbai-400 021. Tel: 2288 3942/43, 2204 5446
Letters to the Editor
B u s i n e s s I n d i a u t h e m ag a z i n e o f t h e c o r p o r at e wo r l d
locales, as Indian audience
get a view of foreign cities
through such exercises. The
idea is to allow a judicious
mix of Indian and foreign
locales in our movies.
MAHESH K APASI
Delhi
u
u
Clear view
‘Powering ahead’ (Cover Feature, 13-26 April) imparted
new information and offered
a view of the initiatives of
Cummins India. Its plans
are a sure recipe for a sharp
rise in its progress, keeping
others behind in the power
curve. Also, ‘End of the tiger
ride’ (Editorials, 13-26 April)
referred to the exemplary
punishment meted out to the
avariciously unethical persons in industry. However,
their behaviour has already
caused incalculable damage
to the image of Indian entrepreneurship, denting our
assiduously built global confidence. Let us hope that this
judicial verdict will inspire
the international investors
and fiis to continue to turn
the scale for us.
Truth vs hype
‘Time to spread wings’ (Feature, 13-26 April) illustrates
hypocrisy at its worst. Our
country,
euphemistically
described as ‘developed’, is
still wallowing in abject poverty, more pathetically so
because the powers-that-be
have closed their eyes to it.
And, here you are, extolling
the virtues and venues of
our dream merchants, who
sell their wares to those who
want to close their eyes to the
nightmares around them.
Show them the countryside,
no more idyllic; the farmers
and their families starving
and dying; youth, corrupted
and wasting their lives; politicians and bureaucrats,
feathering their own nests;
et al. Let the nation wake up
to its realities, harsh as they
may be, rather than be hypnotised by ‘ethereal’ visions,
which they can never touch.
A . A . V ARMA
Kochi
Unfair
B . RA J ASE K ARAN
u
Bengaluru
Please refer to ‘Goafest@10’
(Advertising, 13-26 April).
Most Indians are influenced
by western society, with even
Bollywood mostly rejecting girls with dark complexion. The villain here is our
advertising industry, which
promote and sell beauty
products meant only for the
fair- skinned users. It’s sad,
as one’s character should be
given more importance than
the colour of one’s skin.
u
Good mix
With reference to ‘Time to
spread wings’ (Feature, 13-26
April), it is good to note that
Bollywood can now compete
with Hollywood and other
international film markets.
But I feel our film producers should shoot their films
in outdoor locations all over
India, as we have beautiful
scenic spots in almost every
state. The initiative for this
should come from the tourism departments of our states,
as it would lead to India getting more foreign exchange,
while also serving our economy well. This is not to discourage shooting at foreign
could at best be another refinancing institution. Such
institutions are found in
abundance, but the challenges still persist. Intermediaries even now walk away
with a chunk of the profits,
while sidbi and nabard look
on. What is important is that
the large businesses, which
buy the products and services
of tiny, micro, small, smallmedium and medium units
do not pay their dues in time.
The government, as well as
the institutions should pay
greater attention to this problem and introduce an institutional mechanism to prevent
this malady.
K . U . MADA
Mumbai
u
C . K . SU B RAMANIAM
Navi Mumbai
u
Overdue
‘New
hiccups’
(Government & Politics, 30 March-12
April), refers to a rule that
ordinances can be promulgated only when both the
houses of Parliament are not
MAHESH K UMAR
Delhi
u
For health
India, the largest producer of
bananas in the world, contributes 23 per cent of its
global production (Business
Notes, 13-26 April). Yet, it
exports only negligible quantities of this fruit, since no
Indian company was been
able to meet the international
quality standards. However,
the domestic market more
than makes up for its loss in
this area. As we top the list of
banana producers, we must
take advantage of the abundance of this healthy fruit in
our markets and consume it
well, to lead a healthy life.
Challenges
This refers to ‘God of small
things’ (Editorials, 13-26
April). True, Mudra Bank
in session, as Article 123 (1)
says so. Yet, during an earlier regime, an ordinance
was promulgated during the
recess (rest time between
the two successive day’s sessions), with the rule being
interpreted to suit the ruling coalition’s convenience.
How come rules are being
quoted now to thwart such an
attempt? And, with reference
to ‘Dreaming big’ (Start-up,
30 March-12 April), institutes
like Raina’s, which impart
training to fresh graduates,
is long overdue. It’s gratifying that many big companies
are supporting her The article on solar impulse (Energy,
30 March-12 April) was also
interesting. But, the question is: can it be introduced
in India in a big way?
P . G . K RISHNAMURTHI IYER
Kochi
u
A mirage
The recent Railway and general budgets evoked a lot of
praise from the business and
corporate sector (Cover Feature, 2-15 March). It was said
to be growth-oriented in the
long term. Also, corporate
taxes were reduced. However, there was no relief for
ordinary tax payers, despite
the eroded value of the
rupee. Senior citizens mainly
live on the interests accrued
from their savings. But the
tax exemption limit for fds
and savings still remains
high, which cuts into their
income, making their survival precarious. In short,
the budget, like always, is a
mirage – good from far, but
far from good!
SHANMUGAM MUDALIAR
Pune
Please address your letters to:
The Managing Editor, Business India
14th floor, Nirmal, Nariman Point, Mumbai 400021.
Fax: (91-22) 2288 3940
[email protected]
u6u
MAy 11-2 4 , 2 015
Please mention your full name and address
Editorials
Cameron is back
The stage is set for renewal of India-UK ties
D
avid Cameron has returned to 10
Downing Street as prime minister after
an extraordinary election in which
the Conservatives outperformed even their
own expectations and Labour and the Liberal
Democrats suffered bitter losses. Clearly, the
voters were taken in by his promise of turning Britain around during the next five years.
The Scottish Nationalist Party, powered by a
surge of nationalism, swept their northern
nation. Cameron will now be under pressure
to deliver on his promise for a referendum on
Britain’s membership of the European Union,
as early as next year. But a vote to leave the EU
would likely trigger a new referendum. Even if
Britain votes to stay in the EU, a Scottish electorate so significantly at odds with the rest of
the country may not. Clearly, Cameron would
have to make a significant gesture towards
Scotland and spend a lot of energy to keep
the union together. Newly-elected mp Boris
Johnson, a possible future Tory minister, has
predicted “some kind of federal offer”.
Interestingly the leaders of the Labour
party and the LibDem parties who lost badly,
immediately resigned from their posts as
leaders of their parties. There was no clamour
within either of the parties for these leaders
to stay on. By contrast, in India, in spite of
humiliating defeats, the congress party continues to insist that only the Gandhi family
can take the party forward.
The election saw unprecedented participation by people of Indian origin as voters and
candidates. Cameron was even seen making
an appeal in Hindi on a popular Indian TV
channel: Phir ek baar, Cameron sakrar. Some of
the winning Indian-origin Tory candidates
like Rishi Sunak, son-in-law of Infosys founder
Narayan Murthy, could end up as ministers,
which is a good thing for India-UK ties.
The decisive outcome of the UK election
sets the stage for the visit of Prime Minister Narendra Modi. A visit was always on
the cards but the Indian foreign office had
deferred it till the new government in London settles in. It is nearly a decade since
an Indian pm visited Britain (Manmohan
Singh visited in 2006), while British pms visited India four times during the same period
(Gordon Brown in 2008 and Cameron three
times since assuming office in 2010). There
u7u
m ay 11-2 4 , 2 015
has clearly been something of a ‘one-way
traffic’ in recent years.
All this while, the relationship has been
renamed in London as a ‘new special relationship’, while the Indian side has not been
exactly enthusiastic. This is because India’s
global outreach changed since the early 1990s
as it began to look out for more resourceful
partners (read the US and Japan) to grow.
Britain no longer had the same resonance in
India it once had, and India too is no longer what used to be called a ‘Third World’
country. As India becomes a major investor
and creator of jobs in an economically-challenged Britain, led by the likes of Tatas in the
Jaguar-Land Rover plant, the courtier has
become the courted. One indication, was the
beeline British ministers made for India after
the Modi government came to power.
However, much that currently happens
between India and Britain is on ‘auto-pilot’,
and there is a banality and taken-for-grantedness about the multi-level interactions between
the two countries. But such near-colonial views
ignore the reality of a new and increasingly
confident India insisting on being treated as
an equal, and on its terms. But it is also a reality that large number of Indians are also very
familiar with Britain. It continues to be a favourite tourist destination, and a large number of
leading businessmen from Delhi and Mumbai
even have second homes in London.
Britain was the first western country to
re-establish links with Modi after it had diplomatically boycotted him after the 2002
Gujarat riots, but Britain has not figured high
on his radar after he assumed office in New
Delhi. There were strenuous efforts in recent
weeks in London and New Delhi to get Modi
to visit London to inaugurate Mahatma Gandhi’s statue in Parliament Square but it was
Arun Jaitley who filled in for him.
No major agreement has been signed
between Britain and India in recent years,
prompting some observers to conclude the
relationship has plateaued, if not stagnated.
As the colonial baggage sits light on an India
with a large young population, a Modi visit
will help rejuvenate and revive the potential
of a relationship that has seen challenging
times since 1947.
u
[email protected]
Editorials
Betting on the future
The valuation of e-commerce sites defies valuation, but...
I
f a dip-stick survey of Indian mutual fund
managers were to be done, chances are that
9 out of 10 would emphatically decline to
invest in an e-commerce company, start-up
or otherwise, assuming that they were listed.
Most would confess that they do not understand the business model, nor share the exuberance of the private equity firms that have
seen the valuation of these start-ups soaring
as every round of funding gets completed.
Fund managers would plead that it will be
difficult for them to justify their investments
to the traditional investors who invest in
mutual funds seeking the safety of their capital. Fund managers would even decline to
invest their own funds in these start-ups.
It is true that e-commerce companies do
not fit in the regular mould of analysis. There
are no profits or forecast of profits in the foreseeable period. Being asset light by their very
nature, their balance sheet size would make
a traditional investor baulk at investing in
these companies. More importantly there is no
immediate exit for their investments in case of
a surge in redemption requests from investors.
Nevertheless, investments in start-ups
have been rapidly growing, year by year.
From an estimated total investment of $760
million in 2012 these start-ups have got
investments worth $1.6 billion in 2013 and
an estimated $5 billion in 2014. The growth
in these investments, largely through a
select band of private equity firms, is guided
more by the future expectations of multiple returns being generated by some of the
investee companies. One can well argue that
private equity firms have a clear mandate to
take higher risks to generate alpha returns
for their partners. And as such, investing in
companies like Flipkart ($11 billion) or Snapdeal (estimated $5 billion) makes sense.
Private equity fund managers would justify their investments on the grounds that
the retail story in India is all set to explode
and the growing trend of online purchasing
is catching on amongst the urban class. And
online retail, which is expected to grow to
10 per cent of the total retail market in the
country by 2025, will make rapid in-roads
in the segment. They also rationalise that
even the traditional outlets and retail chains
have of late started getting aggressive in this
space. The latest to join the ecommerce band
wagon is Kishore Biyani, the king of retailers who provided an otherwise mundane
shopping experience with a more fulfilling
one. Housing.com, localbanya.com, bigbasket.com, urbanladder.com, and happilyunmarried.com are but a handful of other
companies that have raised investors’ appetite. Of course ecommerce is a generic name
and extends to almost every segment including food and entertainment, lifestyle and
luxury. Even prospective husbands and soul
mates can be shopped for on matrimony
sites like matrimony.com, simplymarry.
com, bharatmatrimony.com amongst others.
The cynics point out that this ecommerce
is another bubble in the making; a phenomenon that crops up regularly every decade
or so. In the mid-1970s and 1980s it was the
leasing companies which had caught the
fancy of investors, followed by nbfcs, and
more recently the dot com bubble. E-commerce madness will also pass one day, they
smugly claim. Conservative investors also
feel that unlike in the real world here there is
no real first mover advantage to be enjoyed.
Value buying is embedded in the dna of
Indian shoppers and a me-too site will also
get as many participants as the early start-up
despite the head-start of a few years, if it
were to offer a better value proposition for
their goods. E-bay and Amazon.com, two
big global giants have yet to find their feet
against Flipkart or Snapdeal.
It is also a moot question whether the
mom & pop ecommerce site owners, many of
whom are educated from the best b-schools
in the country, will be able to match the
guile of the Biyanis of the world. The very
proliferation of ecommerce sites is based on
the premise that they are able to reach out to
the consumers without having to invest huge
amounts in infrastructure.
Of course e-commerce is currently in an
evolution mode. And it is quite likely that a
majority of e-commerce sites will fall by the
wayside in the coming years. Having said
that however, the few which survive will
become multi-baggers, or possibly the next
tcs or Infosys. The adventurous 10th fund
manager may yet have the last laugh. u
[email protected]
u8u
m ay 11-2 4 , 2 015
Editorials
New mode
Crowd-funding could be an alternative way for financing businesses
T
he watchdog of the capital market,
sebi has indicated that it is exploring
a framework for crowd-funding which
will provide much needed financing for
start-ups, the sme sector and other users in
the economy. In this mode, sme s and startups are expected to be able to raise funds at
a lower cost of capital without going through
rigorous procedures.
What is crowd-funding? It is the pooling of resources by a group of people for a
common goal. Crowd-funding is not new to
India. There are many instances of organisations reaching out to common people for
funding. However, the emergence of platforms that promote crowd-funding is fairly
recent to India.
In the West, a start-up or a small business
can solicit funding from the crowd by offering attractive returns on investment within
the financial spread (difference between
interest rates on loans and the interest offered
by financial institution deposits). This spread
is relatively much smaller in India and thus
makes it more difficult to attract investors.
Currently, no crowd-funding regulation
exists in India, but sebi released a consultation paper recently where it spoke about the
need for regulation.
Crowd-funding
is
unsecured
and
carries risks, though high returns are often
guaranteed. Without adequate regulation,
fraud is one major concern for investors.
With regulation, influence of strong investors on the organisation and its management can be levelled. However, intellectual
property laws should develop, commensurate with crowd-funding regulation to
secure proprietors.
Until recently, financing a business,
project or venture involved asking a few people for large sums of money. Crowd-funding
switches this idea around, using the Internet to talk to thousands of potential funders.
Typically, those seeking funds will set up a
profile of their project on a website. They can
then use social media, alongside traditional
networks, to raise money. As crowd-funding
uses cloud networks for fund raising it is also
popularly known as cloud funding.
With regulations coming in place in India,
in the next six months or so, many crowd-
funding platforms are expected to be up and
running. Worldwide, nearly a thousand such
platforms will be launched. Recently, platforms such as Wishberry and Ignite Intent
have been launched in the country. Most of
them are in the rewards and donation space,
as there aren’t too many regulatory issues
around this model.
Already on the ground, there have been
attempts at crowd-funding for events like
the Goa Project and campaigns like Teach
for India. Crowd-funding is slowly becoming
an alternative funding channel for the film
industry.
Ecommerce in India only got a boost when
it initiated the concept of cash on delivery.
Similarly, crowd-funding will have to look
at building an offline base to finally induce
mass awareness and encouraging larger participation. The low level of trust should be
bridged as well.
Then, there are the legal issues, since equity-based online crowd-funding is not legalised in India yet. It was made legal in the
US recently when the Jumpstart Our Business Startups (jobs) Act was passed. Some
salient points of this Act are: a restriction
on the amount that can be borrowed via
crowd-funding, an audit compulsion by certified public accountant, and disclosures by
the company raising funds and utilising it:
explain everything about its project and
plans for utilising the fund.
Here in India, a discussion is on to find
a nodal agency for such activities following
talks with various stakeholders like banking
regulator rbi, the finance ministry and corporate affairs ministry. An official from sebi
stated that apart from setting up new rules
after discussions with the stakeholders, any
crowd-funding involving sale of securities
can be either regulated under sebi’s existing
norms for Collective Investment Schemes or
Alternative Investment funds.
There is no doubt that crowd-funding is
rapidly being looked upon as a serious route
to raising funds. American and European
agencies have started implementing laws for it
and India too may follow soon, as an efficient
crowd-funding system can really play the role
of catalyst in making start-up ideas a reality.u
u 10 u
m ay 11-2 4 , 2 015
[email protected]
Listening Post
Revving up
Post the parting ways with Honda,
the Pawan Munjal-run HeroMotor Corp Ltd (hmcl) has been going
sumeet sawhney
process of taking a strategic decision
to exit, and is in the process of shutting it down. Again, in spite of adding new business from automotive
original equipment manufacturers,
such as tvs Motor Company, gcl’s
core three-wheeler engine business
has been witnessing a slowdown.
The demand for small commercial
vehicles remains weak thus affecting the engine volumes in that
segment. During the year, the company launched its new range of
cpcb II compliant gensets and the
management hopes to expand the
market share.
Property Czar
Munjal: leaping ahead
Reducing losses
Greaves Cotton Ltd (gcl)’s construction equipment division continues
to be a drag on its balance sheet, continuously posting losses. According
to a source, the management is in the
Selling stake
Religare, which is looking for a buyer
for its financial arm, has reportedly
finalised its exit from the insurance
venture. A joint venture with Aegon
– the Dutch company where Bennett Coleman also holds a stake – the
broad contours of the deal envisage
near 50 per cent stake sale by Religare. Aegon is likely to buy around 23
per cent of the stake while the balance is most likely to be bought by
the Bennett Coleman group. Bennett
Coleman would thus become the
largest shareholder in the insurance
business followed by Aegon which
would hold the maximum mandated
49 per cent stake in the company.
palAshranjan bhaumick
solo in the Indian market as well
as on overseas turf. Having established itself in the export market,
according to a source, the company
has plans to enter three new major
export destinations – Nigeria, Argentina and Mexico – during the current
fiscal. This would provide a fillip to
the export volumes at hmcl where
it has set a target of 50 per cent volume growth during FY16 as against
53 per cent growth achieved in FY15.
On the operation side, hmcl’s cost
saving programme ‘Leap’ has been
progressing well, according to the
company. During FY15, hmcl realised a benefit of `326 crore, implying margin improvement. hmcl
aims to continue the cost reduction
initiatives and expects incremental
savings to the tune of `200-225 crore
in FY16. The company also plans to
introduce two new scooter platforms
over the next six months. Apart from
the scooter, the company would also
introduce a new product on a completely different platform.
Ajay Piramal is known to be a smart
investor. After having made a strategic investment in the Shriram
group, Piramal has turned his attention to the realty sector. Investing
in work-in-projects and providing
funds through his various companies across structured debt, equity
and quasi equity Piramal is believed
the group able to generate very good
returns on its investments, given the
liquidity strapped project developers, but by taking minority stakes in
some projects, Piramal has ensured
that the group participates in the
upside when demand for property
goes up once again.
Piramal: smart investor
to have a total exposure of `20,000
crore currently. And assets are still
growing. This makes the group the
largest investor in the realty sector,
as of date. Investments are through
his nbfc, private equity as also special purpose vehicles. Not only is
u 11 u
MAy 11-2 4 , 2 015
Earlier it was rumoured that Aegon
was looking at exiting the venture
but the change in the permissible
holdings by foreign partners, upping
the limit to 49 per cent, seems
to have changed Aegon’s plans.u
[email protected]
Newscast
G O V T. & P O L I C Y
Holidays excessive:
iba
High-level panel for
tax issues
investment limit in the
insurance sector.
Plan to set up REITs
shelved
Indian Banks Association
(iba) feels that bank
holidays declared under the
Negotiable Instruments Act,
1881, by various states are
‘excessive’ and need to be
rationalised. A meeting of
the managing committee
of the iba, which represents
management of member
banks, is learnt to have
made known its view during
discussions on ringing in a
five-day week in the
banking sector.
Real estate developers and
private equity funds, which
were planning to set up
Real Estate Investment
Trusts (reit s), have shelved
their plans fearing that
the Minimum Alternate
Tax (MAT) would make
these investment vehicles
unviable. As many as 12
entities were planning to set
up reit s and list it on the
exchanges. These proposals
are now on the backburner.
IBA ready with
recap road map
Stalled infra
projects reviewed
The government is set to
infuse capital in public
sector banks in May, with
the Indian Banks Association
(iba) getting ready with
the new recapitalisation
road map. The committee
on capital infusion, set up
by the iba, has proposed
that geographical factors
should be considered while
injecting fresh equity into
public sector banks.
fdi cap in pension
sector hiked
In a bid to revive
investments in the
infrastructure sector, the
top officials of the finance
ministry and the Reserve
Bank of India, along with
top bankers, are reviewing
85 large projects, which
are under stress
with credit to the
tune of `3.5
lakh crore
outstanding
with
banks.
India plans to set up a highlevel committee to sort
out taxation issues of the
past and make the system
predictable. According to the
government, the decision
to levy mat (Minimum
Alternate Tax) on foreign
portfolio investors was taken
not by the government, but
by quasi-judicial bodies.
Bank Board Bureau
to have larger scope
The proposed Bank Board
Bureau ( bbb), with a mandate
to select public sector
bank (psb) chiefs, revamp
psb boards and devise
consolidation strategies,
would have a larger scope
than envisaged and will now
be the Financial Services
Sector Board Bureau (fssbb),
which would look into
appointments at the top
management and
The government is hiking
the cap on foreign direct
investment (fdi) in the
pension sector to 49
per cent from 26 per
cent, paving the way
for more foreign funds
to enter the national
pension system. The
increase in fdi cap
for pension is in sync
with the recent passage
of the Insurance Laws
(Amendment) Bill in
Parliament, which allows a
higher, 49 per cent, foreign
u 14 u
MAY 11-2 4 , 2 015
board level. The proposed
board would also make
recommendations for
mergers and acquisitions/
consolidation, wherever
needed.
Perpetual bonds fail
to woo investors
Placing perpetual bonds
issued by banks to shore up
Tier I capital with investors
has turned out to be a bitter
experience for arrangers in
2014-15, as they, basically
merchant bankers, have
not been able to sell Basel
III-compliant perpetual
bonds to investors. Key
investors such as insurance
companies have stayed away
from these bonds, due to
which merchant bankers
are saddled with almost 50
per cent of these bonds.
Perpetual bonds have no
maturity date and are treated
more like equity instruments
than debt. These bonds are
referred to as additional Tier
I capital (at i) under the
Basel-III requirements
of banks.
Newscast
Calcutta Stock
Exchange to sell
prime land
The Calcutta Stock Exchange
expects to seal the sale of
three acres of prime land
on the eastern commercial
corridor of the metropolis
in six months. cse is also
set to sign an agreement
with a national clearing
corporation shortly. The
latest sebi guidelines for risk
management and mitigation
has rendered cse’s own
clearing house ineligible to
carry out settlement, as it
does not meet the minimum
capital requirement. Now,
cse has to tie up with a
clearing corporation to
enable trading on its own
platform C-star.
National ipr Policy
still awaited
India is yet to reformulate
a national policy on
intellectual property rights
(ipr s), though this was
expected to be announced
early this year. A draft policy
was issued in November
2014 for stakeholder
comment. A second round of
consultations concluded
in February.
India misses export
target
India has missed the
2014-15 export target of
$340 billion by 8.7 per cent.
Merchandise exports stood
at $310.5 billion in 2014-15,
lower than the $314 billion
achieved in the previous
fiscal, while imports fell by
13.44 per cent to
$35.74 billion, widening
the trade deficit to $11.79
billion from $10.95 billion a
year earlier.
R E G U L ATO R S
sebi sets deadline
for enforcement
action
sebi has set a deadline of
one year for completing
enforcement action against
market offenders. For the
current fiscal, the regulator
aims to accord top priority
to further strengthen
its enforcement wing. It
now has three separate
enforcement wings –
investigation, collective
investment scheme (cis) and
surveillance.
Bankers seek
forbearance
extension
Listing norms for
start-ups by June
rbi has rejected a proposal
sebi has announced that
the final listing regulations
for start-ups will come
by June. It is thinking of
doing away with the capital
lock-in requirement for
promoters of start-ups and
liberalising their disclosure
norms. sebi has had frequent
discussions with start-ups
and other representatives
of the nascent industry to
facilitate their listing on
the institutional trading
platform.
by bankers to extend the
date of forbearance for
provisions on restructured
loans by another year. The
central bank had removed
the distinction separating
restructured assets and
non-performing assets
(npa s) with effect from
1 April, mandating that
banks will have to provide
at 15 per cent, on par with
the substandard asset
classification norms of rbi.
rbi to retain powers
to regulate G-Secs
The government will not
take away rbi’s power to
regulate trade in government
securities (G-Secs) even as
it prepares to remove the
central bank’s responsibility
for managing public debt.
The change in set-up,
proposed by the Ministry
of Finance in February,
foresees an independent
agency to issue and manage
public debt, resolving a
conflict of interest the rbi
now faces with its formal
mandate to control inflation
and separately having to
manage the government’s
fundraising.
BSE listing may
happen after FMC
merger
and also technically become
security market instruments.
Since commodity futures
are going to be defined as
securities, they can also
technically demand and be
eligible for trading
in futures.
sebi is hopeful of taking
a call in the next six
months on listing of the
nation’s premier bourse
bse after the commodities
regulator Forward Markets
Commission (fmc) gets
merged with sebi. The issues
that have come up include
the extent of the exchange
space, especially when
commodities markets also
come under the ambit of sebi
RBI members find
new GDP series
puzzling
rbi has found the revision
of the gdp number by the
Central Statistics Office
(CSO) puzzling. It expects
the economic growth during
2015-16 to be not more
than 0.5 per cent over the
current level.
Insurers mishandle
policyholder
complaints
Complaints and grievances
from policyholders are
not being handled by
insurers properly, says the
Insurance Regulatory and
Development Authority of
India. In a circular sent to
all insurers, the authority
said that this improper
handling of complaints was
giving rise to aggravated
customer dissatisfaction and
escalation in complaints to
higher authorities.
IRDAI plans to
trim insurers
exposure
Insurance regulator irdai
plans to include fixed
deposits and bonds issued by
housing finance companies
and non-banking finance
u 15 u
MAY 11-2 4 , 2 015
companies in the overall
cap of 25 per cent for
banking, financial services
and insurance ( bfsi) sector,
restricting further flow and
trimming insurers exposure
to the sector.
In a first, Securities
Appellate Tribunal
admits SBI Life’s
petition against
IRDAI
In a first, the Securities
Appellate Tribunal (SAT)
admitted a petition filed by
insurance company SBI Life
against its regulator IRDAI.
SAT has been so far hearing
appeals against orders passed
by the capital markets
regulator SEBI, but the new
insurance laws have made
provision for the Tribunal to
hear cases against insurance
sector regulator IRDAI
as well.
CCI rejects charges
against Flipkart,
other e-commerce
majors
The Competition
Commission has rejected
allegations of unfair business
practices against five online
retail majors – Flipkart,
Snapdeal, Amazon, Jabong
and Myntra – as it did
not find any prima facie
evidence of violations.
Court stays I-T
Dept’s MAT order
on Aberdeen
The Bombay High Court has
issued a stay order on the
Income-Tax Department’s
notice to Aberdeen Global
Emerging Markets for
payment of Minimum
Alternate Tax (MAT).
The petition was filed by
Aberdeen after the tax
department sent a notice
demand for an undisclosed
amount. The stay order
will come as relief to
other foreign institutional
investors who are concerned
about the tax department’s
views on their liability
to pay MAT for share
transactions made in
the past. u
Follow-up
On track
F
In November 2011,
Business India
had written about
Vivimed Labs
acquiring a 75-yearold Spanish company
Union Quimco
Farmaceutica
(Uquifa), Spain and
Mexico, for `285
crore. This Spanish
company is strong
in the anti-ulcer
segment and had
said that the first full
year’s working would
help Vivimed to polevault into the `1,000
crore-plus turnover
league with a 10
per cent net margin.
Besides, the company
has also expanded
its capacity in Bidar
in Karnataka and
Bonthapally in AP.
The company had
said it would go on
stream in 2012-13
and has kept its word
or the year ended 2012-13, Vivimed’s
consolidated sales of the company was
`1,121 crore and net profit was `84
crore. The company achieved its sales target
but slipped on net profit. On the expansion
plans, the company has met its deadlines. The
Bidar unit was commissioned in January 2013. The Bonthapally capacity was
expanded in 2012-13.
In February 2013, Vivimed Labs acquired
Hyderabad-based Finoso Pharma in a cashcum-stock deal worth ` 15 crore. Finoso is a
pharmaceutical development services company. In August 2014, Vivimed acquired the
US fda-approved facility of Actavis Pharma
for `122 crore. The acquisition was funded
through internal accruals and debt. Located
in Alathur, Tamil Nadu, the plant is engaged
in the manufacture of formulations. This us
fda-approved facility has allowed the company an instant entry into the US markets. A
greenfield project like this will take 3-4 years
to blossom out; then also, the company has
to get approvals.
But has this come at a cost? Both longterm borrowings and interest costs are up by
47 per cent to `436.63 crore and `60.29 crore
respectively for 2013-14. Sales during this
period had increased 22 per cent to `1,350.8
crore; however, profits declined by 20 per
cent to `66.4 crore. For the nine months
ended December 2014, Vivimed’s sales had
increased by 4.5 per cent to `1,031.1 crore,
while profits decreased by 2.3 per cent.
In an earnings presentation (for the third
quarter of 2014-15) made to analysts, the
company had stated: “Q3 2014-15 has been
a quarter of stabilising operations at Vivimed Labs. While the topline has been flat,
our ongoing portfolio rationalisation and
cost optimisation efforts have yielded meaningful results. We reported significant profitability improvement with ebidta margin of
17.5 per cent – an increase of 152 bps over
Smooth ride
I
n July 2012, Man signed a concession
agreement with pwd, Maharashtra. The
period of concession involved was 25 years
including three years of construction,
during which time the company would be
collecting toll.
During 2012-13, it achieved the financial closure for the project and commenced
u 18 u
M ay 11-2 4 , 2 015
Santhosh Varalwar: growth track
same period last year.”
As of March 2014, the promoters have
61,44,725 shares (37.92 per cent), out of
which they have pledged 40,79,645 shares
(say, 66 per cent of their holdings). Private
equity companies such as Jacob Ballas and
Kitara hold 13.13 per cent and 11.29 per cent
respectively.
The market cap of the company was `556
crore in 2012; today, it is `596 crore. The
stock is quoting at `365. On an annualised
(2014-15) eps of `44.52, the p/e is 8.
The Mumbai-based broking firm Anand
Rathi has estimated that for 2015-17, profits
are expected to grow at a rate of 29 per cent.
“Fully integrated global pharma business and
high margin specialty chemicals are key to
Vivimed’s sustainable growth in the years
to come,” says Santosh Varalwar, managing
director & ceo of the company. u
[email protected]
construction in the last quarter. The project involved upgrading and widening of the
existing lanes from two to four, besides rehabilitation. Man was executing this project
through its subsidiary Manan Tollway. Man
holds 63 per cent of the tollway company.
Tolling in Maharashtra is contentious, given
the state government’s promise of giving the
public toll-free roads.
Till the end of August last year, Man’s
Follow-up
share had a face value of `10. The company
then reduced the face value to `2. As of March
2015, the promoters (Parag Shah and family)
hold 66.01 per cent in the company. None of
the shares are pledged.
In 2012-13, the company partnered with
the Mumbai-based Chandak group for executing a residential project in Mulund (in the
northeastern suburb of Mumbai). Man is also
putting up a residential project in Ghatkopar
(in the northeastern
suburb of Mumbai).
In April 2012,
The company has
Business India had also taken up redewritten about Man velopment
projects
Infra-construction
in Mumbai. The total
area under construc(Man) bagging a
tion in the city is 2.5
`360 crore ‘two
million as of Novemlane to four-lane’
ber 2014.
conversion of a 41
Man has been gradkm stretch from the ually shifting from
a pure engineering,
Pune-Chinchwad
procurement
and
pwd, while also
construction
(
epc)
being in the process
company to a mix of
of constructing a
epc and asset ownerresidential complex ship as a developer.
in the suburbs
It feels this will help
the company during
of Mumbai. The
lean periods.
company has
In April this year,
progressed smoothly
Man got a `105 crore
along these lines
contract from Pipavav
since then
Port for a project
which involves civil
construction.
Port
Pipavav is managed and operated by apm
Terminals.
Earlier, in March, the company got an
order from the Godrej group of about ` 97
crore, for a residential project. Man has been
given civil construction activities, besides
putting up approach roads.
Man’s scrip is currently quoting at `45. It
peaked in April this year at `51, after touching a low of `18 in May 2014. For 2013-14, its
sales and net profit were `397 crore and `29
crore respectively. The company’s market cap
currently is `1,130 crore.
Private equity player sa 1 Holding Infrastructure Co had taken 8.2 per cent stake in
the company in 2010. It still holds 7.19 per
cent of the stake. At the same time, Standard
Chartered pe (Mauritius) had bought 6.13 per
cent stake in the company, which it sold in
the open market in November 2014. u
l l l l l l l l l l Flashback
30 YEARS AGO
An uneasy truce
After a marathon closed-door session, the Indian
Banks Association (iba) gave a ruling, leaving
nobody in any doubt that the banks shrank from the
ideas of competition. The decision enjoined upon
members to uniformly adopt the revised rates prescribed by iba effectively, ruling out a clash. However, when several foreign banks and Indian banks
fell out with iba, the association withdrew the interBUSINESS INDIA,
est rate schedule it had earlier suggested.
May 6-18
NOW iba no longer determines interest rates, though it
is actively involved with issues concerning the banking
industry. Recently, the association prepared a road map for infusion of capital
in public sector banks and also met the central bank officials along with bank
management, on the issue of for bearance extension by a year, but the central
bank officials refused to budge. iba’s activities are still a clubby affair in India.
1985
20 YEARS AGO
Oxygenenation of IOL
The year 1995 is proving to be significant for the
country’s largest gas manufacturer. It is the 60th
year of the company’s operations in India. At its
Annual General Meeting on 2 February, the company decided to call itself boc India – a reminder to
everyone that it is a part of the former British Oxygen (now boc) group’s worldwide empire.
NOW In September 2006, boc group was taken over
BUSINESS INDIA,
by Germany-based Linde Group, the world’s largest
March 13-26
industrial gas company. In April 2013, boc India was
renamed as Linde India. For the year ended December
2014, the company’s revenue stood at `1,502 crore and net profit was `5.4
crore. Interests costs (`103 crore) and depreciation (`181 crore) reduced the
profits. The current market cap of the company is `3,289 crore.
1995
5 YEARS AGO
New Godrej
Established in 1897, the Godrej group has “grown
in India from the days of the charkha to nights at
call centres”, states the group’s literature. From a
diverse range of products and services, right from
locks and security solutions, to industrial engineering and robotics, to soaps and chemicals, to furniture and home appliances, to agri-care, real estate,
chocolates and confectionery.
NOW Today, the Godrej group has the same wide prodBUSINESS INDIA,
June 28-July 11
uct range, though in recent years property development has also been a strong addition to its portfolio.
The parent Godrej & Boyce remains unlisted. The group’s turnover is `24,600
crore (`12,500 crore in 2010). For Godrej Consumer Products, the international business has been a major driver of growth. It now contributes about
47 per cent of the total consolidated revenues, from 15 per cent back in 2010.
The group has set itself a target. “Vision for 2020 is to be 10 times the size we
were in 2010.”
2010
[email protected]
u 19 u
M ay 11-2 4 , 2 015
CyberNews
Sound on
A start-up in niche vertical
ecommerce,
Headphonezone.in sells only headphones and earphones. It is
creating knowledge content
for the category that informs
customers about the prod-
financing and investments.
It sells about 100-150 headphones per day from the
retail and online stores. It has
partnered with 30 premium
lifestyle brands whose products are available on its retail
and online store.
How good
am I?
Education, and especially
entrance exams, is a massive business opportunity in
ucts and what to look for
when buying them. Headphone Zone was founded as
a retail brand in 2012 with
an investment of `15 lakh.
It set up several retail stores
in Bangalore and Chennai in
2012 and 2013, before starting the ecommerce store in
2014. Headphone Zone has
been bootstrapped and has
not received any external
u Ap(p)t business
India. It is also an area where
students and parents face a
lot of problems due to conventional methods of teaching, a low student-teacher
ratio, and lack of personalised
guidance. Embibe.com is
a startup providing practice tests for medical and iit
entrance exams. After a student has given the exam, the
website will tell the student
(and the parent) which areas
can be improved on and
how, which are the questions
where he takes more time
and which ones are solved
quickly and what should be
his strategy for attempting
difficult questions in exams.
It does so with the help of an
algorithm and currently has
1.75 lakh students using its
platform. It has tied up with
nine private coaching institutes that use this platform
to let their students give practice exams.
In town
Nearify.com is a startup
that helps people discover
what events are taking place
W e bWatch
This is the age of Mobile-First businesses.
And therefore, mobile apps are becoming the
face of the businesses. It was the same with
desktops during the growth of the Internet. It
was the time when computers were more popular than today and desktop websites were considered the face of the businesses. Research done by
Oracle says nearly 55 per cent of millennials say a
poor mobile app experience would make them less
likely to use a company’s product or services. Millennials are people born between 1980 and 2000. Thirty-nine per cent of millennials would also be less likely
to recommend a company’s product or services
to others following a poor app experience and
27 per cent admit a poor app experience
would give them a negative view of that
organisation’s product or services altogether. If companies fail to provide current
and prospective customers with an engaging mobile app experience worth the user’s
time, it reflects the values of their brand.
By doing so, brands risk alienating the
millennial generation.
Seventy-three per cent of those surveyed prefer the ability to purchase a
company’s product or service using a
mobile app. And 71 per cent prefer the ability to manage billing
for services, and 65 per cent prefer being able to flag issues or
near them, to let them make
the most of their time. It
has data for 200 cities in the
world including 22 ‘ultraurban’ cities. Of the 22 cities, 15 are in US and four
are in India. It has 1 lakh
users including 30,000 users
on its mobile app, since it
started several months ago. It
charges an organisers’ fee for
those who want to promote
their event on the website
and app, and a commission if
users go to the ticketing website from the Nearify app. As
an increasing number of travellers opt to travel to newer
places alone, Nearify may
become popular.
u ROHIT P A NCH A L
[email protected]
u
complaints to a business via a mobile app. While
brands send push notifications through the
app, more than half of those surveyed said
that they don’t act on it and they would
prefer not to receive it.
Drive safe
British Telecommunications plc (bt), a
wholly owned subsidiary of bt group plc, has
launched ‘bt Assure Ethical Hacking’ for vehicles. It is a security service developed to test
the exposure of connected vehicles to cyber-attacks and help all market players develop security
solutions for vehicles. Connected vehicles can be
passenger vehicles such as cars and buses or commercial vehicles such as trucks, bulldozers or any
other. These vehicles rely on a variety of connectivity options, including WiFi, 3G or 4G mobile
data links, Bluetooth, etc.
Vehicles are becoming more connected through
electronic systems like navigation, infotainment,
and safety monitoring tools. And they connect using
such technologies. These connectivity options provide predictive systems to bypass traffic jams, reduce
carbon emissions, and improve safety and vehicle
performance. The proliferation of these connected technologies in vehicles raises concerns about the ability of hackers to
gain access and control to the essential functions and features
of those vehicles and for others to use information on drivers’
habits for commercial purposes without the drivers’ knowledge
or consent. u
u 20 u
M AY 11-2 4 , 2 015
C
ontinuing with its quest
towards bringing the best
of luxury cars to the Indian
customer, Audi, the German
luxury car manufacturer, has
recently launched the allnew Audi tt Coupé. Priced
at
`60,34,000
(ex-showroom Delhi and Mumbai),
it is “Re-engineered for
more power, the car blends
dynamic aesthetics with
innovative technology and
inspired performance, combines classic tt dna with that
of the legendary Audi Sport
models, truly embodying
‘Vorsprung durch Technik’.
A pleasure to drive, the futuristic interiors with brushed
aluminium inlays, finely
stitched leather sports seats,
and innovative Audi virtual
cockpit truly embody the
sportiness, progressiveness
and sophistication of the
brand and is the perfect car
for our young and dynamic
customers in India,” says Joe
King, head, Audi India.
“Both our product launches
of 2015 – the limited edition Audi R8 lmx and the
all-new Audi tt Coupé have
a strong sporty flair. This
highlights Audi’s heritage in
sports cars, our leadership
in this segment in India and
our seriousness towards this
ultra-luxurious and indulgent market space. Having
said this, we are gearing up
with other thrilling surprises
on the product front and
our Audi fans will surely be
spoilt for choices this year.” u
j
cb has moved to support the relief effort in earthquakehit Nepal with the donation of diggers and electrical
power generators worth around $1 million. Ten backhoe
loaders were made available immediately to the Nepalese Army and are now at work in the areas worst hit by
the disaster which has left more than 6,000 people dead
and 10,000 injured. “There is nothing we can say in this
hour of grief and crisis that our much valued neighbours
in Nepal are passing through; except to join them in their
prayers. As a token of solidarity, we make an offering of
a few jcb machines worth $1 million which we do hope
will expedite the relief and rehabilitation process,” said
Vipin Sondhi, md & ceo, jcb India. jcb supplied the
backhoes through its dealer, maw Enterprises, in Nepal. u
M
itashi and team Rajasthan Royals
launched a ‘Royal’ New 50’ Smart led
tv, unveiled by Rajasthan Royals’ captain
Shane Watson and star players Ajinkya Rahane, Steve Smith, Sanju Samson along with
Rakesh Dugar, chairman & managing
director, Mitashi Edutainment Pvt Ltd.
“It’s a matter of immense pride for all of us at
Mitashi to join hands with Rajasthan Royals.
We feel honoured that our logo adorns the
prestigious Rajasthan Royals jersey. Both of
us have found resonance in our brand values,
respect for quality and consistency in delivery. This is just the beginning of many more
exciting products that will soon come your
way,” said Dugar. This is the 5th consecutive
year of Mitashi’s association with the successful ipl team which is having a great run this
season. The tv is powered by dled technology
and comes with a super slim panel, giving it
a sleek look. The usb movie plug & play supports 27 movie formats. It has pc input, 3
hdmi inputs, WiFi connectivity and runs on
Android 4.4 os. u
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m ay 11-2 4 , 2 015
E
ven as the Indian e-commerce space is still in its
infancy, there are efforts to
add further value to the overall offering. Now there are
e-commerce
marketplaces
like ownow.com and others which are not only acting
as aggregators of e-commerce
sites but also add a social element to the entire ecosystem.
Known as social shopping
place, Mumbai-based ownow.
com brings together websites of sme players across
apparel, jewellery and other
consumer items on a single
platform. Moreover, its social
aspect helps buyers in their
decision-making
process
through other users’ experience and recommendations.
“Social media is playing a big
role and our aim is to use this
element in our offering to
make the whole experience
of e-commerce more exciting. So far our effort has generated impressive response,”
says Alok Barua, president,
product and technology,
ownow.com. The start-up,
which started in 2012, currently enjoys a user base of
9,000 listed users against a
products display of 40,000
products. It is looking for a
base of three lakh listed users
and two crore products by
the end of the current year.
Besides, it is also expanding
its reach to other metros. The
venture is currently negotiating with pe players and
investors to raise capital for
its expansion.
u
A
R
usan Pharma, which
makes
pain
management and de-addiction products, has launched a nicotine
trans-dermal patch for those
addicted to smoking or chewing tobacco-based products.
“If we are in knowledge of the
fact that there are millions of
Indians who are going to die,
especially the youth, then our
efforts need to be intensified
and focused on saving their
lives,” says Dr. Navin Saxena, founder and chairman,
Rusan Pharma. The trans-dermal patches, which have to
be applied on the arm, come
with 7 mg, 14 mg or 21 mg
nicotine content. Because
stopping consuming tobacco
immediately can have dangerous side effects, these
trans-dermal patches are to
be applied in decreasing order
of their nicotine content for
a week each. While these
patches have been available
outside India for many years,
this is the first time they
have been made available in
the country.
u
S
group of international
executives are ready to
hit the ground running as
the inaugural batch of the
Indian Institute of Technology Bombay (iit Bombay) and
Washington University in St
Louis (wustl) joint Executive
mba graduate programme.
“This is an impressive group
of our future business leaders.
From information technology
to manufacturing to finance,
these students will bring a
depth of experience from a
diverse set of industries,” says
Prof. S. Bhargava, head
of iit Bombay’s Shailesh
J. Mehta School of Management. “Olin brings over
three decades of rich experience offering Executive mba
training to this exciting joint
programme. These students
will be an important part
of our robust international
Executive mba network,” says
Mahendra R. Gupta, dean,
Olin Business School. The
course lays the foundation for
the programme to develop
leaders. A number of companies are taking advantage
of this new programme by
sending key members of their
team. “This new programme
is exactly what Indian enterprises need to take their
business to the next level,”
adds
Hari
Sankaran,
md
and
vice-chairman, il&fs. The iit Bombay-wustl programme is
the world’s first to confer
an e-mba degree from both
an Indian and American
university. u
boost farmers’ income. The
facilities will also have rooftop solar power generation
& biomass briquette manufacturing facility. “We are
delighted to be partnering
with the Government of
Rajasthan in this initiative.
We are prepared to go the
extra mile and even buy a
certain part of the farmers’
produce. In line with the
Make in India Campaign we
are also keen on setting up
r&d facility to develop high
yield seeds that are suitable
for Rajasthan’s climate,” said
Dinesh Shahra, founder
and managing director. Ruchi
Soya is already operating
three oil seed crushing facilities in Rajasthan at Baran,
Kota and Shri Ganganagar. u
R
uchi Soya Industries
Limited, an edible oil
and soya foods company,
has entered into an MoU
with the state of Rajasthan
for an investment of `150
crore in both pre-harvest
and post harvest facilities.
Under the Rajasthan investment promotion scheme,
Ruchi Soya will develop preharvest facilities such as providing high quality seeds,
pesticides, insecticides to
farmers to improve yield
and post harvest management including warehouses,
agri-waste procurement to
amco Ventures recently launched the country’s first capital market league – the ‘Indian Trading League’, with a
unique proposition for traders and investors across India. It was
launched by Kapil Dev, former Indian cricketer and an investor in this venture. “With just 2 per cent of India’s population
being investors, this venture will provide a real experience
which will involve real money, real markets and real results so
that more people of India start investing and new arenas open
up,” said Jimeet Modi, ceo, Samco Ventures. The first edition
of the league will begin from 19 May 2015 and will conclude
on 31 March 2016, with mainly four formats in the first edition: the Indian trading league, the Indian investors league, the
Indian commodities league, and the Indian women’s league.
“The investment in Samco only reiterates our confidence and
investors trust in the league,” added Vipul Modi, chairman.
The investors have to bring in an intial capital of `25,000 and
start trading in the asset class of one’s choice. The winner of
this venture gets the coveted title of being India’s Smartest
Investor and Trader, wins `1 Crore cash prize, along with an
opportunity to manage $1 million. u
u 23 u
m ay 11-2 4 , 2 015
Visiting
A
nnouncing the advent of
BroadcastAsia2015,
which is slated for early June,
Calvin Koh, assistant project director (communications events) from organiser
Singapore
Exhibition
Services (ses), recently visited Mumbai to promote the
event. “There is continuous interest in the broadcast
industry especially in the
areas of ott, second screen,
non-linear broadcasting and
social media – all to meet
consumers’ demands and
enhance users’ experience.
C
ynthia A. Brictson,
regional superintendent,
Stone Mountain, Georgia,
DeKalb County Schools,
toured India recently to propagate the importance of stem
in the Indian education system. She has also done a fullfledged presentation to the
Educational Association in
Chennai on essential understandings for stem. atlab
BroadcastAsia is already fuelling this space in Asia with
the introduction of our
new tv Everywhere! Zone.
stem Academy, an educational learning initiative of
the Centena group of Companies in India and creators
of internationally acclaimed
stem (Science, Technology,
Engineering, Maths) solutions launched their globally
known stem curriculum in
India. “This educational programme will enable schools
to teach students complex
topics like robotics, aerospace,
basic machine programming
and electronics by integrating them with science, technology, engineering and
maths subjects as a part of
their cbse, icse, igcse, ib and
state boards curriculum,” says
Brictson. The atlab stem
Academy, while revealing its
future plan for India, invited
30 franchise network in the
country to make all schools
benefit from this initiative. u
T
he cfa Institute, the global
association of investment professionals that sets
the standard for professional
excellence and credentials,
has added sbi Funds Management Private Limited to a
growing roster of investment
firms around the world that
voluntarily comply to the
cfa Institute Asset Manager
Code of Professional Conduct. “We are entering a new
era in the asset management
industry in Asia. As emerging
markets like India successfully develop their financial
sector, ethics-based culture
and best practices become
With the broadcast industry
undergoing a transformation in India, we are optimistic that BroadcastAsia
will provide an ideal platform for Indian exhibitors as well as visitors to get
first-hand insights into the
global broadcast industry,”
he said. According to the
ficci-kpmg Media & Entertainment 2014 report, India
is the second largest television market after China. As
digitisation of households
crossed the 50 per cent
mark in 2013, implementation challenges remain in
achieving improvement in
accessibility and increase in
monetisation. u
A
ndrew
Likierman,
dean, London Business
School, sees The Aditya Birla
Center at the school, to be the
focal point for India related
activities. “We aspire to create bonds and links with
India and set up a successful school,” says Likierman.
During the present financial times, it was given the
European Ranking as No1. in
the world. The objective of
the center is to be the leading research center outside
of India. “One should always
start with a joke,” says Rajesh
Chandy, professor of marketing, who wishes to create a
vision and impact on people
with the help of this knowledge centre. The main aim is
to provide a global experience
and enable collaborations
with many educational institutions in India. It provides
research opportunities both
rigorous and relevant. It is
a focussed business school
which deals with research
in all sectors with most of
its activities in London. It
also wishes to create change
in the business patterns
that will create close portals to create collaborations.u
increasingly important for
sustainable growth and for
national wealth creation. As
a set of universal standards,
the Code enables international investors to reliably
compare Indian asset managers with their peers in other
markets and thus simplify
investment decision making
and raise their confidence in
investing in India,” explains
Paul Smith, president and
ceo, cfa Institute, who was
in India to sign up with sbi
Funds Management that has
adopted the Code. “As one
of India’s leading mutual
fund investment companies, we strive to be a leader
in responsible investment
and stewardship. By complying with the Asset Manager
Code, we are showing a clear
commitment to maintaining
the highest ethical standards
as a steward of our clients’
assets and in our day-to-day
business conduct to ensure
that client interests are at
the heart of our firm’s investment approach,” says Dinesh
Kumar Khara, md and ceo,
sbi Funds Management.
u
u 24 u
m ay 11-2 4 , 2 015
Business Notes
s a n jay b o r a d e
Dealing with real issues
Developers refrain from new launches as inventories remain high
T
he woes of the residential
real estate sector across major
Indian cities seem far from
over. The sluggishness in the market
continues unabated, even as there
is some improvement in sentiment.
New launches in the residential segment of the market have witnessed a
steep decline. In a recently released
report by real estate consultancy firm,
Cushman & Wakefield, the first quarter of CY15 has seen the lowest number of project launches over a period
of two years. With total residential
launches of 24,700 units, the fall was
recorded to be more than 50 per cent
over the same period last year. The
decline in new launches has come on
the back of less-than-expected sales.
Most developers are holding back
on new launches and instead focussing on completing their existing
projects. Besides, developers are also
refraining from launching new projects as some of the cities are also in
the process of rolling out new development plans.
“While market sentiment is positive and enquiries have increased,
conversion of interest to sale is quite
low. The cost of creating new projects
has been on a steady increase. Developers are increasingly concentrating
on delivering their existing projects
and ensuring timely exit for themselves as well as their investors,” says
Shveta Jain, executive director, transaction services, residential, Cushman
& Wakefield, adding that the primary concern for many developers is
u 25 u
M AY 11-2 4 , 2 015
that they have either over leveraged
their current projects, while they are
unable to utilise their land bank or
future development capabilities to
raise more capital. Therefore, there
is a concerted effort to keep debt
exposure low by lowering the number of launches, except in highdemand locations.
“Overall sales have not picked up
the desired momentum and hence
developers have been showing
much-needed caution in adding to
their inventory. Moreover, they are
trying to cut down on their debt levels,” states Ashok Kumar, managing
director, Cresa Partners.
Among new unit launches during
the first quarter, only the high-end
segment registered a y-o-y growth of
26 per cent. While all other segments
have seen considerable decline, the
affordable housing segment witnessed a considerable decline of over
80 per cent during the period under
consideration. Developers were found
Business Notes
to be inclined towards the high-end
segment where profit margins are
typically higher, as builders look to
offset increasing land and development costs, says the report.
Among the metros, Hyderabad saw
a big surge in projects in the highend segment that rose to 3,300 units
of which about 98 per cent were in
the North West quadrant of the city,
mainly Madhapur and Gachibowli
where corporates were increasingly
looking to set up offices in view of
the likely improvement in the macro-economic situation. Besides, the
region has a well established physical and social infrastructure. As corporates move in, developers expect
senior management of firms to shift
over there, driving the demand for
high-end residences over the next
few years.
Decline all over Mumbai witnessed
nearly 4,000 unit launches during
the first quarter of 2015, registering a
decline of 63 per cent from the same
period last year. It contributed 16 per
cent to the total unit launches across
the top eight cities during the quarter. Due to subdued demand, developers refrained from launching new
projects. Moreover, they also held
back to formulate their strategy as
per the likely changes in the new
Development Plan 2034. Around 92
per cent of units launched in the first
quarter of 2015 were in the eastern
suburbs. The mid and high-end segments contributed 49 per cent and
51 per cent, respectively to the total
unit launches during the quarter.
Delhi-NCR witnessed nearly 2,800
unit launches during the period, registering a decline of 57 per cent. It contributed 11 per cent to the total unit
launches across the top eight cities.
Due to significant unsold inventory,
developers restricted new launches.
Noida accounted for around 65 per
cent of the unit launches during the
quarter. In the submarket of Noida,
launches in Noida Extension were in
the affordable segment. Greater Noida’s launches were in the mid segment
while launches along the expressway were in the high-end segment.
Nearly 42 per cent of units launched
during the quarter were in the mid
segment, followed by 39 per cent in
affordable and the remaining 19 per
cent in the high-end segment.
Bengaluru saw a y-o-y decline of
76 per cent with nearly 4,100 units
launched. Due to a cautious approach
by buyers, the absorption rate in the
city declined, leading to an increase
in unsold inventory. However, almost
41 per cent of the total units were
launched in the southeast suburban market, primarily along Sarjapur
Road and Hosur Road and an additional 25 per cent in the north suburban market in Yelahanka and around
Kogilu. Increasing it/ITeS developments and enhanced connectivity
to other parts of the city have been
key factors driving the launch activities in the above-mentioned suburban markets.
Pune witnessed nearly 3,300 unit
launches during the first quarter of
2015, registering a decline of 17 per
cent. It contributed 13 per cent to
the total unit launches across the top
eight cities. A few developers opened
select blocks within new projects
for booking, rather than delaying
the project launch. Kharadi, Baner
and Undri contributed 15 per cent
each to the total unit launches during the quarter. The mid segment
dominated the launch activity in
the quarter with a 70 per cent share
whilst the high-end and affordable
segments had a 21 per cent and 9 per
cent share, respectively.
While real estate developers are
desperately looking for increased
buying support, the recent Cabinet approval for 100 smart city
projects is likely to perk up overall
sentiment in the market which definitely requires certain trigger points.
Undoubtedly, it is a milestone decision in the development roadmap
of India. The concept of smart cities creates opportunity for potential
urban sectors to transform themselves into highly equipped, self-sustained and modernised settlements.
These smart cities will help developers regain momentum on the
real estate front as well, create job
opportunities and will also mobilise
big corporates.
u A R B IND GUPT A
[email protected]
u 26 u
M AY 11-2 4 , 2 015
C h i l dc a r e
Nurturing
growth
T
he domestic baby & child care
market, passing through a transition, has shown an impressive growth
in recent years and this is expected
to be maintained in the coming
years as well. According to an estimate, the `12,000-crore, Indian baby
& child care products market, which
includes toys, baby cosmetics, wipes,
food and accessories/merchandise
Business Notes
is growing in sync with the retail
industry growth and is estimated to
continue at a cagr of about 15 per
cent during the next five to six years.
The market catering to children aged
0-3 years, has been showing a good
traction, following the country’s
changing demographics and lifestyle
as also increasing disposal income
with a much larger population.
While demand for these products
in bigger cities has grown, lately the
growth of the industry is being witnessed from new demand pockets,
especially in Tier II and Tier III cities.
Backed by retail boom, the baby care
market has also seen entry of foreign and Indian brands. Traditionally served by unbranded products,
the market currently has presence
of brands like Chicco, Brevi, Combi,
Mom & Me, Mothercare, Simba Toys,
Johnson & Johnson, jl Morison,
Fisher-Price, Hasbro, Infantino, Kiwi
Baby, Peg Perego, Lilliput and others.
There are also brands which are planning to enter the India market.
“The baby care market is expanding like never before,” says Sharad
Venkta, managing director, Toonz
Retail India. “The whole landscape
has undergone a big change in the last
decade or so. There was a time when
shopping for a newborn was almost
unheard of in India as against today,
when the little ones not only seem to
occupy the mind space of the large
brands/retailers but have also begun
to occupy ‘shelf space’ in every mall
and departmental store across India”.
A one-stop shop for kids aged up to
12, Toonz, having focus on Tier II
cities, is targetting to set up 200
stores in the next three year from
present 62 stores in 15 states.
“The Indian market holds massive
potential for baby care products,”
says Chandni Butta, category manager, brand empowerment & cosmetics, Artsana India. “The high birth
rate in India, coupled with the ever
growing middle to upper income
class will ensure that this industry
keeps growing at a rapid pace”. Artsana India, an Indian subsidiary of
Italian health and wellness products
major Artsana group, entered the
Indian market in 2010 with its premium baby care brand Chicco. Having experienced the desired response
in the last couple of years, the company has chalked a major plan for
the Indian market.
Enormous potential “The demand
for baby products is increasing at
an alarming rate in India. Also, the
growing access to key Indian and
international brands and their products in Tier II and Tier III cities has
further fuelled the sector into a fullfledged industry with huge potential,” says Yogesh Mudras, acting
managing director, ubm India, which
recently organised its third edition
of cbme India 2015 in Mumbai. The
global exhibition on child, baby and
maternity products and services saw
the presence of 80 exhibitors and
150 brands.
Experts are of the view that the
baby care market in India is massive,
with a large portion of it being still
untapped and unorganised. The market will witness a dramatic change in
the competitive landscape over the
next few years. A large number of
international companies will foray
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M AY 11-2 4 , 2 015
into the lucrative Indian market with
their diversified product portfolios.
This will lead players to invest heavily in product innovation and development to capture a significant share
of the overall market. Moreover, the
large untapped market in the rural
areas is anticipated to witness concrete market developments, which
will provide further impetus to
this market.
u A R B IND GUPT A
[email protected]
environment
New feather
for green
building
W
ith the debate over air quality
gaining momentum in India,
issues like indoor air quality of buildings and their impact on the health
of occupants are also engaging
attention. The emphasis is on a
healthy indoor environment at home
and in offices.
This has led to the growth of companies engaged in the business of
providing a pollution-free, oxygenrich indoor environment by installing air monitors, purifiers and plants
which emit oxygen. New standards
are being ushered in for setting up
office and residential spaces that
ensure clean and healthy air.
The trend-setter is the retrofitted Paharpur Business Centre (pbc),
located in the south Delhi business
hub of Nehru Place. pbc is regarded
as one of the foremost environmentally sound buildings in the country
in terms of indoor air quality, ventilation and low level of pollutants. It is
the first building to earn top rating for
its green space and its indoor air quality conforms to standards of American Society of Heating, Refrigerating,
and Air-Conditioning Engineers and
World Health Organization.
pbc secured another feather in its
cap recently when Melbourne-based
company cetec Pty Ltd, a technical risk management consultancy
Business Notes
Vyt Garnys – the first international certificate for nabers
focusing on occupational health and
safety, environmental consulting,
awarded it with the first-ever certification under the National Australian
Built Environment Rating System
(nabers), a performance-based rating system for existing buildings. pbc
is the first recipient of nabers certification outside Australia.
Truly sustainable Announcing
the first international certification
for nabers at a tasteful function in
New Delhi, Vyt Garnys, md, cetec
Pty Ltd, said, “pbc qualified nabers’
parameters by using unique technologies in combination with best practices and extremely high aspirational
targets set by the owners. The lighting levels, noise and comfort parameters were controlled by continuous
recording and attention to data of
the building’s operation. The outstanding feature of the nabers rating
was the exceptionally high ‘occupant-satisfaction score’. This is one
of the highest scores that has been
achieved by the Australian nabers
protocol that we have measured so
far. Satisfied tenants are gold for their
u 28 u
M AY 11-2 4 , 2 015
own business as well as for pbc’s tenants’ retention. Finally, this high tenant satisfaction also indicates high
occupant productivity which is vital
for India’s recovery.”
Peter Varghese ao, secretary,
department of foreign affairs & trade,
Australia Government, said, “Being
performance based, a nabers Indoor
Environment rating provides proof
that the technologies which have
been implemented at pbc have been
commissioned well, are being managed well, and are providing tangible
benefits to the building’s occupants
in the form of a more comfortable
and healthy workplace.
This rating shows that the team
at pbc understands that operating
a truly sustainable building means
not just minimising its impact on
the environment, but also maximising the well-being of the people
who occupy it. The investments that
have been made into making this a
high performance building will provide widespread returns, as healthy,
comfortable occupants become more
productive employees and more
energised citizens.”
Kamal Meattle, ceo, pbc and Software Technology Incubator Park,
added, “Given that Delhi’s air is practically unfit for breathing, it is great
that we have a third party verification of good air quality at pbc – for
wellness and the productivity of our
occupants. People working in buildings need to keep well and it is a
well known fact that indoor air is 10
times more polluted than outside or ambient air. What does one
do, when the ambient air is itself
unacceptable? pbc has found solutions for it. We grow fresh air with
the help of more than 1,200 air purifying plants that not only detoxify the indoor air but also enrich it
with oxygen.
pbc cares for its occupants – their
wellness. This goes beyond its usgbc
leed Platinum and bee 5-star rating.
We have achieved a 4-star rating for
our Indoor Environment Quality,
in nabers’ assessment. We hope to
make it to a 5-star rating in the next
certification after a year. ”
u R A K ESH J OSHI
[email protected]
Stranded home buyers
Real Estate Bill caught in political war
Gandhi:for the
people
T
he Real Estate (Development
and Regulation) Bill is getting
caught in the political war
between the bjp and the Congress-led
opposition. A massive row has broken
out between the two sides on which
bill is better for the home buyer – the
one brought by the upa when it was
in power or the one being pushed by
the bjp now.
The real estate industry, which so
far has been away from any sort of
regulation, is opposing the Bill. They
have raised concerns over strict penalties/punishment to be imposed
on developers if they fail to comply with certain provisions. It also
makes it mandatory for developers
to launch projects only after acquiring all the statutory clearances from
relevant authorities. It has also proposed stricter penalties and even jail
term for a maximum of three years
for developers.
However, Congress vice-president
Rahul Gandhi sees the Real Estate
Bill as a tool to reach out to the middle class – believed to be among the
strongest votaries of Prime Minister Narendra Modi. Gandhi met flat
buyers from the National Capital
Region at the Congress headquarters
in New Delhi recently. He told them
that the former upa government had
introduced a Real Estate Bill that was
loaded in favour of the home buyers and the nda government is now
trying to dilute it. “I used to think
only farmers, tribals and labourers are cheated on matters related
to land. But I learnt something
new today. Even the middle class is
cheated and flat buyers are victimised,” he said after the meeting.
Gandhi’s charge is that builders promise a super area or a ‘superduper’ but home buyers end up being
shortchanged. One buyer told him
how he was promised a flat with a
view. After some time, a new building came up and the view was gone.
He said while the upa Bill
intended to introduce transparency in real estate transactions, the
nda has made amendments to the
Bill that take away the transparency. “From pro-buyer they have
made our Bill pro-builder,” he said.
Former urban development minister Ajay Maken, who was with Gandhi, said the amendments dilute the
spirit of the upa’s original Bill. “They
have brought in 118 amendments.
Broadly, there are dilutions on three
or four counts that we have serious
objections to. Our bill clearly defined
carpet area as the net useable area
minus the walls as defined under the
National Building Code, but the nda
government’s bill does away with
that. Then it allows for minor alterations from the sanctioned plan without defining what these alterations
are,” he said.
u 29 u
M AY 11-2 4 , 2 015
The Congress says delaying projects will be easier too if the nda Bill
becomes law. From an obligation
to keep 70 per cent of the amount
taken from buyers in a separate bank
account to ensure that the builder
doesn’t divert it, the limit is down
to 50 per cent. The worrying new
clause is allowing members of the
regulatory authority to take employment with private builders after
demitting office. The Congress has
demanded that the Bill be sent to a
select committee.
Hitting back
The bjp has hit back at Gandhi, and
said that he was trying to stall a Bill
that hurts the “builder mafia”. “He
is probably concerned about the
cronies of his brother-in-law (Robert Vadra),” union minister Mukhtar
Abbas Naqvi said.
The government had brought
the Bill in 2013 to regulate transactions between buyers and promoters
of residential real estate projects. All
residential real estate projects, with
some exceptions, were to be registered with the regulator. On registration, the promoter must upload
details of the project on the Website
of the regulator. These include the
site and layout plan, and schedule
for completion of the real estate project. The Bill establishes state level
tribunals called Real Estate Appellate
Tribunals to contest the decisions of
the regulator.
Experts had then questioned
Parliament’s jurisdiction to make
laws related to real estate as “land”
is in the State List of the Constitution. However, it was argued that the
primary aim of this Bill is to
regulate contracts and transfer of
property, both of which are in the
Concurrent List.
Anuj Puri, chairman & country head of property consultant jll
India, feels that the new Bill will
bring in better transparency and better corporate governance into the real
estate sector but property prices could
go up as the new law could “dramatically” change the financing model of
the industry.
u R A K ESH J OSHI
[email protected]
A matter of security
Home ministry peeved over resource transfer to states
E
ven though Parliament has
passed the Finance Bill 2015-16,
the Union home ministry is
still pressing the finance ministry
for a rethink on the policy decision
arising out of the 14th Finance Commission’s (fc) recommendation to
shift the former’s major centrallysponsored schemes on security-related issues from the Centre to the
state governments. As per the 14th
Finance Commission, states will
now handle these schemes out of
increased revenues by way of greater
share of union taxes, up from 32 to 42
per cent, leaving them with an additional `1.78 lakh crore. The move is
in line with the overarching philosophy of the Narendra Modi government to transfer more powers to the
states. However, the home ministry feels that national security cannot be compromised in the name of
financial autonomy of the states.
The main area of contention is a
home ministry umbrella programme
– the National Scheme for Modernisation of Police and other Forces,
2014-15. This had eight sub-schemes
– the Crime and Criminal Tracking Network and Systems (cctns);
the Special Infrastructure Scheme
(sis) for states affected by Left-wing
extremism ( lwe); Modernisation of
state Police Forces (mpf); Counter-Insurgency and Anti-Terrorist Schools
(ciat); revamp of civil defences;
strengthening of fire and emergency
services; National Cyclone Risk Mitigation Programme (ncrmp) and
other disaster-management projects.
All except ncrmp stood transferred
to the states.
Home secretary L.C. Goyal has
written multiple letters to the finance
ministry, including one just before
the Union Budget, asking for “some
allocation” for the home ministry
regarding schemes like mpf, sis for
Naxal-hit areas and cctns. Asking for
a “rethink” by way of some notional
allocations under these schemes to
Singh: asking for a rethink
the ministry of home affairs (mha)
to give it some ‘leverage’, the home
ministry told the finance ministry that states may not be able to do
justice to the said schemes and the
Centre would need money to intervene in case the co-operation of the
state is “not forthcoming” regarding
any scheme.
The home ministry’s point seems
to be that transferring the programmes will mean it has little say
over what the states do with regard
to national security. Shifting the
schemes also means that funding for
them will move, with the states at
liberty to choose what to keep, tweak
and discard.
“We have asked for a rethink... we
are now expecting some allocation at
the Revised Expenditure (re) stage,”
sources in the home ministry said.
mha officials believe the new
arrangement does not factor in the
political situation. “The state governments in crucial states like UP,
Bihar, West Bengal, Odisha or Tamil
Nadu are of different parties which
sometimes are not in total alignment
with the Centre. Keeping in view
u 30 u
M AY 11-2 4 , 2 015
importance of national projects, some
portion of funds should be with the
Centre to fill up the gaps where cooperation of states is not forthcoming or
lacking,” one official said, recounting
the gist of the recent discussions with
the finance ministry. “Centre cannot
beg the states always to start a specific
project,” the official added.
Another senior mha official said
“uniformity” of implementation of
schemes like cctns would suffer if
transferred en-masse to the states,
explaining that even a Cabinet note
is now being prepared to claim funds
for the cctns scheme.
Not the best use
Meanwhile, states may have received
the highest ever moneys from the
Centre this year, but they failed to
make the best use of it contrary to
expectations. In a slowing economy,
they could have used the extra funds
for more productive capital expenditure to kick-start growth. Or, they
could have used it to reduce their
deficits and improve their finances.
Most did neither.
The fc’s highest-ever devolution at
42 per cent of Centre’s total resources
to state governments does not seem
to reflect in most state Budgets for
now. On the whole, public investment by states continues to remain
largely static, with many states worried about a cut in the Central transfers due to changes in the criteria
for such transfers. On the brighter
side, most states have abstained from
introducing new taxes, though some
have hiked existing levies.
While nearly half a dozen states
had presented their Budgets before
the Union Budget 2015-16 that implemented the recommendation of the
fc, other states that presented their
Budgets later too have not reflected
the impact of the award except for
making the right noises about the
focus on “decentralisation” – such
as that made by Rajasthan or complaints about the unfairness of the
award (Tamil Nadu, Orissa). Most
states seem to have remained shy of
taking any concrete steps on how to
use the new funds.
u R A K ESH J OSHI
[email protected]
GM row again
Environment ministry makes GEAC redundant
W
hen the controversy over
genetically modified (gm)
crops started snowballing
during the upa-2 regime, then environment minister Jairam Ramesh
set up the Genetic Engineering
Appraisal Committee (geac) with
the mandate to meet once a month
and take a call on pending applications for field trials. Under pressure
from the Swadeshi Jagran Manch,
the Union environment ministry has
now almost made the geac practically redundant. It has not vetted an
agri-biotechnology application since
July last year.
The new approvals are for the
first stage of trials on one-acre plots.
Unless research in Indian conditions
is allowed, the viability of these crops
will not be known.
In July last year, geac gave the
green signal for field trials of gm rice,
mustard, cotton, chickpea and brinjal
at its meeting in Delhi. So far about
20 gm crops are under trial at various
stages. While the geac has approved
the commercial release of Bt brinjal,
it has been stayed by the environment ministry. The only genetically
modified crop approved for release in
India is cotton.
While the Modi government has
moved swiftly on a range of environmental issues – approving longdelayed projects, arguably clearing
the backlog inherited from the upa
and bringing in processes to simplify
green clearance – the one area where
it continues to be indecisive is that of
gm crops.
The biotechnology industry is
now knocking on the doors of the
Prime Minister’s Office (pmo) to get
things moving. Biocon chairman and
managing director Kiran Mazumdar
Shaw wrote to the pmo last month,
pointing out how the delay in calling meetings of the geac had put the
“entire agriculture biotechnology
sector in great difficulty”.
Shaw, who is also chairperson of
Javdekar: noncommittal
the Association of Biotech Led Enterprises (able), wrote a letter to the
principal secretary to prime minister Nripendra Mishra saying that the
failure to hold geac meetings and
the subsequent breakdown of the
regulatory process had forced many
to shut or scale down research programmes in agri biotechnology in
India. Pointing out that the geac is
a statutory body required to meet
at least once each month, Shaw
said it had only done so eight times
in the last three years and had not
considered any agri-biotechnology
applications since August 2014.
Pending trials
The biotech industry is concerned
as the upcoming kharif season may
be lost for field testing. Close to 20
applications for field trials of six
crops – cotton, corn, brinjal, chickpea, rice and wheat are pending with
u 31 u
M AY 11-2 4 , 2 015
the geac currently. While Andhra
Pradesh, Maharashtra, Karnataka
and Punjab have granted no objection certificates (nocs) to field trails,
they are still awaited from others.
If the field trials approvals are not
given soon, the kharif trials cannot
take place and the industry will be
losing one year. Once geac gives permission, the industry has to get nocs
from each state, which is also a time
consuming process. It is thus important that geac meets immediately and
approves trials for this kharif season.
The Prakash Javdekar-led environment ministry itself has been rather
noncommittal. In the past, the minister has said the matter was being
examined. “gm crops are not a new
thing that we are doing... Some is legacy, some are earlier decisions, trials
are on. You can’t stop science... safe
trial is what we want... Whatever we
have allowed is only in the public
sector and universities and I think
it’s a limited number... But you can’t
stop research... There may be applications pending but it (geac meeting)
will happen soon.”
Meanwhile, the Swadeshi Jagran Manch – an affiliate of the
Rashtriya Swayamsevak Sangh – continues to strongly oppose field trials
of gm crops. “We met the environment minister two months back and
he told us that government has not
taken any decision on this. The bjp
manifesto was clear in its objection
to gm crops, the Supreme Court’s tec
(technical expert committee) has said
no, the parliamentary standing committee has said no... whole of Europe
has said no. Then why should India
be holding field trials,” says Ashwini
Mahajan, national co-convenor of
the Swadeshi Jagran Manch.
Interestingly, able and Shaw in
their communication to the pm and
the environment ministry have
acknowledged “hurdles” due to
concerns raised by some organisations and have said they are ready
to engage with them to clarify any
issue. But they have appealed that
the regulatory process for evaluating the technology should not be
stopped because of such concerns.
u R A K ESH J OSHI
[email protected]
Column
Tough competition
Prime Minister Narendra Modi’s trip to China will be particularly challenging
C
hina is India’s most important foreign
relationship for the coming decades. The
Himalayas no longer separate the two
giants, so competition if not rivalry will be the
natural state of their relationship.
Yet India has little or no experience of handling competition with this ambitious awakening superpower that lives by a radically different
culture and world view. Prime Minister Narendra Modi’s trip to China, starting on 14 May,
will be particularly challenging.
Post World War II Chinese leaders have
always seen Indians as indecisive and weak, used
to being influenced by foreign powers like Britain followed by the Soviet Union and currently
the US. This is a simplistic and arrogant view but
India – whether of Jawahar Lal Nehru, Indira
Gandhi or Modi – has never given it the lie.
It is time to stand up to Beijing in a transparent and firm manner to prevent miscalculations while setting the red lines. This is
necessary because we have many long standing
security disputes, including undefined frontiers
and significant economic and military weaknesses compared with China. Modi’s eager hand
of friendship without hard talk and more hard
power would set this longer term relationship,
which will determine 21st century geopolitics,
on the wrong foot from the start.
Since China’s takeover of Tibet, Delhi has kept
its head down. Nehru, his vanity massaged by a
duplicitous Chou En-lai, began the ‘Hindi-Chini
Bhai Bhai’ fiction during which Beijing swallowed
Tibet and set the base for declaring Arunachal
Pradesh a part of southern Tibet. It followed with
the 1962 Indo-China war that traumatised Nehru.
Beijing then befriended and helped arm Pakistan
– including aid for building nuclear weapons –
and still uses it to aggravate India.
In recent years, including Xi Jinping’s 2012
rise as paramount leader, Beijing is implementing a policy of encirclement and containment
of India through assiduous wooing and aid to
Pakistan, Afghanistan, Sri Lanka, Myanmar and
Nepal. Soon its submarines and war ships will
share the waters off India’s coasts either directly
or through Pakistani proxies. Its cyber experts
are perfecting cyber war scenarios against India
and hacking our systems for security and industrial espionage. Pakistan is a part of its hard
power, acting as a ‘borrowed knife’ to stab India
while allowing Beijing to maintain deniability.
Brij Khindaria
Xi believes in comprehensive national
strength encompassing economy, military, espionage, trade investment and diplomacy. India
is very far behind. China’s gdp is nearly three
times that of India and its industries are far more
sophisticated, including military hardware, telecommunications, roads, trains, harbours, aircraft and ships. Its educational system is much
stronger for both the common people and elite.
Government schools are usually of high quality
and universities conduct leading edge research.
Foreign exchange reserves are nearly 11 times
bigger, sovereign investment funds are many
multiples of our investment vehicles, and military
spending is almost three times that of India.
H
The author is
an international
affairs columnist
for Business India.
He can be contacted
at brij.khindaria@
businessindiagroup.com
u 32 u
M AY 11-2 4 , 2 015
ence, competition with China will be very
tough and the security risks are huge.
Of course, we need business, technology, and
investment from China, but that should not
make Delhi overeager to placate Beijing’s drive
for regional hegemony. Neither should we pretend that it is a friend because both are Asian
countries with ancient civilizations and philosophies, including Buddhism that seem closer to
each other than to the West.
The point is that Xi is wedded to strategic
and tactical inequality with all of China’s neighbours, particularly India. He is not a ‘normal’
leader like the US and French Presidents or British Prime Minister. We understand them more
easily because their societies and structures of
governance are familiar to us.
Differently from others, Xi is the general secretary of the Communist Party of China, the
president of the People’s Republic of China, and
the chairman of the Central Military Commission. That means his first priority is to expand
the Communist Party’s power. The second is
to enrich China’s people and expand its power
in the region and the world. And the third is to
dominate China’s vast military machine that
also controls the ‘commanding heights’ strategic
industries and financial institutions.
Beijing,is a juggernaut that does not hesitate
to stare down US power in the Pacific and neighbouring seas and constantly frays Japan’s nerves.
He is also tightening his personal grip on China’s
political and military machines while squeezing
dissent. Modi would do well not be lulled by his
ready smiles.
u
[email protected]
Cover Feature
Where art thou?
H
ow many active retail
investors do we have
in India? No one has
a firm answer to this
question as there is no
accurate data that can give us a correct picture. The answer is a function of each person’s perception
with each coming up with a different number ranging from 20 lakh
to 2 crore. “There is no official data
available that can say that there are
so many retail investors in the country. There is no system in place to
give us this information. If we take
into consideration duplicates, dead
accounts, zero balance accounts or
nominal value accounts, the number of active retail investors would
not go beyond 40-50 lakh investors,”
says Prithvi Haldea, who tracks retail
investors through his Prime Database service. Chitra Ramkrishna,
md and ceo, nse, concurs. “We
would have 50 lakh-odd active investors in the country and yes I
agree it is a small number.”
When Haldea was asked how
many active investors there
were five years ago, he firmly
replies, “Same as now,” suggesting that the active investor tribe has not expanded in
the last few years. This is the
most optimistic scenario. The
data provided by the Bombay
Stock Exchange ( bse) reveals
that in FY15 25.83 lakh investors with unique pan numbers
traded on the cash segment
The number of retail
investors in India
needs to increase
from the current
50 lakh to 5 crore
by 2020
of the bse . This number is relatively
better as compared to 20.47 lakh in
FY14 and 23.63 lakh in FY13. Ramkrishna adds that about 15 lakh new
investors traded on the nse in FY15.
One could assume that retail
investors are more active on the bse
as compared to the nse due to the
larger number of mid- and small cap
companies (where retail interest is
higher) available for trading on the
bse . Hence unique investors trading
on either of the exchanges may not
u 34 u
M AY 11-2 4 , 2 015
cross 30 lakh. By that logic even 50
lakh looks optimistic.
But when we look at the number
of demat accounts in the country the
numbers are growing. “We have seen
30 per cent growth in the opening
of demat accounts in FY15, which is
the highest in the last 10 years,” says
G.V. Nageshwara Rao, md and ceo,
nsdl . “This shows that the rally in
the market has motivated more people to invest in the stock market.” But
Rao admits that we are still scratching the surface. While nsdl, which
is the market leader in depositories with 1.37 crore demat accounts
(last year 1.31 crore), csdl, the other
player, is closing in fast with 0.96
crore accounts (last year 0.88 crore)
bringing the total number of demat
accounts in the country to 2.33 crore.
But this data conceals more than it
reveals. The depositories do not give
a further bifurcation as to how many
are unique accounts (as someone
can have more than one demat
account with one depository or
with nsdl and cdsl both), how
many of them are active, and last
but not least how many have at
least a few different shares in their
demat account to call them active
retail investors. In that sense the
information is opaque. Hopefully
sebi and the depositories will take
corrective action.
The irony is that Reliance
Power, when it offered a public issue in 2008, received applications from 46.23 lakh retail
Cover Feature
investors. Clearly, after the Reliance
Power ipo, retail investors’ tribe has
not increased. Nor is it that our lawmakers are not aware of the same.
Three and half years ago, in December 2011, Naveen Jindal, then Congress mp, put forth a question in
Parliament to the then finance ministry about what the government was
doing to increase participation by
retail investors in the country.
Responding to this, Namo Narain
Meena, then minister of state for
finance, gave a very general plain
vanilla reply. “Various proposals like
reducing transaction costs in the
securities market to encourage participation of retail investors, enhancing brokers’ reach to smaller towns,
etc, were discussed during the meetings (with exchanges and other market participants). On the basis of
the above discussions and consultations with sebi, the government has
initiated action in several areas to
increase the depth of the Indian capital market.” There is little clarity in
terms of what the government actually did to address the issue.
Transaction costs continue to
remain the same as before. The government has not reduced stt and
nor have brokerage costs come down.
There have been reductions in brokerage rates but more in the derivatives segment rather than in the cash
segment. The depth of the market
continues to remain shallow, driven
mainly by investors in Mumbai. The
data available in sebi’s last annual
report (FY14) shows that Mumbai
accounts for almost 60 per cent of
the cash segment by volume on the
exchanges, while the top five cities
combined, account for almost 80 per
cent of the volumes. If you rewind
back 10 years, the statistics would
read almost the same. Whether one
likes it or not, Indian capital markets continue to remain more or less
an urban phenomenon. Only a few
cities in the country are driving the
capital markets, hence there is an
urgent need for deeper penetration.
“While the top 5-6 cities account
for 90 per cent of the volumes, the
balance 10 per cent is spread over
several hundred places,” says Ramkrishna. While stock markets may
Demat account statistics
CDSL
NSDL (` crore)
210.2
199.5
218.4
87.8
83.3
79
126.9
120.5
130.6
233.18
96.1
137.08
2011-12 2012-13 2013-14 2014-15*
*As on 29th April 2015. Souce: SEBI Annual Report/NSDL/CDSL
Top five cities: turnover-wise
% Turnover in cash segment
56.9
59.5
Mumbai
Kolkatta
Ahmedabad
New Delhi
Rajkot
6.8
9
5.5
7.4
4.4
3.8
3.3
1.8
BSE
Top 5 total: 76.9
NSE
Top 5 total: 81.5
Data is for FY2014. Souce: SEBI's Annual Report
have spread to many smaller cities,
they are not contributing to volumes
in any meaningful way.
In the past every major rally in
the stock markets got retail investors
lapping up equity. But this time the
response has been lukewarm. Indian
stock indices are trading at historic
highs. The Indian stock market was
among the best performing markets in the world in 2014. These facts
should be good enough to attract
retail investors. What should also
benefit equity investment is that
other competing asset classes like
real estate and gold are losing investors’ interest. And yet the situation is
far from exciting. Some of the companies that went public recently
have struggled to get even one time’s
subscription (mep Infra, ufo Moviez,
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M AY 11-2 4 , 2 015
to name a few) clearly showing the
dearth of retail investors.
India has a population of 125
crore, but with less than 50 lakh
active retail investors it clearly suggests that something is terribly
wrong somewhere. And this is at a
time when fiis are liberally pumping money into the Indian stockmarket. In the last three financial years
fiis have put in `3.31 lakh crore,
which accounts for 40 per cent of
the total fii investments India has
received since 1993. If fiis are lapping up Indian shares, why aren’t
Indian retail investors? It’s popularly
believed that a young population is
more excited in investing in the stock
markets due to their higher risk taking capacity. India does have a young
population. Hence it’s unfortunate
that as a country we have failed to
‘sell’ equity as an asset class even to
the younger retail investors.
Why do we need them?
There is one school of thought
that we don’t need retail investors
investing directly in the stock market. If retail investors wish they can
route their investments through
the mutual fund route. This is a fair
argument but the fact of the matter
is that even mutual funds have not
been able to attract the confidence
of investors. A large portion of the
equity assets managed by mutual
funds continues to come from corporates and hnis. The total equity
assets under management with
mutual funds is a little over `3 lakh
crore which is less than the market
cap of even one company – tcs. Also
this `3 lakh crore has come from various investors including corporates,
hnis. Even in developed countries
like the US and UK, despite a robust
presence of institutional investors,
retail investors continue to take
direct exposure to equity markets.
Apple Inc, which is the most valuable
company of the world, has only 62
per cent holdings from institutional
investors. As per one survey, 54 per
cent of Americans hold either individual stocks, stock mutual funds or
stocks in their 401(K) plan. But in
India, this number may be a mere
1-2 per cent, suggesting that we are
Cover Feature
Ramkrishna: numbers are low; simpler products will encourage investments
a highly under-penetrated market in
terms of equity investments by retail
investors. India is often compared to
China. In the last few years China
has seen many retail investors joining the stock market and fuelling
a Bull Run. There were as many as
18 crore trading accounts in China
in December 2014. At the end of
2007 this number was a little over
10 crore.
We need more retail investors to
put money into the Indian equity
market as India needs to create more
jobs for its young population. Jobs
can be created by entrepreneurs provided they have easy access to capital. This capital can come from retail
investors. Even private equity investors would need exit to fund future
investments. If there are good retail
investors pes can make successful
exits and this can create the right
environment to ensure the ‘Make In
India’ campaign is successful.
If India needs to grow at 8-9 per
cent gdp growth rate and that is
what Arun Jaitley, finance minister,
is aiming towards, then retail investors play a crucial role in making it
happen. Without easy access to capital for entrepreneurs, neither the
share of manufacturing in gdp will
go up nor will India achieve 8-9 per
cent gdp growth. Indian investors
understand Indian entrepreneurs’
needs well. Had there been no retail
investors Reliance Industries would
not be what it is or for that matter
what Infosys is today.
Equitable balance
India has always been a high inflation economy. The interest offered on
fixed income instruments are hardly
able to beat the inflation figure, suggesting that individual investors,
despite earning interest, lose the value
of the investment over time, forcing
them to push down their standard of
living and thus impacting demand
in the economy. There have been
many empirical studies that suggest
that equity offers excellent returns
over longer periods of time and if so,
why should individual investors be
u 36 u
M AY 11-2 4 , 2 015
deprived of these higher returns on
their investments. Also investment
in gold, which India needs to import,
does not help lift economic activity
in the country. Hence there has to be
constant effort by the government to
channelise gold savings (households
have an estimated 20,000 tonnes of
gold) to equity savings. This would
benefit everyone in the system.
That does not mean that Indian
retail investors should not take exposure through mutual funds. Ideally it
should be a combination of both – as
is done in developed economies. We
are not suggesting that Indian investors should put money only into
equity and no other assets – it should
be a balance of equity, fixed income
bearing instruments and other
assets. Neither over exposure nor
under exposure to any single asset
class benefits retail investors. It’s like
salt in a meal. If you have the right
amount of salt in food it tastes better. Too much or too little salt makes
the food taste bad.
A fair amount of money is being
Cover Feature
Selling gold to buy copper
As if this is not enough, many investors, in the hopes of making a quick
buck, are moving out of blue chip
companies to invest in smaller companies like mid-caps and small caps,
where not only is corporate governance an issue but often companies perform so badly that they lose
money big time. In September 2013
some of the companies that fell by
as much as 90 per cent in a few days
were all mid-caps and small caps.
Since then the market has gone up,
but these scrips, like Core Education,
Glodyne Tech to name a few, continue to remain laggard.
Retail investors selling their family jewels to invest money in higher
risk assets defies all logic, as retail
investors should ideally be playing
safe. Blue chip companies are well
researched and hence more information is available about the company
which should encourage them to
buy. It has been observed that retail
investors are quick to book profits but sit on companies where they
are making losses. Over a period of
time these non-performing companies continue to dominate their
portfolios resulting in sub-optimal
returns from equity. In the hope of
doubling money in the shortest possible time retail investors incur huge
losses. Retailers invest in what seem
to be cheaper shares – usually midcap and small-cap. This is where the
right kind of investors’ education
can play an important role. Instead
of chasing returns investors should
invest in good quality companies.
The extent to which retail investor
holdings in blue chip companies have
decreased is revealed by the fact that
spent on trying to attract retail
investors to the market by various
agencies, through various investor
awareness programmes. But why is it
that these programmes are not yielding the desired results? Surely it’s
time to overhaul the way these investor education programmes are being
conducted by the various agencies?
Our request to meet sebi chairman
Sinha on this topic was not successful with his office not responding till
the time this issue went to print.
Haldea: f&os should be banned to retail investors
there are as many as 24 Nifty companies (out of 50) where retail investors hold a mere 5 per cent or less.
In March 2008, when the stock market was at its peak, there were only
18 companies where retail investors
had a stake of less than 5 per cent in
Nifty 50 companies and only seven
companies in March 2000. In other
words, with every rise and fall in the
market, retail investors kept on selling blue chip companies to either
u 37 u
M AY 11-2 4 , 2 015
invest in mid-caps and small caps or
exited completely from the market.
Due to constant profit booking the
stake of retail investors in some of
the blue chip companies like Bharti
Airtel is less than 1 per cent (0.79
per cent to be very precise). Bharti
is a relatively new company that
went public in early 2000. Hence a
low stake from the public is shocking. sebi’s definition of retail investors is one who puts less than `2 lakh
Cover Feature
in the ipo. When a company declares
its shareholding pattern every quarter, it divides non-promoter, non-institutional individual investors into
two broad categories: those holding shares in excess of `1 lakh of the
nominal face value and other holding
shares less than `1 lakh of the nominal face value. No one knows the
exact logic behind this bifurcation.
Also this change in bifurcation has
not been reviewed for many years.
We assume that the logic behind it
was to differentiate between retail
and hni investors. But when the price
of shares has gone so high there is a
need to review the same. Continuing with Bharti Airtel, its one share
trades at `350 meaning someone
holding even 50,000 shares would
be worth `1.75 crore. These investors deserve to fit into the hni category rather than the retail investor
one. Investors in companies like mrf
(`36,000) or Eicher (`15,000) that are
quoting in five digits, who hold even
a few hundred shares could be classified as crorepati investors. The time
has come for sebi and the exchanges
to make the shareholding bifurcation based on market price rather
Rao: still scratching the surface
than nominal face value of the company for it to make more sense. For
this story’s purpose we assume that
investors holding a face value of less
than `1 lakh are retail investors.
Each and every Indian shareholder
once proudly owned shares of hdfc.
Today 80 per cent of hdfc shares are
owned by foreigners. Every rise in
the share price of hdfc saw Indian
retail investors selling them and the
same being bought by fiis. The retail
Lopsided market
T
here is no doubt that
the equity market is riskier than other asset classes.
There is even no guarantee
that one would get one’s principal back, which is not the
case with fixed income instruments. With no meaningful
social security from government, there is all the more
reason for individuals to protect their capital in case something goes wrong.
In this kind of social scenario capital protection for
the investor assumes paramount importance. So instead
of taking out or reducing the
risk from the equity market,
everyone in the system is,
in effect, making the stock
markets riskier. Futures and
options (f&o) are a great tool
to hedge one’s portfolio to
reduce risk. This was purpose
when derivatives were introduced into the system. But
instead this has become a tool
for punters to speculate. Market intermediaries, the bigger
brokers, are happily promoting this as a tool for people
to speculate. The result is that
the derivatives segment volume is almost 10 times the
cash segment volume.
There are many brokers
in the country whose telemarketers call people and ask
them to trade in the derivatives segment (this journalist
also received a cold call from
one of the market intermediaries to earn big money in the
derivative segment). People
who do not understand the
nuances of the stock markets
are directly being exposed
to the volatility of the derivatives market. It’s like someone who has never driven a
normal car on the road being
asked to drive a racing car on
an F1 track! We all know what
would happen; he would
meet with an accident and
that is what is happening in
most of the derivatives cases.
Sadly, too many retail investors are being taken in by the
sales calls.
With a bad experience in
the f&o market, it is unlikely
that investors would remain in
the equity market. He leaves
dejected and blames the stock
u 38 u
M AY 11-2 4 , 2 015
market. The success of one
person invites others to emulate that success. But there is
nothing to emulate when one
loses money. In the past retail
investors used to wet their toes
in the stock markets through
the primary market, which
was the entry point to the
stock market. But one overhyped ipo like the Reliance
Power ipo turned off many of
the investors who lost their
money. Each one who had a
sour experience becomes a
bad brand ambassador for
equities, and that affects the
future entry of other investors.
“The equity market is always
risky and derivatives have
made it riskier,” says a leading market personality who
chose to remain anonymous.
Haldea even suggests that
f&os should be banned to
Cover Feature
investor stake in hdfc is currently
at 7 per cent. Amongst the Nifty 50
companies, the companies in which
retail investors hold the highest
stake are Larsen and Toubro (19.73
per cent) and Tata Steel (19.53 per
cent). There are only six companies
in the Nifty 50 where retail investors have a stake of more than 10 per
cent whereas in 2000 retail investors
had a more-than-10 per cent stake in
more than 50 per cent of the companies. If the government does not act
soon to attract more retail investors,
over the next few years there would
hardly be a meaningful stake held
by Indian retail investors in leading
Indian listed companies. One hopes
that this is not what the Modi government wants.
With everyone in the country
obsessed with fiis, not enough attention has been paid to retail investors.
But some companies like Reliance
group companies controlled by
Mukesh Ambani and Anil Ambani,
have historically, drawn the patronage of retail investors (Reliance
Power with 38.12 lakh retail investors). These are the investors who
went overboard in the ipo of 2008
retail investors. “Please show
me one retail investor who has
made money in the derivatives
segment,” he asks. This statement is true to a large extent.
In derivatives few make money
and many lose it. It’s more of
a tool to transfer wealth from
many to the few.
Who drives volume on NSE
% of cash segment
FIIs
23%
DIIs
9%
Proprietory
Corporate
20%
9%
Others*
39%
*Includes retail. Data is for the month of March 2015
Source: nseindia.com
and are now waiting for the price to
go above their purchase level to make
an exit. This shows that retail investors are slow in booking their losses
and continue to remain invested in
underperforming stocks instead of
selling them and moving to outperforming stocks. The second highest
number of investors is in Reliance
Industries (27.90 lakh). The late
Dhirubhai Ambani, founder of the
Reliance group, was instrumental
But what come as a surprise
is that not many retail investors trade in the derivatives
market. This is quite against
perception. “The number of
retail investors in the derivatives market is a small fraction
of the cash market,” reveals
Ramkrishna. Data provided
in creating an equity cult among
retail investors. He was a role model
to many retail investors. It is due
to this great respect for Dhirubhai
Ambani, that Reliance Industries
has always enjoyed a higher patronage from retail investors. There are
only six companies where shareholders have more than 10 lakh. Out
of the leading 300 companies from
the ‘A’ group, 160 companies saw an
increase in the number of shareholders in last one year (March 2014 to
March 2015) while as many as 140
companies saw a decrease in the
number of shareholders.
To bring them back
There is no shortcut solution to this.
Neither should this be a one year
plan. A single-pronged strategy is
not going to work. One of the biggest misconceptions that equity
faces is that it is a market for speculators; this needs to be removed.
The stock market is definitely not for
intra-day trading or short term trading for retail investors. It’s a place for
long-term wealth creation. sebi, the
exchanges and market intermediaries must focus on this theme. They
by the BSE also suggests that
the number of retail investors
in the derivatives segment is
quite few as compared to the
cash segment. In FY15 only
45,100 unique retail investors
traded in the derivatives segment on the BSE as against
26 lakh in the cash segment.
What come as a bigger surprise is that the number of
investors who traded in derivatives declined as compared
to the 48,152 traders the previous year. The only caveat is
that the BSE’s derivatives volume is quite low as compared
to the NSE and may not be a
good indicator. We did not
receive any data from the NSE
before going to print.
Despite low retail investor participation, the damage
derivatives is doing is creating
an episodic scenario where
u 39 u
M AY 11-2 4 , 2 015
many investors see someone else losing money and
think that the stock market
as a whole is risky – without
understanding that F&Os and
the cash segments are different segments of market. The
cash segment is not as risky as
F&Os. While there is punishment for mis-selling products
to investors, the implementation of the same is not very
effective. There should be a
regulation from the SEBI banning market intermediaries
from making cold calls to individuals for the F&O segment.
We must not take pride in that
we are amongst largest F&O
markets in the world. What we
need to take pride in, is that we
are amongst the world’s most
stable and growing stock markets. This is where everyone’s
focus and aim should be.u
Cover Feature
companies by selling to retail
need to showcase successful
Retail investors % stake in Nifty 50
investors, thus increasing
investors through a series of
their penetration in the UK
advertisements of individuCompany Individual shareholders Individual shareholders
stock market.
als who have created wealth
holding nominal
holding nominal
share capital up to
share capital up to
Also, we need simpler
through long-term invest`1 lakh
excess of `1 lakh
products to attract more
ments in equity. They can
Top 10
retail investors. sebi must
be true role models that can
inspire many individuals to
create a rule that no new
Larsen & Toubro
19.73
1.50
look at equity as a long-term
retail investors can particTata Steel
19.53
3.04
tool rather than short term.
ipate in the stock market
Tata Power Company
13.73
0.99
The government should
for the first two years after
Asian Paints
12.10
0.86
think of allowing more tax
opening a demat account
Hindustan Unilever
12.08
0.24
incentives if the period of
in the derivatives segment.
ACC
10.90
1.44
holding is longer than say
This would force market
Reliance Industries
9.65
0.84
five years. Here not only
intermediaries to focus on
Tech Mahindra
9.23
2.23
would capital gains be tax
acquiring new clients in
Grasim Industries
9.08
0.85
free but a longer holding
the cash segment rather
ITC
8.39
1.64
period would carry addithan the derivatives segtional tax free rebates that
ment. The minimum size
Bottom 10
can be set off against other
of a derivatives lot should
Bharti Airtel
0.73
0.16
taxable income. This would
be increased to `1 crore
Idea Cellular
1.10
0.20
encourage more long-term
so that retail investors are
NMDC
1.22
0.07
holdings in equity.
discouraged to participate
Coal India
1.33
0.14
In the past we have also
in them.
GAIL (India)
1.53
0.08
seen investors coming in
But Ashishkumar ChauONGC
1.61
0.07
through the ipo route. The
han, md and ceo, Bombay
NTPC
1.74
0.19
government of India wants
Stock Exchange, has some
Zee Entertainment Enterprises
1.78
0.40
to disinvest many comparadical ways of tackling the
Maruti Suzuki India
1.96
0.10
nies. These are ultimately
problem. “The success of
public assets and hence the
the pm’s Jan Dhan scheme
Bharat Petroleum Corporation
2.00
0.28
aam public should be the
suggests that almost all
true owners in all respects. Source: Ace Equity
households in India have
In the past we have seen
got their kyc done. To
that retail investors have been given This would help the government bring them in to the modern finanupfront discounts in disinvestment meet its disinvestment target and cial markets, it would be interesting
of psus. To some extent this has been the country would have more active if each one opened a demat account
successful in luring investors but still retail investors. In the UK, Marga- along with the Jan Dhan scheme
lacks mass appeal. While the govern- ret Thatcher did a brilliant job while bank accounts. All direct benefit
government-owned transfers etc, could be transferred by
ment can retain initial discounts to disinvesting
way of interest bearing govthe issue price it can also
ernment bonds.
add a sweetener with back
IPOs with largest retail participation
This will bring in more
end discounts. The scheme
retail
investors to the Indian
can work like this. At the
Company
Issue date Issue size Retail no. of
financial markets by way of
time of the ipo the govern(` crore) applications
(Lakh)
risk free instruments,” he
ment can announce that
says, adding, “if the Indian
every retail investor will get
Reliance Power
15/01/2008
10,120
46.23
market has to increase the
a 10 per cent upfront disCoal India
18/10/2010
15,199
15.61
number of investors from
count to the ipo price and if
NHPC
07/08/2009
6,039
13.02
the current 2 per cent to 25
they hold on to the shares
MOIL
26/11/2010
1,238
12.74
per cent in a decade, they
for 24 months, they would
Future Capital Holdings 11/01/2008
491
11.04
will have to invest mainly
get additional shares worth
Rural Electrification Corp 19/02/2008
1,639
7.39
in risk free instruments as a
10 per cent of the ipo holdPunjab & Sind Bank
13/12/2010
471
6.83
first step.” Even Ramkrishna
ing at no additional cost.
Adani Power
28/07/2009
3,017
5.55
believes that we must have
This means that investors
L&T Finance Holdings
27/07/2011
1,245
5.08
simpler and easier products
would get 20 per cent gains
for retail investors such as
for 24 months and it could
Multi Commodity
Exchange of India
22/02/2012
663
4.24
also encourage them to
etfs which are less volatile
become long-term investors
and low cost products so
rather than ipo investors. Source: Prime Database
that stockmarket volatility
u 40 u
M AY 11-2 4 , 2 015
69
59
61
25k-50K
31
35
10K-25K
Less than
10K
9
13
3,120
1,900
1,220
40
130 (5 years)
5,200
3,000
2,200
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has less of an impact on investors.
She adds that the nse has taken
measures to encourage investors
through simple products like etfs
and sips. Chauhan however believes
that investors first need to get their
feet wet in the financial market and
then graduate to the stock market.
“Once these investors get used to
the financial markets, some of them
may slowly graduate to equities and
other markets over a period. Our
first aim would be to introduce retail
investors into Indian markets by
way of risk free instruments which
have not previously been available to
them.”
Another aspect that needs to
be tackled is that there is very little financial literacy in this country. Many educated individuals are
also found to be financially illiterate. Hence they neither understand
the value of money over a period of
time nor cagr returns. One of the
best ways to tackle this is by including ‘investments’ as a school subject
along the same lines as physics or
chemistry. This will ensure that the
future generations understand the
value of money. Financially educated
investors will never get lured by lofty
returns or ponzi or multi-level marketing schemes. This can also help
in resolving social issues attached to
Ponzi or multi-level marketing.
The time has come for the ministry of finance to make a mission
statement that India must have
five crore active retail investors by
year 2020. In the past the government has made such statements on
gdp, inflation or fiscal deficit but no
such statement has ever been made
by any government. The Modi government must make this mission
statement and then ensure that it is
carried out sincerely with the help of
sebi, the exchanges, market intermediaries and ngos. Five-crore-strong
retail investors can counter balance
the power of the fiis. So even if the
fiis decide to exit India tomorrow
for any reason the Indian entrepreneur’s ambition to expand should
not suffer. One hopes Modi will
think out-of-the-box to create more
retail investors in the country as this
will help him fulfil his Make In India
campaign. More retail investors
will encourage the manufacturing sector, giving jobs to the youth
of the country. This is the best
way India can yield demographic
dividend. Over to Modi.
ADDRESS:
Chauhan: radical solutions
Cover Feature
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Source: Ace equity
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Panju’s Page By Panju Ganguli
The last two quarters have been a nightmare.
For us, about 52% of revenue growth comes
from the US dollar and about 7-8% is from
india. so close to 40% comes from currencies
in pounds, euros, japanese and latin american
currencies, and all of them are weak against
both US dollar & the Indian rupee.
We would like to say that the npa would
remain down, but having said that, with all
the recovery efforts we are taking, we hope
that we will be able to keep under control.
I do not really want to say the worst is
over.... we have to wait for a quarter or two.
Arundhati
Bhattacharya,
Chairman, SBI
N. Chandrasekaran
CEO & MD, TCS
u 42 u
MAY 11-2 4 , 2 015
Special Report
Will Modi sway China?
The PM’s visit to China will be a tightrope walk
u 44 u
M AY 11-2 4 , 2 015
T
he optics of Prime Minister Narendra Modi’s visit to
China will be dominated by
events such as his stopover
at Xian, the hometown of
Chinese President Xi Jinping’s father.
Modi will accompany Xi to the Wild
Goose Pagoda, a structure built to
highlight famous Buddhist monk
Xuan Jang’s journey to India in 645
AD through the ancient Silk Road
and his return with precious scriptures. Xi and his wife will then host
a banquet for Modi. (This appears to
a special reciprocal gesture of sorts,
as Modi had last year hosted Xi and
his wife at Ahmedabad.) Later, a Madison Square Garden-like meet with
Indian professionals and students in
Shanghai has been planned. But the
question being asked is: even if Modi
is able to sway the Indian diaspora
in Shanghai, will he leave his mark
in China?
An indication of the high stakes
involved in the China visit was evident when, a week before his visit,
Modi at considerable risk joined the
Chinese micro-blogging site Sina
Weibo, often called the Twitter of the
East. Weibo, partly owned by e-commerce player Alibaba, has over 500
million users even though social networking in China is controversial,
with the authorities blocking Facebook and Twitter.
Ahead of Modi’s widely-watched
visit, perhaps his most important foreign outing after he assumed office,
there were two significant developments which could define the context
and tenor of this event. These developments relate to the widening trade
deficit between India and China and
the unsolved border row between the
two Asian giants. There is, of course,
another factor – Beijing’s relationship with its all-weather friend Islamabad. Some believe that New Delhi
will be better off if it ignores this factor till China itself realises the strategic compulsions of doing business
with a resurgent India being wooed
by the west.
Special Report
In a sweetener to the Chinese, possibly in expectation of returns, India
relaxed the border trade by raising
the transaction value of consignments between the two countries.
“For border trade between India and
China, the cif (Cost, Insurance and
Freight) value per consignment is
being increased from `1,00,000 to
`2,00,000 in case of Nathula, while
for Gunji and Namgaya Shipkila, the
existing cif value limit of `25,000 is
being enhanced to `1,00,000,” the
Directorate General of Foreign Trade
said in a notification. Traders at the
border areas primarily import carpets, readymade garments, blankets,
shoes, jackets and quilts and export
mostly vegetable oil, rice, processed
food, canned food, textiles and copper items. This is small change in the
context of our bilateral trade which
is nudging $70 billion. But it sends
out a big signal: like with Pakistan,
India is willing to open up its borders
with China.
Deficits and standoffs
China is a major trading partner of
India, but New Delhi has serious concerns over widening the trade deficit
between the two countries. India’s
trade deficit with China climbed to
a whopping $37.8 billion last year.
India has been demanding greater
market access for its domestic products to bridge the gap.
On the order row, the Chinese
military gave a typically guarded
response in dispelling apprehensions
of yet another military standoff at
the Line of Actual Control (lac), saying that it “strictly abides” by agreements to maintain peace and stability
on the border. “Chinese border troops
have always strictly abided by the
agreements reached by the two governments and are committed to peace
and stability along the border area,”
defence ministry spokesman Geng
Yansheng said at a media briefing in
Beijing. The apprehensions of a standoff during Modi’s tour arose because
similar incidents had overshadowed
the visits to India by Chinese Premier
Li Keqiang in 2013 and President Xi
Jinping last September.
“To maintain peace and stability at
the China-India border is a common
One of the agreements
signed during Xi’s visit
was to set up two Chinese
industrial parks with
$20 billion investment in
Gujarat and Maharashtra
to provide an exclusive
framework for
Chinese firms
interest of both the countries and
it is also the common aspiration of
the people of the two countries,” the
spokesman said during the briefing.
“Through the meeting mechanisms
of the border defence troops, the officers and soldiers on both sides of the
borders have conducted coordination
and consultation with each other and
we are willing to work together with
the Indian side to strengthen cooperation in various fields and push forward for new relations between the
two countries,” he added.
The face-off at Depsang in Ladakh
saw Chinese troops pitching tents
ahead of Li’s trip in 2013, his first trip
abroad after taking office. The visit
was meant to send a strong signal
about the importance his new government attached to India. The issue
was resolved after tense negotiations
u 45 u
M AY 11-2 4 , 2 015
just before his arrival. Xi’s visit to
India last year, aimed at resetting ties
after Modi’s election, was also overshadowed by the presence of Chinese troops at Chumar in the Ladakh
region. The incident was resolved amicably in days but only after his trip.
Chinese military earlier defended
the moves, saying that such incidents took place due to different perceptions along the over 4,000-km
lac, despite the 18 rounds of Special
Representatives’ talks. Beijing maintains that the dispute is a legacy left
over from history. “Before the final
settlement of the boundary issue,
the important consensus reached
by both sides is that we should join
hands to maintain peace and stability along the China-India border. We
hope the Indian side can meet China
halfway,” Chinese spokesmen are
now saying.
Why is the China visit important
for India? And why is New Delhi so
determined to make a success of it?
For Modi, as he completes one year
in office, the key issue is employment
generation. This is where China, with
the world’s largest reserves of foreign
exchange, can step in. China can
play the dual role of developer and
financier for projects in India.
Following Xi’s visit to India last
year, a commerce ministry delegation
Special Report
had visited Beijing to explore China’s
investments in India’s Special Economic Zones (sezs) and to discuss follow up action on agreements signed
to boost bilateral trade between the
two countries.
One of the agreements signed during Xi’s visit was to set up two Chinese industrial parks with $20 billion
investment in Gujarat and Maharashtra to provide an exclusive framework for Chinese firms. As per the
MoU to set up the parks, signed subsequently by the two countries during the visit of Indian vice-president
Hamid Ansari in June, the industrial
parks would enjoy the benefits of
sez s, as well as National Investment
and Manufacturing Zones. The sezs
offer 100 per cent income tax exemption on export income for the first
five years, 50 per cent for the next
“The key items (which
five years and thereafter 50 per cent
of the ploughed back export profit
India will raise) are how
for the following five years.
to address the large trade
The two countries are also in the
process of finalising steps to prodeficit issue and how to
ceed on the agreement signed during
bridge the deficit. The size
Xi’s visit on Chinese participation in
modernisation of Indian railways.
of the deficit is alarming”
This includes a feasibility survey for
a high-speed railway corridor to be
Commerce secretary
constructed by the Chinese side at its
R ajeev K her
own cost, technical inputs required
to increase speed on the existing railway line from Chennai to Mysore could lead to discontent there. With
via Bangalore, redevelopment of two the markets in the West shrinking,
railway stations and establishment of India provides the opportunity that
a railway university in India. China it sorely needs.
will also soon start training Indian
ficci secretary general Didar Singh,
railway officials in heavy haulage.
who visited China after Xi’s trip, said
What is at stake for Beijing? India the Chinese were quite serious about
represents a market, which could this investment into India and they
easily be the world’s largest. China have begun working on it internally.
needs such a market
Chinese firms have
desperately because
Chinese takeaways also evinced interit is experiencing an
est in participating in
economic slowdown u India to push for reduction the Digital India prowhich can result in
of trade deficit, removal of gramme. “India-China
unemployment.
Its
economic engagement
non-tariff barriers
hina wants liberal visa
exports to the west u C
needs to shift focus
are declining. China
regime, tax concessions for from a trade relationcannot afford to keep
ship to one of investinvestment in special zones
ore meeting points for two
its people unem- u M
ment because only
ployed in the citincreased
investarmies along the lac
otline link between Army
ies, nor can it afford u H
ments can address the
to send the unemexisting trade imbalhqs in New Delhi and
ployed back to the
ance between the two
Beijing to defuse tensions
villages, because this
neighbours.”
u 46 u
M AY 11-2 4 , 2 015
Officials said that efforts will be
made to convince Chinese manufacturers to set up their base in India to
promote the ‘Make in India’ initiative. One way to correct India’s trade
imbalance with China could be to
increase India’s services export to
that country. According to officials,
Modi is expected to press Chinese
authorities to allow India to enhance
its export of information technology
and information technology-enabled
services (it and ITeS). Agriculture, auto components, textiles and
pharmaceuticals are other sectors
which will increase India’s footprint
in China.
Trade barriers
Another concern that Indian authorities are expected to address with their
Chinese counterparts is the issue
related to non-tariff barriers that
India’s pharmaceuticals and it services face in that country. These barriers prevent India’s companies from
tapping the vast Chinese market.
“The key items (which India will
raise) are how to address the large
trade deficit issue and how to bridge
the deficit. The size of the deficit is
alarming,” said commerce secretary Rajeev Kher recently. Kher also
underlined the importance of pursuing a more focussed strategy to
promote trade with its northern
neighbour. To help Indian industry move up the value chain, he
stated that the government is following a three-pronged strategy which
includes addressing specific market
access issues in sectors such as drugs
and pharmaceuticals, it/ITeS, agriculture and food processing, and
encouraging Chinese manufacturers
of finished goods to set up a production base in India.
The commerce secretary also
spoke of government efforts in
encouraging Indian industry to enter
those sectors where Chinese manufacturing is in decline to fill the gap.
“The government is setting up an spv
to promote investment in the Cambodia, Laos, Myanmar and Vietnam
(clmv) region. This spv would help
Indian industry invest in the clmv
region and cater to the Chinese market,” he added.
Special Report
The government can also pick
up a few cues from a cii Report on
‘Accelerating Indo-China Economic
Engagement’ that outlines a plan
to accelerate economic engagement
between India and China. The report
suggested an action plan to push for
market access in key sectors where
India can add value to the Chinese
economy, prioritising Chinese fdi
in 18 identified sectors and a sovereign deal to attract investment in
infrastructure.
Border disputes
A psychological hurdle holding back
economic and cultural ties is the
long-standing border dispute. The
current year itself has witnessed 59
face-offs and 268 incidents of transgressions on the lac. Both Modi and
Xi will need to work hard to find
some way to address each other’s
concerns on this front.
Reports emanating from China
now say that former Prime Minister Rajiv Gandhi had declined an
offer from Beijing in 1988 (during
his visit) to settle the border dispute
with mutual adjustments along the
boundary. Yang Wenchang, president of the Chinese People’s Institute of Foreign Affairs, an influential
think-tank, recently revealed that
both sides had come close to resolving the row in the 1980s, but Rajiv
Gandhi declined an offer from Deng
Modi will accompany
Xi to the Wild Goose
Pagoda, a structure built
to highlight famous
Buddhist monk Xuan
Jang’s journey to India
in 645 AD through the
ancient Silk Road
Xiaoping. The offer involved mutual
concessions on the western and
eastern sectors, according to Yang,
a former diplomat in the Chinese
Foreign Ministry.
The outlines of the deal offered by
Deng involved China making minor
concessions in the western sector,
where it is occupying at least 38,000
square km claimed by India, and
India making similar minor concessions in the east, where China claims
90,000 square km. “We offered but
Prime Minister Gandhi didn’t have
a response. After that I felt very sad
we lost the chance,” Yang added.
Deng, it has been reported, even
suggested renaming the contested
McMahon Line in the east a new
“India-China line”.
With Modi and Xi set to meet in
Beijing next month, there are high
expectations in Beijing that “two
strongmen” can make headway – if
u 47 u
M AY 11-2 4 , 2 015
not solve – the long-running dispute.
But will Modi push for a solution?
“A strongman can make strong decisions. I believe if two strongmen can
have a strong wish to settle, that
can make a good deal acceptable to
everyone. China is ready and willing
to have a new border,” said Yang
China watchers like Arun Shourie, however, have been exercising
caution in dealing with the Chinese
who are known to be tricky customers. Shourie feels India’s best bet lies
in lessening tensions on the border,
instead of trying to reach “breakthrough agreements”, so that there is
progress in other areas.
Indications are that to resolve incidents of stand-offs and ensure peace,
India and China will soon have more
meeting points between their respective armies on the Line of Actual Control in Ladakh with a hotline link at
the local level. The two nuclear-capable countries will also have a hotline
link between their army headquarters in New Delhi and Beijing.
Whatever the outcome on the
border issue, both sides will have to
keep in mind that it is imperative
to be friends with your neighbours,
rather than to have a long, expensive
and nerve-racking relationship. One
needs to remember that the largest bilateral trade is between the US
and Canada at $324 billion. When
neighbours become friends and trade
partners, both prosper.
It is also worth noting that even
without active government support
on either side, and even in the face of
misgivings, trade between India and
China has grown from just around
$1 billion a decade ago to almost $70
billion last year. Many reckon this
could double in five years.
Modi’s visit to China will be
closely watched in India by the political class, and by diplomats all over
the world. Every word will be analysed, every gesture interpreted. The
Chinese Communist Party establishment is already sizing up every move
of his. The China outing is thus a
tightrope walk, unlike his past foreign trips which have been pr successes that boosted his local stock.
u R A K ESH J OSHI
[email protected]
Focus
India takes concerted
steps to modernise and
upgrade its military
mdl workmen
see off the
‘undocking’ of
Kalveri
Upgrading our armoury
A
s a resurgent India seeks to
achieve transformative growth
and development, it is pursuing, albeit belatedly, a robust
defence strategy aimed at addressing the conventional and non-conventional security challenges faced
by it. Concerned by the critical gaps
in the tactical and strategic defences
of its armed forces that have hitherto
been largely served by vintage Soviet-era military hardware and by the
concerted expansion of the offensive capabilities of both Pakistan
and China on its frontiers, India is
unveiling a massive programme to
modernise its arsenal. Global arms
vendors, as also domestic suppliers, are preening themselves at market estimations that India will be
spending $250 billion (`15,80,000
crore) over the next decade to upgrade
its military.
India’s defence budget is 1.78 per
cent of the national gdp, in contrast
to 2.5 per cent for China and 3.5 per
cent for Pakistan. Moreover, only
about 40 per cent of India’s defence
budget – ` 94,588 crore ($15 billion) of `2,46,727 crore ($39 billion)
for 2015-16 – is earmarked for capital acquisition and upgradation, the
balance apportioned towards ‘revenue head’ that is largely for salaries
and day-to-day items for the troops.
Commissioning the indigenously
designed and constructed 6,800tonne ins Kolkata, the lead ship of
three such guided-missile destroyers for the Indian Navy, last August,
Prime Minister Narendra Modi had
said ‘defence upgrade’ was his government’s priority. “A modern military
armed with state-of-art weaponry
alone is a guarantee against war,”
he noted.
In June 2014, in his first outing
after taking charge as Prime Minister on 26 May, Modi had dedicated
to the nation India’s largest warship,
the 44,500-tonne Russian-built aircraft carrier, ins Vikramaditya, that
had been commissioned in November 2013. In August 2013, India
launched its first indigenously made
carrier, the 37,500 tonne Vikrant,
three years behind schedule. It will
now join service by 2018 after extensive trials starting in 2016. The Indian
Navy thus has two carriers again after
a breach of 17 years, one each for the
Western and Eastern seaboards. The
Navy’s maiden ex-British carrier, ins
Vikrant, commissioned in 1961, was
u 48 u
m ay 11-2 4 , 2 015
paid off in 1997, and its second exBritish flatdeck, ins Viraat, has been
sailing with the force since 1987 and
will be decommissioned once the
new Vikrant enters service.
mdl is also executing Project 75
(P 75), the `23,560 crore ($3.73 billion) order for constructing six
ssk Scorpene 2000 attack submarines under transfer of technology
(ToT) signed with France’s dcns in
2005. The first submarine, Kalvari,
work on which began in 2006, was
‘undocked’ on 6 April for harbour
and sea trials. It is set for launch in
September and for commissioning a
year thereafter. The remaining five
Scorpenes will be joining service
at intervals of one year. dcns India
managing director Bernard Buisson
terms this the first contract his company is implementing entirely in the
client country. “Submarine manufacture is a highly specialised high
technology endeavour and dcns
has been satisfied with the competency and astuteness of our Indian
partner,” he remarks.
High technology indigenisation
Visakhapatnam, the first of the
four P 15-B indigenously designed
Focus
7,300-tonne stealth destroyers, was
launched from mdl on 20 April. To
be commissioned in 2018, the 163metre vessel has been designed by
dnd and built by mdl, the latter’s
Warship Overseeing Team guiding all stages of her progress. “The
P 15-B stealth destroyers bear testimony to the Indian Navy’s prowess
in designing state-of-art naval combatants comparable to the best in the
world,” said Adm Dhowan. “Their
design once again marks the Navy’s
firm commitment towards indigenisation by using high end technology in weapons, sensors, machinery
and stealth, their indigenous content
being a notch above their illustrious
predecessors in line with the ‘Make
in India’ policy of our government.”
mdl chairman and managing
director (cmd), Rear Adm R.K. Shrawat (retd), says his shipyard will also
aspire for the imminent `50,000
crore ($7.91 billion) P 75 India (P 75I)
tender for building six more dieselelectric submarines.
“The major drawback in Indian
shipbuilding had been its archaic
infrastructure, which is now being
diligently modernised and backed
by the attendant skills in design,” he
notes. “mdl just concluded its `826
crore Mazdock Modernisation Project designed to significantly enhance
The Indian Air Force (iaf) is simits warship and submarine construction capability.” Additionally, ilarly hamstrung by the delay in the
a new `220 crore submarine sub- medium-range sam (mr-sam) project
section assembly shop will enable of `10,076 crore sanctioned in 2009
simultaneous construction of two for joint production by the same two
lines of submarines.
agencies. The two sam systems are
The Indian Navy has over 40 war- now slated for induction from 2016
ships on order in Indian shipyards onwards and will be produced by
at a cost of over `200,000 crore. Defence Public Sector Undertaking
The problem is that frontline war- (dpsu) Bharat Dynamics Ltd.
ships are being commisThe Cabinet Comsioned without adequate
mittee on Security has
“area defence weapon” Frontline Indian
yet to approve the ongobecause of production warships are being ing XIIth Defence Plan
and induction delays
2012-17 and Long-term
commissioned
of the weaponry. The
Integrated
Perspective
Plan 2007-22 and without
`2,606 crore project for without adequate
these essential approvals,
joint development of “area defence
defence procurement is
the long-range surface- weapon” because
being resorted to through
to-air missile (lr-sam) of production and
ad hoc annual prosystem by the Minis- induction delays
curement programmes
try of Defence’s (MoD’s)
of the weaponry
rather than being based
Defence Research and
on prioritised long-term
Development Organisaplanning.
tion (drdo) and Israeli
Amber Dubey, partner & India
Aerospace Industries (iai) had been
sanctioned in 2005, but was tested head, aerospace & defence, kpmg, a
only weeks ago. This missile, with global consultancy, believes India’s
an interception range of 70 km, is ammunition reserves will last only
being developed for both the Indian 20 days of a two-front war. “Some
and Israeli armed forces and is a gen- estimate them to last much less, since
eration ahead of the 9 km intercep- projection of ammunition usage is
tion range Israeli Barak I anti-missile at best an educated guess. The seridefence system that equips 14 war- ous shortfall in defence was twice
ships at present.
underscored by the nation’s cag in
Technology partnerships between Indian companies and Foreign OEMs
Indian company
TATA Group
Larsen & Toubro
WIPRO
Mahindra Group
Foreign OEM
Sikorsky Aircraft Corporation
Israel Aerospace Industries
EADS
Thales Optronic
Boeing
EADS
Raytheon
Pratt & Whitney
Fincanteri
BAES
BAES
Lockheed Martin UK
Telephonic Corporation
Precision Electronics Raytheon
Pipavav
Bharat Forge
Reliance Industries
Saab
Babcock
Elbit
Dassault Aviation
Work domain
S-92 Helicopter cabins
Manufacture of defence products
Advanced tactical communication systems
Solutions for multi-role combat aircraft; aerospace component work
P-8I reconnaissance planes, naval systems
Manufacture high-end defence electronics
Upgrade of T-72 tanks
Aircraft engine components
Fleet refuelling tankers, naval systems
Commercial aerospace projects
Up-armoured light vehicles, specialist military vehicles, mine protected
vehicles, artillery systems
Information System Simulators
Radars and electronics
Developing and providing communication technology Dynamatic Technologies
Boeing Manufacturing cabinets for housing critical equipment on Boeing
P-8I aircraft
Naval combat system design and architecture
Warships
Artillery and mortars systems solutions
Defence and homeland security
Source: Media reports, Axis capital
u 49 u
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Focus
BrahMos ceo & md S.K. Mishra with a model of the home-made supersonic cruise missile
2011 and 2012, and the by the Par- are a staggering 40 times its exports.
liamentary Standing Committee on Parrikar informed Parliament that
“direct payments to foreign vendors
Defence.
More ominously, then army for capital acquisitions” for the three
chief, Gen V.K. Singh (retd), who is services over the previous five years
totalled `1,03,535 crore.
now minister of state
for external affairs, had
In contrast, the five
written to then PM kpmg, a global
dpsus, four shipyards,
Manmohan Singh in consultancy,
39 ordnance factories
March 2012 about the believes India’s
as well as the private
‘critical hollowness’ in ammunition
sector combined manthe army’s operational
aged to export defence
reserves will last
preparedness.
Noting
equipment worth only
that many weapons only 20 days of a
`1,644 crore in the last
and equipment were two-front war
three years. With the
outdated or borderfailure of the drdo
ing on obsolescence, he
route towards indigenistressed that artillery and air defence sation and guided by the PM’s catcharms urgently required modern phrase of ‘Make in India’ to enhance
guns, missiles and radars, while the self-reliance by spurring domestic
aviation corps needed new helicop- manufacture, the MoD is keen on
ters to replace the ageing fleet.
marshalling private enterprise in
Imports have been the mainstay of its pursuit of military modernisaIndia’s defences – 70 per cent of the tion. Last August, the ministry raised
defence capital budget is imported – the Foreign Direct Investment (fdi)
as generous outlays to the dpsus failed limit in the defence sector from 26
to foster a credible Defence Industrial per cent to 49 per cent to encourage
Base (dib). Time and cost overruns partnerships between domestic and
have plagued most projects developed foreign arms manufacturers. Indian
by drdo, which has been munificently industry has been keen to participate
funded since its founding in 1958 but in the defence field, but has looked
to foreign collaboration to assimilate
has had little to show for it.
the necessary capital, high-end technologies, quality production and
Import dependece to continue
While such dependence on imports management skills. Deterred by the
seems likely to continue in the fore- low fdi limit, foreign vendors had
seeable future, Modi desires India to preferred outright sale over joint probecome a major arms exporter. The duction. The MoD estimates a mere
fact is that India’s arms purchases `24.36 crore of fdi to have flowed
u 50 u
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into the defence sector between 2000
and 2013.
Vice Adm S.K.K. Krishnan (retd),
former
Admiral
Superintendent
Dockyard, Mumbai, and cmd of
mdl, avers that even a successful
venture like the Indo-Russian jv on
the BrahMos supersonic cruise missile system requires significant foreign components. “Even a decade
after the programme was launched,
India has not been able to export it,
including to the Russians,” he says.
“Most foreign oems willing to set up
shop here would be unable to sell the
products to their own countries and
it would not be easy to export a ‘foreign made’ weapons system as every
aspect of the business, starting with
the brand name, leading up to ownership of ipr, would go against us.”
Over the past few years, the US, as
also Israel and France, have evolved
as major armament suppliers to
India, which had previously relied
almost entirely on the erstwhile
Soviet Union with which it had abiding ties bolstered by a convenient
rupee-rouble trade link. It has been
a vicious cycle. Over-dependence on
imports has restrained development
of a substantive dib, while the shortcomings of the drdo and its 52 laboratories, the 41 ordnance factories
and eight dpsus in indigenising warfare systems have ensured that India
remains a purchaser rather than a
builder in this field.
Nikhil Gandhi, non-executive
chairman, Pipavav Defence & Offshore Engineering Co (pdoc), notes
that though this practice of largescale
imports ensures timely deliveries, it
renders India entirely dependent on
overseas supply of spares and aftersales support that are highly critical in times of conflict. “If the same
weapons are made in India – with
foreign collaboration – we will be
protected against the whims of any
foreign government or company,” he
explains. Sweden’s Saab ab has made
a strategic investment of `200 crore
in pdoc, which, after foraying into
naval shipbuilding in 2010, is now
diversifying its capabilities.
Pipavav will be leveraging its tie-up
with Saab to acquire state-of-art
technology for naval c4i (command,
Focus
Indigenously destroyed and constructed destroyer, ins Kolkata
control, communications, computers & intelligence) systems, weapons
and sensors. It will also bid for the P
75I tender, identifying a foreign partner once the specifications for the six
diesel-electric boats with advanced
Air Independent Propulsion (aip) and
Combat Management System (cms)
are clear. “pdoc has a modern Warship Design Centre and is designing
and constructing five opvs for the
Coast Guard,” says Gandhi.
Private sector to the fore
Dubey says that India’s Big 5 – Tata,
l& t, Mahindra, Godrej and Walchandnagar – are already supplying to the defence forces. “They’ve
shown their capability to develop
as also absorb technology and scale
up production processes to serve
the needs of our defence forces,” he
remarks. These firms, through jvs
and consortia, are vying for most of
the multi-billion dollar defence contracts on offer.
M.V. Kotwal, whole-time director
& president (heavy engineering) of
engineering & construction giant l&t,
says his company sees award opportunity of $18-20 billion each in army
and navy. He mentions that l& t is
since 2002 the only corporate in India
with licences to make the entire range
of defence equipment for all four services, including the Coast Guard. The
company has invested `3,989 crore
in the 1,225-acre Kutapalli Shipyard
on the east coast, where it aspires to
Hawk trainer fitted with home-made Adour Mk871 engine
build the P 75I submarines and other Numerous other Indian companies
naval orders.
with their jvs are competing for this
Tata Sons is investing $35 bil- project that is intended to replace
lion over the next three years in the the army’s 2,600 bmp iis (Russianfour verticals of defence & aerospace, made Boyevaya Mashina Pekhoty)
retail, infrastructure and finance. second-generation infantry fighting
The defence business generated $387 vehicles in use since the 1980s.
million in turnover for the group
India’s ‘defence procurement prolast year, and the 14 group compa- cedure’ enunciates indigenous develnies involved in the sector have an opment through three approaches.
order book exceeding $1.3 billion, Strategic, complex and security sensays Mukund Rajan, brand custo- sitive systems will remain the predian & chief ethics officer, Tata Sons. serve of the drdo and managed
“There is tremendous scope for the through the Defence r&d Board.
Indian private sector to play a much Low technology mature systems will
bigger role in defence,” he remarks. be categorised as ‘Buy Indian’ with
“The private sector today has a rel- minimum 30 per cent indigenous
atively small percentage share of content. High technology complex
the total Indian defence spend, systems will be identified as ‘Make’
and significantly less than in many and will be undertaken by Indian
other countries.”
industry, dpsus, ordnance factory
Tata and l& t are bidding for India’s boards and consortia on a level
biggest ever indigenous defence con- playing field.
In February, the ‘Make in India’
tract, the `50,000 crore ($8.1 billion)
policy got a boost when
future infantry comtwo
Indian
consorbat vehicle (ficv) proTata, l&t,
tia were selected under
gramme. This contract
‘Make’ category for the
for 2,600 ficvs was con- Mahindra,
ceived in 2009 under Godrej and
`40,000 crore ($6.33 bilthe ‘Make’ category, but Walchandnagar
lion) Battlefield Manthe letter of intent ( loi) have shown their
agement System ( bms)
was suddenly with- capability to
contract for integrating
drawn in 2012, only to
all surveillance resources
develop as also
be revived recently, by
available at the battalwhich time the UK’s absorb technology
ion or regiment level,
including from locally
bae Systems opted out and scale up
of its jv with Mahin- production for our launched
uavs
and
dra Defence Systems, defence forces
ground sensors. Fourciting undue delay.
teen contenders had
u 51 u
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Focus
formed four consortia to vie for this
prestigious contract. The two selected
– one comprising Tata Power Strategic Engineering Division (sed) and
l& t and the other, Rolta India and
the dpsu, Bharat Electricals Ltd ( bel)
– will each be tasked to develop four
bms prototypes for mountain, jungle,
plains and desert operations. The bms
will pinpoint the locations of Indian
and enemy troops and key weapons
platforms as well as facilitate terrain
analysis to achieve improved situational awareness.
Gun-mounted talin
`10,000 crore ‘Make’ contract
to develop locally produced techTata Power sed and l&t, together nologies,” he notes. “Our company
with hcl Infosystems and bel, with had begun a partnership with hal
a private special purpose company over 40 years ago to manufacture
(spc), are two consortia selected for and support high-technology prodanother major ‘Make’ contract, the ucts in India.”
Another oem that cherishes its ties
one for the `10,000 crore ($1.6 billion) Tactical Communication Sys- with India is Britain’s Rolls-Royce.
tem (tcs) that will replace the ageing Steven Gillard, its Vice President,
Army Radio Engineering Network Customer Business – Defence, says
(aren). The two selected teams are his company has worked together
now to build two prototypes of the with India’s armed forces since 1933,
when the iaf took to
tcs, seven of which
will be produced for the Rolls-Royce is
the skies with Rollsseven army commands.
Royce Bristol Jupiter
working towards
The two prototypes will
engines. “Over the past
be put to trials and the the indigenisation 60 years, Rolls-Royce
selected competitor will of India’s defence
and hal have produced
produce the entire tcs.
a wide range of engines
industry by
together for various milTata Power sed has partnerships with
tied up with several
companies which itary applications, like
the Adour Mk811 that
global vendors in the
has powered the Jaguar
defence space, one of are committed
since 1981 and Adour
them being Honeywell to delivering the
Mk871 that has since
Aerospace, whose India government’s
2008 been powering the
president Arijit Ghosh ‘Make in India’
new Hawk Advanced Jet
says the partnership for vision
Trainer, used to train the
local production of the
next-generation Indian
Honeywell-patented Tactical Advanced Land Inertial Naviga- pilots,” he mentions. “Rolls-Royce
tor (talin) will fill a significant gap in is working towards the indigenisaIndia’s defences. “talin enables vehi- tion of India’s defence industry by
cles and artillery to navigate precisely, exploring strong partnerships with
even where gps satellite guidance is companies that share our goals and
not available, to increase troop safety we are also committed to deliverand maximise mission success,” he ing the government’s ‘Make in India’
remarks. He explains that talin is a vision that aims to position India as
high-accuracy shock-stabilised posi- a global manufacturing hub.”
India’s largest defence deal so far
tion and pointing inertial navigation
system based on the Honeywell Ring has been the $22 billion (including
Laser Gyro and Quartz Accelerometer lifecycle costs) contract won in Jantechnologies. “The talin co-produc- uary 2012 by France’s Dassault Avition builds on Honeywell’s long his- ation for 126 of its Rafale medium
tory of working with India in India multi-role combat aircraft (mmrca)
u 52 u
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for the Indian Air Force (iaf). The
process began in 2005 with a request
for information (rfi) issued by the
iaf for a new frontline jetfighter to
replace the vintage Soviet-era mig21s that had been its mainstay since
the early ‘80s. The iaf is now hamstrung by a depleted fleet of just 34
combat squadrons against a sanctioned strength of 39.5, but negotiations were stalled over pricing and
guarantee clause. Originally, 18 were
to be purchased outright, the remaining 108 are to be built under transfer
of technology by state-owned Hindustan Aeronautics Ltd (hal). Dassault has been reluctant to accept
responsibility for these fighters to be
built by hal as far as liquidity damages and timelines for production
are concerned, contending it cannot
guarantee what hal produces. The
last 60 planes are to have 90 per cent
Indian content.
On his trip to France last fortnight, Modi, however, concluded
an agreement with Paris for the outright purchase of 36 Rafales. It is yet
unclear as to what will happen to the
rest of the mmrca deal.
Maintaining that India needs
to adequately militarise in the context of the threat scenario it confronts on two fronts, kpmg’s Dubey
suggests a step-up in defence modernisation and indigenisation with
a focus on future technologies like
stealth, unmanned systems, satellite surveillance and cyber-warfare. China, he says, is a generation
ahead when it comes to militarisation and the gap is increasing. “Beijing has succeeded in higher degree
of indigenisation after decades of
dependence on imports from the
USSR and reverse engineering,” he
avers. “It is developing two prototypes for fifth generation fighters,
Chengdu J-20, which made its first
flight in 2011 and is expected to be
operational by 2017-19, and Shenyang J-31, which is undergoing
flight testing.” China, he adds, also
supplies more than half the defence
equipment required by Pakistan
under ‘the enemy of my enemy is my
friend’ theory.
u SAROSH B ANA
[email protected]
Corporate Reports
p h o t o s : s a n j ay b o r a d e
Getting it right
I
n November last year, Dewan
Housing Finance Limited (dhfl)
signed actor Shahrukh Khan
as its brand ambassador. Nothing
unusual there expect for the fact that
this is for the first time in 30 years
that the housing mortgage lender
With a steady focus on
the affordable housing
segment, DHFL bets on a
range of products for the
next level of growth
off and maintains everything is part
of the larger plan.
“Like dhfl, Shahrukh represents
the same set of values,” Wadhawan
explains, adding, “Shahrukh comes
from a middle class background,
started small but made it big. It’s
the same way with us and our customers.” Founded by Kapil’s father,
the late Rajesh Kumar Wadhawan in
1984, dhfl has come a long way since
it began lending to the low cost housing segment. dhfl’s bet on the low
cost housing segment has paid off
handsomely. The company has registered a rise in net profit of 17.45 per
cent to `621.29 crore, while the gross
npa stood at 0.84 per cent for the year
ended 31 March 2015. But Kapil Wadhawan says that profit will go up significantly in the coming quarters.
“We see a huge opportunity in this
segment and a favourable regulatory
environment will boost profitability
further,” he says.
“Nothing depresses me more than
being asked if lending to this segment
is riskier than lending to higher segments. Well many of our customers
have now migrated to the upper segment, since taking their first housing
loan from us, now does that mean
that the risk has reduced?” Wadhawan asks and adds, “He is after all
the same person and so is the risk.”
Wadhawan does have a point, considering the fact that around 30
per cent of dhfl’s customers are
self-employed and belong to semiurban centres across small towns in
India. The company’s average
loan ticket size is `14 lakh and
many of dhfl’s customers do
Wadhawan: a
not have proof of their credit
larger plan
has embarked on such a
worthiness. “We work on a
celebrity brand association
simple assumption that barring
despite being in the retail
a small segment no borrower
lending business for decades.
wants to willingly default on loans,”
Ask company Chairman Kapil Wad- says Harshil Mehta, ceo, dhfl. “We
hawan if there is a new sense of are present in 700 locations across the
urgency in the company; he shrugs it country and have developed our own
u 53 u
M AY 11-2 4 , 2 015
Corporate Reports
model of assessing the repayment
capacity and intent of the customer
borrowing from us,” he says, adding,
“For many of them it would be the
only house they will ever own and
they don’t want to bungle that under
any circumstance, plus there is a huge
social stigma attached to defaults.”
While, knowing its customers may
be the key to dhfl’s impressive run, the
company itself has undergone an overhaul in the past few years. Wadhawan,
who has been with the company since
1997, took over the reigns after the
sudden demise of his father in the year
2000. “He was only 51 when he died
and was still building the company.
But he had laid the ground work.”
Kapil Wadhawan, now 41, maintains
that the early years were challenging
and the toughest of all was to gain the
trust of lenders and regulators. “Over
the years I think we have managed to
achieve that, but it is time for the next
level now,” he says.
Licence to bank
In November last year the Reserve Bank
of India issued guidelines for setting
up small banks in the private sector
with a minimum paid-up equity capital requirement of `100 crore. dhfl
applied for a licence two months later.
“If we do get the licence it will give
us far greater leeway in running the
business,” says a senior company official. dhfl currently has a loan portfolio of around `50,000 crore (aum
`56,900 crore) and largely depends
on institutional investors and domestic borrowings to fund growth. However, dhfl is also among the very few
nbfcs to have been allowed to accept
public deposits by the rbi. “The capital markets are relatively shallow in
India, while ecb caps don’t allow us to
borrow more than $1 billion, which
is negligible,” says a senior company
official. While a banking licence
would definitely add to dhfl’s bottom
line, the company has also been able
to attract significant investor interest
over the years. In March this year, the
company raised over `800 crore in
a qip from overseas buyers. International Finance Corporation (ifc), the
private sector investment arm of the
World Bank group, has formed a joint
venture with dhfl entities to start
Mehta: focussing on a one-stop-shop
an education loan business called
‘Avanse’ and a low-income housing
finance business called Aadhar with
a targeted average ticket size of `6.5
lakh. “Aadhar is very well placed to
take advantage of the low cost housing market which is expected to be
around 1.8 crore homes as per current demand estimates,” says Deo Tripathi, ceo, Aadhar Housing Finance
Company. Similarly, Avanse, which is
into education loans, operates under
the ‘enabling access’ principle. “We
give loans of up to `20 lakh in both
secured and unsecured segments and
so far there is zero npa,” maintains
Neeraj Saxena, ceo, Avanse Education
Loans. dhfl and Prudential Financial
have also formed an asset management joint venture, with dhfl acquiring a 50 per cent stake in Pramerica
Asset Managers Pvt Ltd, pfi’s asset
management business in India. The
deal follows the life insurance joint
venture, where dhfl picked up dlf’s
stake. “Our focus is towards creating a
one-stop-shop for our customers. We
want the same person who comes to
us for a housing loan to also buy life
insurance and our asset management
products from us,” says Mehta. The
proposed asset management business is still at a regulatory approval
stage. dhfl has also started a division
to lend to small and medium enterprises (smes) as part of its loan portfolio diversification strategy. As per
regulations housing finance companies can have a non-housing finance
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portfolio of up to 25 per cent of their
total loans and the foray into sme
lending is in keeping with this norm,
say company officials.
In the meantime dhfl has also
been steadily making acquisitions. In
2003, dhfl acquired a majority stake
in Vysya Bank Housing Finance Limited and later in 2012 it acquired
Deutsche Postbank Home Finance
Limited. “Each acquisition brought in
a different set of synergies for us,” says
Mehta. “Vysya gave us greater access
to the south India market and a robust
portfolio, and the Deutsche Postbank
acquisition brought in slightly higher
income customers for us and from a
risk mitigation perspective this was a
very good mix,” he adds.
As mentioned above, in July 2013
dhfl acquired real estate developer dlf’s 74 per cent stake in life
insurer dlf-Pramerica for `220 crore.
“We were already into selling insurance products from our branches and
the acquisition was a step towards further customisation of the products
because we know what our customers
want,” explains Mehta. This year dhfl
Pramerica posted a net profit of `39.9
crore and new business premium (nbp)
of `577 crore in FY15, registering a 233
per cent growth over FY14. “This is on
expected lines,” says Anoop Pabby, md
and ceo, dhfl Pramerica. “We completely changed the way the company
was doing business and the results are
there for all to see. There is far greater
accountability and focus on cost
Corporate Reports
effectiveness than before.”
But for Kapil Wadhawan, who took
over the company when he was 26
and ran it almost singlehandedly, how
easy has it been to delegate control of
businesses to professional managers?
“In the past few years there has been
a concerted effort by Kapil to take a
step back and get a professional team
to handle things,” says a senior member of Wadhawan Holdings, which is
the group’s corporate office and the
holding company that looks after the
diversified business interests of the
Wadhawan family. And over the years
a number of senior professionals have
joined the group including Harshil
Mehta and Anoop Pabby who were
both handling different functions in
dhfl before being elevated to their
current roles. “My vision is clear,” says
Kapil Wadhawan. “We want to be an
integrated financial services company
managed by professionals.” But company insiders maintain that nothing
really evades Kapil’s watch. Ask him
this and he responds with a smile,
“We have created ‘WhatsApp’ groups
of managers of various verticals and
they are free to ‘ping’ me anytime
they want to flag any issue.”
Separate ways
At the same the Wadhawan group,
which was founded by brothers
Rajesh and Rakesh Kumar Wadhawan, has consolidated the ownership
of the various group companies. As
part of the restructuring in 2009,
Kapil’s uncle Rakesh Kumar Wadhawan and his cousin Sarang took complete charge of hdil, one of India’s
larger real estate companies, while
Kapil and his brother Dheeraj Wadhawan (sons of Rajesh) took over
the management of Dewan Housing
Finance Ltd (dhfl), Wadhawan Retail
Pvt Ltd, Wadhawan Global Resorts
and Hotels Pvt Ltd and Wadhawan
Lifestyle Retail Pvt Ltd. “The split was
amicable,” says Kapil. “ From the very
beginning my father was focussed on
the financial services business while
my uncle has handled the real estate
vertical, so we finally decided to end
the cross holding.” But while Kapil
has moved steadily to changing perceptions of the group, the real estate
linkages of the group have been a
drag. Moreover, with hdil not having an entirely smooth passage in
the last few years, there is no doubt
that there has been a rub off on dhfl,
which takes pains to emphasise it is
a separate entity from hdil . Last year
dhfl even moved out of the hdil
premises in Bandra-Kurla, to make
this point. But some real estate linkages continue, with Dheeraj running
a separate real estate business.
However, Dheeraj continues to be a
director in dhfl, and is a part of the
promoter group that has around 38
per cent shareholding in dhfl. But
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M AY 11-2 4 , 2 015
company officials insist that Dheeraj
Wadhawan is not involved in dhfl’s
operations in any manner. “He is
focussed on the real estate business
and other verticals of the Wadhawan group. The brothers meanwhile
have formed a new company called
rkw Developers Pvt Ltd, named after
their father, which is expected to commence premium residential projects in
prime locations in Mumbai, Pune and
Bangalore. “Yes some plans are underway,” maintains Kapil. “We will talk
about it when they mature, right now
my main focus is the financial services
business.” In the meantime, dhfl has
been working on showing itself as
a serious financial services group.
Last year Mumbai’s renowned investor Rakesh Jhunjhunwala acquired
a stake in the company and he currently holds 3.43 per cent in dhfl . In
the last 12 months there has been a
significant increase in the share price,
which is currently at `432. This gives
dhfl a market capitalisation of a very
respectable `6,238 crore.
“You can say that at dhfl we have
perfected the art of underwriting and
it is based on years of ground experience,” says Kapil Wadhawan, “but
the real asset is our people who work
tirelessly towards creating the complete financial services company that
dhfl is today.”
u DE B ORSHI CH A K I
[email protected]
Corporate Reports
p h o t o s : s a n j ay b o r a d e
Aiming high
Videocon d2h wants to be most loved by its customers
“B
eing the last entrant, we
were not taken seriously
by everyone,” says Saurabh
Dhoot, managing director, Videocon d2h. Videocon d2h was founded
in 2009, a year after Airtel digital tv
began operations in 2008.
However, it has since grown fast
to become a formidable competitor.
It acquired 10 million subscribers
quicker than its competitors. It had
0.44 million gross subscribers as of
31 March 2010, representing approximately 1.9 per cent of the then total
dth gross subscriber base in India. It
then grew to 11.82 million gross subscribers as on 30 September 2014,
accounting for 16.5 per cent of the
total dth subscriber base in India
according to the prospectus it filed
with US Securities Exchange Commission. Last month, Airtel digital
tv announced it acquired 10 million
subscribers. Gross subscribers imply
total number of registered subscribers. Since most are on a prepaid plan,
all subscribers are not always active.
The dth industry in India is as
old as Dish tv, which started operations in 2004. Among the wide range
of businesses the Tatas are present in,
dth is one; Tata Sky started operations
in 2006. Even though Sun Direct, a
dth service by the Sun tv network,
started in 2007 – before Videocon
d2h and Airtel digital tv – it hasn’t
gained much foothold nationally, but
focussed largely on South India. Reliance digital tv or Big tv, which began
operations around the same time, has
not made a big impact either.
Videocon d2h adds about 6,-7,000
new subscribers every day. Dhoot
claims, Videocon d2h currently has
13 million gross subscribers and that
in terms of the number of active subscribers it is at number 3 in the pecking order, after Dish tv and Tata Sky.
Also, according to Dhoot, its customer acquisition cost is `2,000, a
large part of which is used to subsidise the set top box (stb) sold, leased
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or rented to the customer. In the case
of lease, a 7-year contract is signed
during which a fixed monthly lease
rental amount has to be paid. In the
case of rental, a higher monthly rent
has to be paid. Relative to the industry standard of `4,-5,000, Videocon
d2h’s customer acquisition cost is
much lower. This is because Dhoot
claims its stbs are assembled by Trent
Electronics Limited (tel), a Videocon
group company, at a manufacturing
facility in India. Videocon d2h’s relationship with tel, he adds, allows it
to reduce costs of purchase as it is
able to save on import duties since
only parts are imported and not the
whole stb, and reduce time-to-market for new set top boxes. It also benefits from an adequate supply of set
top boxes and a quicker turn-aroundtime for faulty or defective ones.
While competitors do not agree with
this claim, they all agree that Videocon has managed costs well.
Videocon d2h says it takes two years
to recover the subsidy given on stbs
and becoming profitable at an individual subscriber level. It offers channels
Corporate Reports
and value-added services in three tier
subscription packages – entry-level,
mid-tier and high-end. According to
Videocon d2h, tiered offerings ease
subscribers’ decision-making processes, make it more affordable and
enable them to choose larger sets of
channels, which in turn allows it to
maximise its Average Revenue per User
(arpu; see box: Package pricing).
Videocon d2h’s arpu has increased
from `150 in FY13 to `181 in FY14
and `190 in the six-month period
ended 30 September 2014. At the
same time its churn rate decreased
from 0.97 per cent in 2013 to 0.76 per
cent in 2014 and to 0.65 per cent for
the six-month period ended 30 September 2014. The churn rate is the
number of subscribers as a percentage of total subscribers who have not
paid for 120 days or more. It manages
churn through a dedicated subscriber
management team that focusses on c
onverting inactive customers to
active customers.
Videocon d2h’s specialty is in providing ethnic regional content in
each region and offers 185 regional
channels, the highest in the industry
(see box: Digi tech). It has a bouquet
of over 500 international, national
and regional digital channels and services, including 29 hd channels, three
movie channels and 41 audio and
video channels as part of its Music
Channel Services. In India, there are
approximately 813 private tv channels, of which about 187 are pay tv
channels, the rest earn revenue only
from advertisements.
The biggest challenge for channel
owners is to get distributed by the
dth players, or by the cable networks. The carriage fee they pay is
one of their largest costs; and makes
a handsome source of revenue for
dth operators – none of whom were
open to discussing carriage fees. And
there is no set fee; it all depends on
the negotiations between the channel owners and the carriers.
Although there are fewer subscribers who have 4K tvs, the 4K channel is already here and dth operators
believe it is the future. It gives them
the opportunity to increase their
arpu as they add more 4K channels
going forward, apart from hd. Videocon d2h claims to be the first to
launch the 4K Ultra hd Channel and
4K stbs this year. Also, certain popular hd channels such as Star Plus hd,
Zee tv hd, Colors hd, Star Gold hd,
Star Sports hd -1 and hd -2, Star Movies hd, Star World hd, Discovery hd
and National Geographic Channel
hd aired for the first time in India on
Videocon d2h’s platform, according
to Videocon d2h.
Going public
April 2011 through September 2014
was a high growth period for Videocon d2h. During this period, it added
approximately 9 million gross subscribers across India. But, in going
after growth aggressively, Videocon
d2h has accumulated heavy debt. As
of 28 February 2015, Videocon d2h
had an outstanding secured debt of
`3,201.93 crore, from banks and financial institutions, and an unsecured
loan of `225 crore from Videocon
Industries, the flagship company of
the Videocon group. To raise money
for retiring part of the debt and continuing its focus on customer acquisition, it went public on the Nasdaq
Stock Exchange in New York in the
first week of April 2015. But, before it
went public, twice it had attempted to
list on Indian bourses.
It had sought sebi’s approval first in
December 2012 and then September
2014. Even after sebi’s nod, it didn’t
go ahead with the listing because
the markets were not buoyant. The
attempts to list on the Indian bourses
were at a high growth phase when
it was trying to raise capital to fund
growth. “We have tried to list in the
country in the past but investors were
not warming up to the country, forget warming up to the company,” says
Dhoot. For its third attempt, it considered listing on the Nasdaq. Perception
says that listing on the Nasdaq gives
a company better valuation, apart
from the widespread media coverage.
But, until late 2013 unlisted companies incorporated in India were not
allowed to list or issue gdrs abroad.
In 1990, unlisted companies
were allowed to list overseas. But,
in 2005, the government banned it
to prevent the possible shift of regulatory jurisdiction for companies
to foreign regulators, even though
unlisted companies were allowed to
raise foreign debt. However, eight
years later, in 2013, the government
allowed unlisted companies to list
on stock exchanges outside India.
The change in regulation opened the
doors for Videocon. And when there
New subscribers
Videocon d2h
Dish TV
Airtel Digital
Tata Sky
Reliance Digital
0.44
2.42
2.62
2.55
2.43
0.76
0.61
1.37
1.83
3.54
2.46
2.22
1.45
0.57
0.63
1.20
2.25
3.29
2.44
2.22
1.81
0.57
0.45
1.02
0.58
1.76
1.67
2.37
2.30
0.65
0.54
1.19
1.00
0.96
0.81
0.39
0.09
0.04
0.01
0.05
FY10
FY11
FY12
FY13
FY14
Q1FY15
Q2FY15
H1FY15
Source: MPA Report
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Sun Direct
3.60
1.43
0.98
0.88
0.70
0.22
0.18
0.40
Gross subscriber
additions DTH
Industry (million)
9.70
13.40
10.98
10.63
8.78
2.81
2.43
5.24
Corporate Reports
was positive sentiment in the world,
especially US, about India, the time
was right to list on the Nasdaq.
Videocon d2h sold American
Depository Receipts worth $325 million to a single entity, Silver Eagle, by
diluting a 33.5 per cent equity stake.
With this listing, more in the nature
of a private placement, it achieved
several firsts. It became the first
Indian company to list overseas since
the year 2000. Also, it received a valuation of $1.15 billion that made it
the most valued Indian company on
the Nasdaq.
Harry Sloan, chairman and chief
executive officer, Silver Eagle and Jeff
Sagansky, president, Silver Eagle, have
held various positions in Hollywood.
Sloan and Sagansky are on the board
of Videocon d2h. “They bring tremendous value to the company. They
know how media operates and have
many ideas,” says Dhoot. “They’re
very well connected in Hollywood.
We would be able to further add Hollywood content.” But it is not clear
whether Silver Eagle is a long-term
investor or merely a financial investor. Of the $325 million raised from
Silver Eagle, $100 million will be used
to repay debt. The balance will be
used to expand its operations in India
and acquire subscribers.
In the expensive activity of acquiring subscribers, it helps Videocon d2h
that it is a Videocon group company,
and that the brand name ‘Videocon’ is well known. For the use of the
‘Videocon’ and ‘V’ trademarks, Videocon d2h has entered into a trademark licence agreement with ce India
Limited (previously Videocon India
Digi tech
V
ideocon d2h broadcasts
its 500-plus channels and
services by using 10 transponders that it has leased. Its transponders, in terms of numbers
are fewer compared to competitors, but the number of
channels offered is dependent
on the compression technology used. It uses mpeg-4
technology for high compression of video and dvb-S2
Limited), a Videocon group company
which is valid until 31 March 2022.
Its annual marketing spend is `100
crore. The Videocon group is also
willing to guarantee the majority of
Videocon d2h’s loan agreements.
Even though there are many
advantages of being a Videocon
group company, Dhoot says that this
is a service business and it all boils
down to the after-sales service. “Very
good after-sales service is the single
most important reason of our success,” says Dhoot. “Because, this is
a basic service and is the cheapest
form of entertainment.” Videocon
d2h does more than 97 per cent first
time installations within four hours
of receiving a request and over 85 per
cent fault repair within 6-8 hours.
Its total workforce is about 25,000,
including service engineers and call
centre staff. It has over 2,800 distributors and direct dealers, and
more than 150,000 sub-dealers and
recharge counters.
Dhoot also claims that Videocon
technology for efficient transmission of satellite signals,
allowing more channels to
be carried on each transponder. Only if a dth operator
has all the set top boxes using
the same compression technology, can it achieve bandwidth efficiency. Until then,
they cannot have this advantage. All players use mpeg-4,
dvb-S2 to broadcast hd channels but only Videocon d2h
and Airtel digital tv use them
d2h has never had a major outage
and points to the public outcry on
Twitter due to disruption in Tata Sky
services. Tata Sky declined to comment. But on the ku band, which all
dth players use, heavy rains inevitably cause moments of disruption.
Even though there are six players
in the dth industry, 90 per cent of
the dth market is controlled by four
dth operators – Tata Sky, Airtel digital tv, Videocon d2h and Dishtv. As
of 30 September 2014, the dth industry in India had 70.33 million gross
subscribers, beating all estimates, of
which 39.13 subscribers were active. In
terms of market share, Dishtv (along
with Zing, its regional dth brand) has
approximately 26 per cent; Tata Sky
has 20 per cent and Videocon d2h
has 18-19 per cent. But all agree that
Tata Sky, which doesn’t publish numbers, is still the most profitable with
the top end customers.
dth operators have benefited from
the digitisation programme introduced by the government. It introduced the digitisation of analogue
cable for better use of bandwidth,
but also because cable operators were
under reporting the number of subscribers and that was resulting in the
loss of revenue to the exchequer.
dth transmission has always been
digital and before digitisation, people were choosing dth because of
its service and choice of channels,
which were not provided by cable
operators. But, even after digitisation
of cable, the dth industry continues to get growth from urban, metro
areas, which are dominant areas for
cable operators.
to broadcast all channels and
not just hd. The higher efficiency due to this compression standard allows Videocon
d2h and Airtel digital to offer
more interactive services. But,
early entrants in the industry are at a disadvantage
here. Dishtv has 20 transponders and it uses mpeg-2 digital compression technology
for sd (Standard Definition)
channels and mpeg-4 digital
compression technology for
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hd channels. Dish tv is shifting to mpeg-4 compression.
Same goes for Tata Sky which
has 12 transponders and is
replacing its mpeg-2 stbs with
mpeg-4, to achieve bandwidth
efficiency. The transponders are all leased from different satellite operators, but
the bulk of the channels are
carried on the government’s
insat system, which has the
maximum number of satellites with an Indian footprint.u
Corporate Reports
In phase one of digitisation, which
took place in the metro cities of
Delhi, Mumbai, Kolkata and Chennai and phase two which included
all the cities with a population of
more than one million, dth operators have so far added 12.3 million
subscribers against 18 million subscribers of digital cable.
dth players have also established a
vast rural distribution network where
cable operators do not have a significant presence. Digitisation in these
areas, which fall under geographies
covered in phase three and four, is
underway. In these two phases, dth
players have 28 million subscribers against the six million of digital
cable. Also, there is huge potential for
dth and digital cable operators to add
97 million new subscribers in these
two phases which are currently using
analogue cable, terrestrial television
or free satellite.
ll the players have similar packages.
And the lowest priced packages
are those targeted at the South Indian
audience with heavy regional content.
But, the biggest market for dth players is the Hindi speaking market. Videocon d2h, which has the portfolio of
largest channels among dth operators, has priced its packages between
`160-540. Airtel digital tv has similar
pricing starting at `99, with the highest package going up to `565. Tata
Sky’s packages are priced between
`190 and `470. Interestingly, Tata Sky
also charges an hd access fee of `125
per month, if the package selected by
the customer has an hd channel in it.
Dish tv ‘s packages are priced between
`240 and `499, but it also has a regional
brand Zing, which specifically caters to
regional viewers, starting at `185. u
Still in the red
Videocon d2h’s loss has come down
from `352.43 crore in FY13 to `319.55
crore in FY14. For the six-month
period ended 30 September 2014,
its loss was `117.42 crore. Its revenue
from operations increased by 36.9
per cent to `1,110.89 crore for the sixmonth period ended 30 September
2014 from `811.30 crore a year ago.
This increase took place as a result of
an increase in total subscription revenue due to an increase in the total
number of gross subscribers to 11.82
million as of 30 September 2014 from
9.2 million a year earlier. According
to Dhoot, Videocon d2h will become
profitable this year.
But, Dish tv is also on the verge of
achieving profitability and its loss has
narrowed down to `2.9 crore in the
September-December 2014 quarter
from `38.25 crore last year. For FY14,
its total revenues were `2,508.98
crore and loss was at `154.21 crore.
Tata Sky and Airtel digital tv (not
being listed) did not publish their
numbers. For the next 2-3 years, subscriber acquisition is the focus of the
industry. And post that, subscriber
growth will slow down and the focus
will shift to consolidation and monetisation. As the different dth players become profitable, the valuations
soar. All of them are focussed on creating long-term stable cash flows (as,
having bought stbs, few customers are prone to switching operators)
with very high valuations.
Profitability can be achieved when
arpu increases. It will increase when
subscribers buy premium packages
which offer hd channels, which
these operators are pushing hard
for. According to the latest figures
available (end 2013), there were 2.6
million active hd subscribers. The
probability of increasing the number
of existing subscribers and new subscribers going for premium packages
is higher because the newer televisions sold are large in size and to utilise them effectively the transmission
should be hd or higher. Among dth
operators, Dish tv has 40 hd channels – the highest in the industry.
Also the carriage fees are only going
to go up. In addition all dth operators also use their subscriber base to
offer another tool to direct marketers – another source of small, no cost
revenue
Even while the industry is focussing on subscriber acquisition and
launching hd channels, there may
be a threat from the popular trend of
television viewing on the Internet.
Package pricing
A
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Though there are several roadblocks
in doing so, people do use the Internet to watch television. While, television viewing cannot be a preferred
medium as of today keeping in mind
the slow data speed, it cannot be
ignored. It’s all a game of technology. And here, change is the only
constant. dth operators have noticed
the trend and acted upon it. In October 2013, Dishtv launched the DishOnline app on Android and iOS
platforms. It is exclusively for Dishtv
subscribers and can be accessed via
Internet-enabled smartphones, a
computer or tablet anytime, anywhere. Tata Sky, Airtel digital tv and
Videocon d2h also offer the same.
Another big challenge that the
dth industry has been facing is multiple taxation. Ten per cent of the
gross subscription revenue is paid as
the licence fee to the central government. This is in addition to entertainment tax, which varies from state to
state and goes up to 50 per cent in
some states. And 14 per cent service
tax. Roughly 50 per cent of the subscription revenue that dth operators
collect is paid out as licence fees and
taxes imposed by the state and central governments. Thus, the industry has been demanding that till the
gst is not rolled out, it should get a
reduction in paying service tax. “As
the industry is ready to pay the taxes
government is asking for, it should
get the benefit to not be levied by
both the central government and
state government,” says Salil Kapoor,
chief operating officer, Dish tv.
Videocon d2h wants to double
its subscriber base in the next 4-5
years. And for this, after making
two attempts to list on the Indian
bourses, Videocon is very likely to
make another attempt in the next
5-6 months. It has also set an ambitious target to become profit after tax
positive by the end of the calendar
year. But, apart from achieving profitability and being the market leader
in this service business, “We want
to be most loved by our customers,”
says Dhoot. And if it continues its
dedicated focus on service, it is very
likely to become so.
u ROHIT P A NCH A L
[email protected]
Corporate Reports
Essential posturing
Diageo is trying hard to protect itself from regulators
back home by accusing Mallya of corporate
governance lapses
pa l s h r a n ja n b h au m i c k
levelled at him by Diageo were ‘unjustified and false’ and that the said
report by consulting firm PwC was
based on half-truths and twisted facts
against the previous management. “I
do not intend to resign as a director of
usl and shall pursue the contractual
obligations with Diageo plc,” Mallya said in a statement soon after the
board meeting in which the report
was discussed.
“The decision of the board of
directors of usl is based on a report
of PricewaterhouseCoopers, entirely
on the strength of which the Diageo-appointed managing director of
usl prepared his report, parroting
the PwC report,” said Mallya. “The
PwC report essentially deals with
past transactions entered into by usl
between 2010 and 2012, which have
been duly reflected in the audited
accounts of usl without qualification and in full compliance of the
law at the relevant time, and duly
approved by the then directors
of usl and its shareholders.
Prior to acquiring control of
Mallya:
usl, Diageo conducted an
holding all the
extensive due diligence exercards
cise at usl spanning over
four months in the course
of which details of all transactions were disclosed to them. It is,
therefore, surprising that such prior
period matters have become the basis
for actions today,” he said.
And Mallya clearly isn’t the only
one crying foul. Proxy advisory firm
Institutional Investor Advisory Services India Limited (iias) too has
from the company to ub group com- questioned Diageo’s claim that it did
panies, including Kingfisher Air- not know of the intra-group transaclines. The inquiry, ordered by the usl tions that happened between United
board last September, covered trans- Spirits and the ub group under the
actions between 2010 and 2013 and Vijay Mallya-led management. Diasuggested that the manner in which geo had acquired usl from Mallya
these transactions were conducted in 2012. iias asked Diageo as to what
prima facie indicates various impro- compelled it to not run a thorough
prieties and legal violations.
due diligence, and miss asking the
But a combative Mallya, in his char- obvious questions. It also sought to
acteristic style, refuted the charges and know the reasons for backing Mallya
refused to step down alleging instead for the chairman’s post. Stating that
that the inferences and allegations there are no victims in this usl saga,
L
ast month when global liquor
giant Diageo sought to oust
Vijay Mallya from the usl board
as its chairman citing major corporate governance lapses, the timing of
the move and the nature of charges
raised questions about the real motive
behind the move. While asking Vijay
Mallya to step down as chairman of
usl, Diageo cited an internal inquiry
report into certain doubtful receivables; advances and deposits revealed
that funds were allegedly diverted
u 60 u
M AY 11-2 4 , 2 015
Corporate Reports
the advisory firm, however, insisted
that Vijay Mallya step down from the
board of United Spirits Ltd till he is
cleared of the allegations of diverting `3,000 crore from usl to the ub
group and the ‘wilful defaulter’ tag
in the Kingfisher Airlines case.
While the outcome of the tussle remains to be seen, the reasons
fuelling it have more undertones
than what meets the eye say industry sources, as questions on Diageo’s
own integrity remain unanswered.
To begin with the Diageo-usl deal
has been in the pipeline line for a
while now with talks breaking down
intermittently between the two sides
on several occasions over disagreements on valuations and Mallya’s
future role in the company. But one
thing that has remained constant in
all this is Mallya’s troubles with bankers accentuated by the demise of his
Kingfisher Airline. Setting aside popular advice, Vijay Mallya had gone on
pumping copious personal and borrowed money into the airline till he
could no more. Therefore, could it be
possible that Diageo was completely
unaware of the transactions in question? And how Mallya had in the
past used funds from usl to fund his
other ventures. “Right from the very
beginning Diageo knew what it was
getting into and now to suddenly see
red is not fair,” a senior usl source
told Business India. “It looks more like
an attempt on Diageo’s part to plug a
large accounting hole in usl’s books
by tactically distancing itself,” the
source adds.
Subversive deals?
Clearly, for outsiders there is no clear
way to know what transpired in the
discussions leading to the deal but
company insiders say that it is subversive on Diageo’s part to claim that it
was not aware of the fact that a large
portion of liquor businesses run on
cash that is largely unaccounted for
in record books. “On paper India’s
liquor industry is tightly controlled
by a maze of central and state government regulations, where taxes
and levies can account for up to 65
per cent of the consumer price,” says
the senior usl source. “But Indian
liquor companies have learnt to work
usl: more than meets the eye
their way around this over the years.
Therefore it is quite possible that at
least a part of the money missing
from usl’s books could have been
used by Mallya to manage the business which can never be properly
accounted,” the source adds.
However usl insiders maintain that
a part of the outstanding money was
indeed shown as assured receivables
to Diageo by Mallya when the deal
was being negotiated, but in between
things have not gone on expected
lines. “For ftse listed Diageo, which is
bound by anti-bribery laws, the stakes
are way too high and any potential
whistleblower complaint can cost
the company dearly and therefore it
is trying to create a distance between
itself and Mallya,” maintains a former
board member of the ub group. However, if true, such posturing by Diageo
only replicates what Mallya’s lenders
have already sought to do by initiating
wilful defaulter proceedings against
him even as integrity and roles of the
lenders too remains highly questionable. According to sources however,
Diageo clearly has been on a cleansing drive since acquiring the controlling stake in usl. A precursor to
Mallya’s eviction came in April this
year when PA. Murali, usl’s cfo and
executive director, and long-term
Mallya loyalist stepped down last
month over murmurs of corporate
governance issues in the company.
But given the fact that it was Murali
who largely facilitated talks between
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M AY 11-2 4 , 2 015
Diageo and Mallya, Diageo’s claim
that it was completely in the dark
about the accounting practices in ub
seems out of place.
Insiders in usl maintain that Diageo was reasonably aware of the
workings in usl but still decided to
go ahead with the deal because of
the obvious benefits it would bring
in boosting its presence in India.
In addition, Diageo also signed a
shareholder agreement with Mallya.
Under the terms of the agreement
United Breweries Holdings Limited
(ubhl) remains entitled to nominate
one director to the usl board, subject
to them continuing to hold at least
1,307,950 shares in usl and Mallya
continuing to control ubhl . Diageo’s
contractual obligations to support Dr
Mallya continuing as non-executive
director and chairman of usl are subject to these conditions as well as the
absence of certain defaults by ubhl
or Dr Mallya. The terms of defaults
in the shareholders agreement are
not known yet.
With the management transition
of usl almost complete, Diageo may
now want the old guard out including Vijay Mallya, whose continued
presence in usl has apparently been
a reason of discomfort for a while
now. Mallya, it is believed still wields
major influence among usl distributors and can still sway things at usl
if he so chooses.
u DE B ORSHI CH A K I
[email protected]
The road not taken
Birla strengthens the retail business with a two-step merger
Y
ears back, Aditya Birla, in a
private conversation had elucidated the philosophy of the
group. He pointed out that the group
looked at investing in the capital
intensive industry where the entry
level was high. It refrained from
investing in consumer facing industries like toothpaste where the fortunes depended on the fickle tastes
of the consumers. The rewards were
high but the risks were magnified
he had admitted. Of course times
were different and in a License Raj
it made sense to invest in commodities which were in short supply and
move into industries like aluminium, cement and fibres. Aditya Birla
passed away in October 1995 before
the full impact of liberalisation was
felt by the Indian industry.
Kumarmanagalam Birla, who took
over as the chairman, diversified
into consumer-related businesses.
The buyout of Madura Garments,
then a subsidiary of Coats Viyella,
Plc UK, in 1999, was his first major
move into the consumer facing business. It was also strategic in so far as
Birla wanted to have a mix of asset
light and asset heavy businesses in
his portfolio. The acquisition was
made through Indian Rayon (later
renamed Aditya Birla Nuvo) at a cost
of `236 crore. Acquired as a growing
concern along with all its employees, Birla also paid for the licensing
of its premium brands (as also limited overseas rights) including Louis
Phillippe, Allen Solly, Byford and
Peter England. And paid another
`189 crore for acquiring these rights
as also its manufacturing networks.
Birla had even said then, “The acquisition is in sync with our new philosophy of increasing our focus on value
adding sectors which are knowledge
intensive.” The acquisition was effective from 1 January 2000.
Nuvo moves
Over the next 15 years, Kumarmangalam had expanded into several
other consumer facing businesses
including telecom, retail and even
the it and ITeS segments. But Madura
Coates always held a special place in
his scheme of things. And his reading of changing lifestyles following
the growth of disposable incomes
was right. Kumarmangalam stood
vindicated for making his strategic
move.
From a turnover of `250 crore in
FY99 (December ending) the turnover has recorded a 13-fold rise to
reach `3,226 crore. Rapid expansion
of the network and a focus on retail
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M AY 11-2 4 , 2 015
saw the brands making inroads with
the consumers. Brand segmentation
and expansion of the range of apparels including expanding into the
women’s segment helped. Aditya Birla
Nuvo, which acted as a nurturing
company for growing fledging businesses, allowed the business to gain
market share in the branded apparel
segment. During the troubled years
of 2012 and 2013 when other retailers were facing a cash crunch and
problems in servicing debts taken to
expand business, Aditya Birla stood
strong and helped all its group subsidiaries grow by investing through
organic and inorganic means. It took
over group company Jayashree Textiles and also Pantaloon, a listed
apparel retail company belonging
to Kishore Biyani-led Future group.
Biyani, who had built a strong retail
presence, was forced to sell Pantaloon to pare the company’s mounting debts. The Birlas invested `800
crore in convertible debentures and
made an open offer to increase its
stake to 72.5 per cent in the listed
entity. Pantaloon had 100 home
grown brands and a presence in 47
cities across 100 large format stores
and 26 factory outlets.
With the combined turnover of
its apparel business expected to
cross `5,000 crore in FY15, Birla
made another bold move to consolidate the various apparel businesses
housed in Madura Fashion and Lifestyle and Pantaloon into one entity,
Aditya Birla Fashion and Retail. It
would become one of the biggest
apparel retail chains in the country
with 1,869 stores having a combined
retail space of 4.8 million square feet.
The ebidta of the combined entity
was `400 crore in FY15.
The two step merger will involve
the merger of Madura f&l with Pantaloon and thereafter through a share
swap see the new pure play fashion
and retail apparel entity, abfrl, taking shape. Each shareholder of abnl
will get 26 shares of pfrl/abfrl .
Seven equity shares of pfrl/abfrl
will be received for every 500 shares
of Madura f&l .
Post the restructuring excercise,
Pantaloon will cease to exist and
abfrl will be the new entity. Each
existing shareholder of Aditya Birla
Nuvo will in effect get 520 shares for
every 100 shares held by him, currently. Aditya Birla Nuvo’s stake will
come down to a little under 10 per
cent, the public shareholding will be
around 40 per cent with Aditya Birla
group holding around 51 per cent.
Whether the restructuring will
lead to unlocking value for the
shareholders of abnl the market
value of abfrl will be known only on
listing. Most analysts agree that the
new scheme of things will be value
accretive for all stakeholders; one has
to see how Kumarmanagalam Birla
manages the lifestyle apparel business with his other businesses. World
over global retail chains work on
thin margins with volumes largely
Future perfect
Biyani looks at growth through a merger with Bharti Retail
T
his is the season of restructuring and consolidation. With his
exit from Pantaloons where he
started, Biyani has left his super markets and convenience stores. Soon
after the announcement of the consolidation of retail operations in Aditya
Birla Nuvo and the spinning off of
the combined operations into a new
entity, the irrepresible Kishore Biyani
of the Future group and Rajan Mittal of Bharti Retail inked an agreement to merge their operations. Bharti
Retail, which had been carrying out its
retail operations through 216 hyper
marts,convenience stores and super
markets, under the brand Easyday,
would merge its operations with Future
Retail, a listed entity with a market cap
of `4,550 crore to create a pan India
retail giant. While billed as a merger,
in effect Biyani has taken over Bharti
Retail. He will remain the dominant
shareholder, with the Mittals owning about 10 per cent of the combined
entity. Rajan Mittal alone would join
the board of the new company. With
an enlarged capital base and a financially strong partner Biyani would be
capable of taking on the growing competition of large business houses like
Reliance Industries which has moved
aggressively in the retail space over the
last few years.
The composite scheme of arrangement envisages the reduction of capital of Bharti Retail in the first stage
to 4.35 crore equity shares of `2 each.
Future Retail will be merged with
Bharati Retail. Bharti Retail in turn
will issue one share of `2 each to the
shareholders of Future Retail, post
the merger of Future Retail’s operation with itself. The new entity will
be renamed Future Retail. Future Retail in turn will demerge
its retail operations and retail infrastructure and investments into two
separate companies. The latter will be
renamed Future Enterprises and the
former Future Retail. Future Retail will
issue one share of `2 each to shareholders of brl in the ratio of 1:1.
Merging business
Effectively the retail business of
Future will be merged with Bharti
Retail (later renamed Future Retail)
and the infrastructure and investment business of Bharti Retail will be
merged with the infrastructure and
investment business of Future Retail,
renamed as Future Enterprises.
Future Retail will have a debt of
`1,500 crore while Future Enterprises
will have a combined debt of `3,500
crore. The combined entity will have
a turnover of `15,000 crore. At a press
u 63 u
M AY 11-2 4 , 2 015
driving growth. Will Birla’s emphasis
on having affordable design apparel
and an eclectic mix of brands for
men and women be able to do things
differently?
As of now, no one is complaining.
And given Birla’s track record one
can be optimistic.
u D A K SESH P A RI K H
[email protected]
conference held in Mumbai to make
the announcement, Biyani had said
that the smaller stores format will go
up to 2,000 over the next five years.
The merger of the combined entities
will result in considerable operational
efficiencies due to improved productivity and profitability.
Future Retail’s shares rose by
more than 10 per cent soon after the
announcement with the price going
up to `133 on 4 May. This is close
to its 52-week high of `151 reached
in February this year. Future Retail,
which operates Big Bazar, Food Bazar
and Food Hall, had reported a profit
of `2.81 crore on a turnover of `11,577
crore in FY14. For a business which
operates on wafer thin margins, fraction below 1 per cent, any merger/
consolidation which adds to the bottom line is welcome. Bharti Retail,
post the break-up with Wal-mart, has
also found an ally strong in retail in
Biyani’s Future group. It also give the
combined group the opportunity to
establish its own e-commerce play.
While others like Flipkart, Snapdeal
and Amazon have a head start, with
its new deep pockets Future Retail is a
player to watch for in the future.
[email protected]
Guest Column
Honest to God
What’s worse? Tepid Vistara, uncaring Jet
H
onest to God, I had expected more from
Vistara. With pedigreed parents Tata
and Singapore Airlines, actually the
expectations were neither unreal, nor unwarranted. After all, the Tata-Singapore Airlines
combine had waited almost 15 years to takeoff... my old friend Nira Radia, if memory serves
me right, had championed their earlier aborted
attempts to fly as far back as the early 2000s.
For a high-flying project that has been in the
making that long, the Vistara experience is at
best tepid.
The customer experience was actually quite
lonesome, to say the least. To start with I was
at the international airport for a domestic flight.
Vistara flies from Terminal T3 in Mumbai; perhaps the only local airline to do so. I was the
only guy at the business class check-in. The girl
at the counter did not wear
Vistara colours (I think the
check-in was outsourced). She
did not smile. She also struggled
to credit my frequent flier miles
“because you have already telechecked-in,” she said to me. I
didn’t fully understand.
I was the only guy at the
lounge which was a really long
walk away. The poha was soggy,
and the upma was lumpy. The
tea was not even lukewarm.
Again, the facility was I think
outsourced (not Taj, for sure)
and there were no Vistara staff
around. A second attempt at the tea was no better. The tea remained just a notch warmer than
tap-water.
Thankfully, I was not the only passenger in
business class. There was one more. After take-off,
I wandered into the ‘premier-economy’ section.
There were no passengers there. The economy
section was less than half-full. For a 9am midweek Delhi bound flight, full-fare or low-fare,
most other airlines would be full for sure.
The business class seat was sparse, low on
comfort and cushioning. There was no provision
for entertainment, not even a sky-map. But the
plane was new. Very new.
Thankfully the stewardess smiled as she
handed me the menu. The breakfast portions
looked starved. I didn’t eat anything. I won’t
talk of the hot or cold towels or the blanket. It
S A NDEEP GO Y A L
would look as if I have an agenda!
Honest to God, I expect far more from Jet Airways. I have always admired Naresh Goyal. Jet
Airways was a world-class airline through the
1990s. Smart, savvy, service-driven. The arrival
of Kingfisher did put it on the back-foot defensive for a while but did not dent its franchise too
much. I have surely done a couple of million
Platinum miles on Jet in the past 20 years.
But last week when I checked for a flight to
Chandigarh, a round trip on business class from
Mumbai on Jet showed up at `70,000 ! I decided
to use my cache of frequent flyer miles instead.
B
The author is ad-man,
serial entrepreneur
and chairman, Mogae
Media. He can be
reached at sandeep@
goyalmail.com
u 64 u
M AY 11-2 4 , 2 015
ecause it was a non-metro flight, there was no
lounge at departure in Mumbai. Jet doesn’t
have an arrangement even with a Café Coffee
Day or some such. The business class passengers got no priority or exclusivity on the rickety-dirty coach to
the plane. The coach cramped
in passengers till the doors
wouldn’t shut.
There was only one take-it-or
leave-it veggie choice on the
menu. With an abundance of
potatoes in different forms. My
baggage, despite the priority tag
was the last to arrive. And there
was no porter around to help.
At Chandigarh too, on the
way back, Jet couldn’t care less
about providing a lounge facility. Not even a voucher for a
cuppa coffee or a snack. The plane was parked
quite far on the tarmac. It was verging on 40
degrees Celsius. But this time there wasn’t even
a rickety or dirty coach to ferry passengers to the
boarding ladder.
I decided not to eat on the flight. But
when I eventually did opt to have some
dessert, the steward told me my choice was not
available. Period.
Honest to God, I really don’t know what to
say. If, as I said earlier, Vistara is tepid, Jet is torrid. Even horrid. All I ask Jet Airways is that for a
domestic ticket priced at `70K, if you won’t provide lounge facilities or a clean coach or even the
passenger’s choice of dessert, then what is your
raison d’etre ? To Vistara all I ask is something even
simpler: why? u
[email protected]
Banking
Creating a bridge
Doha Bank is the first Qatari Bank to establish its full scale
banking operations in India
L
ast fortnight, Doha Bank, one
of the largest commercial banks
in the State of Qatar, set up its
Indian operations in Mumbai. Doha
Bank is the first Qatari bank to establish full banking operations in India.
The inauguration saw several highprofile dignitaries including H.E. Ali
Sharif Al Emadi, the Honorable minister of finance, State of Qatar, H.E.
Sheikh Abdullah Bin Saoud Al-Thani
(the Al-Thanis are the ruling family
in Qatar), the governor of Qatar Central Bank and Suresh Prabhu, minister of railways, Government of India,
among other ambassadors to India
from other gcc countries and Indian
ministers. “This is a historic moment
for Doha Bank’s expansion in the
Indian subcontinent as we consider
India an important market, being
one of the fastest growing economies
in the world, which is expected to
overtake China in the years to come,”
explains Sheikh Fahad Bin Mohammad Bin Jabor Al-Thani, chairman,
Doha Bank. “Doha Bank has been
pursuing a well thought out international expansion strategy as envisioned by the board of directors, by
extending our global footprint across
15 nations worldwide. In this pursuit,
Doha Bank is the first Qatari bank to
establish its full scale banking operations in India. With its presence in
the gcc countries, it would further
enhance the niche role Doha Bank
is playing to facilitate trade between
gcc and India, benefitting its
customers in both the locations.”
As one of Qatar’s leading financial services institutions, Doha
Bank has been consistently registering strong growth during the last
decade in terms of asset growth, loan
growth, deposit growth and increase
in shareholders’ value. Doha Bank
has established its overseas branches
in Kuwait, the UAE, as well as representative offices in Japan, China,
Singapore, Hong Kong, South Korea,
Seetharaman: gung-ho on India
Australia, South Africa, Turkey, the
United Kingdom, Canada, Germany and Sharjah (UAE). Recently,
Doha Bank completed the process of
amalgamation of hsbc Bank Oman’s
India operations.
“The inauguration of banking operations in India is yet another milestone
and stands testimony to the bank’s
constant endeavour to be recognised
as a dynamic, modern and international bank. With this, we embark on
our journey towards becoming a truly
global banking powerhouse and a onestop financial services provider, recognised beyond the shores of the Arabian
Gulf,” says Sheikh Abdul Rahman Bin
Mohammad Bin Jabor Al-Thani, MD,
Doha Bank.
“The huge size of the Indian market, along with its rising per capita
income levels and business-friendly
policies, render India an essential
and strategic location for the bank,”
explains Dr R. Seetharaman, group
ceo (for the last 12 years), Doha
Bank, who is a prominent personality
in the banking industry throughout
the Middle East. As a leading top-tier
u 65 u
M AY 11-2 4 , 2 015
bank ceo, Seetharaman, with three
decades of banking experience in
the region, has been acknowledged
for transforming Doha Bank and
making it one of the best performing
banks in the Middle East. Seeking
to expand Asian operations, in September 2014, Seetharaman, through
Doha Bank, acquired the Indian
operations of hsbc Bank Oman and
thus Doha Bank secured a licence
from the Reserve Bank of India (rbi)
to commence banking operations
in India.
Huge opportunity
Looking at the needs of the Indian
market, Seetharaman and his team
on the products and services side
are keen to expand the bank’s operational presence in India in the
years to come and have already set
in motion plans to service customers
through some innovative and technology-driven products and services.
“All these products would be appropriately supplemented by technology-driven solutions such as digital
account opening – tablet, Internet
mobile and phone banking solutions
including instantaneous e-remittances from gcc to India, and a dedicated ‘India Desk’ across all Doha
Bank overseas locations to service
our customers,” adds Seetharaman,
looking at positioning the bank as
a player in bridging gcc investors
with various business houses seeking investments in India. “In line
with the vision set out by the Government of India and thus fulfilling
the needs of the investors and the
entrepreneurs through its dedicated
project finance team.”
Why India? “India, with a functional democracy and political stability is the fastest growing economy
in the world. The 2015 spring meeting in Washington last week concluded that India is going to grow
7.5 to 7.8 per cent. Our budget policy
and framework are clearly propelling
growth at not less than 8 per cent.
There is quite a positive reflection,”
concludes an upbeat Seetharaman,
seeing huge opportunity between
the Gulf States and India.
u L A NCELOT J OSEPH
[email protected]
MARKETING
a belt or sarong. Then there is the
Hollywood style perfected by Jessica
Alba where two pashmina shawls of
different colours are intertwined and
draped around the neck. Want a chic
Ahujasons goes global to meet demand for the pashmina
casual look then take a shawl closer
shawls market
to the size of a scarf and simply wrap
it around your neck. Or the Julia Roberts looks with the full shawl wrap
where you simply wrap the full shawl
around the shoulders and for a more
fashionable approach, make a knot
in the front.”
The ministry of textiles has gone
into overdrive lately to promote pashmina shawls from India, with Prime
Minister Narendra Modi gifting
pashmina scarves to Chinese Premier Li Keqiang as a token of respect,
in November 2014, on the sidelines
of an Association of Southeast Asian
Nations summit in Myanmar.
For Delhi-based Ahujasons Shawl
Wale (P) Ltd, which was set up
in 1979 with exports commencing
in 1992, this was just the opportunity to expand and establish its
footprint globally.
The company started in 1971, with
the manufacture of wool and silk
products. But second generation Kulbhushan Ahuja, managing director,
saw the huge potential of pashmina
shawls and decided to revive the heritage craft of pashmina. The company
offers an amazing array of pashmina
hand-crafted shawls, stoles, throws,
scarves and mufflers, which are made
from the wool harvested from the
fine undercoat of Capra Hircus Laniger, a breed of goats
Bhuvan:
found in the high altitudes of
selling to the
the Himalayan ranges and the
glitterati
sub-Siberian latitudes, and has
been endorsed by Woolmark for
uess what the Duchess of pashminas for the global
its quality. The products are manuCambridge Kate Middle- celebrity continue as favourite
factured at its New Delhi plant, which
ton, Lindsay Lohan, Ange- fashion accessories.
Fashionistas have discovered that has a capacity of 1 lakh pieces per
lina Jolie, Sharmila Tagore, Raveena
Tandon, Nicole Scherzinger who has the shawls look good in absolutely month, with an employment of 100
just released her latest album Doll every way whether simply thrown weavers who follow the traditional
Domination with her fellow Pussy- over the shoulder or worn, in style, Kashmiri trend and the flair of the
cat Dolls, Jessica Alba, and even for- to a business meeting. As Wendell exotic Orient with exquisite hand-emmer French First Lady Carla Bruni Rodericks, fashion designer, says, broidery, intricate stone & bead work,
have in common? They are celebri- “A symbol of luxury and elegance, sequinned splendour, zardosi borders
ties who keep buying Indian pash- the pashmina has always been the and fancy fur trimmings. The exports
minas, ensuring they remain one love and desire of women all around division was started in 1997 and has
of the favourite A-list accessories. the world. To own a pashmina is to a decade’s experience in catering to
So while global fashion trends keep experience royalty and it has been fashion houses like Fendi and Prada
changing, the beautifully crafted adapted to suit any occasion. Like who come up with the newest range
All wrapped up
G
u 66 u
M AY 11-2 4 , 2 015
of ensembles and accessories created
in finest pashmina and blends.
As Bhuvan Ahuja (son of Kulbhushan), retail head, Ahujasons says,
“Many Hollywood, Bollywood and
royal families around the world purchase shawls from us and our plan is
to take the brand international and
make sure that people say ‘Ahujasons’
pashmina means the world’s best
and purest pashmina’.” To achieve
this Ahujasons will be investing
over `140 crore to expand its business in India and the international
market. Ahujasons has two showrooms in Delhi and one in Tokyo,
Japan. The plan is to open 12 showrooms in India and six overseas by
2018. These new showrooms will be
a mix of company owned and franchised. The investment will come
from internal accruals.
Increasing the herd
According to a report prepared by
Dun and Bradstreet for the ministry of textiles’ Fibre Policy in 2014,
India’s shawl industry is a substantial
foreign exchange generating segment,
with exports to the tune of `400 crore
for woollen shawls and scarves, and
`450-500 crore for man-made and viscose shawls and scarves where the US,
Australia, Canada, Europe, etc, are the
major export destinations.
D&B India expects the exports
of shawls to continue their
strong growth.
India is the seventh largest producer of wool and contributes 1.8
per cent to total world production. It
ranks among the leading five countries in the world in sheep population, with a population of over 60
million sheep. However, while the
world average for wool productivity
has been about 2.4 kg/sheep/year,
in India the average is 0.8 kg/sheep/
year. Special emphasis is being given
for increased exports of pashmina
shawls, which are produced by changra (pashmina) and chegu breeds of
goat in the eastern parts of Himalayas in India.
However, realising the global
demand for pashmina is on the rise,
but with only 2.45 lakh pashmina
goats, the aim is to increase the herd
size by incentivising breeders by
way of better prices and the introduction of a scientific grading system where awareness programmes
would be organised to educate breeders on the benefits of grading. Also
the industry should undertake collaborative research projects with
wool marketing boards of other
major producers like the UK and
New Zealand.
With these incentives, the focus
for Ahujasons will be on exports
which constitute 60 per cent of sales.
While it produces 20 lakh units a
year, with prices ranging from `300
to `5 lakh, according to Ahuja, “The
first plan is that we would want to
capture the Delhi-NCR market which
is a mecca for shoppers wanting to
u 67 u
M AY 11-2 4 , 2 015
shop for wedding and winter fashion, but the long-term vision is the
overseas market where prices will be
five times what they are here.”
To achieve this the company is
planning three outlets in London,
Dubai and Hong Kong by the end of
2015, which will be standalone stores
targeting overseas buyers where
an experienced in-house design team
will churn out 500 unique designs
for each season. The company
is also in the process of setting up its
own e-commerce platform. “The
long-term plan is to expand in metropolitan and Tier I cities, and also
expand globally.”
u RO B IN A B REU
[email protected]
N
ot interested in entering the
MARKETING
family business of chemical
manufacturing, Namit Bajoria had launched his own venture of
kitchen appliances in 2000. Today,
Kutchina is a household name, headKutchina has successfully tapped
quartered in Kolkata, with 24 office
contemporary kitchen market
branches, 51 distributors, 243 dealers and over 1,500 employees. What
clicked was Bajoria’s determination
to introduce auto-clean chimneys
– at a time, when they were not in
vogue and mostly unheard of.
“My father pushed me to visit
our factory in Ranchi after my Xth
Standard examination, but I didn’t
want to get into chemical manufacturing and came back and told him
that I would start something of my
own. He agreed, but wanted me to
get training first. So, I worked in a
couple of companies, including a ca
firm and marketing for a telecommunications company, which was
into sales of cordless phones and fax
machines. It was a good experience
and I eventually got a dealership of
fax machines. However, soon I realised that my ideas would never be
heard in someone else’s company, so
I quit,” says Bajoria.
It was general awareness that led
Bajoria into kitchen appliances – he
realised that the market for bathroom fittings was surging and
soon people would be willing to
invest into expensive kitchen
Bajoria:
fittings too. “I visited an
understanding
exhibition in Germany and
discovered auto-clean chim- market demands
successful
entertainment
neys. It immediately caught
unit which is into producmy attention as the chimney in
tion, marketing and distribution
our house was a nuisance, requiring
cleaning every other week. That’s of Bengali films. “There are certain
how Kutchina started with auto-clean challenges in oem (original equipchimneys and we started importing ment manufacturers), as they are
them from Germany,” he says.
only supplying the product. The
Today, Bajoria is one of the more sales, marketing and post maintesuccessful entrepreneurs of east- nance has to be done by us. However,
ern India and has just completed it lets me implement my own ideas
a course in Owners and Presidents and policies, which is what I always
Management from Harvard Univer- wanted,” says Bajoria.
sity. Kutchina has become one of
Kutchina started with chimneys
the most accepted brands in kitchen and went on to hobs, dishwashappliances, which led him to launch ers, induction cookers, water-proofanother company seven years back, ers and built-in ovens. The brand
which specialises in modular kitchen has a particular exclusivity, with
cabinets. Bajoria is also passionate few unorganised players competabout making films and he runs a ing in the same category. “mncs,
Ahead of the curve
u 68 u
M AY 11-2 4 , 2 015
into the
which shunned my product and the
auto-clean technology at the time of
launch, have now launched similar
products, but we were the pioneers
of this technology. Sleek Kitchens is
a competitor but only in the modular
kitchen segment. However in eastern
India, we are the strongest in both
segments. Moreover, our products are
customised for contemporary Indian
homes,” says Bajoria, whose turnover
touched `170 crore in 2014-15. “We
maintained growth even in the meltdown years,” he says. “
Bajoria Homemakers Pvt Ltd,
which makes the modular kitchens
and sells about 250 units per month,
is currently restricted to eastern India
only. However Bajoria has plans of
taking it pan-India. “We are planning
something unique in e-commerce
where people will be able to plan and
purchase their whole kitchen online.
There are three components in modular kitchens – hardware, accessories
and furniture. We are importing the
hardware and accessories but manufacturing all the furniture here.
Our machines and raw materials are
imported, giving us exclusivity and
quality control,” he says, adding
that the company plans to go public
within the next three to four years.
Prices range from `10,000 to ` 50,000
for appliances and for kitchens starting from `100,000 and going up to
`2,500,000.
D
ealers are an integral part of
the Kutchina family. “Our
experience with Kutchina has
been very good so far. They are very
reliable and we can blindly depend
on the management and the team
without second thought. We have
been associated with them for a long
time and it is a brand we trust,” says
Partho Chakraborty, Lifestyle Appliances, Haridevput Kudghat. Another
dealer, Arup Ghosh of Lokmath
Kitchen Solution (Baghajyotin), says,
“The journey has been excellent with
Kutchina. The company and its sales
have been growing manifold ever
since its inception and in turn we
have been growing as well. We wish
they continue to grow at this pace
and we grow with them.”
“We have been associated with
Kutchina for years now and have
developed a very strong bond with
the company. We have grown
together. Kutchina always understands the demand of the market
and delivers accordingly. This in
turn leads to immense customer satisfaction.” says Moloy Saha, a dealer
from Uttarpara
Kutchina’s csr is also strong –
apart from its own wing called the
Bajoria Charitable Fund, the company has tied-up with ngo offer,
a home for underprivileged children; Anandghar, a home for hiv/
aids affected children; and Aponjon,
u 69 u
M AY 11-2 4 , 2 015
a home for mentally challenged children. “We have also just launched
Kutchina Krritika, an initiative
through which we will offer fellowships to support women from various walks of life who are creating an
impact in the lives of the underprivileged sections of Indian society.
Bajoria has tremendous plans for
the future. “There is great scope for
products in the kitchen segment.
We are planning to have 200-250
exclusive Kutchina stores of a minimum size of 500-1,000 sq ft with
some mega stores occupying 2,0002,500 sq ft through the country in
the coming years. The stores will be
a combination of owned and franchised. We would also like to export
our kitchens and have been getting a
lot of offers from West African countries such as Nigeria. Also, depending on the economic condition, we
would like to set up our factory here
and make all our appliances ourselves,” he says.
u S A LONI J HUN J HUNW A LL A
[email protected]
Guest Column
The curious case
Affordable homes is about gearing up the entire ecosystem of the housing industry
What is that everyone talks about but no one
defines it.
It is on everyone’s wish list but no one does it.
Rich do not know what it is. Poor talk about it
everyday.
Most advanced machine cannot make it. Cheap
labour also makes it expensive.
I
f WhatsApp is what you breathe, your answer
to the above riddle would be “nothing”. And if
housing emis make you restless then “affordable housing” would be your prompt response.
Affordable housing is on everyone’s “wishlist”, when he is a buyer. However, no one wants
to practice it as a seller. It is also quite bizarre
that while everyone likes speaking on affordable
housing they shy away from defining it.
“Bambai mein ghar bahut mahenge hote hain”.
It has been the most axiomatic statement for me
since 1975, when I first heard about this city during my school days in Indore. Since then, almost
everything about Mumbai has changed. But till
today, I have never found anyone saying, “Homes
in Mumbai are affordable.” Strangely, the same
continued even during 1995 to 1999 when prices
dropped almost 50 per cent across Mumbai.
Deepe sh Sa lgi a
How does one define ‘affordable homes’?
The broader agenda of the government is to
increase availability of homes that a large number
of citizens find suitable to own and live in. The
growing number of nuclear and sub-nuclear families (couples without kids, live-in couples, retired
couples, singles staying away from parents), has
resulted in a large demand for studio/1 bhk/small
2 bhk apartments. Citizens living in old dilapidated structures also need such units. But there is
hardly any quality housing in this segment. The
demand for such “right-sized” apartments is not
just from the poor/middle class but also from the
upper middle class. In my definition, these “right
sized” units constitute “affordable homes” for a
large number of home seekers. The economics
of the Mumbai real estate market, unfortunately,
work against construction of such homes. Therefore, making policies that promote construction
of right sized homes is better than hoping for
prices to come down.
Why high prices in Mumbai?
Cost side economics:
The oft-repeated reply is that land is in short
The author is ceo &
director Shaporji
Pallonji group
u 70 u
M ay 11-2 4 , 2 015
supply. But the buck does not stop there. The
problem of short supply of land for housing was
addressed in dcr 1991 by introduction of tdr and
easier conversion of industrial land to residential. The next decade saw large housing through
incentivised redevelopment projects.
The above supply sources are no longer cheap
and now even sra schemes (supposedly with the
cheapest cost of fsi) are not viable at selling prices
below `10,000 per sq ft. Rising construction costs,
demanding tenants, stricter environmental norms
will continue to increase the breakeven point.
In a bid to increase housing stock, the bmc
has proposed an fsi of upto 8 by payment of premium at market prices. This will definitely ensure
that the benefits due to incremental fsi are captured by the government/ bmc and not the developers/landlords/existing tenants but it is unlikely
to create affordable homes. Charging premium at
sub-market prices is a politically difficult option
for the bmc, as it will be perceived as a bonanza
for developers.
Now since the current market prices, by definition are “unaffordable”, the cost of fsi premium
for developers will remain “unaffordable”. Construction cost by nature is “inflationary”. Therefore, one does not need an economist to tell us
that the cost of constructing homes will remain
unaffordable and continue moving northwards.
What makes matters worse is that with high
fsi costs, a developer can make an economic
profit only when he makes “large sized” apartments. Construction of affordable homes requires
large wastages in common areas/passages; it also
requires taller buildings to consume the entire fsi
and therefore higher costs. This, coupled with the
buyer’s lower propensity to pay, leads to a skewed
cost-structure which dissuades developers from
constructing affordable homes.
Applying demand side economics
Economists agreeing with the above would still
argue that with no buyers around, prices should
crash, as they did in 1995-99.
My answer to them is that the market dynamics are quite different now. Today the major supply of fsi comes from redevelopment projects.
Any possible correction in prices would also negatively impact redevelopment. Lower property
prices would result in builders offering lower
areas for tenants of redevelopment projects in
negotiation stage, as compared to the area given
Guest Column
to tenants in the projects under construction.
Tenants would never accept lower areas. New
projects would stop. Reduced supply would lead
to firming up of prices.
If a minor correction stops new redevelopment projects, a crash in prices could possibly
result in many ongoing redevelopment projects
getting stalled. Therefore, rising property prices is
a necessary evil for sustenance of a healthy
redevelopment market.
With such complex dynamics, where cost and
prices remain high for completely different reasons, the solution to affordable housing can only
be non-linear and out-of-the-box.
be free to restrict to basic fsi and construct only
luxury apartments.
It can be seen that fsi keeps on geometrically
increasing when the size of the apartment is less
than 400 sq ft. This will ensure that large number of apartments below 400 sq ft (carpet area)
are constructed. With an upper cap of 8 fsi, it will
make more sense for developers to also construct
larger apartments, as they have the largest per
sq ft realisation, thus creating a natural balance
between all sizes of apartments.
The iifsi would work for the following
reasons:
Aligns the cost-structure of developer in line
with market demand (lower costs for affordable
homes).
New buyers of homes will have quality affordable homes in larger quantities.
The benefits of increased fsi are unlikely to be
captured only by the existing tenants. iifsi will
ensure that the total project fsi decreases with
increase in size of apartments. Thus, in order to
attract developers, existing tenants will be forced
to restrict their areas.
Large construction of affordable homes would
mean that even if the bmc charges a premium
for iifsi at sub-market rates, there would still be
sufficient money for city infrastructure. Such
sub-market premium will also not face political roadblocks or objections from ngos/environmentalists, since iifsi works towards construction
of affordable homes.
A balanced socio-economic model, balanced
distribution between small and larger sized
apartments and between existing tenants and
new buyers.
No mandatory affordable homes in every plot
means Mumbai can still have luxury upmarket homes without issues like mandatory subdivision, inability of residents to share the
maintenance costs, etc.
These have the potential to bring tectonic
change in the dynamics of the real estate market.
To ensure the above, regulation will also have to
work towards:
Modifications in civil aviation, building design
& environment norms.
Tribunal for settlement of all land disputes
and issues related to tenants in redevelopment
in Mumbai. This is key to quickly bringing larger
land into development.
Strong action towards removing encroachments on existing as well as D.P. roads, across
the city. Wide roads are a necessary condition for
higher fsi.
Affordable homes are not only about price
or about higher fsi, they are about gearing up
the entire ecosystem of the housing industry. u
Hope for affordable homes?
The answer to all such questions is always the
same. “Where there is a will, there is a way”. The
intentions of the government are very clear. And
therefore, if the appropriate regulation is in place,
Mumbai can look forward to a good supply of
affordable homes.
This can be achieved through modification of skewed cost-structure of constructing
studio/1BHK/small 2 BHK homes. Making construction of affordable homes a business proposition for developers will see an organic and a
market-based shift of developers towards affordable homes. This would yield far more results
than an inorganic push through a statutory
diktat on construction of affordable homes in
every project.
Making affordable homes an economic
proposition : A case for Inverse Incentive
To address the skewed cost-structure of developers, the bmc should provide the option of
Inverse Incentive fsi (iifsi) to all developments in
Mumbai. iifsi means the smaller the size of the
apartment, the larger the incentive fsi for the
developer. Thus, construction of the smallest
sized apartment will have lowest per sq ft cost.
The way it would work is as follows:
An 800 sq ft carpet area apartment be declared as
the benchmark for eligibility of iifsi.
Apartment sizes above 800 sft would not yield
any iifsi.
All apartments constructed below 800 sq ft
would entitle the developer to iifsi equal to the
difference between 800 sq ft and the carpet area
of the apartment.
If the iifsi is used to again construct apartments less than 800 sq ft, then the developer
should get additional iifsi on the same basis.
This could continue till an fsi of 8 is reached.
The government could charge a small premium for iifsi (much lower than market prices).
iifsi will remain optional. Developer would
u 71 u
M ay 11-2 4 , 2 015
Tourism
Royal experience
Royal Caribbean targets the
growing Indian cruise market
G
avin Smith, vice-president of
the $8.07 billion US-based
Royal Caribbean Cruise Line,
aptly sums up the growing demand
for cruises in India by simply saying, “Indian’s have a zest for travel.”
And he is not making vague statements. While Indians were exposed
to cruises with the famed Peninsular and
Orient steamships
making India a port of call, demand
and popularity for cruise vacations
is growing.
While the Indian cruise market
is estimated at 100,000 guests per
annum, it was the lack of accessibility
to cruise liners in the Asian market
that was a main hindrance. Indians desiring of a cruise had to spend
extra on airfare to travel to North
America or Europe for a cruise vacation. While India is a very important
source market for Royal Caribbean,
the company, from 2015, will be
deploying five of its state-of-the-art
ships in Asian waters including their
newest most futuristic ship Quantum of the Seas that will be based in
Shanghai from June 2015.
Unlike the past when one cruise
liner berthed in India, today three
Royal Caribbean ships visit India
every year, docking at Mumbai,
Chennai and Cochin for two days.
And with the deployment of these
ships, Royal Caribbean is estimating
that the number of Indians opting
for cruises will touch three lakh by
2020. For Royal Caribbean, India is
the second largest emerging market
with a potential of 55 lakh, which is
a close second after China’s 56 lakh
cruise tourists and way ahead of
Brazils 9.5 lakh and Japan’s 6.5 lakh
by 2025.
“Yes, there has certainly been a
rise in demand for cruise travel in
India, thanks to the increased exposure to international travel and
evolving lifestyle aspirations. Also,
as more and more vacationers experience cruise holidays, these itineraries garner greater popularity by word
of mouth,” says Ratna Chadha, chief
executive, tirun Travel Marketing,
the exclusive India representative of
Royal Caribbean International.
Increased awareness
With packages starting from `9,000
for a three-day cruise to `22,000 for
a seven-day cruise, the indulgence
experienced on board combined
with on shore activities that capture
local culture and cuisine has seen
Royal Caribbean witness more than
50 per cent growth in demand for
cruise vacations. While 80 per cent
comes from Tier I cities, Royal Caribbean has been getting bookings from
Tier II and III cities also. And though
these account for only 20 per cent,
an increased awareness about luxury products and premium lifestyles
is driving sales for cruise holidays in
these regions. While first time cruise
travellers (mainly Tier II and III) usually opt for shorter duration cruises,
u 72 u
M AY 11-2 4 , 2 015
the more adventurous Indian cruise
tourists are now embarking on longer duration Alaskan and Mediterranean itineraries. What is giving Royal Caribbean
a boost is that it has been receiving
requests for cruise sailings to unusual
and exotic destinations such as Iceland, Galapagos, Antarctica and the
Arctic region. In addition, requests to
organise weddings on board its vessels where the wedding party seeks
a new destination or venue to host
a spectacular wedding, like Alaska,
have been pouring in. Realising this
new untapped market, Royal Caribbean adapted with special traditional
décor and food including special
chefs who understand Indian dietary
and customary requirements. The ministry of tourism is waking up to this new potential with
100 cruise liners, with the Voyager,
Queen Mary II, Legend of the Sea and
Rotterdam, touching Indian shores
during 2014-2015. While three ports,
Mangalore, Mumbai and Cochin are
the favourite ports of call because of
their infrastructure, one of the biggest problems India faces is a lack of
a passenger terminal that can match
international standards. Realising
this, the cruise shipping policy of
the ministry of shipping’s objective
is to make India an attractive cruise
tourism destination to attract the
right segment of foreign tourists to
cruise shipping in India as well as
popularise cruise shipping among
Indian tourists. Not surprisingly, the
ministry of tourism has accordingly
included promotion of cruise shipping under its “new initiatives”.
Mormugoa Port Trust was quick
to move and has received over 18
cruise ships, since October 2014. On
the anvil are plans to develop Chennai, Visakhapatnam and Port Blair as
new hubs to promote global cruise
vacationers for short duration visits.
In addition `22 crore has been sanctioned to develop a floating jetty in
Cochin to serve as a cruise terminal.
With a 15 per cent market share in
India, Royal Caribbean, by increasing its frequency to India, aims to be
the number one player by 2020.
RO B IN A B REU
[email protected]
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Guest Column
In competition
Chinese digital challengers X-BAT take on A-GAFT
T
he world is changing at an unprecedented pace with rapid urbanisation, a
shift in demographics, advances in digital and the low cost of capital. The resultant
new digital economy has the obvious well
known leaders viz a- gaft: Apple, Google,
Amazon, Facebook and Twitter. However, at the
same time new challengers have emerged from
China. These are x-bat: Xiaomi, Baidu, Alibaba
and Tencent.
In the initial phase, x-bat did adapt the pioneering American models. However, lately these
companies are trailblazers in their own right.
Here are the mantras of the challengers:
nimbleness to innovate and execute is a distinct
competitive advantage.
M i l i n d Pa n t
Traditional Marketing is dead. Long live
the platform!
Taobao, the online c2c platform, has over 800
million accounts. It branded 11/11, erstwhile
Single’s Day in China as the biggest online shopping festival. Last year, in one day, Alibaba transacted $9.3 billion – over 2 times that of online
Black Friday plus Cyber Monday in the US. The
smartphone maker, Xiaomi has no physical
stores in China and zero traditional advertising.
Its online community of MiFans (Xiaomi fans) is
the brand “advertising”!
New revenue and profitable models
WeChat has rapidly grown to over 500 million active users. It generates revenues from
games and stickers/emoticons. This is superior
monetisation to WhatsApp or even Twitter.
No wonder Tencent’s market capitalisation is
almost 10 times that of Twitter. Taobao has
minimal capital expenditure on supply chain
and its model is significantly more profitable
than Amazon.
Speed is king
The Chinese digital challengers are on steroids as is the fast changing consumer landscape where mobile commerce grew almost 250
per cent to over $150 billion. The number of
smartphones is twice the population of US and
growing. In this context, Xiaomi has the capability to turn around a new software upgrade
in weeks, a speed that even Apple may find
tough to match. WeChat, Tencent’s path-breaking platform was developed in record time by a
dedicated team that operates from Guangzhou
(Tencent is based in Shenzhen). x-bat ’s
The author is president
and coo, yum China.
The article reflects
his personal views
and opinions. He can
be reached at milind.
[email protected],
http://chinsea2025.
blogspot.com
u 74 u
M AY 11-2 4 , 2 015
Broad and not narrow focus
WeChat is a broad platform – a combination of
Uber, Yelp, Twitter, WhatsApp, Groupon and more.
It has its own payment systems, something Facebook is only just rolling out. For the Chinese customer, WeChat is a more superior and convenient
experience than either Twitter or Facebook.
Similarly Alibaba has b2c and c2c sites –
Taobao and Tmall. It has integrated the Alipay payment system and is investing heavily in
online content providers. This is in stark contrast to eBay, which for reasons of focus, has just
divested PayPal.
Deft pragmatism with regulators
gaft has been sparring with European regulators. bat operates in the most regulated digital
space in the world with fuzzy interpretations.
Other than minor scraps like the one Alibaba
had earlier this year on fakes, the Chinese companies have been extremely pragmatic in dealing with regulators – focusing on consumer
experience and commerce.
Other than Jack Ma (Alibaba); Lei Jun
(Xiaomi), Pony Ma (Tencent) and Robin Lin
(Baidu) are virtually unknown outside China.
In China they have rock star status with millions of followers on social media. Their success is spawning a number of entrepreneurs who
have the potential to transform China in the
coming years.
x-bat may not be able to unseat a- gaft in
the developed markets. However, in the coming
decade, China, India, Southeast Asia (ChInSEA)
will be among three of the top five economies
in the world. Tencent and Xiaomi are rapidly
expanding in this region that will contribute
to over half the global growth. In China, it is
likely that Facebook, Twitter and Google may get
a tepid consumer response when these brands
are allowed to operate in the country. After all,
Amazon China is an also ran and eBay shut shop
in China after struggling for years.
The Chinese companies have emerged innovators in their own right and continue to
sharpen above mantras. In the coming years,
it is in fast growing China, India and South
East Asia (ChInSEA) that a- gaft will truly be
challenged by x-bat. u
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Tel: 22820348, Fax: 22820261 u E-mail: [email protected]
Associations
Hitting the mark
Entrepreneurs’ Organization comes of age in India
I
t has been described as the ultimate tool box for entrepreneurs.
Entrepreneurs’ Organization (eo)
is a global, peer-to-peer network of
more than 10,000 influential business members in 147 chapters and 48
countries. Founded in 1987 by American business strategist Verne Harnish as the Young Entrepreneurs’
Organization (ypo) to support, educate and encourage young entrepreneurs under the age of 40 to succeed
in building companies and themselves, eo offers forums and personal
advice on a national scale. It sought
to distinguish itself from the older
ypo which by and large focussed on
larger companies. It also sponsors
local chapters with their own meetings and amenities. There are personal mentorship opportunities and
huge networking events.
eo recently hit the 1,000-member
mark in the South Asia region, which
is largely India and a bit of Nepal. The
region, in fact, is currently made up
of 15 chapters in India (11) and Nepal.
The New Delhi chapter was founded
in 1998 by a group of business persons
who were much younger then including Pranav Ansal of Ansal api; Sunjay
Kapur of Sona Koyo; Neeraj Kanwar
of Apollo Tyres and Raaja Kanwar
of Apollo LogiSolutions. Plans are
afoot to take eo to Sri Lanka and the
Maldives next year. The 1,000th
member to join eo’s Gujarat chapter
is Anuja Parikh.
Parikh is a typical eo member. She
is the president at Intech Systems, a
software consulting firm focused on
erp implementation and business
process. It is a gold certified Microsoft Dynamics erp partner in Gujarat.
Parikh leads the overall operations
of Intech Systems including international expansion to the US, Canada, Southeast Asia and Middle East.
Prior to Intech, Parikh had spent
eight years in Silicon Valley in leadership positions. In all, she has over
14 years of experience in technology
Parikh: 1k special
products and services, global marketing, ecommerce, and deploying business solutions for the companies she
has worked with in the US and India.
Parikh holds an engineering
degree from ld Engineering College,
Ahmedabad, an mba, and Masters in
Management Information Systems
from Boston University. At a time
when Indian companies are scrambling to fill the women’s quota of
directors as per sebi’s stipulation, the
event of a successful Indian woman
professional joining eo has its own
symbolic gender significance.
“The membership milestone is a
testament to what entrepreneurs with
a global mindset represent, and what
we offer as a global thought leader
on entrepreneurship,” says Hameet
Sawhney of Eagle group. “Reaching
this mark in our young history showcases the intrinsic value of, and need
for, a peer-to-peer network of entrepreneurs who yearn to engage, experience share and become stronger
leaders in business and beyond.”
Since its inception in 1987, eo’s
membership has increased significantly, with eo member companies now generating a combined
$536 billion in annual revenue and
u 76 u
M AY 11-2 4 , 2 015
employing more than 2.4 million
people. In South Asia, member companies generate nearly $100 billion
in total sales and employ an average
of one thousand employees.
Jai Dhar Gupta, director-membership and integration, eo South Asia,
says that the average age of a member in India is around 38. Members
who join eo should have a turnover of $1 million. The membership
doesn’t come cheap – a one-time initiation fee works out to `10,00,000
plus taxes.
The benefits
The Wharton-educated Gupta runs
Nirvana India Pvt Ltd which has collaborated with Vogmask, a San Francisco company, to market a leading
anti-pollution mask in India. Using
a revolutionary microfiber filtration fabric that filters most particulate matter, including the tiny pm
2.5 particles, Vogmask products are
much in demand by health conscious people. With pollution levels
in our cities touching alarming levels and millions choking for want of
clear air, Gupta’s business is one for
a cause.
How do businessmen benefit by
joining eo? Gupta points out that
this happens through benefits drawn
from three areas:
• Peer-to-peer learning: Members share
their personal and professional issues
they face in a confidential, non-competitive environment. They learn
and grow by sharing their experiences with peers, not simply by listening to advice.
• Once-in-a-lifetime experience: Not
only do eo members attend unique
conferences in cities all over the
world, but they also receive access to
exclusive social events, behind-thescenes invitations and exciting networking opportunities.
• Connections to experts: eo members
tap into a network of experts on an
as-needed basis.
Clearly, the idea-sharing and
advice-giving offers ceos multiple opportunities to become better
leaders, make better decisions, and
achieve better results.
u R A K ESH J OSHI
[email protected]
States
s aja l b o s e
Going, going, gone
The Bengal government has auctioned off its stake
in five tea gardens
T
he Mamata Banerjee-led Trinamool Congress has auctioned five tea gardens under
West Bengal Tea Development Corporation (wbtdc). Three of these
gardens, located in Darjeeling, have
been bought by Sanjay Bansal, owner
of the Ambootia group, which also
produces turmeric, organic oranges,
ginger and honey.
Many eyebrows were raised at this
decision as it is in sharp contrast to
the ruling party’s stance on central
public sector units. Chief minister
Banerjee had raised a red flag against
the divestment of Coal India and Hindustan Copper in 2010 when it was
first taken up by the previous United
Progressive Alliance government.
While Bansal bagged three
of these Darjeeling gardens, the
remaining two in Dooars were won
by the Ashok Garg family, which has
diverse business interests, including
tea. The ownership of the gardens
was handed over last month and
both the groups are in the process
of chalking out a plan to revive the
loss-making gardens.
The Darjeeling gardens were
sold for `31 crore, while the Dooars
ones were sold for `7.30 crore. The
five gardens are spread across about
2,000 hectares and together have
about 3,500 workers. The Trinamool
Congress government has, however,
ensured that there is no retrenchment of workers. According to
Indian Tea Association statistics, out
of India’s around 9,500 million kg of
tea production, Darjeeling and the
foothills of Terai, Dooars, together
produce around 276 million kg.
“We will convert the gardens into
organic ones, which will take around
three years. Organic gardens anyway
need a larger workforce,” says Bansal,
who makes one of the finest teas in
the world, retailed at Harrods in London and Mariage Freres in Paris. The
arbitrage in organic versus non-organic tea is about 25 per cent.
Tea in my blood
Ambootia is also well known for
growing premium, biodynamic and
fair-trade teas which they export all
over the world. “People say that tea
runs through my blood,” says Bansal,
who was born on the Ambootia tea
estate in 1961. “My father, S.P. Bansal,
took up a job in a tea company in
Assam in 1948. Over the years I
learned more about the tea business
and I soon realised that sustainable
agriculture was the best way to guarantee high quality in the long term.
Thus we started with organic agricultural techniques in 1991. We were
confident that this ‘new method’
would help us not only increase productivity but also improve quality.
Furthermore, it appealed to us as an
environmentally and socially responsible method of farming. Since 1984
we have been growing steadily and
have never looked back,” he adds.
“It will require a lot of investment, but we have taken over sick
gardens in the past. We hope to turnaround these gardens in the next
four to five years,” Garg says. The
u 77 u
M AY 11-2 4 , 2 015
Garg family has 13 gardens in north
Bengal and are tea merchants, retailers and whole sellers of tea such as
blended green leaf tea, Darjeeling tea,
Assam tea and much more. Established in 1981, the company is
headed by two brothers Ashok and
Vijay. The company sources its products directly from the tea gardens
and auctions after intensive tasting and selection. The sourced tea
is then blended to give a unique
aroma, taste and colour in different
quality variations.
Interestingly, much has been said
and written since these gardens went
up for auction in November last year,
which was around the same time that
the Sonali tea garden murder took
place in the same area. Activists claim
that these gardens were gradually
turned into loss making enterprises
and handing them over to private
hands is no solution. Blogger Samik
Chakraborty who fights for neoliberalism in Bengal writes, “The previous
government in 2007 invited sultans
from Dubai who toured the gardens
in helicopters. They were being sold
with the ‘tea tourism’ tag and these
properties were projected as possible
seven star hotels. However that did
not materialise and the new government revived the auctioning of the
gardens.” Only time will tell whether
these gardens actually ever start making a profit again amidst much chaos
and confusion, in addition to labour
issues and worker demands.
u S A LONI J HUN J HUNW A LL A
[email protected]
Guest Column
30,000
Sensex movement
27,500
27440
25,000
22,500
21205
20,000
0
20 Jan 2014 – 5 May 2015
The share index
Sense, sensibility and stability
T
he stock markets closed off 2014 on a
strong note, having grown by 30 per centplus during the year. The bse index was
about 27500 and the Nifty was about 8300 on
the last trading day of 2014. Over the first four
months of 2015, these touched highs of about
30000 and 9000 respectively, with periodic dips
and spurts. And on 6 May 2015, these indices
closed at about 26700 and 8100 respectively,
below the year’s opening levels.
Are the great expectations of a strong bull
run and robust stock markets belied? Retail
investors, for sure, will have the jitters with this
see-saw of share prices.
Over the past couple of weeks, fiis have pulled
out nearly $2 billion from the market. The Brent
crude price has moved up from $48 to $68 per
barrel in the last four months. This will certainly
increase our import bill and prices. Core sector industries like steel, cement, energy, oil, etc,
grew by about just 1.4 per cent y-o-y in February
2015 and de-grew by 0.1 per cent in March 2015
indicating pressure on performance. Another
added trigger is the gap between intent and
execution of the bjp government; it is a cause
for concern.
There is no headway in the Black Money Bill.
The Land Acquisition Bill seems to be headed
toward a long drawn out political battle. There
are myriad other micro and macro issues unaddressed. In such a situation, can the man with
a vision get to his mission and deliver on the
many promises made?
Let us take a look at some latent triggers
impacting stock prices, which are not apparent to many. The recent brouhaha on the
Na g e s h G . A l a i
The author is a senior
corporate professional.
He can be contacted at
[email protected]
The views expressed
are personal
u 78 u
M AY 11-2 4 , 2 015
minimum alternate tax (mat) demand on Foreign
Portfolio Investors (fpis) is quite revealing and
has set the cat among the pigeons. Private
Equity Funds (pefs) and other Foreign Institutional Investors (fiis) fear a similar demand.
Let us just scratch the surface here to understand
it better.
Most of the fpis/pefs are based out of tax
havens like Mauritius, Seychelles, Bahamas, Singapore, etc. Essentially, they are offshore foreign
entities, largely perceived to be having links
with people in India. While many of them could
be legit entities with genuine sources of funds
(it will be a herculean task to peel the layers
of ownership to get to the ones who really call
the shots), several others have dubious sources
of funds (read black money stashed abroad). To
cut through the clutter, it has always been a
huge question mark as to how the rules of kyc,
so strictly imposed against individuals
and local entities for any investments, are not
a prerequisite for these fpis/pefs/fiis when they
invest in India.
The practical effect of this is that they are free
to invest in Indian companies/enter the Indian
stock markets at will and exit at will, leading
to artificial highs and lows in share prices. So,
while they make their trading profits, the retail
investor like you and me are left gaping and
wondering. If the ordinary shareholders have
to pay income taxes on capital gains, short or
long, why should the fpis/pefs/fiis escape from
taxes? In what way is the mat demand on these
entities unfair? The issue is it was ill-founded on
the part of the Congress party to have exempted
them in the first place (domestic companies are
Guest Column
subject to mat) and it is equally ill-founded on
the part of the bjp government now to say that
effective FY16, fpis will be exempt from taxes,
while doing the right thing now (albeit litigious)
by raising the mat demand retrospectively (with
due apologies to well-known tax consultants). Is
there something more to it than meets the eye?
It seems to be pointing towards vested interests.
Like the famed progenitor of the theory of relativity observed, tax laws are the most difficult to
understand and comprehend.
movement to cause wild swings to the extent of
10 per cent of the bse/nse share indices (or 8 per
cent of the country’s gdp). It’s little wonder that
many retail investors see stock markets as speculative and unsafe. And it should be no surprise
either if most parents desire a Unilever or a p&g
or Infosys employee as a bridegroom, but will
not prefer to give the shares of these companies
as a marriage gift to their daughters. Just think
about it.
To some, this may seem to be too simplistic.
Yes, it is so with a purpose.
Remove the anomalies and the preferential
tax treatment to the fpis/pefs/fiis. Encourage
and enthuse retail investors to invest in shares
to bring about stability in the markets. Then perhaps many of our people will move away from
unproductive investments like gold and speculative investments like real estate. The only care
they need to take while investing in shares is to
do as much due diligence as one does while buying a smartphone/car/house.
If the retail investors are enthused enough to
invest in shares and ipos, it will help strengthen
the productive capacity of the economy. As the
oracle of Omaha, Warrant Buffett, observed,
when one invests in stocks, one owns not a piece
of paper, but a piece of a great business. u
T
he point is, if there is a level playing
field for all investors, in terms of kycs, declarations, taxing of profits, etc, then the Indian
stock markets will not be as volatile as they
are today.
Our current market cap today is about $1.6
trillion and our gdp is about $2 trillion. And
Indians have a saving habit of 30 per cent. Even
if we take a conservative estimate of 20 per cent,
it is still a humungous $400 billion. Just imagine
the salutary effect on the stock prices if even 20
per cent of this $400 billion, that is $80 billion,
is put into our stock markets by domestic investors. Stability of prices will be only one of the
several advantages. We don’t have to be subject
to the expediencies of the fpis/pefs/fiis entering and exiting and allowing a mere $2 billion
[email protected]
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Business India Publications Ltd.
M AY 11-2 4 , 2 015
1&2 Regent Chambers, Nariman Point, Mumbai 400 021; Tel: 22820348, Fax: 22820261 E-mail: [email protected]
Market News
Riding the volatility
Investors would do well to go
bottom fishing in troubled
times and follow a contrarian
approach
T
he merry month of May was
anything but merry, at least
for investors. Since 13 April
the market has seen increased volatility and in the last four weeks the
Sensex has gone down from a level
of 29044 to 27105 shedding close to
2000 points.
Almost anyone and everyone has
done their bit trying to justify the
seemingly illogical behaviour of the
market. The reasons ranged from volatile crude prices, which at one point
touched $62 a barrel; trouble in
Greece; UK not getting a clear mandate with fears of the Labour Party
trying to undo some of the good
work done by Conservatives to of
course the rbi on the home front – it
is the favourite whipping boy of the
markets. Either the rates are not cut
speedily or are not deep enough to
satisfy market expectations. Another
reason – Narendra Modi’s government, which will be completing a
year in power on 25 May, has not
performed. And no radical measures
have been taken. However, it would
be foolish to write off Modi’s government and pass hasty judgements on
the performance of the government.
K.V. Kamath, chairman, icici, hit
the nail on the head when he stated
that more than anything else it is
corporate performance that has been
found lacking. Unless fundamentals catch up to expectations, there
is bound to be disappointment,
sooner or later. And this could be
one of the main reasons. The other
was of course the sales pressed by
fiis, expressing their disappointment
over the mishandling of the contentious issue of minimum alternate
tax (mat). The notices sent by the
Income Tax department to collect an
estimated amount of `600 crore and
the statements made by the finance
minister to the effect that ‘let the
Supreme Courts decide on the matter’ did not go down well with the
fiis. It was only after the rupee started
dipping sharply against the dollar
that the finance ministry thought it
fit to refer the mat matter to justice
A.P. Shah, chairman, Law Commission, that the market heaved a sigh of
relief. And it saw gains of more than
500 points in a single session on the
last day of the fortnight – the Sensex
clawed back to over 27000.
On the political front, the passage
of the gst Bill, which was passed
by the Lok Sabha and was awaiting
approval in the Rajya Sabha, held
back investors. If the bill does get
passed in the current session or the
monsoon session, it will be a real
u 80 u
M AY 11-2 4 , 2 015
game-changer as the applicability
of a uniform tax across all states in
India will facilitate easy movement
of goods across states as well as sourcing of goods across wider markets.
However investors do not really
have to take cognisance of all the
possible factors impacting sentiment. One view is that everything
ultimately gets reflected in the price
and it may well be worth one’s while
to look at taking small exposure in
well managed companies.
Banking and finance companies
have borne the brunt of the selling
pressure over the last two months.
This is natural in a way as banks are
the harbinger of good times and during a bull run most investors look
at investing in bank stocks. While
the low credit offtake and the rising
npa s have been a source of disillusionment, it may be worth having a
relook at some of the front runners
in this sector. Whenever a country
rerating is done bank stocks are the
ones which are bound to be the first
to attract investor funds. icici Bank
at `312 is close to its 52-week low of
`296; State Bank, the biggest public
sector bank, which saw a 52-week
low at `255 on 26 March 2015, is
quoting at `262; Kotak Bank, which
came out with good results and also
declared a bonus in the ratio of 1:1
post the merger with ing Vysya
Bank, is quoting at `1,322 as against
its monthly high of `1,473 reached
on 15 April. Yes Bank, which also
reported a good performance for
FY15, could however see some selling with the High Court directing
the promoters to bring down their
holdings to 10 per cent. Axis Bank
also looks good as its income from
other sources could go up significantly in case of a revival in the primary markets as is expected by a few
investment bankers.
FMCG – best performer
Volatile times also provide an opportunity to reflect and re-rate one’s own
portfolio. One has to look at companies individually and not go only by
the rise or fall of the index. While
sentiment does play a big part in
the market’s y-o-y movement, there
are certain stocks which continue to
Market News
Market returns of top companies
182%
Returns (%)
149%
52 week high/low (`)
Marketcap (` crore)
90%
90%
58%
Britannia
2,405/821
26,818
Asian Paints
756/504
72,573
Marico
429/222
23,734
post good year-on-year returns. fmcg
is one such sector. Most retail investors baulk at investing in high priced
fmcg companies which they feel
may not generate enough returns to
warrant investments. However this is
not the case.
It is interesting to note that while
the bse fmcg Index has given negative 8 per cent returns over a one year
period, most of the fancied stocks
in this sector have given handsome
returns, beating both the index and
the Sensex by a wide margin.
Companies like Dabur, Godrej
Consumer Products, and Nestle have
given returns of around 45 per cent.
hul, which is the biggest fmcg by
market cap (`1,88,005), has been a
clear outlier giving returns of 58 per
cent. Two other companies in the sector, Marico and Pidilite, have given
90 per cent returns over the last one
year. However the highest appreciation has been witnessed in the Nusli
Wadia group-controlled Britannia
Industries. The share price of this
company has jumped from `821 to
over `2,405. Asian Paints is the second highest, having given returns of
nearly 150 per cent during the year.
What is even more noteworthy
is that most fmcg companies have
recorded their 52-week highs during the last three months. Britannia
Industries recorded its 52-week high
in May, while Colgate Palmolive,
Pidilite
638/286
29,170
46%
45%
45%
44%
HUL
Godrej Consumer Nestle Colgate Palmolive Dabur
550/979
1,230/750 7,500/4,536 2,198/1,325
286/177
1,88,005
37,141
65,582
25,511
45,678
Godrej Consumer Products and
Dabur recorded their 52-week highs
in the second fortnight of April. One
inference that could be drawn from
this is that during volatile times
there has been a rush towards quality shares. Or it could be that investors in these shares, which have
given them multiple returns over
the last several years, are unwilling
to book profit in these shares. While
there is one view that the high p/e
ratio of the fmcg companies may not
be sustained – the argument keeps
cropping up year after year – the fact
is that these shares have a tendency
to outperform across all cycles and
hence investors should ensure that
some part of their asset allocation
is in the fmcg sector. In fact reports
about poor monsoon and sell reports
generated by brokerage firms should
be used as an opportunity to expand
one’s holdings in these companies,
especially when the prices dip during a major setback in the markets.
and IT winners
Meanwhile hul has reported a good
performance for the last quarter
which also marked the end of its fiscal year. It reported a pat of `1,018
crore, which is a rise of 16.7 per cent
on total sales of `7,774 crore. For the
full year it reported a rise in pat by
11.5 per cent on an increase of 9.7
per cent in total sales for the year.
FMCG
u 81 u
M AY 11-2 4 , 2 015
Most fmcg companies also have
higher dividend payouts than other
companies.
The other sector one would do
well to focus on is it companies. A
couple of bad quarters do not necessarily make them unattractive.
While in most cases the p/e of these
stocks have come down to 16-18x
levels from a high of 30-40x, it is this
re-rating that makes them attractive
buys for the long run. Infosys and tcs
are the two bellwether stocks and it
makes sense to have a relook at them
over a longer time frame. The erosion in the value of the rupee spells
good news for many of the it companies that have dollar denominated
earnings from their major overseas
markets.
The next fortnight could see further volatility gripping the market.
The fate of the gst Bill, the rbi moves
and the report of the Law Commission on the contentious issue of mat
are some of the events worth watching. There is one section in the market which is speculating over the rbi
trying to preempt the markets by not
waiting for June and announcing rate
cuts ahead of the credit policy in the
first week of June. The reports about
the advancement of monsoon or
otherwise would also gain strength
towards the latter part of May.
[email protected]
Market News
A pa r t m e n t F u n d
A real option
Indiareit Apartment Fund looks for opportunities in sluggish
market conditions
I
ndiareit Apartment Fund by Ajay
Piramal-backed Piramal Fund
Management has progressed well
ever since it was launched in July last
year. The fund, based on a concept
of institutional buying of residential
units, has already deployed around
25 per cent of its total raised corpus of `530 crore across three transactions. Besides, it has also approved
three more transactions which are
at various stages of pre-disbursement diligence. Once funded, these
would translate into around 50 per
cent of overall deployment status
for the fund. The strategy is to buy
apartments in bulk from developers
at a significant discount to the
market price.
“All three transactions are performing well and have seen a substantial uplift in both value and
construction progress post investment. Further, another three transactions have been approved and will
fund within the next quarter bringing the deployment status to around
50 per cent,” says Khushru Jijina,
managing director, Piramal Fund
Management.
The three transactions include
two residential projects in Mumbai – Omkar Realtors’ Alta Monte,
Malad project (`50 crore) and Forum
group’s Serendipity project at Bandra
Kurla Complex (`37.5 crore). It has
also deployed another `37.50 crore
in developer True Value Homes’ residential project, tvh Quadrant, Adyar
in Chennai. Moreover, there are
three other projects where the fund
is undertaking due diligence. These
include two projects in Bangalore –
Whitefield/Koramangala (`37.5 crore)
and Electronic City (`37.5 crore) as
also a residential project in Thane,
Maharashtra (`55 crore).
All these are under-construction
residential projects at various stages
of development and the fund, with
an average deal tenure of 2-3 years
per transaction, has bought these
residential stocks at a discount ranging from 25-35 per cent as compared
to current market prices and will
start offloading the units in the next
16-24 months when the developers
start delivering these apartments in
the open market on completion of
the projects.
Win-win situation
So what is this new concept all about?
The investment model is fairly simple. Fund managers seal deals with
developers to purchase or underwrite
inventory in under construction
projects at a discount, to clock appreciation-linked returns when prices
appreciate. Developers get an assured
off-take for the project, a sound cash
flow and do not have to deal with
as many investment covenants as a
conventional pe deal. The investors
get real assets on their books akin to
a share of a public listed firm which
provides a more flexible liquidity
option against a restrictive case of
either a buyback by the developer
u 82 u
M AY 11-2 4 , 2 015
or finding another realty investor to
sell stake in spv level investments.
The funds can either let the developer sell it after a period of time or
can offload it through their own
channel partners.
Brokers and high net-worth private investors have long bought
apartments at the construction stage.
They have also been blamed for pushing up prices through the practice.
Entry of the realty fund in the bulkbuying spot makes it a more institutionalised way of underwriting an
under-construction project. Experts
say that it is a new chapter in the
evolution of deal making. Bulk buying is another variant among other
financial instruments like structured
debt and mezzanine financing. “It
is a transient opportunistic product, devised particularly for a sluggish market where inventory levels
are high. It offers a win-win situation for all stakeholders – fund managers investors and developers,” says
Rajeev Bairathi, executive director,
capital transactions group, Knight
Frank India.
A host of considerations have
gone into making this concept take
off. Muted sales from end users, as a
result of the slowdown in the economy in the past two-three years, are
forcing realtors to find an option to
offload the inventory to generate
liquidity. Also, if the developer borrows instead, there is a large interest cost. According to an estimate,
there is an inventory of around 18
million sq feet of residential space
across seven major cities. Developers
are offering apartments to fund at a
deep discount in exchange of equity-like money which they can use for
land purchase or other projects. Fund
managers are of the view that prices
of apartments will appreciate going
ahead, which has become a major
factor for them to back this structure
in the given situation. Moreover, in
markets like Mumbai and NCR, there
is significant difference in the prices
of under construction properties and
readymade properties, since all the
risks associated with construction
are almost eliminated.
u A R B IND GUPT A
[email protected]
Portfolio Talk
s a n j ay b o r a d e
‘Make volatility your
friend not enemy’
Anup Bagchi, md and ceo at icici Securities, manages one of
the largest broking houses in the country, serving 35 lakh retail
investors. In conversation with Sunil Damania he suggests that
every dip in the market should be used as an opportunity to buy
From ‘consensus buy’ to ‘cautious
buy’, there has been a dramatic
perception change about Indian
equities. Some say it is an
extremely good market to be in,
others suggest otherwise. Which
side are you on?
I think it is still a ‘consensus buy’
and we should buy on dips. In the
last four to five years, the market
hasn’t moved much. I still think
dips in the market are good opportunities to buy. As a country, we certainly are moving forward, so it is
definitely a buy.
In which pockets do you see a
buying opportunity?
It is different for different people. I
keep on saying this even though it
is boring. One must make a systematic investment plan, invest a larger
portion of funds in large cap or even
better, invest in mutual funds or unit
linked insurance policies. Out of the
total funds you plan to put in equity,
invest 70 per cent in large caps and
30 per cent in midcaps. One must do
this systematically so that one gains
in case of volatility.
Which sectors looks exciting in
large caps?
By and large one should invest in
those stocks or sectors which have
similar weightage to the benchmark
indices. One can outperform the market by investing in companies that
do not have stressed balance sheets.
Every time there is a correction,
one should buy such stocks. Over
any time period you may mention,
whether five years or 10 years, stronger balance sheets have undoubtedly
outperformed. A company would
have a strong balance sheet when it
is well capitalised and has reasonable
debt. This makes you resilient when
the markets are volatile.
You stated that one must invest
in sectors in a manner that their
weightage is similar to benchmark
indices and avoid stressed
assets. Banks have the maximum
weightage in the benchmark
indices followed by it stocks.
Yes among banks and it stocks, one
must buy the sector leading stocks.
A foreign institutional investor
has to beat the index but in case of
a retail investor, this is not the case.
A retail investor’s opportunity cost is
not the benchmark index, but other
competing assets such as debt funds.
There the objective should not only
be to outperform the index, but also
protect the downside.
One should invest in sector leading companies even though they
are available at high valuations.
For example: if one has to invest
in a bank’s stock, the price to book
for public sector banks is low, but for
private sector banks it could be three
to four.
Let’s say I buy a stock that is valued four times price to book. Even
though it is expensive, I would still
buy it. In the long term, for example
a period of 30 years, they will always
outperform. The best investors are
those who buy good companies and
forget about them before they are
overcome by greed or fear.
What is your take on earnings
this quarter?
I think the earnings have been factored into the market. Private sector
banks have done largely well. We will
have to wait and watch the results of
public sector banks. In the it sector,
the results have been good and bad,
u 83 u
M AY 11-2 4 , 2 015
but you are getting them at 16-17
times multiple, which is not bad at
all for such large businesses, which
throw cash flows and have good
return on earnings. One should not
expect anything from stressed companies even though they are available at cheaper valuations as they
will continue to be stressed. In the
auto pack, some stocks such as Hero
MotoCorp and Bajaj Auto have corrected, but one should not be bothered by this. The only thing I would
like to stress is one should make volatility one’s friend and not an enemy.
Instead of investing once in a year,
one should invest at least once in a
month – in this manner, volatility
will be averaged out.
Your business comes from retail
investors. How are they viewing
current volatility in the market?
Retail investors are always nervous
during times of volatility and rightly
so. Their activity levels over the past
12 months have come down a bit.
Retail investors like volatility with
an upward bias. On the other hand,
flow to mutual funds is still steady.
Retail investors typically start to
move out during a downturn in the
market, but when it starts to move
up, they come back. u
Executive Focus
sanjay borade
T
he 32nd floor office in Central Mumbai, of N. Venkatram,
managing partner and ceo, Deloitte India, offers a bird’s eye view of
the changing skyline of the city. On
the extreme west is the vast stretch of
water of the Arabian Sea and the Worli-Sea Link Bridge. Closer to his office
are some of the most iconic towers
dotting the landscape in the erstwhile textile mills area. Alongside the
towering skyscrapers one can also see
construction activity with projects at
various stages of completion.
Venkatram, who was nominated
(unlike some other firms where members are elected) as the managing partner recently and assumed charge on 1
April, does not have time to dwell on
the city’s development phase. Clocking nearly 14 hours a day, six days a
week, including Saturday when he
works till 5.30 pm, Venkatram has
spent the better part of the month
meeting with a variety of clients, and
potential clients, ceos and cfos of
large corporates, regulators, independent directors, legal experts, bankers,
fellow partners as also his peers in the
other firms. “It has been an extremely
busy month, literally a month of
sounding, as they say in management
parlance,” points out Venkatram, who
also met some of his counterparts at
Deloitte in other countries.
Early in his career Venkatram
worked briefly with Tatas, a business
group with which he has a strong
association. Through his role as an
auditor, Venkatram has had diverse
experience working in several industries during his career spanning over
three decades. This includes gaining insights into industries such as
steel, automobiles, power, insurance banking as also software, telecom sectors. Having grown up in the
industrial town of Jamshedpur, Venkatram went to the Jesuit-established
Loyola School, which saw an eclectic mix of children ranging from the
scions of the top echelon of the large
local companies to the sons of junior
management and contractors.
The values imparted during his
early school days formed the backbone of his formative years and later
on in his career. At a time when science was the rage in early 1970s and
N. Venkatram
MANAGING PARTNER
AND CEO, DELOITTE
INDIA
Age: 56 years
Education: Loyola High
School, Jamshedpur;
Sydenam College,
Mumbai; chartered
accountant; member of
AICPA ; and has passed the
ICWA exams
Career: After a stint
in India, went to the
Middle East; worked
briefly with Tatas before
joining
sb Billimoria/Deloitte.
Became a partner in
1995
The silent gatekeeper
getting an engineering degree and
doing advanced studies in an iit
and going to US was the dream of
most aspiring students, Venkatram
wanted to do something different
and opted for studying commerce – a
stream that was, at the time, considered inferior in the industrial town
and meant for someone “slow in the
head and weak in maths!” This was
despite his scoring very high marks
in science subjects and having an
interest in electronics – in which he
dabbles even today.
Venkatram wanted to be in a profession or “professional calling” as
he terms it and though there had
been no distinguished government
accountants in his family, he aspired
to be one. He graduated from Sydenham College of Commerce and Economics, then a highly rated college
in South Mumbai, before joining the
accounting firm of sb Billimoria, for
his articleship to qualify him for the
chartered accountancy examinations.
u 84 u
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As luck would have it, Y.H. Malegam,
a senior member, sent Venkatram
to Jameshedpur to Tata Iron & Steel,
which was one of its large audit clients. Having stayed in Jamshedpur
and also worked at close quarters with
companies in the Tata group, both as
a budding ca and also later, Venkatram claims that he did not grow up
in a board room but cut his milk teeth
in manufacturing plants.
An accountant’s role does not
begin and end with auditing entries
in books of account, he claims. He has
to get deep insights into the industry
and the company under audit to really
do justice to his profession. That an
accountant’s role goes far beyond and
above just the accounts was the belief,
which saw him getting varied experience in various aspects of business, be
it restructuring, valuations, acquisitions and divestment or overseas listings and ipos.
After a brief stint with another
firm in the Middle East, which at that
Executive Focus
time was attracting a lot of talent,
Venkatram came back to India and
joined sb Billimoria in 1993. India
was experiencing the first wave of
liberalisation and Venkatram aspired
to participate in the fast changing
industrial landscape. Legacy firms
were still dominant at that time and
multinational firms were emerging.
Working between Jamshedpur and
Mumbai, Venkatram became a partner in 1995. During the period from
1993-2000, “I witnessed the industrial growth of India across sectors
from the grassroot level upwards”.
He participated in the expansion
of his client companies and worked
closely during the listing of some
major companies in India and overseas. The zest for learning saw Venkatram building the media, telecom,
ifrs and accounting advisory practices as the firm grew. “Earlier, the
times were different. Professional
accountants had to be versatile and
do a lot more work than just certifying annual accounts,” he says. As
work expanded and specialisation
had not yet become the norm, challenges abounded. Clients wanted
more professionalism as they grew
in India and overseas. sb Billimoria
transitioned into Deloitte with several other firms of repute.
Venkatram lives by the belief that
“auditors are the gatekeepers of the
capital markets and owe a responsibility to the shareholders as also the
stakeholders. In a way it is a public service in a private sector role”. Scoffing
at the thought that auditing became
drudgery and ca is a dull profession,
he says: “This is one of the most exciting professions in the world. Where
else can you wake up in the morning
and work with a different client who
shares the insights of his business
with you. You don’t sit at the same
office table every day.” During his frequent trips overseas for work, Venkatram takes time off over the weekends
to see the pyramids of Giza as also
enjoy the scenic beauty of Sorrento
and other major parts of Europe and
the US, visiting friends and family.
As silent gatekeepers, auditors are
a repository of knowledge and often
have to advise clients on their business within the regulatory framework.
Drawing a parallel between an auditor and a priest, Venkatram says like
the priest, once the auditor blesses
the accounts they are considered sacrosanct. As a priest who hears confessions, an auditor knows all the
secrets of the company and it is up
to him to guide the management to
steer clear of risks and not cross the
thin line. And, he chuckles, like the
priest, he is not the best paid.
I
n his line of work, risk management is an inherent virtue which
has to be practiced. It is always recommended that predictive risk analysis is done before taking on a client.
A thorough examination of the credit
rating, the pattern of shareholding
ownership, and background check is
done before signing on a new client.
Having seen various changes in
the leadership structure of large corporates over many years, Venkatram
concedes that client expectations
have gone up manifold. Consequently
accounting firms have grown to such
Like other accounting firms, his firm
too has accelerated the process of
building various skill-sets required
to cater to the diverse needs of its clients. Venkatram strongly believes
that a rotation of auditors may actually see a rise in fraud and audit failures. While the objective is to break
the cosy relationship which could
develop between the management
and the auditors over a period of time,
Venkatram feels that a new firm may
not be able to grasp the intricacies of
business and this could lead to problems in the transition period.
One of the biggest employers
globally, in India Deloitte has an
estimated strength of nearly 27,000
people. “We are committed to training and creating careers of our people. Trainees who graduate from
Deloitte either stay in the professional services environment or get
easily absorbed elsewhere and are
our alumni for life,” says Venkatram,
who believes that contrary to perception, the big accounting firms have
That an accountant’s role goes far beyond and above
just the accounts was the belief, which saw him getting
varied experience in various aspects of business
a stature that none of them are dependent on a few clients and can stand up
to the pressure of the profession. All
the firms have a diversified clientele
base. The evolution of the accounting industry has also seen firms diversifying and building other skill-sets
around audit and assurance practices
which they are designed to support.
“Client centricity is at the heart of our
work,” says Venkatram, “and customers expect a professional approach to
the services they seek from a firm.”
One of Venkatram’s big changes
will be to steer the firm over the next
few years during the mandatory rotation of auditors, era. Deloitte, through
its network firms, currently handles
almost 200 of the top 500 listed companies. And rotation could possibly
see a reduction in audit work. “Rotation is a challenge, but it also opens
up opportunities to provide other
advisory services,” admits Venkatram.
u 85 u
M ay 11-2 4 , 2 015
actually reversed the brain drain by
giving opportunities to young talent
to flourish within the country.
A practitioner of yoga for the last 13
years or so, his stress-free demeanor
allows Venkatram to work tirelessly,
and move from meeting to meeting
effortlessly. “Work is a way of life so
there is no question of seeking a worklife balance elsewhere,” he philosophises. While Venkatram and both
his daughters, one married, as also
his son-in-law, have qualified as chartered accountants, strangely enough,
it is his wife who handles the finances.
The gatekeeper of capital markets does
not own any single share in companies to avoid conflict of interest.
Even those where the firm does not
have any working relationships the
belief is that one day they might
become clients.
u DA K SESH PARI K H
[email protected]
Executive Track
Stepping up
Westlife Development Limited, the
owner of the master franchisee of
McDonald’s restaurants in India,
announced that Vikram Ogale will
be stepping up from his current position as general manager – national
supply chain, to take up the responsibilities of director. Ogole will
be taking over from Sriram Venkateswaran, who after an association
with McDonald’s for over 8 years, is
now looking to move into the e-commerce industry. Ogole will directly
report to Smita Jatia, managing
director, Hardcastle Restaurants Pvt
Ltd. He joined McDonald’s in 2012 as
general manager with over 12 years
of experience.
Financial
governance
Nissan has announced the appointment of Sandip Neogi as chief financial officer. Neogi will report to
Guillaume Sicard, president, Nissan
India Operations, in Chennai. He
will be responsible for the financial
performance and governance of all
Nissan companies in India. Neogi
has more than two decades of
experience working in financial
governance for India.
New responsibility
Sanjeev Gandhi, member of the board
of executive directors, has taken over
the responsibility for basf’s operations in the Asia Pacific region, and
will be based in Hong Kong. He succeeds Dr Martin Brudermüller, chief
technology officer. Gandhi first held
a number of management positions
in marketing, product management
and business management between
2000 and 2010. He joined the board
in December 2014.
Well-rounded
veteran
Assemblage
Entertainment,
the
young entrant in the animation
industry started by industry stalwart
Prior to Taj, he was evp at Media Pro,
a distribution joint venture company
between Star den and Zee-Turner.
Sandhu was handling cable tv
subscription for central, north and
east India.
Getting creative
Shinde: animated!
A.K. Madhavan, has announced the
appointment of Milind D. Shinde as
chief operating officer and as a member of the company’s board. Prior to
joining Assemblage, Shinde was part
of the core team of the India unit of
DreamWorks Animation USA at Bangalore, and Oriental DreamWorks,
part of the China unit of DreamWorks Animation. He has worked on
several feature film projects including Oscar nominated ones. Shinde
has over 14 years of experience in the
field of animation.
Taking charge
Leo Burnett announces the appointment of Sanju Menon as vice-president based at its Mumbai office.
Menon will lead the Bajaj business
nationally, taking charge of both
strategy and account management.
He started his advertising career with
sn Design in 2005. In a career spanning more than 10 years, Menon
has worked on brands across categories, namely, Eveready & Lafarge. He
joined the agency as a brand associate
in 2007 and grew to the position of
business head in 2011 before moving
on to head the operations from 2013.
Moving on
Taj Television executive vice-president Himmat Sandhu has resigned.
He is serving a three-month notice
period. Sandhu, who has spent 15
years with Zee, was looking at a bigger profile after Taj Television was
formed following the Media Pro split.
u 86 u
MAY 11-2 4 , 2 015
Tejali Shete and Ajay Menon have
joined ddb Mudra South & East as
senior creative directors. Shete joins
ddb Mudra from Grey Worldwide
and a short stint at Leo Burnett,
Kuala Lumpur. She has worked with
leading advertising agencies including Contract, Lowe Lintas, Ogilvy
& Mather and worked on an array
of world-renowned brands including Coca-Cola regional and Pantene.
Menon joins ddb Mudra with over 16
years of experience, having worked
on campaigns like mrf, BlackBerry
smartphones, Cinthol and Godrej.
Getting global
The ck Birla group, a $1.6 billion
diversified
business
conglomerate, announced the appointment of
Anjan Lahiri as chief executive officer of its global it services firm Birlasoft. Lahiri is a globally recognised
information services expert and
one of the co-founders of Mindtree.
He founded Mindtree and helped
it grow into one of India’s leading
mid-sized it services companies.
New management
Online marketplace Snapdeal is overhauling its management team. Former
Coca Cola India marketing director Idi
Srinivas Murthy has joined Snapdeal as
senior vice-president, marketing. Sandeep Komaravelly, who was heading
Snapdeal’s marketing function for five
years, has moved to another strategic
leadership role within the company.
In addition, Vivek Patankar, a former executive at Unilever, has joined
as vice-president finance. Earlier this
year, Snapdeal had also appointed former Yahoo Inc and Amazon.com Inc
executive Jeyandran Venugopal as
technology advisor, to replace its cto
Amitabh Misra.
u
[email protected]
Selections
T h e ‘ M u d r a’ da n c e f e s t i va l i s d e d i c at e d to t h e l av i s h us e o f co lo u r s
Evoking rasa with colours
I
ndia celebrates colours. From
food to floors to fashion, everyone uses colour abundantly and
often tints considered wild or clashing elsewhere somehow meld here,
increasing joy and beauty. This
year’s ‘Mudra’ dance festival was
dedicated to this exuberant, lavish use of colours and conveyed
by mudra, movement and intense
emotion. Its days of dance, discussions and demonstration are always
eagerly awaited.
Seeing the really wonderful presentations by the dedicated, talented
Nrityagram dancers and the gorgeous
Vijayanthi and Prateeksha Kashi, one
can see clearly why temple dancing
survived for so many centuries, even
during the days when disgraced and
opposed sternly by the British. Its
sheer beauty, impact and the ultimate
realisation, beyond all daily experience, of the divine was shattering as
both duos brought the seeds of wisdom and actual religious ecstasy.
Truly, they brought gods down to
earth! Love and longing for the divine
and the soul’s desire to really know
itself, can be shown in many ways
comprehensible to humans: a mother’s love for a wayward child, children
among their friends, a married couple,
the teenaged Radha and Krishna and
Surupa Sen and Bijayini Satpathy:
as sheer, sharp erotica, to increase our
understanding of the many dimensions of adoring the divine.
A superb duo from Protima Bedi’s
Nrityagram – Surupa Sen (artistic
director & choreographer) and Bijayini Satpathy (director, dance education) – brought amazing emotion,
Vijayanthi and
Prateeksha Kashi:
footwork and great understanding while depicting erotica. For
two decades they worked together
to develop a distinct style that distinguishes Nrityagram dancers and
extended traditional Odissi. They
were well-proportioned and seemed
coached in modern dance as well.
They and their sublime musicians
created magic as they brought songs
from Jayadeva’s Gita Govinda. Their
depiction of midnight blue invokes
a dark night sky aS Abhisarika
Radha goes to meet her beloved Lord
Krishna. Radha’s friend asks her to
remove her ornaments to avoid making the slightest sound and to wear
a blue sari to mingle with the midnight. Meanwhile, her beloved blue
lover waits anxiously on the Yamuna
banks. That the soul desires the lord
is understood but here the divine too
desires humanity. The Radha-Krishna
story is always about the soul (usually represented in human terms, as
females) longing to meet and merge
with god (represented as male).
Another outstanding performance
was by Vijayanthi Kashi and Prateeksha, her daughter. Their dancing to the
goddess invocations and chants verily
brought the divine down in them and
us. They showed us many complete
stories in just a few moments: a leaping Hanuman tears open his heart to
show Ram and Sita, a faithful Jatayu
flutters his bleeding wing and Rakt
Beej. The awesome Kali simply licks
up every drop of the wicked demon’s
blood. They were great dancers and
also great actors with wonderful abhinaya. Their range of expressions and
their widely diverse stories depicted
their enormous skills. One imagines
this is how dancers and musicians
inspired temple audiences to really
witness divinity. These two definitely
brought god down to us on a simple
Mumbai stage with no props, no backdrops, no particularly fabulous acoustics: just the power of their dance.
u SWAPNA V ORA
[email protected]
u 87 u
m ay 11-2 4 , 2 015
People
Woman on
top
R
Skill development
R
ecently, as part of its csr
initiative, India Yahama
Motor (iym) an entity of
Yahama Motor in association with Don Bosco Technical Institute, Krishnanagar
in West Bengal, opened the
Yamaha Training School. The
Don Bosco Technical Yamaha
Training School aims to create a ‘Centre of Excellence’
where young people will
receive free technical training
T
for two-wheelers to become
skilled technicians. On completion of the training course,
they would be gainfully
employed at Yamaha dealerships and become productive
members of society. Technical
experts from Yamaha Motor
India Sales are conducting
the training programme on
behalf of iym. “At present,
there is a huge skills gap in the
industry as it heads toward
rishya Screwvala founded The
Lighthouse Project to create
structured and accessible platforms
for volunteering. The project, which
commenced on 14 September 2013 in
Mumbai, is one where students and
professionals are paired with street children from the Salaam Baalak Trust. “A
big motivation to start The Lighthouse
Project was that I felt there were very
limited platforms for long-term volunteering in the social sector. The concept of mentoring came to me when I
noticed that many children from these
communities often lack a role model in
their lives.” Each mentor, who undergoes a training session that covers modules relating to self-esteem, academic
motivation and English speaking, is
paired with one child from an under
resourced community. “One of our
an expansion drive. On the
other hand, a large number of unskilled youth are
pushed towards unemployment which is a hindrance to
any nation’s development,”
said Masaki Asano, managing director, Yamaha Motor
India Sales, at the event.
The centre is a platform for
the economically weaker
and unemployed youth to
obtain job-oriented technical training in two-wheeler
repair and servicing that
meets industry standards. u
Beacon of hope
u 88 u
M AY 11-2 4 , 2 015
itu Nanda, ceo, Ritu
Nanda Insurance Services,
was conferred the ‘Woman of
the Year Award’ by New York
City First Lady, Chirlane Mc
Cray at the annual Vaishaki
Celebrations. The event was
organised by SA4BC founder
Pam Kwatra and co-founder,
Eric Kumar. She has also
been awarded the Guinness World Record for selling
17,000 pensions in one day.
Nanda also manages companies like Escolife and Rimari
corporate art services. There
were more than 150 guests,
and prominent members of
the sikh community including, Raghubir Singh, Gurdev Singh Kang, Himmat
Singh Sarpanch and Ashok
Sapra, at the occassion. u
main differences is that we are a volunteer-based programme. We focus on the
experience and impact the programme
has on the volunteer, as well as the
child. The second difference is perhaps
that our model is based on strong partnerships collaborating to create holistic
impact in the most effective manner.”
While the project was initially selffunded, “each year we have engaged
in fundraising activities, like the Delhi
Art Auction. In the past we have had
mentors like Pooja Dhingra, Anupam
Kher, Hrishi K and Avanne Dubash
who lend their time, knowledge and
skills to our children”. Guided by
her father, Ronnie Screwvala, in the
last two years Trishya has had 90
per cent of ‘her’ children speaking
respectfully and 73 per cent are better able to manage their emotions. u
People
G
ujarat Cooperation Milk
Marketing
Federation
(gcmmf) announced the
launch of Amul’s India, at an
event in Mumbai. The book
is based on 50 years of Amul
advertising, especially its
hoardings – 8,000 billboards
and counting – that are
markers of the ‘popular’ history of India and have been
Amul’s India
followed by fans for decades.
It captures the remarkable
journey of the brand through
the eyes of prominent writers and public figures like
Amitabh Bachchan, AlyquePadamsee, Rahul daCunha,
Rahul Dravid, Sania Mirza,
Shobha De, Shyam Benegal,
Suhel Seth, etc. “It is an honour for us to have published
the revised and updated edition of this book after the
phenomenal print run of 1.2
lakh copies of the first edition,” says R.S. Sodhi, managing director, gcmmf. The
book captures new trends and
Well communicated
T
he Association of Business Communicators of India recently hosted its
54th Annual Awards Nite in Mumbai.
Promoting excellence in business communications, this year the association
has recognised Pankaj Mudholkar,
managing director of Aakriti Promotions & Media Ltd as the Communicator of the Year for 2013-14, for his
meaningful contribution in the profession of both, communication leadership
and an iconic figure in corporate communications. “This recognition is for
the hundreds of backroom boys in communication. They work tirelessly sacrificing their personal lives and are the
stars behind the stars. I dedicate this
award to my extended family members
at Aakriti, my clients who believed in
me and our associates including friends
in media,” said Mudholkar. His journey
in advertising began when he joined
Shilpi Advertising after graduating from
St Xavier’s College, Ahmedabad. Post
Shilpi, Mudholkar moved to Trikaya,
which subsequently became the Grey
group and was instrumental in setting
up the agency’s psu and government
business at the national level. During
u 89 u
M AY 11-2 4 , 2 015
events that have impacted
Amul – the rise of Narendra Modi, youth becoming more central in national
discourse,
and
concerns
over women’s safety. “The
book is truly a labour of love,
and a campaign that I am
proud
of,”
says
Rahul
Dacunha, director, Dacunha
Communications.
u
his 23 years at Grey, he rose through the
ranks to be a part of Grey Worldwide’s
management committee. Mudholkar
has worked on campaigns that have won
more than 20 international and national
awards including Cannes, unfpa and
Ad Club awards in all categories. u
Interview
‘Public investment is
just not happening’
Sitaram Yechury, the new general secretary of the Communist
Party of India (Marxist), is seen as a pragmatic politician in
the mould of late ideological mentor, Harkishan Singh Surjeet.
However, Yechury has not given any reason so far to suspect that
he intends to strike a different course for the party immediately.
A student of economics, he vehemently disagrees with the Modi
government’s policy framework
What is your immediate priority?
Our emphasis will be to first
strengthen ourselves. When
elections come in various states, we
will talk in terms of seat-sharing. But
there will be no fronts or alliances
because they are not credible.
For the next three years, the
party’s primacy is to first arrest
the decline, then regain and
restore people’s confidence in
it. The party has decided to do
organisational revamping and
intends to substantially improve
its independent strength and do
political intervention on
policy matters.
The next task is of uniting the
Left which is dispersed among
various parties, many of whom
operate at the state levels. We have
to unite these Left parties and a large
section of non-party sympathisers
and intellectuals to a common
agenda. Through this, we will seek
the unity of the Left and democratic
forces to present a policy alternative
to counter the ruling classes.
There is speculation about your
relationship with the Congress
party and other anti-bjp parties.
Will you join hands?
Inside Parliament, we have said
we will unite on issue to issue like
the land bill, labour laws, threat
to secularism, etc, which we think
are not in the interests of the
country and the people. Outside
Parliament, our party has said that
the projection of a front at the
national level, with many of these
regional parties, is not tenable at the
moment because such a front has
to have a policy alternative, which
as a whole, we think, in the present
situation cannot emerge. Of course,
the Bihar election will be a litmus
test for such forces to emerge but we
will have to wait and watch. First let
us see how this unity process of the
former socialist forces emerges. That
is crucial.
How do you view the Modi
government’s policy framework to
rev up the economy, particularly
the Make in India programme?
It (policies) cannot work. I will give
you the reasons. You are giving
concessions to attract more foreign
investments. You are also giving
concessions to Indian corporates to
invest more. The logic given by the
government, even the Manmohan
Singh government earlier, is that
greater investments will create
new job opportunities and thereby
greater economic growth. But there
is a serious flaw in this argument,
why it can’t work. If they produce
goods, these need to be sold. But
where will you sell them? There is
global stagnation, our exports have
declined by 26 per cent last year.
You can’t sell these goods abroad,
you can’t sell them in India because
the people’s purchasing power is
declining as a result of these policies
and growing unemployment.
Even if this investment comes in,
it would be meaningful only if it
comes into the productive sector
and not to loot our resources and
u 90 u
MAY 11-2 4 , 2 015
expand their profits, without
creating productive capacities in
India. So greater investment does
not create greater growth, unless
you economically empower the
people. This can only be done
through a very high dose of public
investment, which has stopped for a
long time.
What is your take on the Modi
government’s functioning during
the budget session?
The government tried to bulldoze
the parliamentary system. It chose
not to refer any major bill to the
Parliament’s Standing Committee as
required to fine-tune the legislation.
This is bad for parliamentary
democracy as it has never happened
before. Bills on black money, fema
and rbi, which are not money bills,
have been clubbed with the Finance
Bill. The government should have
called an all-party meeting on gst
to take the Opposition on board
but this was not done. Only the
land boundary agreement with
Bangladesh got passed unanimously
because everyone’s views were taken.
After the bjp’s thumping victory
last year, there was talk that the
Opposition is finished. But recent
developments show that the
Opposition is getting back its mojo.
This is nothing new. Every ruling
party after election claims that the
Opposition is finished. But by the
time the next election takes place,
an alternative comes up. u
[email protected]

the number of retail investors in India needs to increase from the

Transcription

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