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Showing posts from October, 2007

GMR gears up for global growth

Business Today has an article on the management recast at the infrastructure focused GMR Group.
The company is looking at other segments to expand its global reach; it is eyeing coal mines in both South East Asia and South Africa to integrate its power business backwards and it is also eyeing other airport projects in West Asia and other fast growing economies. "The competition is much tougher on the global stage. There, we are up against large global infrastructure players and, possibly, some of our partners," says Rao. GMR has already experienced both of these when a consortium it was part of beat half-a-dozen others (including Frapport, its partner for the under-construction Hyderabad International Airport) to win the contract to upgrade the Sabiha Gocken Airport in Istanbul, Turkey. "We have demonstrated our capabilities in delivering projects on time in India across our businesses. Now, we want to take the next step," says G.B.S. Raju, Chairman, Corporate and I…

Searching for the true Indian VCs – A LP’s Perspective

The following article, by Anand Sunderji, originally appeared in the latest quarterly India VC Report.

Recently, a well known venture fund announced their India plans. However, further information revealed that while the fund plans to be loyal to its venture capital strategy offshore, in India they would largely concentrate on growth capital. Needless to say, something about India makes traditional venture capital funds veer off their beaten path.

Several funds that look exclusively at venture capital deals outside India, have changed track when operating in India and have been dabbling in what would be called growth capital deals or even larger ticket transactions. “Venture” firms are now entering sectors as varied as manufacturing, hospitality and auto components. This was, however, not always the case.

The late 1990s witnessed a surge in venture capital activity in India. Venture capitalists largely looked to replicate the Silicon valley success stories on the Indian subcontinent. S…

The opportunity and economics of intergrated townships

Business Today has an article on the business and economics of integrated townships.
At present, there is no one format that is being adopted by developers, although the key drivers seem to be common: It is either mass housing requirements or demand for commercial space. Therefore, the townships promise to come in all shapes and sizes. The 390-acre Kolkata West International City in West Howrah primarily offers plotted development, while the Mahindra World City in Chennai offers both commercial and residential space (although dwelling units are yet to come up). In fact, Infosys Technologies, which has built a sprawling campus in the Mahindra special economic zone (SEZ), hopes to employ 35,000 people when the facility is fully occupied. Magarpatta City in Pune is built on 400 acres of agricultural land and offers the walk-to-work concept to its residents, and the Dankuni Township near Kolkata is expected to have one of the largest planned developments involving public-private partnershi…

Are spin-outs the way to go?

The following article, by N. Sriram, originally appeared in the latest quarterly India VC Report

On May 4, 2006, when all commercial activity in Bangalore came to a standstill thanks to a general strike (“bandh”), Rajiv Mody, Chairman and CEO of Sasken Communication, and Sudhir Sethi, Managing Partner of IDG Ventures India, met to discuss an innovative idea: is it possible to spot product areas where Sasken was not adequately realizing the potential and spin them out into a separate corporate entity?

Over the next six months, after considerable research and several meetings later, five areas were identified as worthy of spinning off from the Bangalore-based provider of embedded communications technology solutions. After some more filtering, machine-to-machine (M2M) communication emerged as the top contender segment that Sasken should spin out. Between November 2006 and April 2007, the business plan was firmed up, potential customers and markets were identified. The next step was to pi…

Update on the Indiabulls phenomenon

Business Today has a cover story on the 8-year-old company, which enjoys a market cap of over Rs.29,000 crores, is rapidly expanding into territories beyond its original domain of online broking.
"The consumer finance business is 10 times the size of broking. If corporate growth is expected at 15 per cent, financial services will grow at 30 per cent. And in the next 10 years we will grow 10 times in the consumer finance business from $3 billion to $30 billion (in market cap)," says Gehlaut, who after working with petroleum and energy giant Halliburton in the us came to India to start a mining and earth moving business. In October 1999, along with Rattan and Mittal, Gehlaut started Indiabulls after acquiring a Delhi brokerage.

...The real estate push also gives Indiabulls an opportunity to diversify into another sunrise sector, that of organised retailing. Here, the promoters are exploring formats like hypermarkets and multiplex-cum-mall, and are busy acquiring properties for…

Deal Alert: 3i invests $80 M in steel pipe co. Welspun Gujarat

Edited extracts from the 3i press release:

UK-headquartered 3i has invested US$80 million for a 6.6% stake in Welspun Gujarat Stahl Rohren Ltd (“Welspun”) through a purchase of secondary shares in the company. Welspun Gujarat is the flagship company of the Welspun Group, led by Mr. B.K. Goenka, and is listed on the Indian and Luxembourg Stock Exchanges.

The company is one of the world’s largest manufacturers of line pipes used by the oil & gas sector and is in the midst of executing an ambitious expansion plan including adding new capacity, backward integration into manufacture of plates and coils and establishing an overseas presence with a facility in the US. The company counts the world’s largest oil & gas companies, including Exxon Mobil, Chevron and Saudi Aramco, as its customers. Post completion of the Company’s expansion plans, it will have a total capacity of 1.75 million tonnes per annum, up from 1 million tonnes per annum currently.

Arun Natarajan is the Founder &…

Deal Alert: Havells to raise $110 M from Warburg Pincus

Edited extracts from the Warburg Pincus press release:

Electrical and power distribution equipment company Havells India has announced that Warburg Pincus is investing $110 million in the company. Havells will issue fresh shares and warrants to Warburg Pincus, representing approximately 11.2% of the fully diluted share capital of the company.

Earlier this year, Havells acquired Dutch-based SLI Sylvania's lighting business to enhance their global presence. Warburg Pincus’ investment will be utilised to partly retire the debt raised during the Sylvania acquisition, and in strengthening the company’s manufacturing capacity and distribution network to address the Indian market.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

The Fabindia story

Business Today has an profile of Fabindia, a retailer of ethnic ware, which recently raised a round of Private Equity funding.
Fabindia is recasting its supply chain, setting up dozens of "supply-region companies" that will gradually take over its entire supply chain in a particular region; these companies will also offer shareholding to Fabindia's suppliers in line with the vision plan articulated by Managing Director William Bissell (40), who sees himself as a champion of free market in the NGO- and government-dominated handicrafts sector.

For a company that owns India's most successful and chic brand of handloom garments and handicrafts, that's only one of many exciting developments taking place-Fabindia has opened 37 stores in the last 18 months; sales have been growing at a CAGR of 40-50 per cent over the last three years; and margins are so attractive that investors are queuing up with their cheque books.

Bissell, who is married to an Indian, says Fabindia'…

Are REITs the right way?

A Businessworld article discusses how real estate companies like DLF and Unitech are raising money via REIT listings overseas and raises questions on whether such issues are fair to their domestic shareholders.
For instance, the promoters of DLF, India’s largest private land bank owner, have filed a prospectus for floating a REIT in Singapore. DLF Asset (DAL), their offshore entity, has already acquired assets of 5.3 million sq. ft of commercial office space from DLF, the publicly-listed Indian firm. An additional 6 million sq. ft will be sold to DAL at regular intervals over the next couple of years. It is 1.8 per cent of DLF’s total land bank of roughly 615 million sq. ft. “Singapore’s investors have a great penchant for REITs,” says Saurabh Chawla, vice-president of finance and investor relations at DLF. “In addition, Singapore is a great place for pan-Asia property deals.”

...Once its REIT gets listed on the Singapore exchange, there will be a public valuation of the 5.3 million sq…

Crush on Cross-Border Continues

Here is the full text of my article for the Economic Times-Corporate Dossier (issued dated October 19, 2007)

Despite the liquidity crunch in the US and Europe, Indian companies are stepping on the accelerator when it comes to acquiring overseas companies. Indian companies have closed over 60 outbound acquisitions worth over $4 billion during the latest quarter – i.e., amidst the “sub-prime crisis”. These included 15 deals that cost over $50 million and six that with tags of over $200 million!

Click Here for a table on top outbound acquisitions during the latest quarter.

So, why the hurry? One answer is the opportunity presented by the near absence of competition from LBO (Leveraged Buyout) firms. With lenders turning off the taps for cheap debt, LBO firms are no longer able to outbid strategic buyers with ease. This could be prompting the strategy and M&A heads at Indian companies to think what’s a few basis points here and there when the lack of alternative buyers can shave off a f…

Will the subprime mess affect Indian PE?

I wrote the following article for Economic Times-Corporate Dossier (issue dated September 7, 2007).

The financial crisis triggered off the by the US sub-prime mortgage meltdown, is already impacting Private Equity investing in North America and Europe. And depending on how our public equity markets react, it will impact the PE scene in India too. But, the nature of the impact is likely to be very different from that in the US and Europe. Because, PE in India is quite different from Private Equity in the Western world.

While (unfortunately) there are many definitions of Private Equity, PE in the US and Europe is commonly used to refer to buyout investments and especially, leveraged buyouts (LBO) which involve taking on significant portions of debt to acquire (often) publicly listed companies – with a view to improving profitability and taking them public again (or selling them off) a few years later. With the sub-prime crisis raging, PE firms will find it very difficult to access cheap d…

Exit Deal Alert: Sequoia Capital India notches up another exit as Cognizant acquires marketRx

Cognizant to pay about $135 million in cash as Sequoia Capital India reaps fourth exit in almost as many months from its WestBridge Capital avatar investments.

Edited extracts from Cognizant's press release:

Nasdaq-listed Cognizant Technology Solutions Corporation, a leading provider of global IT and business process outsourcing services, today announced that it has signed a definitive agreement to acquire marketRx, a India- and US-based provider of analytics and related software services to global Life Sciences companies in the pharmaceutical, biotechnology and medical devices segments. Cognizant will pay approximately $135 million in cash, which will be funded from current cash reserves.

marketRx combines analytics, market research and software services to provide scalable, web-based solutions in three functional areas for Life Sciences companies: Sales Management & Operations, Brand Marketing & Product Management and Market Research. marketRx's client base includes 75 …

Deal Alert: IDFC PE leads $100 M investment in Moser Baer's solar cell subsidiary

Edited extracts from the press release:

Moser Baer to raise $100 million in its wholly owned photovoltaic subsidiary

• $100 million to be raised from a consortium led by IDFC Private Equity, consisting of GIC Special Investments, IDFC & CDC Group plc.

• Proceeds to partially fund Moser Baer’s overall plans to expand photovoltaic (PV) capacity to 500MW by 2010

• A structured transaction to position the PV subsidiary for a potential IPO on an international exchange.

New Delhi-based Moser Baer, India's largest and the world’s second largest optical storage media manufacturer announced today that it has received the approval of its Board of Directors to raise $100 million (Rs. 400 crores) in its wholly owned photovoltaic subsidiary. The investment will be made by a consortium of investors led by IDFC Private Equity, a private equity fund focused on the infrastructure space in India; together with GIC Special Investments, a private equity arm the Singapore's foreign reserves; CDC G…

VC Interview: Bob Kondamoori of Sandalwood Partners

N. Sriram interviewed Bob Kondamoori, Founding Managing Director of Sandalwood Partners for the US-IVCA/Venture Intelligence quarterly report. Some extracts:

What differentiates Sandalwood Partners from other VCs?
We are focusing on early stage investments. Most of the VCs we see here are doing later stage investments where valuations are very rich and competition fierce. We are looking at investing in companies at product development stage so that we can help them tune the product to the world market. Secondly, we are also more product-centric than service-centric. We are not going after IT Services companies or BPOs.

Are you looking at India and China together as one block for investments?
We are really India-centric. But since we are product-centric company and one of our partners is in China, we look at China for support in manufacturing, until Indian manufacturing takes off.

What are the revenue requirements for a company to seek support from you?
Out first investment was based on just…

Bupen Shah and the art of building products out of India

There has recently been a lot ofdiscussion whether it is worth bothering to build products offshore in India - especially products targeted at US consumers and especially out of Bangalore.

With the acquisition of Sling Media (the creators of the much publicized Slingbox) for a pretty decent sum of $380 million by EchoStar (an existing investor in the company), Sling co-founder Bhupen Shah seems to have put the debate to rest.

Ryan McIntyre of Mobius Venture Capital, the first external investor in Sling, has this to say (emphasis mine) about Bhupen:
After the Sling Series A closed in October 2004, it was off to the races. They went from a demo prototype to a finished piece of hardware on the shelves at thousands of stores (mainly BestBuy and CompUSA at launch) in less than nine months, launching the product on June 30th, 2005. Much of the credit for this amazing achievement goes to Bhupen Shah, Sling co-founder and CTO, who managed a transoceanic team between San Mateo and Bangalore that …

Profile of Wind Power firm Suzlon Energy

Businessworld has a cover story on wind energy firm Suzlon Energy and its founder Tulsi Tanti.
Tanti has also made bold strategic decisions that have changed the way the entire industry works. Suzlon’s competitors largely outsource the various windmill components — the gear box, blades and generators — then assemble the turbines locally and supply them to customers. These buyers were mostly interested in the 80 per cent depreciation available on the capital investment that the turbines brought them. Some wind turbine makers such as NEPC Micon faced problems of execution. MNCs such as Vestas and Enercon, too, did not maintain machines after the initial sale.

...Tanti, smart enough to seize an opportunity when he saw one, decided to sell end-to-end solutions to customers unlike his competitors. This wasn’t easy. “Tanti took the risk of investing in identifying large wind tracts, studying the zones over a two-year period, setting up the wind farms and then selling them to corporates,” says…

Crush on Cross-Border: M&A Summit '07, Oct 25 at Mumbai

Indian entrepreneurs are looking outwards like never before in their goal to create truly global businesses. And M&A is proving to be a popular tool in this pursuit.

The ever increasing number and size of overseas companies being acquired clearly demonstrates India Inc.’s rising confidence and vigor to plant its flags around the globe. However, amidst all the euphoria surrounding global acquisitions, there are several key questions that need effective addressing to ensure that such deals create long term value.

In this context, Venture Intelligence presents Crush on Cross-Border, an unique M&A Summit that brings together entrepreneurs, top executives and investors to network, discuss and share best practices on the acquisition of overseas companies.

Speakers at the summit include:

- Manu Parpia, Geometric Software
- HR Srinivasan, Take Solutions
- Gopal Srinivasan, TVS Group
- SN Rajesh, UTI Ventures
- Mukund Choudhary, Spentex Industries
- R. Chandrasekar, Suzlon Energy
- Subramani…

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

07-09-26-1: Bangalore based website for buying and selling of IT products seeks <$1-M for promotion and opening of retail outlets.

07-09-26-2: New Delhi based provider of financial services to low income people by leveraging mobile phones and other technology tools seeks <$5-M for expansion. Founding team members have earlier worked at PayPal and a leading Mobile VAS firm.

07-09-26-3: Mumbai based advertising and design company seeks <$10,000.

07-09-26-4: Bangalore based Recruitment Process Outsourcing company - focused on streamlining recruitment of fresh hires for IT & ITES companies - seeks <$100,000 for expansion.

07-09-26-5: Noida based outsourced software product engineering firm seeks <$1-M for expansion.

For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureint…

The opportunity in training CRO professionals

Are CRO training shops likely to ride on the coattails of the boom in the Clinical Research Outsourcing sector? Businessworld has an article on the mushrooming of such shops.
New Delhi’s Institute of Clinical Research India (ICRI) is a good example. Started in 2004, with about 100 students, it currently trains eight times as many across India, says Dean S.K. Gupta. Five hundred of these are enrolled in a two-year master’s degree programme costing Rs 5,40,000, comparable to what is charged by India’s premier business schools. The rest are pursuing part-time diplomas, costing about Rs 1 lakh. Gupta says the institute turned down hundreds of students across various courses this year. ICRI is in four metros and plans to expand to another two in 2008. Other schools that BW spoke to also report increasing demand. They are also in expansion mode.

Surprisingly, employers are still complaining. There is very little difference between a fresh graduate and one trained from some of these schools, …

The business of amusement parks

Business Today has an article on the (tough) business of running amusement parks.
The amusement parks business ain't fun-or at least, that's the India story of amusement parks for you. It's a roller coaster ride for most like Kishkinta in Chennai, which has not yet broken even after 12 years in business. Those who have managed to make a success story out of such ventures, like Nicco Park in Kolkata, have no magic formula to offer-except that they have successfully managed to tweak their business model to make it work for them. Then there are newer players like Adventure Island in Delhi, and Wonder La in Bangalore, who might just redefine the business of fun parks in India with signature rides that measure up to global standards.

Sample some hits 'n' misses. Half-a-dozen amusement parks sprang up across Bangalore over the last five years and at least two of them have gone out of business, including Crazy Water Amusement Park set up back in 1994 and more recently Sammy…

Review of the aviation industry

Business Today has a special feature on the aviation industry including on why carriers are competing for international routes and infrastructure related challenges.
The thing that the industry is most sore about is the cost of aviation turbine fuel (ATF), which makes up 40-45 per cent of an airline's operating costs. According to the Federation of Indian Airlines (FIA), the average domestic price of ATF is 60-70 per cent higher than that at regional aviation hubs in Singapore and Dubai (See The Killer Cost). Even the discounted price of ATF for international operations is 40 per cent higher than prices elsewhere. The ATF pricing issue, according to the 10-month-old FIA, is quite complicated. "It is not just central duties, but state sales taxes and the lack of transparency in ATF pricing that are huge contributing factors," says Amitabh Kumar, Executive Director, FIA.

It seems the airports bid out rights, with the successful bidder paying a throughput fee. Kumar says tha…