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October 30, 2007

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 this purpose. Gehlaut has earmarked Rs 1,500 crore for this project, and has been busy acquiring land via auctions in cities like Madurai, Jodhpur, Hyderabad, Agra and Kanpur. "Financial services, real estate and retail are the key sectors for growth that will deliver double-digit growth over the next 20 years. Retail is a missing piece in our pie and we are seeing it as a definite business option as the sector coincides with the real estate story," says Rattan, the 35-year-old CFO of the group, who worked as an operations manager for Schlumberger before co-founding Indiabulls.

The article also touches upon an hitherto unknown (to me) facet of Indiabulls: one of its promoters actually is closely associated with the US-based hedge fund Farallon Capital which has been pouring significant dollops of money into the company. (Farallon also, to my knowledge, has no other India investments outside of Indiabulls.)
Saurabh Mittal, the promoter based in the US, is a partner and portfolio manager at Noonday Asset Management in the US. Before that, Mittal had joined Farallon in 2001 (after co-founding Indiabulls), the same hedge fund that today has an exposure of Rs 365 crore in the group. Mittal may no longer be with Farallon, but Noonday manages its money. Dalal Street veterans question the ethics of a promoter also being a manager of the funds that find their way into the same company.

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.