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March 30, 2008

Profile of Blackstone's Indian Ops

Businessworld has a cover story on Blackstone's Indian operations.
For the Blackstone India team, closing a transaction is just the beginning. The pressure to show high returns starts building up soon after. The principals meet on Thursdays to discuss how to add value in portfolio companies. Like all private equity firms, Blackstone India is keen to cut costs, improve processes and connect its investee companies with new customers and markets so that it can significantly enhance profits to ensure successful exits. So, for a couple of days every week, Gupta’s handpicked team criss-crosses the country visiting manufacturing sites and key offices of investee companies to assist in changing the way these companies do business. By the end of the week, the team re-congregates at headquarters.

“Every company’s needs are different,” says Gupta. “And we offer value that is tailor-made, whether it’s a buyout or a minority stake.” Gupta constantly talks about the value-add that Blackstone brings to the table. And he believes this will hold him in good stead even as the economy shows signs of slowing down and the markets plummet. “I’m not worried about the public markets as we operate in the real economy,” he says. “And we have a pipeline that is better than last year.” Exits are about five years away, so the high valuations of the seven deals he struck last year, adding up to an impressive $1 billion — including the Ushodaya deal that has not been closed — don’t perturb him. More importantly, he’s certain that Blackstone can structure future deals to mute the impact of the change in valuations brought about by the falling Sensex. His optimism may have something to do with the fact that as Indian promoters get used to less hefty valuations for their companies in public markets, they are likely to favour private equity.

...The prolific deal maker’s risk taking ability will be tested in its acquisition of a majority stake in the ailing, 100-year-old garment exporter Gokaldas Exports and BPO firm Intelenet, two classic buyouts that it has done so far. Jayesh Desai, Ernst & Young’s director for transaction advisory services, agrees. “Unlike other bulge bracket firms in India, Blackstone has demonstrated its ability to take entrepreneurial risk in the buy-outs of Intelenet and Gokaldas,” he says. While this may work in Blackstone’s favour, it could also prove to be double-edged. The pressure to drive these two businesses is building as there have been murmurs that the firm paid a hefty price for them. In the days ahead, the firm’s performance in the country will be benchmarked against what returns it makes from these deals.

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.

March 27, 2008

“Indian PE industry grew too fast over the last 3-4 years” - Interview with Ashish Dhawan, Senior Managing Director, ChrysCapital

Venture Intelligence recently spoke to Ashish Dhawan who, over the last two years, has been sounding a skeptical note on unsustainable valuation levels linked to the ever-inflating public markets. What does he feel about the current investing climate when the public markets have corrected significantly? Read on…

Venture Intelligence: The recent correction in the capital markets justifies your caution on the levels it had attained. What’s your take now?

Ashish Dhawan: The credit and housing crisis in the US – which is still the world’s biggest market - will not get fixed in a short period of time; it will take significant time for the system to absorb it and renew itself. I have never believed in the ‘decoupling’ effect - on a medium term basis. Sure, in the long term, India and China are in totally different growth trajectories compared to the US. But in the medium term, markets here go up because of capital inflows. And capital inflows, in turn, happen when people are in a risk-taking mood.

I would say that the (Indian) economy will continue do well; growth may slowdown a bit but that is fine. Public market investors will be more cautious now and evaluate risk more prudently. This would lead to a more sober market compared to the hyped up market that we saw a few months ago.

VI: How would this impact PE deals including PIPEs?

AD: The problem is that when markets are down, the volume of deal flow can also shrink. Because entrepreneurs are valuation-sensitive, they may choose not to raise capital or may choose to go in for bank debt instead of diluting themselves when the markets are down. Expectations take a long time to reset; typically 6-12 months.

It would be difficult to do PIPE deals in the near term (because of the SEBI rules that mandate using an average price over a few months than the current market price) because the six month average works against us. I think at some point PIPE deals will become more attractive as public market valuations correct.

VI: You were particularly circumspect of the valuations in Real Estate. How do you see the sector this year?

AD: I think there will be a slowdown. In real estate, there is a lot of speculative capital. People are just hungry to own real assets, without thinking about all the risks. As more supply comes on line and as speculators get weeded out, I think it will lead to a cool-off in prices over the next 12-18 months.

VI: Have LPs changed their view on India?

AD: In general, they are more cautious. Over the next year or so, LPs would start shrinking their commitment to Private Equity. Imagine an investor who has a portfolio worth 100 and the public market accounts for 50% of that. Now if that public market component is down 20% or so (due to the correction), then automatically the proportion of Private Equity in the portfolio goes up because PE does not get marked down as quickly. In such a scenario, the instantaneous reaction of an institutional investor would be ’maybe I have over-committed myself to this asset class; let me cool off a little bit’. We are going into a phase where LPs will be more cautious and writing fewer cheques.

Having said that, I think India and China are still on LPs’ radar screens. The current problems are primarily in the US and European buyout markets. Venture Capital is still looking good and Growth Capital is still looking ok for many big investors. So there will be some degree of reallocation towards Asia. So, I don’t think it is terrible news for India.

VI: Will we see some control buyouts from ChrysCapital going forward?

AD: We would like to do control buyouts. It is one of the ways to deploy more capital. Having said that, I just don’t see the market moving significantly towards buyouts in medium term (i.e., 3-5 years). So it will be a component of what we do but not the majority of what we do. I think growth capital will be the sweet spot in countries like India and China for quite a while to come.

VI: You has been particularly bullish on BFSI – going by your investments in Centurion Bank, M&M Financial, Shriram Transport Finance, etc. However, you have not chosen to invest in the brokerage sector. Why?

AD: The financial sector has had a marvelous run over the last 3-4 years and the secular trend is quite positive. But valuations did go up too much, too quickly - like in all sectors. As for brokerages, I would have loved to invest three years ago. But (in the current context), we have chosen to remain cautious.

VI: You were one of the early movers to tap into infrastructure spending (via investments in Engineering & Construction companies like IVRCL and Gammon Infrastructure). What’s your take on the sector now?

AD: The country needs tremendous capital in this area. A lot of infrastructure investing is also driven by the fact that the government policy now is much more aggressive in terms of encouraging private public partnership. There is a fundamental game change that has taken place in this sector.

VI: Which sectors will you not invest in?

AD: We generally don’t do genuine hi-tech. We don’t do biotech. We don’t like technology risk. We don’t do oil and gas - we are not smart enough to know whether oil will come out of a certain well or not! We also generally don’t invest in commodity companies.

VI: Your portfolio has some companies that are family-run. What are the pros and cons of investing in family-run businesses?

AD: It’s hard to generalize – it’s situation specific. In every company, there is one driver. You always look at the drivers to see how good they are, how they have evolved, how ambitious they are, etc. There is lot to say about a family-run company because they tend to have trusted people that are pushing very hard for growth balanced with stability. However, one needs to be aware of issues such as hurdles to professionalization, infighting that leads to destructive returns, etc. We need to be cautious about these.

VI: How are you preparing for competition from the large global funds entering India? Does their entry change the dynamics of investment in India?

AD: I think it does change the dynamics. Firstly, what this means is that there is a ton more capital available here. It also means much more competition for every deal. You have to be nimble.

There is an advantage in having been around for a little while. You may be able to react to things more quickly. But none of the advantages are permanent. You have to keep reinventing yourself.

VI: One of the interesting trends in recent months is Limited Partners (LPs) seeking co-investment opportunities with their fund managers. What is your take on that?

AD: We are open to that. But given that there are only a certain number of good investment opportunities out there, unless the investment size is too large or there is some other specific dynamic, we would prefer to do it ourselves. Plus, it makes it difficult to explain to other LPs in the fund why one particular LP is co-investing with us.

VI: How will the Indian PE market look like in terms of deal sizes, number of players and transaction sizes in 2010?

AD: Over the next two years, the market will still be vibrant. There will be a lot of supply of capital, and transactions sizes will get bigger on average. Buyouts will probably start picking up.

A lot of big changes happened in the last 3-4 years: the industry has grown up very fast, something which would have normally taken a decade (happened here in a very short time). We have seen the emergence of global players, venture capital coming back in a strong way, real estate funds, infrastructure funds, etc. It was almost like the baby growing up too fast! I don’t see anything radical or transformational change happening in the next two years. The change is going to be incremental. We will have to make sure we learn to walk properly first instead of trying to run a race.

March 22, 2008

"The PE Guys Have Lost Money! Ha! Ha! Ha!"

This morning, I saw yet another article on how PE firms, which have made investments in listed companies, are now sitting on significant paper losses. These days, such articles have a tendency to break out in one business publication after another (and sometimes even in the same one!) whenever there is a stock market correction.

I'm puzzled by these types of articles and the motivations of folks who write them. After all, while no investor likes to make losses (on paper or otherwise), why should PE firms - which are required (by their investors) to make investments with a 2-5 year outlook - be bothered about 2-5 month returns? And, unlike mutual funds, no "small investor" in India is exposed to PE funds (so, there's no case for "public interest" that gets served by such articles).

Maybe such articles get written because they can pass off for some brainy analysis and get played up on the front page? Whatever the reason, they have become EXTREMELY BORING. And, I hope editors of these publications ask their writers to come up with better story ideas when the next stock market correction strikes.

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.

March 20, 2008

Stanford Panel Discussion on Mobile VAS in India

ContentSutra has videos of an interesting panel discussion hosted by Stanford University titled "Indian Wireless Market—Why Mobile?, Why India?, Why Now?". Speakers on the panel included Ashok Narasimhan of July Systems, Ojas Rege of Yahoo, Vinod Dham of NEA-IndoUS Ventures, Niren Shah of Norwest Venture Partners and Chetan Sharma of Chetan Sharma Consulting.

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.

Professional vs. User-generated content

At a time when user-generated content is threatening the viability of several "professionally" generated/edited media business models, Knowledge@Wharton has an interesting debate on this topic.
Turow points out (that) navigating the morass of Internet content isn't easy. "Some things that look amateur are professional and vice versa. You never really know what's going on. And it's hard to track these things down without cross checking. The digital environment is putting an enormous responsibility on the consumer." Waldfogel acknowledges that consumers have to become better judges of content and accuracy, but says that not everyone will be a discerning reader. "Some consumers can tell what is amateur, but it's not easy. A lot of amateur content is cut and pasted from professional content."

...Ultimately, the tug of war between professional and user-generated content will be resolved by their business models. Traditional media companies -- the ones behind professional content -- face a bevy of challenges, Wharton faculty point out. Newspaper companies must deal with higher production and staffing costs, movie and television studios have to pay talent and royalties, and the recording industry has been upended by digital distribution. The growth of new monetization efforts such as web-based advertising are not yet robust enough to offset the decline in these media companies' legacy businesses.

"Where the distinction between amateur and professional content matters is in business models," says Werbach. "For certain kinds of quality content, no blog can match The New York Times, but producing the Times is far more expensive than a blog. If users aren't willing to pay to support the kind of professional journalism the Times provides, something significant will be lost. And that's increasingly happening, because traditional business models for newspapers and TV rely on unrelated advertising revenues to fund quality content. The Internet is disintermediating those dollars."

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.

March 17, 2008

Flurry of business media launches

Businessworld has an article on the heightened activity in the business media sector.
Global titles, such as Fortune and Forbes, are clearly betting on their brand name and India’s growing economy to make a place for themselves. India, with its huge English-speaking audience, is one of a few countries where the news business is growing. That’s what lured The Wall Street Journal into partnering the Hindustan Times to launch the business daily Mint. A host of non-media organisations is also believed to be keen on entering media. For instance, the Jain International Trade Organisation (JITO), a group of rich Jains, has decided to launch a business monthly Jito World in English and Gujarati. The grapevine has it that there are many suitors for the deeply-in-debt Business India. One name doing the rounds is the Motilal Oswal group, which has been wooing Advani, who has thus far not given in. Recently, Advani, who holds a 51 per cent stake in Business India, has secured a few rounds of funding from private investors. His creditors and employees will cheer a deal, no doubt.

...There will be a shakeout as no economy in the world has so many business dailies. So while the success of many of these publications is unclear, their fight for manpower is sending salaries soaring and fancy designations are for the asking. Many more are breaking past the one-‘lach’ per month sound barrier! The star recruiter is the yet-to-be-launched business daily from the Deccan Chronicle stable. Says R Jagannathan, managing editor of DNA, who is also a former editor of BW, “We are now getting brighter people because of the hikes, but some of the cleverer ones have also got in. I think it is time to go to journalism schools and have courses tailormade for a paper’s needs.”

On the idiot box front, Ronnie Screwvala’s business channel, UTV-i, has been moving slowly due to shortage of good heads. Folks at CNBC have not taken the bait on account of the shares and shelters in Mumbai they have been given. UTV-i is expected to go on air sometime in March this year.

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.

Profile of the fashion retail-focused Murjani Group

Businessworld has a profile of the Murjani Group which is focused on high-end fashion retail.
Mohan Murjani was legendary, not for starting a design house or his own label, but instead for using a series of innovative, often renegade marketing tactics to make the brands that he acquired famous. Some 30 years later, his son, 37-year-old Vijay Murjani is creating a high-end fashion retail chain in India.

Vijay first moved shop to India in 2001 to check out the potential for luxury brands in the Indian retail sector. He quickly realised that none of the US or European fashion brands had been able to establish presence in India. Some of the most popular brands were limited to just one or two stores in Indian luxury hotels. Though the mall culture was beginning to evolve, none of the malls was creating space for fashion or luxury brands.

Vijay began quietly snapping up India franchises for some of the world’s best known fashion brands, which he is now introducing to India for the first time. These include hip, mid-priced clothing line French Connection (or FCUK) and Calvin Klein. On the really upscale end, Vijay is hoping that wealthy Indians will flock to stylish luggage maker Tumi, must-have clothing and accessories purveyor Gucci, fancy stiletto shoemaker Jimmy Choo, and exclusive lingerie outfit La Perla, among others. Murjani has opened 18 stores in places such as Delhi, Mumbai and Bangalore, and plans to add another seven stores over the next few months for his various brands. “Murjani’s growth has pretty much slipped under the radar of the Indian fashion fraternity,” says Sumeet Nair, executive director of Fashion Design Council of India. “If he succeeds in creating scale, it can be a model for Indian fashion brands to follow.” Most Indian fashion brands are not able to open beyond a couple of stores.

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.

March 14, 2008

“Cos. we invest in should be able to match or better the ‘Reliance Rate of Return’” - Interview with Harshal Shah, CEO of Reliance Technology Ventures

Venture Intelligence recently spoke with Harshal Shah, CEO of Reliance Technology Ventures Limited (RTVL) which has announced a series of investments in telecom technology companies like Sequans Communications, Stoke, E-Band Communications, etc. RTVL was launched in 2006 to incubate new business ideas and streamline the Reliance Anil Dhirubhai Ambani Group’s investments in emerging and high-growth technologies.

Venture Intelligence: RTVL’s recent investments have been in the telecom space. Would this high focus on telecom continue?

Harshal Shah: Not at all. It is just that Reliance Communications was the first out of the blocks in the Reliance ADA Group. As the group’s other areas of business – including Energy, Financial Services, Media & Entertainment, etc. - mature, we will make investments in areas synergistic to them.

VI: Why has the focus been on companies outside India?

HS: Technology is geographic agnostic. Since we can invest anywhere in the world, it really doesn’t matter where the company is located. At the end of the day, we are making investments focused on providing an extra edge to Reliance ADA Group companies.

VI: What are the key criteria you use in making investments?

HS: We need to get a “Reliance rate of return” or better. Given the kind of high growth and returns that we are able to create within our own group firms, any investments we make should be able to generate at least that kind of IRR.

Other things we would look for (in investee companies) is how they would be able to add value to us (the R-ADA Group) and how we would be able to add value to their businesses. The company should be able to leverage the Reliance ecosystem in a way that we can generate higher returns.

VI: What is your preferred stage of investing?

HS: We are purely opportunistic. The threshold of returns expected is pretty high. The way we see it, the amount of work that goes into a deal is the same. So, for it to make sense for us, the proposition needs to be something that can scale fast and have the capability to grow into a multi-bagger.

We could invest in cases where it is just an idea but has great capability to scale up and give us the kind of returns we look for. For example, was not even incorporated when we decided to go ahead and invest.

VI: Would you look at the same kind of time frame for exits as a regular VC firm?

HS: We have Unlimited time and Unlimited Capital. The bottom line is generating a higher IRR. (As long as that’s clear) there is no pressure of time and capital.

VI: RTVL has invested in SeedFund. Would you invest in other VC funds as well?

HS: The options are open. But nothing has excited us as of now.

March 13, 2008

“Funds from corporate groups not a challenge to existing PE firms” – Interview with Brian Lim of CDC Group

Venture Intelligence recently spoke with Brian Lim, Portfolio Director (Pan-Asia) at CDC Group, on recent trends in the Indian Private Equity market. CDC, a UK government-owned fund-of-funds with net assets of $4 billion, is one of the oldest and most active investors in India via its exposure to funds like Actis, Aureos Capital, Avigo Capital, Baring PE India, BTS India PE, ICICI Venture, IDFC PE, India Value Fund and Lok Capital.

Venture Intelligence: 2007 witnessed a slowdown in terms of new funds being closed. What do you expect for 2008?

Brian Lim: 2006 had seen a lot of established fund managers successfully raising follow-on funds, while 2007 witnessed more first-time funds in the market. In 2008, we can expect to see managers who closed in 2006 to come back to the market and hence expect more funds being closed.

VI: Are you concerned about Indian managers coming back too soon to raise new funds?

BL: The 'fast investing pace' is true for most GPs in the market. To asses if it's too early / quick, we need to evaluate how the existing portfolio is shaping up, how disciplined the manager has been, etc. At this point, there aren't any signs of big mistakes or blow ups.

VI: Is the trend towards raising larger and larger funds a good one?

BL: The phenomenon of funds getting bigger is a natural evolution of the market. There are several opportunities in India (for deploying capital) including restructuring, Cross Border M&As, etc. But managers shouldn’t get carried away and raise so big a fund that it becomes a challenge to find appropriate deal flow.

Also, as some funds get bigger, it opens up opportunities for new entrants. For example, the older funds now seem to be vacating the sub-$10 million segment.

VI: Any other segments that you notice as not adequately addressed?

BL: The smaller (sub-$10 million deal size) end of the market is an interesting space. The VC end has come up really quickly. There are also interesting opportunities to do buyouts.

VI: What is your take on various Indian corporate groups like the Tatas and Birlas launching PE funds?

BL: This trend seems to be pretty unique to India. In any case, I don’t think depth of experience in operating businesses alone is not sufficient. One needs to consider other factors necessary for success in investing. The bottom line (in the PE business) is that it is a lot about people: experience in doing PE deals, execution and long term alignment of interest between the managers and investors.

It remains to be seen how funds launched by corporate groups are able to align the interest of professional managers. I expect such funds to face stiff competition from the established PE groups.

VI: What are your return expectations from Indian PE funds?

BL: Like in the case of other emerging markets, we expect 25%+ IRR from our Indian funds. A key point is that growth in India is purely based on earnings growth compared to other developed markets which is characterized by financial engineering. Also, the climate for exits is quite good, providing the right ingredients for generating good returns.

VI: Apart from valuations, are there any other top-of-mind concerns about the Indian market?

BL: Retaining people is going to be a key challenge as more funds enter the market. It is going to be very important for fund managers to address the retention issue adequately.

VI: Most of CDC's investments have been into mid-market and later stage PE funds. Does CDC back VC funds?

BL: Yes, we do back VC funds and are looking to add some GP relationships in this segment in India over time.

(Note: During the interview, Brian clarified that CDC had been misquoted in a recent report in the Indian business media saying that it was launching a direct VC fund for India. Brian emphasized that CDC would remain a Limited Partner in PE funds and had no plans to become a direct investor.)

March 10, 2008

VC Market

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

08-02-27-1: Bangalore-based technology firm building a SaaS platform for Indian Colleges and Universities to better manage campus placements and recruitments seeks <$1000K for scale up. The company also plans to build a central database which would generate leads for companies targeting college students

08-02-27-2: US-based IT Infrastructure Management professional services company focusing on Security Management, Storage Management, Network Management, SOA and Portals seeks Merger / Joint Venture.

08-03-05-1: Pune-based integrated dairy firm seeks >$5 M

08-03-05-2: Hyderabad-based IT Finishing School seeks <$100K

08-03-05-3: Start-up pharma firm seeks $2 M for setting up plant in a Special Economic Zone near Chennai.

Hyderabad-based 5-year-old Real Estate firm seeks >$5-M for Site Acquisition & Project Cost.

For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

March 08, 2008

Remote assistant services

Business Today has an article on the remote "concierge" services provided by companies like Ask Sunday, Brickwork India and Get Friday.
The services being offered by these concierges, or virtual valets, range from regular to bizarre. There are requests for quick information look up, getting music organised, online shopping, wake-up calls with the weather update and a reminder to exercise thrown in, to even getting work done on the company’s quarterly report, market research, documentation, compilation of information and in some cases even getting jobs for their clients. “We have organised parties and delivered food locally in the US through phone, we got a window pane fixed in Geneva and we can get a contractor to fix a broken plumbing line sitting right here in Bangalore,” elaborates Sunder.

Get Friday’s client Valentin Yeo, 28, a self-employed SEO (Search Engine Optimisation) consultant in Munich, often needs support for his consulting business, updating and sorting his MP3 collection and sorting images. Though he says it is very uncommon in Germany to do something like this, it makes sense to him. “A lot of work would not get done if it wasn’t for Jasmine, my assistant at Get Friday. I guess I would say in a good week I get around 10-15 hours freed because of Jasmine,” he says.

Ask Sunday, which calls its clients Sunday members, partners with various travel agencies in the US to offer full service travel agency support. Tasks EveryDay gets requests to search ‘match’ portals to find suitable matrimonial matches. YMII, for its part, once got a vintage birth certificate (for a person born before 1930) from Shimla at the request of an Englishman in Canada.

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.

Internet ad agencies are back!

Business Today profiles the second coming of Internet advertising agencies.
Today, there are three clear categories in this space that are drawing the attention of entrepreneurs, investors, and established agencies. These are: mobile-related search and advertising, ad networks that aggregate advertisers and sites and play match-makers, and full-service agencies that do everything from search engine marketing to blog creation to online advertising.

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.

Profile of microfianance institution Bandhan

Business Today has a profile of West Bengal-based microfinance institution Bandhan.
Bandhan today finances innumerable landless women, whose monthly income is less than Rs 2,500 (in rural areas) and Rs 3,500 (in urban areas). The first loan offered by Bandhan is between Rs 1,000 and Rs 5,000 for rural areas and between Rs 1,000 and Rs 7,000 for urban areas. On repayment, one is entitled to a subsequent loan, which is higher by Rs 1,000-3,000.

But as Ghosh says, it’s perhaps time to look beyond traditional loan schemes. “Our experience suggests that there is a growing need among our members for higher loans so that they can expand their businesses,” he says. To set things right, Bandhan is using a new method now—the Micro Enterprise Programme, which offers loans of Rs 15,000-50,000 to those who have been its members for at least one year.

There are two other riders, though: the loan should be invested in an existing micro enterprise (for expansion) and utilisation of the loan should generate employment for at least one poor person in the locality.

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.

Business Standard names Sun Pharma's Shanghvi CEO of the Year

Business Standard's BS 2000 special issue has named Sun Phamra's Dilip Shanghvi as the CEO of the Year. The profile points how Sun has been among the few Indian pharma firms to have benefited from its overseas acquisitions.

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.

Telecom war rages on

Businessworld has a cover story on the unending corporate war in Indian mobile telecom.
(Anil Sardana), the bespectacled, professorial general fighting Tatas’ telecom battle and Tatas’ regulatory advisors in New Delhi are being uncharacteristically aggressive for the group. Sardana is indignant about how his competitors have manipulated regulations in New Delhi, and publicly accuses many of them of hijacking India’s telecom policy. The man who has foxed Tatas, as well as a host of other telecom wannabes, including initially even the Ambanis, is Sunil Mittal. He, along with Vodafone Essar (earlier Hutch Essar, when it was owned by the Ruias), was an early entrant into the industry and took advantage of the government’s ignorance of the sector to secure an unassailable position for himself. Mittal’s game was simple and he’s still playing it. The mobile phone industry is dependent on the spectrum (or airwaves) that carry mobile phone signals at various frequencies.

Mittal, along with Hutch/ Vodafone, made sure he cornered as much of this scarce and limited resource as he could at the cheapest rate. While spectrum cost the earth in most countries, Mittal and the Ruias of Hutch/Vodafone made sure they got their spectrum at just Rs 1,651 crore for 4.4 Mhz, roughly 10 per cent of the price for the equivalent spectrum in the US (see ‘Charge!’, BW, 10 December 2007). When Tata pointed this out and offered to pay more, Mittal mocked him by saying those with excess money should donate it to the Prime Minister’s Relief Fund. Such dominance over regulations has irked Tata the most, mostly because his values prevent him from playing the same game.

...The new policy successes of Tatas and Reliance can be best seen in the advent of number portability, which comes into effect from 1 April. As late entrants, Tatas and Reliance could only really try to win first-time cellphone users. But with number portability, which allows consumers to switch between mobile service providers without changing their number, they will also be able to attack the existing consumers of companies such as Bharti Airtel and Vodafone Essar. Since these operators have many more users than Tatas or Reliance, their networks are clogged. The new operators will be able to attract disgruntled users. “The biggest casualty has been customer services,” says Sardana. “The only thing that differentiates the operators and sustains them is the service quality. The quality of survey (QoS) of the biggest player (Airtel) is the worst.”

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.

Valuing MNC BPOs

Businessworld has an article on why it has been difficult for MNC banks to sell their captive Indian BPO units.
The sale or the valuation for these captive units are not easy to realise. Citigroup has been trying to sell its BPO operations in India for almost a year now, but has not been successful so far. A captive can only be acquired by one of the Indian third-party BPO service vendors; foreign BPO companies are not interested in these operations. It’s a difficult sale not because of the valuation, but because of the complication involved.

Captive operations are run as cost centres and there is no focus on profitability. Their objective is to provide certain back-office operations to the parent company in the US or Europe. The focus is on quality of service, and the service level agreements (SLA s) are high and demanding. When a third party vendor plans to take over these captives, the revenues and profits for each process have to be calculated. The SLAs and the liability on not achieving them also have to be reworked since third-party vendors do not like unlimited liability.

Calculating the revenues is a tedious process and is quite unlike the routine due diligence process carried out for acquiring a company. Moreover, real agreements with realistic SLAs have to be signed with the parent organisation to fix the revenues, profitability and liabilities. As this has to be done for each process and there are several hundred processes in each captive, it takes a long time to come to a number. Every process and the revenues or billing for it has to be renegotiated with the parent company, which is not an easy task as the parent is bleeding and is trying to control costs, while the acquirer or the third party vendor is looking for profits. So while the intent may be there, it is unlikely that a sale will happen anytime soon.

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.

March 03, 2008

Profile of Rural Innovations Network

Business Today has a profile of Rural Innovations Network (RIN), an NGO that helps rural innovators take their inventions to market.
While Basil (Paul Basil, RIN's Founder & CEO)decided to target innovations and innovators, it was a journey from the scratch with the idea of keeping it simple. “We decided to focus on areas relating to water, agriculture, dairy and energy, while other areas were looked on case-for-case basis,” he says.

RIN’s role was anything but simple in translating ideas to reality. “We had to first search for the innovators, identify those innovations which could work. Then we realised that we needed the resources to incubate them, before we help with patenting and technology transfers.” Also, the small and medium enterprises (SMEs) that undertake the manufacturing of the product themselves wanted help after the technology transfer for the initial sales push. “In such cases, we find venture capitalists that could partner the entrepreneur and sometimes ensure that the retail buyer has enough money to acquire the product,” Basil points out.

This learning came through stages, but Basil got a good hindsight into the cycle. Innovators were identified through business plan competitions for social entrepreneurs organised by Tata Consultancy Services (TCS); through innovation patent gazettes; the more recent Lemelson Recognition and Mentoring Programme (L-RAMP) Innovation Awards Programme by RIN-IIT Madras advertised in local language papers and scanning databases of other social networks.

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.

March 02, 2008

"US slowdown to benefit Indian BPOs"

Businessworld had organized a roundtable discussion on the impact of the US slowdown on the Indian BPO industry. The panel members included Rahul Singh, MD and CEO of Citigroup Global Services; Raman Roy, chairman and MD of Quatrro BPO Solutions; Pavan Vaish, CEO of IBM Daksh Business Process; Salil Parekh, executive chairman of CapGemini India; and Neeraj Bhargava, CEO of WNS Holdings.

Here is an excerpt from Neeraj Bhargava's remarks:
First of all, I want to conclusively contrast the IT and BPO industry here because I have spent bulk of my time trying to answer questions which are more related to the IT industry than the BPO industry. We have annuity businesses. If people have budget cuts they actually seek us out even more and there is hardly any discretionary spending work we do. We are not dependant on CIO budgets for new spending so therefore in this… as it happened in the last downturn, when all IT companies who after years of denial that BPO is important to them, started looking at BPO for growth. I think we are entering that cycle again that BPO is becoming a more attractive opportunity for everyone whether it is investors or people who are running companies. I agree with Peter wholeheartedly. I think there is a very specific reason that the last quarter, October-December, people spent their time relating to the new environment and the new situation.

In January, everyone has got a new budget and when they look at what their boss has given them is slashed by 20 or 15 per cent and say, “Oh my God! How am I going to do it?” So, at this point of time, our sense was that in the October-December period there was some sort of slowdown in decision-making which is probably what I hear Peter saying as well, but since the beginning of this year, actually the intensity has gone up so much that we are having a hard time putting up with meetings, leave alone handling the stuff that is coming. So, I personally think that this is actually very positive for us and the evidence is already showing.

And from the inimitable Raman Roy:
Actually, listed companies will be under pressure from their investors to take costs off from their balance sheets. According to a study we did, in the US service industry the recall for outsourcing and offshoring was 85 per cent plus. I don’t know, Peter, if you agree with that, and therefore the moment there is any hint of a slowdown and the investors put pressure — hey, hold on guys, we need to take out cost and maintain profits. I really don’t care why people offshore. I don’t burst into tears when somebody comes to me saying, “I have given it to you because I need to take out cost”, or he comes to me and says, “I am giving it to you because I am growing too fast and I can’t manage it.” The fact is, it is coming to us, and again, Peter, you made the point on mortgages. Again, we work in that industry… yeah, so the origination of subprime etc. has gone down, agreed. But what about foreclosures? I cannot manage the volumes I have been getting on foreclosures.

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.