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Showing posts from January, 2009

The Loot seeks to capitalize on slowdown

Outlook Business has a profile of the discount clothing retailer The Loot.
How does a retail chain that offers massive discounts make profits? "We make money on buying, not on selling," claims Gupta. Here’s how it works: the company buys stocks in bulk from 100 national and foreign brands, paying cash for the entire lot. The cash payment makes it a win-win deal: the suppliers get their money immediately, and in return, shower massive discounts on The Loot.

Under the terms of the agreement, though, The Loot cannot return unsold stock, and that is a huge risk it runs. But it’s a trade-off—since they can book outright sales against cash and expect no liabilities, the suppliers extend the huge discounts. And that’s how The Loot ultimately makes its money. For instance, unlike other retailers, it can procure a pair of shoes that has an MRP of Rs 1,000 for Rs 300. In turn, it may sell the shoes for Rs 500, offering the customer a 50% discount on MRP and still enjoying a hefty margin…

Prospects for Solar Energy Brighten

Outlook Business has a mult-part article on the prospects for solar energy in India in light on of the new policy measures.
Two policy measures in the last month, the first by the Centre, hesitant, yet calibrated, and the second by Gujarat, bold and ground-breaking, indicate that the tide is changing in the struggling power sector. The Centre’s Integrated Energy Policy (IEP) is significant, for it seeks a gentle shift to a market system by freeing primary energy sources from the trap of administrative controls, subsidies and pricing. A regime that pivots on optimal choice of fuels and technologies, based on sound economics, is expected to emerge.

...Even as the Centre is taking measured steps by way of the IEP and a national solar mission that is being tweaked at the Prime Minister’s Office (PMO), Gujarat’s Chief Minister Narendra Modi, the man in a hurry, has pre-empted the latter. On January 6, he announced a radical solar power policy for Gujarat, setting a target of 500 MW of solar …

"The strange case of Asarco"

TheDeal.com has an article on how the two bidders for the bankrupt copper mining firm - India's Sterlite and Mexico's Grupo Mexico - are pushing for a lower price.
Listen to Grupo Mexico's lawyer, Jorge Lazale, who told the Arizona Daily Star that "today we are not willing to pay everyone in full. [Asarco] decided not to engage with Grupo and now they are paying the consequences. Now they will get cents on the dollar."

...Sterlite's latest offer is $2.1 billion, a decrease from the $2.6 billion it backed out of on Oct. 13. When it reduced the offer by a more realistic $500 million, Sterlite blamed frozen credit markets and the decline in copper prices for its inability to finance its own operations and complete the acquisition.

But there is a wild card that makes Lazale's comments a bit more wild-eyed. At a Jan. 13 status conference in front of Judge Richard S. Schmidt in the U.S. Bankruptcy Court for the Southern District of Texas in Corpus Christi, Asarco…

Master class on Valuation, Valuation Guidelines & Reporting Guidelines

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Indian Venture Capital Association in partnership with European Venture Capital Association is conducting a 2-day Private Equity Management Training Program

Master class on Valuation, Valuation Guidelines & Reporting Guidelines

February 25 & 26, 2009 in Mumbai

The focus of this master class is on getting a better understanding of the “Valuation” principles and to give you an insight into the International Private Equity and Venture Capital “Valuation Guidelines” & “Reporting Guidelines”.

LP View panel discussions:

Unique opportunity to interact with leading LP's on their organization's expectations in terms of "Reporting Guidelines" with emphasis on practical examples, discussion of case studies and day-to-day challenges.

For more details, please contact :

Dolly Goklaney
dolly@indiavca.org

Why VCs are more bullish on product cos. now

As part of its cover story on software products, Businessworld had organized a roundtable discussion featuring, among others, Subash Menon, CEO of Subex Systems and Sudhir Sethi, chairman and managing director of IDG Ventures India. Excerpts:
Subash Menon: Products have a life of their own. Services go around the products. One cannot stand in for the other. You have a delivery model that is SaaS (software as a service). That is what is prompting this question to some extent. But then SaaS is just that, a delivery model. You still need a product to deliver SaaS. You cannot have a service being delivered as SaaS. India as a country has to get going on the so-called software space, as is understood globally, then you have to have your own products that are expected by the customer.

Sudhir Sethi: I call it the Brownie movement, which has been seen in the past two years in terms of what is happening on the entrepreneurial side as far as product is concerned. Two to three years ago, the numb…

"Are Indian markets cheap?"

The Indian market is trading cheap, but not yet at distressed levels, says Akash Prakash in an article for Business Standard.
Investors are uncomfortable using earnings-based valuation tools as there are worries on what is the real earnings power of companies. I am not talking about fraud here but simply the fact that earnings have risen as a percentage of GDP, and as is typical in strong economic cycles, companies have potentially over-earned compared to the sustainable profitability of their underlying business model. If companies have over-earned in the past few years how does one adjust for this? Over the last few years, we had a virtuous cycle of rising capacity utilization, falling rates, significant pricing power, easy access to capital and surging growth rates. All this combined to supercharge earnings and capital efficiency ratios. Unfortunately most of these factors are now in reverse, with the inevitable consequence on earnings. Investors are beginning to realize that in man…

More trouble in store for the "Ponzi Economy"

Peter Schiff, about whom I have written about before, has now been profiled in Fortune, in which he continues to forecast more doom and gloom for the US.
"We have an economy that's based on the same principles as Bernie Madoff's investments," he says. "It's a Ponzi economy. It's not real. We don't save and we don't produce anything anymore. We simply borrow from the rest of the world, and then we spend it. We've had a giant party. We bought all these plasma TVs and iPods. We remodeled our houses and took vacations. But you know what? The bills are coming in."

..."I'm as negative as I've ever been," he says, "because everything the government is doing now is going to make the situation much, much worse. They're trying to reflate this bubble. All along I knew that what would potentially be fatal wasn't the recession itself but the government's response. But what they've already done exceeds even my wo…

"Philips Healthcare keen to acquire more cos. in India"

Businessworld has an interview with Ronald de Jong, senior vice-president and CEO for emerging markets at Philips Healthcare. The firm has recently completed the acquisition of two healthcare companies — Mumbai-based Meditronics and Alpha X-ray Technologies.
What was the rationale behind the acquisition of Alpha X-ray Technologies and Meditronics?
There are a couple of reasons. Philips Healthcare has traditionally been strong in the high-end premium range of the market. We wanted to complement our product offering in India with products that are more value-priced and we wanted to do it inorganically. Today, we import a lot of products to India. In India, in the cardiovascular segment, for instance, the demand is very different than that of the West. It is for products with more basic functionality and that are value for money. For X-ray machines, about 20-22 per cent are imported, so if you do it locally, it is a great advantage. We are trying to capture that value. Over time these prod…

Who is Murali Divi?

Businessworld has a profile of the Founder of Hyderabad-based Divi's Labs, which is charting stupendous growth.
It all began in 1984 for Divi, a postgraduate in pharmaceutical chemistry from the College of Pharmacy in Manipal, Karnataka. Seven years into working in the US at large specialty chemical and custom pharma manufacturing companies — first as production manager and vice-president of R&D at Fike Chemicals, and then as technical director at Schulkill Corporation — he returned to his home state of Andhra Pradesh to strike out on his own. He co-promoted two companies, Cheminor Drugs and its subsidiary Globe Organics in Hyderabad. These companies, he felt, would leverage his skills in fine chemicals manufacturing that had been honed at the US factories. An indigenous pharmaceutical industry was just making its presence felt in India after the country relaxed its patent laws in the 1970s to allow copying of drugs patented to western drug companies. His partner in these ventu…

How is Adlabs faring under ADAG?

Businessworld has an article on how the leading film processing firm is doing post its acquisition by Reliance ADAG.
But Anil Ambani’s Adlabs made Shetty’s Adlabs look puny with leapfrogging growth and a steady flow of funds. In 2005, Ambani infused Rs 227 crore by way of equity and $100 million (Rs 450 crore) through a foreign currency convertible bond (FCCB) issue, thereafter.

Three years after the takeover, Adlabs owns close to 450 screens, most of them overseas. The lion’s share — 200 — was acquired in the US, another 51 in Malaysia and six in Mauritius. In India, the company has 186 screens spread over 83 cinema properties providing 71,000 seats.

...However, the spanking expansion has dented the company’s once healthy bottom line. For the first quarter of the current financial year, net profit is just Rs 2.3 crore compared to Rs 22.4 crore (yoy). For the quarter ended September 30, this financial year, the company has actually suffered a net loss of Rs 20.8 crore.

Arun Natarajan is …

Speaker Lineup for APEX '09 Summit & Awards

We are delighted to announce a stellar list of speakers for APEX '09, the Indian Private Equity Summit, scheduled for February 4 at Mumbai. The Annual Summit brings together the cream of the Indian Private Equity/Venture Capital-Entrepreneur Ecosystem to introspect, brainstorm on the way forward and reward its best.

Confirmed Speakers at the Summit include:

Executives & Entrepreneurs

R. Sridhar
CEO
Shriram Transport

R. Subramanian
CMD
Subhiksha

R. Ravimohan
MD & Regional Head
Standard & Poor's

Goutham Reddy
Director
Ramky Group

PE/VC Investors

Varun Sood
Managing Partner
Capvent

Subbu Subramaniam
Partner
Baring Private Equity

JM Trivedi
Partner
Actis

Sunil Kolangara
Director-Private Equity
UTI Ventures

Senthil Kumar
Director
Real Image

Ishan Raina
CEO
OOH India

Service Providers

Rajesh Begur
Partner
ARA Law


Click Here to view the event agenda.

For Participation details, email info@ventureintelligence.in or call +91-44-45534303

"Bullish on Emerging Markets Real Estate"

Knowledge@Wharton has an interview with Gary Garrabrant, CEO of Equity International, an investor in non-US real estate-related companies.
K@W: You referred to India, and of course this is as current a time as any to be thinking about political risk in India, considering the unprecedented terrorist attacks that have taken place there in recent times. There has also been a significant political backlash following those attacks. Is that likely to affect the way you think about your activities in India?

Garrabrant: It is a factor. We stay at the Taj Hotel and I recognize those images. It is really haunting and a terrible tragedy. And there may be a local linkage -- to what extent, we do not know. What it says to me is that anything can happen anywhere. We consider India to be a country that is characterized by non-violence and democracy and process, and so this is really unprecedented for India. For us, the bigger issue as an investor in India is finding the right partner. We continue to l…

The race to pipe gas

Outlook Business has a cover story on how the discovery of new sources of natural gas will have a profound impact on the energy economy of India by 2012 and the rivalry between Reliance Industries and the public sector GAIL to pipe gas into homes.
In July 2008, about 775,000 households in 19 cities across India were receiving piped gas. Those numbers are set to explode in the next five years—about 70 cities and 30 million households. Bids are being invited for distribution of natural gas in cities, and the first award of six cities should happen in March. Every company of any significance in the gas business is interested—biggies like GAIL and Reliance Industries, mid-level players like Gujarat Gas, fringe players like Sabarmati Gas and Haryana Gas. At a minimum investment of Rs 200 crore per city, city gas distribution (CGD) could see an investment of Rs 14,000 crore over the next five years.

...The first piece is a manifold increase in gas output. India has seen a lot of gas finds in …

Speedbreakers for Tollroads?

Business Today has an article describing the resistance - both from political parties and users - for a newly introduced toll road on the outskirts of Bangalore.
The toll collection activity at six entry and exit points on the 41-km peripheral road, forming an arc on the southern fringes of the City, ignited instant opposition. Many protesters alleged that the particular stretch between Bannerghatta Road and Electronic City—the suburb that boasts many famed IT addresses, including Infosys—is not ready yet, and they are accessing it through a mud road. There were others who found the toll to be steep.

Different sections gave vent to their ire in different ways. While some blocked traffic on the road, others destroyed toll booths at a few places. Following this, Nandi Infrastructure Corridor Enterprises (NICE), the project developer, suspended toll collection, particularly at the Electronic City booth, which bore the maximum brunt of protesters ire, for a few days.

...There are a number of…

"Liberalising preferential allotments will encourage PE investments"

In an interview to Business Standard, Rajeev Gupta, Managing Director of Carlyle India, explains the bottlenecks in doing preferential allotments in the current environment.
What is stopping the firms from getting investment?
Basically, there are two ways in which capital can be raised. One is from investors who can participate through what Sebi has labelled as QIPs (qualified institutional placement). Second is through preferential allotment to PE firms and some of the largest players are present in India. Regulations are quite benign for QIP issues to portfolio investors. The six-month price floor rule does not apply to QIP allotments. However, this rule does apply to preferential allotment to PE firms.

Why can’t PE firms participate through QIPs?
In QIPs, no one investor can have more than a 50 per cent of the shares offered by a company. And, there should be at least five investors. We put a lot of energy to understand the company and its business. We want a significant ownership in t…

"Media sector is set for consolidation "

Outlook Business has an interview with
Puneet Goenka, CEO of Zee Entertainment Enterprise.
I don’t expect anybody to fold up, but consolidation will definitely happen. Some may band together, while others may go to new owners. All those who are conscious about spends will definitely survive. The newer players face greater risks as they’re also under pressure to perform.

...Zee is the most profitable media company in all of Asia. That is because we concentrate on revenues as much as we do on spends. In fact, our dependence on advertising revenues is significantly lower than most other media companies. Almost 60% of our revenues come from our distribution business, which includes cable, DTH and international markets (subscription-based).

...Historically, Zee has always been a cost-conscious company. Our priority today is to find ways to squeeze more revenues. The cheapest source of entertainment during a recession is television. Instances from the past prove that TV viewing has always seen …

Whither Sovereign Wealth Funds?

They have gone from being feared to (almost) felt sorry for in a very quick span. Now, Outlook Business has an article examining how SWFs are likely to behave going forward.



Even as the US, Europe and many other parts of the world stare at a recession, many SWFs may alter their very nature from being externally focussed investment engines to becoming resource providers for internal growth. They also face the prospect of a significant depletion in resources as their domestic economies slow down.

...It is too early to deliver a verdict on whether the November 2007 charge of SWFs into the global financial arena was just a solitary event or a sign of things to come. Developed markets such as the US and Western Europe would benefit from their infusions, despite widespread nationalistic fervour against them in those economies. But the greater benefit would be to the economies that sponsor such SWFs.

This is perhaps best illustrated by the October 2008 $12.3 billion joint investment by Qatar Ho…

How HCL outsmarted Infosys on the Axon acquisition

In an interview to Outlook Business, Vineet Nayar, CEO of HCL, explains how his company managed to snag Axon at a price lower than what rival Infosys had originally bid for the UK-based IT Services firm.
There were three smart things we did. First, we borrowed the money. Second, we took a dollar loan; we could see that the US dollar was falling against the pound. When we made the bid, it would have cost us $786 million; today, it’s $650 million. We saved $136 million in the dollar-pound conversion alone. Third, we bought 10.43% Axon equity from the market. We knew that whatever we did, we could always buy the stock at much lower rates in the market. Our ceiling was 650 pence, but we bought from the open market at 600-630 pence. Putting all this together, the total cost of ownership for HCL is significantly lower than what Infosys had bid.

...We had thought out our moves well. It was important for us that analyst reactions were negative. We did not want the deal to look attractive to …

Global M&A Activity to Recover in Second Half: KPMG Survey

From the latest KPMG M&A Predictor forecast:
KPMG Corporate Finance’s Global M&A Predictor forecasts that 2009 will see a continued fall in global mergers and acquisitions (M&A) but that deal activity should slowly return late in the year as liquidity improves and attractive value is recognized in certain sectors.

The latest Predictor — a forward looking survey of 1,000 leading companies’ estimated net debt to EBITDA ratios and prospective Price Earnings ratios – reveals a significant fall in 12-month forward corporate valuations and therefore appetite to do deals (down globally 22.2 percent from 15.3x end May 2008 to 11.9x at the end of November 2008). Forecast Net debt to EBITDA ratios have moved from 0.93 times to 1.06 times, a 13.5 percent deterioration, signaling a decreasing capacity to do deals. Stephen Barrett, Corporate Finance International Chairman at KPMG, commented: “Findings from our latest Predictor confirm our view that 2009 will be a very subdued year for M…

Fund News: NYLIM India closes $440-M Third Fund

From the Press Release:

Jacob Ballas Capital has announced the closure of its third India-dedicated private equity fund at $440 million The latest fund, NYLIM Jacob Ballas India Fund III, takes the firm's total assets under management to over $600 million. The latest fund's investor base is diversified globally across the USA, Middle East, Japan, Europe and Asia ex-Japan. About 85% of Fund III’s investors are financial institutions, sovereign funds, pension funds and funds of funds, while 15% comprise reputable family offices and private investors.

For more informaton, visit http://www.jbindia.co.in

George Soros on the Credit Crisis

MIT has an interesting video interview with George Soros on the credit crisis.

Hat tip: Paul Kedrosky

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. Email the author at arun@ventureintelligence.in

ICICI Venture's healthcare SPV plan

Economic Times has an interview with Rajeev Bakshi, joint managing director of ICICI Venture on its SPV, I-Ven Medicare, which is creating a string of hospitals across the country. The firm to integrate the individual hospitals into a single company that can be taken public.
It is a simple, affordable, speciality healthcare model wherein we have bought into a set of entrepreneur doctors who already have established clinics/hospitals in certain locations. We have also bought into an entrepreneur manager who is in the process of putting together a team of professionals to set up a chain of healthcare services across a certain region. We give them growth capital so that the teams of these entrepreneur doctors can leverage their basic competencies to open up more such healthcare clinics in their areas.

We have bought into four such nodes across the country. One each in Karnataka, Maharashtra, West Bengal and Delhi. The aim is to unleash the power of these entrepreneurs from a very basic le…

What's Changed in Silicon Valley

The New York Times has an article "about the types of companies that will receive some of the estimated $31 billion venture capital firms raised in 2008".
WEB 2.0 HEYDAY IS OVER. Venture capitalists once poured money into Web sites that were free to users and that made money selling advertisements. If the site involved social networking, so much the better. But as growth in ad spending online cools and social networking becomes commonplace, the days of trying to be the next YouTube, Facebook or Yelp are over, said Jeremy Liew, managing director at Lightspeed Venture Partners...Even Accel, an early investor in Facebook, might have turned that company away if it approached the firm today, said Theresia Gouw Ranzetta, an Accel partner.

CLEAN TECH GETS REALISTIC. Venture capitalists are still chasing clean technology. Through September, $3 billion was invested in technologies that create alternative energy and conserve power, up from $1.9 billion the year before, according to the …

Interview with Sarath Naru of Ventureast

Ventureast, recognized as one of the committed early-stage investors in India, has been investing quite actively in 2008 across three funds – the sector-agnostic “Proactive Fund”, the seed level-focused Ventureast-Tenet Fund and the Biotech Venture Fund. While Proactive Fund and Ventureast-Tenet were raised in 2007, the firm is raising a new successor fund to the biotech fund under the new name of “Life Fund”. Also, in November 2008, the Ventureast-sponsored special purpose acquisition company (SPAC) or "blank check" company announced that it is acquiring an over 80% stake in Solar Semiconductor Ltd., a Hyderabad-based maker of solar photovoltaic modules.



Sarath Naru, Managing Partner of Ventureast, recently spoke to N. Sriram of Venture Intelligence on the new developments at the firm. Some excerpts:

Venture Intelligence: Now that there are a few others firms focusing on the seed-to-early stage funding space, will there be a change in your strategy?

Sarath Naru: We are venture…

'Politics and fraud hold the key'

In his column appearing in Businessworld, Bill Emmott, points out why the length and depth of this recession would probably depend most on politicians and fraudsters. How true in light of the Satyam fiasco!
A recession, especially one that is global in nature, is a time of great social stress. Unemployment rises, incomes fall, export earnings collapse, savings are lost, companies face big losses or even bankruptcy. That places a huge amount of pressure on politicians and government officials: some will be blamed for the trouble, all will be expected to do something to cure it. The big unknown, however, is how severe is the blame, and how will the political leaders react.
...In many recessions, confidence returns in a natural way once people see that disaster has not happened, and once some begin to think that business opportunities are so cheap that they have the chance to make a lot of money during a recovery. So investment revives and recovery does happen. But this is where the second…