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Showing posts from August, 2009

Set up for a steep fall?

Writing in the Business Standard, Akash Prakash of Amansa Capital points out why, despite the seemingly unbreakable positive run the Indian stock markets have had so far this year, a significant dip is "only a matter of time".
The performance of Chinese equities is also a cause for concern, given that these markets have been leading indicators for global markets over the past 18 months. At one stage last week, they were down 20 per cent. The continued decline of the Baltic dry bulk index, despite the stabilisation of the Chinese equity markets, is also a worrying divergence.

...A combination of factors — cuts in GDP growth rates, rising interest rates and stress in rural India — does not equate with corporate earnings upgrades. Commodity prices have also risen in the last six months, which will offset much of the margin expansion we have seen in corporate India in the last quarter. The market is also not particularly cheap.

Supply of paper is seemingly limitless, and we have ju…

Speciality Healthcare models take off

Businessworld has a cover story on the rise of specialty hospital chains - most of them Private Equity-backed including eyecare-focused Vasan Healthcare, urology-focused RG Stone and cancer-focused HCG - and the new business models they are experimenting with.
There are reasons, however, why things could just click for these protagonists. One, many of them are in specialties such as ophthalmology, day-care surgery and dialysis care involving lower capital expenditure. For instance, a cardiac hospital or a multi-specialty tertiary care hospital costs an average of Rs 60-70 lakh per bed, excluding the real estate cost, says Singh of Technopak. That works out to Rs 60-70 crore for a 100-bed hospital. Cash break-even typically takes about three years.

But the set-up cost for these specialties per centre would be within of Rs 10 crore. An important factor is that in-patient stay is rarely required since a number of these are day procedures. This minimises the need for support infrastructure.…

The Bull and Bear Cases

Two CNBC TV18 guests - Jim Walker of Asianomics and Adrian Mowat of JPMorgan - present contrasting views on the medium-term outlook for the stock markets.

Jim Walker feels while corporate earnings will surprise on the positive side, the RBI is set to raise interest rates as early as in October. And he feels markets in developed countries will be in a bear markets for next 4-5 years and there is no way they will enter a lasting bull phase in just 4-5 quarters.
We all know that the Reserve Bank of India (RBI) is not a central bank that will sit back and let inflation takes its grip and will not sit back and let excess liquidity dictate .., they will take action. As a conservative central bank, my expectation (is that) we will see the beginning of the tightening process as soon as October.Here' is Adrian Mowat's very contrasting take:I still believe that central banks are going to continue this aggressive easy policy at this point in time and so is the buying opportunity.

...It is a…

Acquisitive Aegis

Business Today has an article on how the Essar Group's outsourcing arm, Aegis, has acquired its way into the top league of Indian BPOs.
The ITES onslaught can be traced back to 2003, when the Ruias made their first acquisition, of Aegis Communication Group in the US for $28 million. Another 12 followed in the years to come. Aegis was struggling with some $22 million in losses. The takeover trail hasn’t ended: Last fortnight, the Ruias picked up CCN Group of South Africa for $30 million. Today, Aegis BPO is valued at a billion dollars, with some 35,000 employees and 32 global locations. It is also profitable, say company officials. “Our ambition is to grow as big as we can in the services space… we are a value investor,” says Ruia.

...The core of Essar’s ITES portfolio for some time to come will be BPO, which had revenues of half a billion dollars last year, and which the company claims is the fastest-growing BPO in the world (at a rate of 50 per cent as against the Indian BPO indust…

Who will bag Gharda Chemicals?

Business Today has an article on the move to sell the Rs. 1,000 crore Gharda Chemicals, which manufactures agrochemicals, veterinary bulk drugs and high performance polymers, and the hurdles in the way of a deal. Forbes India has an interview with the firm's 80-year-old founder Keki Gharda on the same issue.

From the BT profile:
Gharda’s life story is one of such innovations that allowed him to make blockbuster chemicals in India, once they went off-patent. And he made them so cheap that often the original manufacturer was eventually forced to buy from Gharda Chemicals and supply to the world. Today, he supplies Chlorpyrifos, an insecticide, to the Dow Chemical Company, and makes a purer product than Dow ever made—even though Dow scientists had invented it. “Instead of the high-temperature chlorination of pyridine, we use a low temperature process and a pyridine derivative,” Gharda explains.

...But Gharda realises that, at 80, the greater part of his journey is done. With no children…

Consequences of the fracas over gas

CNBC-TV18 journalist Menaka Doshi has an interesting blog post on the latest feud between the Ambani brothers.
After years of hard work and tens of thousands of crores of rupees invested, Reliance Industries is about to reap a rich harvest from its gas fields - 80 mmscmd by 2010. The KG-D6 find is one of the biggest of its time and a block-buster profit earner for the company. Except that the Government of India has stepped in to decide both the price ($4.20/mmbtu for 5 years) and the customer list. What was meant to be a market determined price (that’s what the NELP promised) is now a government determined rate. And while today some may claim that it favours Reliance Industries , tomorrow it may not! Infact I’d like to argue that the government’s interference in gas pricing is going to hurt, not just Reliance Industries in the long run, but also India’s ability to attract investors in exploration.

...Instead, some misplaced sense of benefaction has turned a business-family fight into a…

The "Multiple Problems" of Acquiring Chinese Cos.

Mark Dixon of M&A advisory firm the1.com has an hilarious account in the New York Times of his efforts at arriving at the normalized profit (and hence the valuation multiple) for a Chinese company.
Generally Accepted Accounting Principles are not generally accepted in China. This is partly because the Chinese have their own accounting rules and partly because rules are for breaking. And it’s not just that some company owners are trying to confuse the tax authorities. It’s that, when they do so, they end up also confusing themselves.

The gymnastics they do with revenues and costs are so impressive that the Beijing Olympics should have added an event especially for accountants. Markets with developed gray economies, like Italy, are well known for the practice of keeping one set of accounts for the government and another for the owners so they know what’s really going on. Chinese companies often dispense with the second set, hence the confusion. That’s probably true of other “developin…

Will the "New July" deliver?

Forbes India has an article on Rajesh Reddy co-founded mobile technology firm July Systems' latest business model - to partner with media firms and reach content directly to consumers directly, thereby cutting out (July's former customers) the mobile operators.
Keeping the mobile industry as the only constant, he started looking for other customers for July’s solutions. The search led him to American media companies, many of which wanted to harness the mobile phone to reach more customers. “They were treated like chipmunks by mobile operators and made to sell wallpapers, games and ringtones. They did so grudgingly. Because their business was running direct-to-consumer channels, not selling wallpapers,” says Reddy.

...Today, Reddy claims July reaches 25 million users through its clients worldwide and generates over 1.7 billion page views (up from 350 million in 2008). Reddy also claims July Systems has, for the first time, started generating cash profits from the current quarter.…

Profile of Peristent Systems

Forbes India has a profile of Pune-based Outsourced Product Development (OPD)-focused IT Services firm Persistent Systems. The company, which has raised capital from Norwest Ventures, has recently decided to strike a new kind of "risk-and-reward sharing" partnership deals with its customers (typically US software product firms).
Take, for example, the work Persistent did for a customer who brought an American product to India in June. Here, Persistent developed its Indian version. The product has now been released through banks in India and Persistent will get paid depending on the number of users that sign up. If the product flops, so does the company. “It shows our willingness now to put our skin in the game,” says Hari Haran, president of Persistent.

Shailendra Singh, principal at Sequoia Capital, who has invested in OPD companies such as Global Logic, talks about the enormous revenue opportunity in doing this. “OPD companies can really move the needle.” Kiran Karnik, forme…

Profile of Fortis Healthcare's Shivinder Singh

Business Today has a profile of Shivinder Mohan Singh of Fortis Healthcare
The 33-year-old Managing Director of Fortis Healthcare is targeting a top line of a billion dollars by 2012 by creating a chain of 40 hospitals with 6,000 beds. At the end of last fiscal, Fortis had revenues of Rs 630 crore (roughly $130 million), 28 hospitals and 3,300 beds.

He hopes to get there with an aggressive mix of organic growth, acquisitions and management contracts. Fortis is well-placed financially to pull off this growth gambit. After raising Rs 650 crore with an initial public offering in October 2006, Singh now has a Rs 1,000-crore rights issue on the anvil.

...Singh’s vision is to bring the Mayo Clinic or a John Hopkins experience to India. “For us a Mayo or a Hopkins Clinic stands for scale and super-specialty care,” says Singh, who is building an ambitious 1,000 bed hospital in Gurgaon, which will be India’s largest multi super specialty hospital.
Arun Natarajan is the Founder & CEO of Venture…

Boom time for Employability Training Cos.

Business Today has an article on how South India-based Employability Training companies are now getting businesses from colleges desperate to place their students successfully.
Cracking that job interview is the most important goal—but most edu-trainers who have tapped this market initially are now scaling up by introducing newer modules. Engineering colleges, in particular, are willing takers after a tough placement season, realising slowdown-hit corporates don’t have the patience or moolah to invest in employability training.

...Chennai-based N. Raj Mohan, a behavioural scientist running skill development outfit ‘Bodhi’ since 1998, is a veteran of sorts in the edutrainer market. In early years he focussed on corporates and now the market has turned bigger for him with colleges and schools beginning to show interest. Mohan expects a growth of at least 15 per cent in the current year from employability training in colleges for his business and expects the entire industry to grow.

Most of…

Market Recovery: The View from 3 Different Camps

In a column for the Economic Times, Morgan Stanley's Ruchir Sharma highlights 3 different viewpoints that investors have regarding the global market recovery.
Camp 1: This is it, nothing comes next. While the inveterate bears are willing to concede that the worst is over, they believe that any recovery will be shallow since the still over-indebted global economy will take a long time to work off the excessive leverage in the system. The bears argue that the US consumer has just about begun the process of deleveraging and will refrain from any major new spending until the personal savings rate gets back to the historical norm of 8% from 6% currently.

...Camp 2: The cyclical bull market still has some way to go. This camp is willing to acknowledge the structural problems that plague the global economy but thinks that concerted policy actions by governments across the world will lead to at least a one year-long economic upturn. The cyclical bulls say a simultaneous expansion in the gl…

Bharti's "Professional Managed, Entrepreneur Supported" model

Extract from Sunil Mittal's interview to Forbes India.
When we started out, we were an entrepreneur-led, entrepreneur-promoted company. We did a great job. In some companies, this phase lasts forever. Nothing wrong. But in my view, if you do that, you remain small. You can’t manage a large company using this model. So we moved to the next stage — entrepreneur-led and professional-supported. Over the last four years, we’ve moved to professional-managed and entrepreneur-supported. And that’s where we want to keep it.

There is one more stage — professional-led and professional-supported. Vodafone is in this mould...No single shareholder is dominant...Parts of our organisation were moving to the professional-led and professional-supported model. I had to pull it back because I figured they were becoming too bureaucratic. Things didn’t move; too many approvals were needed; too many emails. That is something we want to avoid...You must feel like the deer in a forest, which is always afrai…

The Wal-Mart of Indian Hospitals

Forbes India has a profile of heart care specialist Narayana Hrudyalaya and how it is adopting Wal-Mart style "scale economics" to the healthcare business.
A heart surgery here costs Rs. 110,000, much less than what it costs elsewhere. Even so, you pay the full price only if you can afford it. Many don’t pay at all. In 2008, out of 6,088 heart surgeries at the Bangalore centre, only 1,232 were fully paid for. Yet, the hospital makes a tidy profit. The Narayana Hrudyalaya group had a turnover of close to Rs. 300 crore in 2008-09, up from Rs. 150 crore in the previous year.

Narayana Hrudayalaya is now moving to have the largest number of beds in the country, beating Apollo Hospitals which has 6,000. It is creating multi-specialty “Health Cities”. The Bangalore facility will be ramped up to 5,000 beds. In addition to the 1,000-bed heart hospital, it has new cancer, orthopedic and eye hospitals. In the next two years, it will add two more, one for women and children and another fo…

Deal Alert: Continental Warehousing raises Rs. 78-Cr from Aureos, E-Planet

Continental Warehousing Nhava Sheva Ltd. (CWNSL) has raised Rs. 78 crore from Aureos India and E-planet Ventures. Of this, Aureos invested Rs. 50 crore.

CWNSL operates container freight stations at the Mumbai and Chennai ports. Part of the NDR Group, CWNSL also has a wholly owned subsidiary, Kaveri Warehousing, which offers warehousing management services for corporate clients.

The curious case of struggling asset reconstruction cos.

The Mint's banking editor has an article on the curious and counter intuitive case of struggling asset reconstruction companies.
...banks have stopped selling their bad assets. There has not been a single auction of bad loans this fiscal so far. While the mismatch between what the sellers of such assets expect and ARCs are willing to pay is one reason behind this, the other and more critical factor is that banks are not generating enough bad loans. This is because the banking regulator has allowed banks to restructure loans to help individual and corporate borrowers tide over the impact of the slowdown that gripped the economy after the mid-September collapse of US investment bank Lehman Brothers Holdings Inc. and the ensuing global credit crunch.

...A loan recast on such a large scale is indeed a new phenomenon, but Indian banks have been restructuring corporate loans for quite some time now through a mechanism called corporate debt restructuring (CDR). This was started in 2001 whe…

How Sequoia changed the face of VC in India

Outlook Business has an article on how Sequoia Capital India (formerly Westbridge Capital) - among the few VC firms in India from the 2000-era which continue to make early-stage investments - has become the model for newer VC firms in the country.
It is different from the US Silicon Valley model, where venture capitalists necessarily back only technology product start-ups that promise 100-200% revenue growth year-on-year to achieve supernormal returns. In India, VCs invest as frequently in hospital chains and beauty salons as they do in Internet start-ups and software product companies. Sequoia India showed the way in 2005 when it invested $11 million in New Delhi-based diagnostics services firm, Dr Lal Pathlabs.

The firm’s exit track record so far bears out the unconventional investment thesis. Dr Lal Pathlabs is part of the 18 companies that Sequoia India backed from its maiden fund. BPO firm Indecomm Global Services, software testing company Applabs and Dr Lal Pathlabs are each proje…

Broadcasting higher losses

Businessworld has an analysis of the rising losses at TV broadcasting firms.



NDTV’s results too are nothing to write home about, but analysts have noted that the company has trimmed costs successfully. Though its consolidated revenues rose in the first quarter by 9.6 per cent to Rs 131 crore compared to Q1 of the previous year, NDTV turned in a net loss of Rs 81 crore. Revenue from news operations dipped 5 per cent to Rs 80.1 crore from the Q1 of the previous year, despite additional ad revenue from coverage of the national elections and the budget. An area of concern for the company is its English news channel NDTV falling behind Times Now, currently the No. 1. For the whole year, the company made an operating loss of Rs 484 crore.

...“I don’t expect ad revenues to improve before October this year,” says Raj Nayak, CEO of NDTV Media, who markets airtime for NDTV as well as several other channels. “With an increasing number of channels, audiences have got more fragmented, while the adv…