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Showing posts from February, 2007

Tax proposal 173 in Budget '07-08: Impact on Indian Private Equity

At the Venture Intelligence APEX'07 event, an executive from a Fund-of-Funds that invests in India-based Private Equity (PE) funds remarked that his firm did not find much incentive to invest in Indian Venture Capital (VC) firms - as against later-stage PE firms - unless there were some specific tax breaks for the former. While the Finance Minister was unable to attend the event himself, someone from the ministry seems to have heard the LP's remarks - at least, partially. As PE and VC firms are considered pass through vehicles under SEBI regulations , they do not usually find a mention in the Indian government's budget . Which is why, I was taken by surprise when journalists started calling me for comments on the impact of the 2007-08 budget on the Indian PE industry. Tax proposal 173 in Mr. Chidambaram's budget speech says the following: Venture capital funds are a useful source of risk capital, especially for start-up ventures in the knowledge-intensive sectors. Sin

Will the $6-B Novelis buyout drag down Hindalco?

Announced as it was between the $10 billion plus Vodafone-Hutch and Tata-Corus deals, the Birla Group's $6 billion offer for Canada-based aluminium-rolled products maker Novelis has not received much attention. Businessworld however has a critical analysis of the deal. There are two parts to the deal. First, Hindalco is to buy 100 per cent of Novelis equity at $44.93 per share. That adds up to almost $3.6 billion...With a debt-equity ratio of 7.23:1, (Novelis) can’t borrow any more. So, the Birlas were unable to do a leverage buyout. To buy the $3.6 billion worth of Novelis’s equity, Hindalco is now borrowing almost $2.85 billion (of the balance, $300 million is being raised as debt from group companies and $450 million is being mobilised from its cash reserves). “We estimate the interest costs on this $2.85 billion will be between Rs 700 crore-800 crore,” says Uberoi. That is almost a third of the Rs 2,500 crore net profit Hindalco may post in 2006-07. (It has reported a net prof

Second time lucky?

Business Today article on how companies like Morepen Laboratories, Himachal Futuristic Communications (HFCL), Pentamedia Graphics and Silverline Technologies - that had "climbed meteoric heights on the bourses and then come crashing down" - are now resurrecting. 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.

India's new gas pipeline policy

Business Today has an article on the new gas pipeline policy. 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.

More on Marketing to Rural India

Business Today has an in depth article on rural marketing. India's rural population, at 742 million-larger than the population of the EU and the US put together-lives in six lakh-plus villages. A lakh of these hold 50 per cent of the rural population and 60 per cent of its total wealth. Clearly, the fortune for marketers may be at the bottom of the pyramid but-with due apologies to C.K. Prahalad-the wealth in rural India, as Kashyap points out, is at the top of the pyramid and not at the bottom. The upshot? Roughly 320 million of the population residing in five lakh villages are not target customers for marketers, simply because it isn't viable to cater to them. Most of these villages, like Horapalli, have a population of less than 2,000, and every marketer's mojo -'critical mass'-is tough to attain. As Ali Harris, Britannia's Brand Manager for Tiger Biscuits, says: "If I go to a shop in Mumbai, I will sell Rs 5,000 worth of stock and my cost to reach that

The Subhiksha Story has an interview with R.Subramanian, an IIT and IIM grad who is the Founder & CEO of discount retail chain Subhiksha which is today India's largest organized retail chain with over 500 stores. We allocated a Rs 5 crore (Rs 50 million) corpus to it and entered the retail business. There was a lot of thought process behind it. We wanted to attract not the top end customer but the aam aadmi. From our research of three months, we found that consumers prefer buying groceries from closer home. So, we decided to set up 1,000 sq ft shops all across the city and not a 10,000 sq ft big store at one location in Chennai. The next question was why would he come to our store abandoning the existing store? It had to be the price, because ultimately there is no difference between the branded products like say Boost or Surf or such things. So, we decided to sell branded products at a lower price. Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider

VC Market - Feb 21, 2007

The following companies are seeking capital for starting-up / expanding their operations: 07-02-21-1 : Real Estate firm is looking for Rs. 10 crores (about $2.2 million) for setting up an IT Park and Integrated Township in Kolhapur, MH and a Group Housing Scheme in Nipani, Karnataka. 07-02-21-2 : Bangalore-based software firm requires $2 million for implementing s mart card-based solution for corporate reimbursements (for employee medical, restaurant bills, etc.) 07-02-21-3 : California, USA- and Delhi, India-based Accounting BPO company - currently supporting over 100 accounting firms – seeks expansion capital. 07-02-14-4 : Kolkata-based Yellow Pages publisher seeks $100,000 - $1,000,000 07-02-21-5 : Delhi-based startup focused content repurposing in Integrated Digital Secure Environment seeks $100,000 - $1,000,000. For more information about any of these companies, investors can email the company code to Are you an entrepreneur seeking capital? Li

Why JP Morgan's distressed asset fund is in India

Economic Times has an interview with Sanjai Vohra is the managing director for JP Morgan Chase’s Asia special situations group. Why is there a sudden interest in the NPL space? Does it have anything to do with the ongoing real estate boom? I don’t think so, because NPLs should be viewed as a different asset class. They offer investors a different risk-return spectrum and not everyone can conduct this business. Specialised skill sets are required to manage an NPL portfolio. More than underlying asset play, which is basically an effort to generate returns through foreclosures, the current buoyancy is a function of the changed regulatory environment. Today, with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFESI) Act and the Asset Reconstruction Companies (ARC) Act, things are better and businesses are simplified to a great extent. Moreover, banks are recognising that with strong credit growth, it probably makes more sense to leave NPL

VC investing in Internet-based Services and Mobile VAS

Venture Intelligence, the leading provider of research and networking services to the Private Equity and Venture Capital ecosystem in India, is organizing Internet & Mobile Connect , a roundtable event on Venture Capital investing in the Internet-based Services and Mobile Value Added Services sectors. The event will be held on March 15 in Mumbai. The Online Services and Mobile VAS sectors have emerged as among the favorite sectors among Venture Capitalists, accounting for almost 50% of all VC investments in the IT & ITES industry. However, there are several significant challenges facing these sectors – including business models, valuations, quality of management, etc. In this context, leading VC investors and top executives from Online Services and Mobile VAS companies will come together at Venture Intelligence Internet & Mobile Connect to network, discuss and share best practices. The key themes to be addressed include “Internet Businesses: Is the boom for real this time?

Real Estate funds: How long will the boom sustain?

Businessworld had an article on the rash of Real Estate funds that have entered the market. Click Here for a list of new RE funds in the market. The pertinent question at this point is, how will this deluge of funds change the real estate sector? Kapoor says that institutional money will make the industry much more organised. Adds Mehta: “Funds coming to India look at appropriate and efficient routes.” He sees funds coming in larger quantities and possibly through these routes only. Funds have also started investing in infrastructure development as infrastructure is a constraint and may hamper growth of real estate to some extent. If opportunities are rightly identified, it will boost real estate. As Edelweiss’s Mathew says: “Private equity investments in real estate will also need to be complemented by investments in infrastructure creation. It should also support redevelopment of metros along with growth of tier-II and tier-III cities.” Yet, experts say that the unabated rush of c

Profile of Indo Shell Mould

Businessworld has a profile of Coimbatore-based auto components maker Indo Shell Mould, which recently raised funds from SIDBI Venture Capital. The company, which hopes to close this fiscal with Rs 200 crore in revenues, attributes 40 per cent of them to two-wheeler castings, 30 per cent to hydraulic valve bodies, and the remainder to tier-1 clients such as Delphi, Piaggio, Audi and other high-end automobile makers. Its products find their way into cars, trucks, two-wheelers, refrigerators and sewing machines. The infrastructure boom has also helped Indo Shell, driving a strong demand for earth-moving equipment components — catered for by its hydraulic valve bodies. Today, the company churns out a staggering 3,500 tonnes of shell moulded ferrous castings per month; half the industry total of nearly 7,000 tonnes per month. Balaji Jagadeesan, deputy managing director (commercial), Indo Shell Mould, saw just how much of an impact the move had: “Though the castings business is big, there

K@W on KPO

Knowledge@Wharton has an article on the Indian BPO industry's move towards higher value-added outsourcing services. Some extracts: In another corner of India's outsourcing industry, a much smaller firm created a niche "spot market" for knowledge services. Yet another Indian outsourcing service provider built a platform of expertise to provide patent-related legal resolution support services -- several notches above the patent writing functions that were considered high-end assignments until recently. ...Although 65% of India's 180,000 outsourcing services work force is involved in transaction-intensive services like call-center support or check processing, the industry as a whole helps its clients save $1.5 billion annually, according to a recent research paper, "Offshoring: Beyond Labor Cost Reduction," by the Boston Consulting Group (BCG). Aron's third illustration of high-end KPO work is Pipal Research of Chicago, which was founded five years ago

VC Market - Feb 14, 2007

The following companies are seeking capital for starting-up / expanding their operations: 07-02-14-1 : Chennai-based Mobile Technology company that provides Enterprise Data across multiple communication channels for enhancing productivity of mobile enterprise users seeks $5 million. 07-02-14-2 : Hyderabad-based manufacturer of packaging materials , which already has established good relationships with a few consumers in USA, Europe and Australia with regular flow of orders, is looking for expansion capital. 07-02-14-3 : Australia based entrepreneur plans to launch an online travel company - currently in development phase - in the current year (in Bangalore). 07-02-14-4 : Mumbai-based entrepreneur who is aiming to create a premier Internet domain monetization/parking service which will help registrars and domain holders monetize their unused and expiring domains. 07-02-14-5 : Delhi-based company that designs, develops, and manufactures RF, microwave, and digital communications systems

Blackstone's $275-M investment in Ushodaya

Businessworld has more details on the Blackstone Group's mammoth $275 million (over Rs 1,200 crore) investment commitment - in return for a 26% stake - in Hyderabad-based, Ramoji Rao-promoted Ushodaya Enterprises (UEL). UEL is a notoriously closed company and Rao was, till we last met him, a major opponent of foreign money in media. So, there is delicious irony in the fact that the Blackstone-Eenadu deal is, probably, the single largest media deal in India, so far. The last big one was the Rs 360 crore Reliance-Adlabs in 2005. The Rs 752-crore (March 2006) Hyderabad-based UEL owns most of the Ramoji Group’s publishing business (the Telugu Eenadu and magazines), its 12 TV channels and Priya Foods (its pickle business). Ramoji Film City, however, is not a part of UEL. Blackstone has a five-year horizon on the UEL investment and expects returns to be in the mid-20s. “It could take longer because India is an emerging market,” says Akhil Gupta, senior managing director and chairman, Bl

Legal due diligence: What PE firms need to watch out for

In an article in The Economic Times, Nitin Potdar, partner atcorporate law firm J Sagar Associates, points out areas that Private Equity firms need to watch out for when dealing with Indian companies. In order to avoid any surprises after the closing, it is critical that following broad process is followed while conducting due diligence. Firstly, the PE firms should hold discussions with the members of the financial, legal and technical team and set clear objectives and deliverables. Do not rely on the standard check list for documents; ask the team to modify the same to case specific needs. Share industry specific issues or special areas of concern right in the beginning with the team of lawyers. Take stock, at regular intervals, from the team so that they remain focused all throughout. Importance should be given to a short executive summary of issues rather than a bulky dd-report. Most critically, make technical, financial and legal teams interact with each other so that they all ar

The New Indian Consumer

Business Today's 15 year anniversary issue has an feature on the changing consumer landscape in India. Unarguably, the set of consumers that a Jaeger LeCoultre caters to is minuscule; of the total 1.1 billion population, only 8-10 million comprise India's richie rich with a household income in excess of $100,000 (Rs 45,00,000) a year. Yet, what is prompting marketers across the globe to pitch their tents in India is, one, the fact that even this is not a small number to cater to, and two, a new-found confidence that this group is only going to swell in the future. Indeed, close on the heels of this exclusive set is yet another band of some 50-60 million consumers, living mainly in the metros, whose average annual household income hovers between Rs 3 lakh and Rs 10 lakh and following them is a group of some 250 million consumers with an annual household income of around Rs 45,000-2 lakh; this group represents India's real middle class that mostly lives in the country's

Reliance Entertainment zips ahead with its gaming plans

Businessworld has a profile of Reliance Entertainment's aggressive plans for the gaming market. The Rs 216.5-crore Indian gaming market is buzzing with action. The latest development has been the restructuring by the approximately Rs 16,000-crore Anil Dhirubhai Ambani Group (ADAG)-owned Reliance Entertainment (REL). The company’s Paradox Studios, set up in 2001, developed games only for Reliance mobile subscribers, who constituted about 15 per cent of the Indian mobile gaming users. As gaming options proliferated, there was a need to focus, so Paradox was shut down in September 2006. In the same month, REL floated Jump Games followed by Zapak Digital Entertainment in December, with focus on mobile and online gaming, respectively. Rajesh Sawhney, president, REL, points to the 1:10:100:1,000 equation. What this means is, for every console-gamer, there would be 10 PC gamers, 100 online gamers and 1,000 mobile gamers. And therein lies the opportunity. Arun Natarajan is the Founder &am

What's next for microfinance?

Business Today has a special feature on the opportunities and challenges facing the microfinance sector in India. Currently, there are about 800 MFIs and 22 lakh government-backed self-help groups (SHGs) that are the principal sources of microfinance. The latter is typically an informal association of 10-20 poor women who contribute small amounts into a savings pool. After saving regularly for six months, lending small amounts and maintaining accounts, an SHG becomes eligible to be 'linked' to a bank, which opens a savings bank account for the SHG and offers loans up to four times the group's savings. The SHG can then on-lend the money to its members, helping them to engage in some income generation activities. The MFIs, on the other hand, comprise a mélange of NGOs, NBFCs, Section 25 companies (which are treated as charities that cannot distribute profits to sponsors), and cooperatives (like SEWA in Gujarat). Unlike the SHGs, which tap funds from public sector banks, MFIs

Second rung global banks make aggressive re-entry into India

Business Today has an article on how lesser known foreign banks like BNP Paribas and Barclays are making aggressive moves to expand their footprint in India. 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.

Reliance Retail to partner kirana stores and microfinance instutions?

Business Today's cover story on the unfolding battle for organized retail between Reliance and the WalMart-Bharti combine, says Reliance is likely to strike partnerships with neighbourhood grocery stores and microfinance institutions. Moving into neighbourhoods, of course, poses a problem. Zoning laws apart, good properties are hard to come by and there's always the neighbourhood store to compete with. But guess what? Reliance may not end up competing with the neighbourhood stores-at least, not those that are, say, 3,000 sq. ft big. Instead, such stores would want to become Reliance franchisees. Reason: better returns on investment. As the neighbourhood store stands today, it is severely disadvantaged: it doesn't have economies of scale, quality or great shopping environment, or a compelling product mix. Most of them don't handle fresh produce because the wastage is too high. Now, consider a scenario, where someone like Reliance comes in and says, "Mr Grocer, I&#

Manufacturing's comeback

Business Today's 15 year anniversary issue has an feature on the resurgence in Indian manufacturing. The recession of the mid-90s followed. It was the worst of times. The doomsayers said Indian industry was going under. But displaying a resilience few thought it possessed, India Inc. invested heavily in modernising and upgrading capacities and on rationalising its bloated manpower. The process was painful, but the sector emerged from it leaner, meaner and fighting fit. Ravi Kant, MD, Tata Motors, remembers how the company cut almost Rs 2,000 crore in annual costs over a span of just a few years. "Our break-even point reduced from about 60 per cent capacity utilisation to 34-35 per cent," he says. The tide has turned quite decisively. India Inc. is once again on a capacity expansion drive. So are several foreign companies (see Talking Big Bucks). And many Indian companies are aggressively eyeing overseas markets. What has caused this change? Liberalisation has, over a pe

List of rapidly growing sectors

The top 30 listed IT Services grew at 28.99% CAGR over the last three years. Guess what is the corresponding growth rate in the mining sector? How about 46.71%? Business Standard's special magazine section listing the top 2000 Indian companies has an interesting section on the mining and other sectors which have displayed scorching growth rates. Other sectors that outpaced IT, according to the listing, include Retail, Steel, Jewellery and Metals. 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.

Beginning of the end of Bubble 2.0

When Rajesh Jain sold off his online property (IndiaWorld) for Rs.500 crores to Sify in late 1999, lots of folks took the deal as a sign of beginning of the great Internet boom. In hindsight, the deal proved to actually represent the end - with no one else making remotely close to that kind of money in the Indian Internet space. Now, it looks like Google's buyout of YouTube is a signal of end of the Web 2.0 hype cycle ("Bubble 2.0") reports how 2007 has begun to witness emergence if trouble at "some big-money Web 2.0 troubles" (as against the bootstrapped start-ups). Online video startup Guba is apparently on the block after its CEO resigned last month, according to GigaOm. This comes after Accel and Benchmark-backed MetaCafe's M&A travails. Browster, a browser startup supported with $5.8 million in first round funding from Advanced Technology Ventures, Vanguard Ventures and First Round Capital, has shut its web site down and refused to expl