Friday, August 31, 2012

AGRI SECTOR: INVESTMENT INCREASE

It’s magnanimous and astounding, but agriculture of all the sectors has seen huge increases in private and public sector investment in the past five years. B&E does a quick news synopsis and update of the investment scenario in the agricultural sector and commentates on visible issues by Angshuman Paul

Another key change has been in the interest of PE firms and venture capitalists right at the start of the value chain. According to Venture Intelligence, from early 2009 to June 2010, purely the Indian cultivation sector attracted a PE support of $102.46 million. Clearly, farmers and institutions investing in cultivation are giving a reverse multiplier effect. Sanjeev Goyle, Senior VP Marketing (Farm equipment sector), Mahindra & Mahindra shared with B&E how M&M has now become the world’s largest manufacturer of tractors; a feat they achieved only in the previous financial year. Says Rana Kapoor, MD & CEO of Yes Bank, “Agriculture provides employment to over 60 per cent of the population in the country and this [current growth] is because many of these farmers are today connected to the global market.” And much of that due to PE investments. Examples like the Washington-based Small Enterprise Assistance Funds (SEAF, which is engaged in investing in experienced agri-companies and has invested an astonishing $75 million in Indian agriculture-related businesses) or Rabo Equity Advisors (which has recently invested $10 million in the Global Green Co, from the stable of Gautam Thapar’s Avantha Group) are now a dozen heavy.

What is clear is that the investments are focused specifically on the JV or partnership route. Says Hemendra Mathur, MD of SEAF India Investment Advisors, “It is important that in agri-business if you are adding some value you should be involved through the entire circle of cultivation; and for such involvement it requires to create a partnership or joint-venture model,”

In all, what is being seen in the Indian agricultural sector has possibly not ever been seen before. Till now, growth in agricultural produce was significantly a government proposition; with successive central and state budgets going towards various versions of green revolutions – most of them highly successful. Added to that was the fact that over time, the varied news reports of farmers committing suicides in various parts of the country along with many others slipping into a destitute status due to the vagaries of Indian monsoons led to the sector not being viewed as one that would be the destination for the billion-dollar classes.

But suddenly, there are entrepreneurs, business houses, foreign institutional investors and other funding agencies that are realizing the ever present potential of the agricultural sector and the powerful business sense within this sector. And with 17% of India’s GDP being contributed by the agricultural sector – the highest contribution ratio compared to the world’s top twenty nations according to nominal GDP – there’s only an explosively positive future that lies ahead in the upcoming decade.


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Thursday, August 30, 2012

STEEL & CEMENT: Q1 RESULTS ANALYSIS

Despite the obvious rationale going against it, steel and cement players in India have had a markedly subdued first quarter. Virat Bahri of B&E analyses the dynamics behind the numbers

The causes for oversupply are two-fold. Firstly, there has been a capacity addition of at least 60 mtpa since the past two years but demand isn’t growing at the same pace. Rakesh Singh, Joint President, Marketing Head, India Cements, comments to B&E: “Capacity has been increased by 12-13%, but demand has increased by only around 7% y-o-y.” Industry observers point out that these capacity additions were done with a 2-3 year time frame in mind. Prices in May were down by 3.8% (Mumbai) to 14.3% (Hyderabad) y-o-y in different regions (Angel Broking-CMA research). Markets of South and West India were particularly impacted by sluggish growth, lower offtake and shortage of wagons. The monsoon effect is visible here too, and is likely to last till September. But for companies relying on the southern market, oversupply may persist for at least two years. Raw material costs will also continue to pester players. In Q4 2010-11, raw material costs are expected to grow (y-o-y) by 34.11% for Ultratech, 4% for India Cements and 25.4% for J. K. Lakshmi Cement (Jaypee Capital).

Jinal Joshi, an analyst with Jaypee Capital, feels the prospect of cartelisation cannot be ruled out in such situations. It is possible that players create artificial scarcity to push up the prices. The Builder’s Association of India, however, has alleged that this has already happened in the April-June period, citing price increases in certain regions. But the Cement Manufacturer’s Association refutes the claim, saying that prices have actually been falling.

From a 2-3 year perspective, the tidings are pleasant for both steel and cement. India is reaching the close of the 11th Five Year Plan and infrastructure spending is expected to double in the 12th five year plan. At that time, players of both segments should see the pricing game move more convincingly in their favour.



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Wednesday, August 29, 2012

“We are focussing on being no. 1 in" India”

Mankind Pharma founder Ramesh C. Juneja speaks with B&E's Steven Philip Warner & Jayant Mundhra

A little-known entity till recently, Mankind Pharma is now one of India’s fastest-growing pharma firms. The firm’s success was initially built by its focus on rural India. Started in 1995 with the aim to serve the suffering humanity, within a span of a decade, the company has achieved what certain companies would achieve in a lifetime. The company is backed by a rich experience in the oharma industry. Its core strenghts are its 6000 plus medical representatives and an extremely strong distribution network. The Indian pharmaceutical industry is undergoing a lot of changes. And thats not it because a lot more is yet to happen. But amidst the cut-throat competitions, the pharma giant is espousing new strategies to sustain its robust growth and become the number 1 pharma comapny in India!

B&E: From its inception as a dream with an initial capital of `5 million, Mankind Pharma has turned into a mammoth worth more than `10 billion today. What were the past 15 years like?
R C Juneja (RCJ): After quitting Lupin in 1984, I went on to start a company named BestoChem. It was a family run business and both my brothers Rajeev and Girish were a part of it. The company was doing fairly well till 1994 but in 1995, one of my brother took over it. Coupled with my experience in the pharmaceutical industry, I along with my brother Rajeev and nephew Sheetal started Mankind Pharma Limited. During the initial days, we started investing in western parts of UP. We were headquartered in Meerut and clocked revenues worth Rs.4 crores in the first year itself. Some pain killers were part of the initial product line up. Soon we also came up with antibiotics.

B&E: How did you manage R&D initiatives in your initial days?
RCJ: R&D requires a minimum capital of `10 crores at an initial level to start with. We got our products manufactured through contract manufacturers under our brand name. But we have come a long way since then. When we launched Mankind Pharma, we were having around 10-12 products in our basket. Today we have over 200 products.

B&E: How has the brand evolved over the years? Have you created sub segments products? Which are the most lucrative?
RCJ: We are today ranked no. 1 in terms of prescriptions/doctors/month PAN India. Apart from Mankind Pharma we have six sub divisions namely Discovery Mankind, Life star Mankind, Future Mankind, Vet Mankind, Magnet Mankind and Special Mankind (for OTC products). Mankind Pharma is obviously the most lucrative as it is has been in the industry for 15 years. We are very optimistic about Discovery Mankind, Life Star Mankind is doing fairly well, Future Mankind is on an expansion spree and covers 2/3rd of India in terms of geographical reach, Vet Mankind and Special Mankind are also catching up fast.

B&E: Over the past two years, you have suddenly increased your advertising expenditure. Are there any particular reasons?
RCJ: For the initial 13 years, we concentrated on penetration. Our 6000 medical representatives went to doctors all over the country and we were completely over Doctor's prescriptions. That still remains our core strength till date. Then we started working on Manforce Condoms which became a runaway hit. This encouraged us to go for more promotions. We believe in advertising only products which we think need to be advertised like Unwanted-72, Manforce Condoms. We have allocated a budget of `50 crore for advertising while `28 crores has been invested so far in R&D this year.


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Friday, August 24, 2012

DLF: TURNAROUND

Slowdown had a sobering effect on DLF’s meteoric rise in the early years of this decade. With a new look and renewed vigour, the company attempts to claw its way back to its glory days. by Virat Bahri

The primary prerogative was to get rid of excess baggage – businesses as well as lands where development was not anticipated in the next 5-7 years. Out of a divestment target of Rs.55 billion for FY 2009-10, the company unlocked value of Rs.18 billion, and targets a further Rs.28 billion in the current fiscal. Hotel venture Aman Resorts is immediately on the block. Reports say that Malaysian Sovereign Wealth Fund Khazanah is expected to take it up for around $300-350 million. DT Cinemas was sold to PVR last year with a further commitment that DLF would have PVR as its exclusive multiplex anchor tenant for all its future malls. They attempted to divest the wind power business (valued at Rs.10 billion) as well, but decided to retain it, as they were unable to get the right suitor. The company also pulled back on four of its SEZ projects in West Bengal, Gujarat, Haryana & Orissa on account of the dip in commercial space demand. DLF is now planning to revive the one in West Bengal, but the other three are still denotified. But according to G. P. Savlani, Resident Director, CREDAI, “Real estate players will not talk about SEZ much after implementation of the Direct Tax Code (which would cut all income tax benefits).” DLF has also restructured its business into two business units last December. The development company is further demarcated geographically into Gurgaon, Super Metros and rest of India and the annuity company is divided into offices, malls and facilities management & utilities to better streamline businesses and ensure aggregation of returns and stable cash flows from these businesses.

As far as the devil of debt is concerned, the gross debt has increased to Rs.216.77 billion by the close of March this year as compared to a gross opening debt of Rs.163.2 billion on April 1, 2009 (due in part to the purchase of SC Asia’s stake in Caraf) and a D/E ration of around 0.75x. Interest rate has been brought down to 10.5% from 11.98% in December 2008 and period has increased from under one year to 3-9 years. Besides, the focus is on faster execution of existing projects.

The most critical aspect for DLF’s revival will be the pick up in demand. The Lower Parel project gives indications that the exuberance is back. But Savlani says that it is unique to the Mumbai market only, where Lodha Developers won the contract for the 101-storey tower project recently for Rs.40.5 billion. But residential is definitely on the revival mode in different parts of the country as consumer sentiment improves with booming economy, lower interest rates and more economically priced projects. Param Desai, Analyst – Real Estate, Angel Broking, quotes, “FY 2011 (for DLF) will be largely driven by residential sales, both middle income and luxury.” Ministry of Housing & Urban Poverty Alleviation projects a shortfall of 26.53 million dwelling units in urban areas by 2012. Absorption rate of residential units has increased to 21% in Q1 2010 from 15% in the previous quarter, according to a report by Jones Lang LaSalle Meghraj (JLLM). DLF anticipates bookings of 1-1.5 msf for FY 2010-11 in the luxury segment (Mumbai & Delhi), 2-3 msf in city centres/high end (Gurgaon, Chennai & Cochin) & 12-14 msf in the mid-income/value housing segment.




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Wednesday, August 22, 2012

Deprival of the weakest

India’s water problem will continue to grow to mammoth and daunting proportions unless an integrated approach is taken. PPP is a great model, provided profiteering is curbed successively.

In a recent education tour to Singapore under IIPM GOTA program, we happened to visit an industrial plant of NEWater. NEWater is a joint venture of Singapore’s Public Utilities Board and Ministry of Environment and water resources. What is unique about NEWater is that it not only supplies pure drinking water to its people but also recycles water from the reservoirs of Singapore. This gave us an idea of how the state is committed to provide safe drinking water to its people and to ensure maximum replenishment of water supplies.

When we think of India, it presents a stark and unfortunate contrast. There is an ironic diversity when it comes to the availability of water, leave alone the safe and drinkable part. While hundreds of lives are in danger because of shortage of water in states like Rajasthan and Gujarat, which often experience drought and water scarcity, thousands others die in states like Bihar, Orissa or West Bengal, which are often inundated by flood.

Worldwide, an estimated 1.2 billion people drink unclean water, and about 2.5 billion lack proper toilets or sewerage systems. Over 5 million people die every year from water-born diseases such as cholera. In India too, about 70 million people in 20 states are in danger due to excess fluoride and around 10 million are at risk due to excess arsenic in ground water. In the gross sense (pun intended), about 10% of the population from both urban and rural areas does not have access to regular safe drinking water.

India is not very far from a water crisis, in a world that recognises that water will be just about as important by 2025 as oil is today. Over 85% of the rural population in Indian solely depends on ground water, which is depleting at a faster rate.


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Tuesday, August 21, 2012

Digest this!

It’s all about respect for Nicholas Cage. He has recently confessed that he eats only those animals whose sex lives he respects. Nicholas believes that birds and fish mate ‘respectably’ and thus he chooses to eat fowl and fish, but pigs on the other hand are spared from becoming his dinner as their sexual pursuits are not dignified enough! One mad hatter, that. We advise Nicholas Cage to keep further details on how he hogs to himself!


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Tuesday, August 14, 2012

Marketing mantras

Hrithik Roshan is busy promoting his home production Kites, and everyone is going ga ga about how hot this blue-eyed boy is looking and the smouldering chemistry he shares with his co-star Barbara Mori. Hrithik though feels that he needs marketing lessons from Shahrukh Khan and Aamir Khan! But considering all the hype around his co-star Mori to the edited 90-minute version of the film in English, Hrithik we bet, is just trying to being modest!


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Monday, August 13, 2012

Punit is now focussing on expanding the regional and sports channel portfolio

After fixing up the group’s GEC, Punit is now focussing on expanding the regional and sports channel portfolio

B&E: Coming back to your flagship channel Zee TV, it has been growing very consistently in terms of rating over the past 18 months. So, when do you see Zee holding the No.1 spot?
PG: I would put it this way: Are we here to change the No.1 ground? Zee is frankly does not believe in that business model. We are not in this business to raise money from third parties. In terms of profitability no one can match Zee. So that ways we are already No.1. Top rank, in rating terms, is of no use if you don’t monetise and make profit.

B&E: One thing you appreciate most about your father...
PG: His vision is something that I appreciate the most. You cannot imagine how he comes up with these ideas. He had told us about the slowdown in the first quarter of 2008. At that time things were exceptionally well and no one could have guessed what was coming, but he did. If it wouldn’t have been his prudence and vision we would not have achieved what we have in the past four years.

B&E: Any particular challenges that you think Zee needs to work on?
PG: The negative growth in the industry is the key challenge that Zee Group needs to work on and make sure that it turns around. Otherwise it’s like a whirlpool that will suck you one way or the other.

B&E: In India, cricket as a sports is given maximum importance by corporates, while other sports take a back seat. Do you see the trend changing?
PG: That has already started changing. If you see hockey, it has already got support from several corporate houses. In fact, I feel that other sports too will soon get the importance they deserve.


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