ADAG ropes in ACC’s Sumit Banerjee to drive cement foray

SUMIT Banerjee, managing director of the country's largest cement company, ACC, is all set to spearhead the Anil Ambani group's proposed foray into cement business. Widely credited with ACC's growth in the past three years, Mr Banerjee, 54, will fill in the vacancy that was created due to the resignation of Anil Singhvi from the Ambani Group early this month.
    Mr Banerjee will join the power-to-telecom conglomerate on August 1 as chairman of Reliance Cementation, said a person close to the matter. Mr Banerjee could not be contacted. Text messages sent to his mobile remained unanswered. The ACC spokesperson said: "The company does not comment on market speculations."
    Anil Ambani group had floated Reliance Cementation two years ago as a subsidiary of Reliance Infrastructure (RInfra), that runs power generation, distribution and transmission businesses, to implement its ambitious plan in India's cement market, the world's second-largest after China. India has an annual cement capacity of 260 million tonne and a growth rate of 10% per year.
    Although, Reliance Cementation has signed a few MoUs with state governments, its proposed foray into the cement business by using huge amount of fly ash that would be produced as byproducts of the group's power projects has not made much headway. Arvind Pathak, former ACC western region head, is its CEO.
    "We have plans to set up cement capacity of 20 million tonne per annum with an investment of nearly Rs 10,000 crore over the next five years. This will make us one among the top five cement players in the country," Mr Ambani had told the shareholders of R-Infra in 2009.
    The Swiss cement giant Holcim brought in Mr Banerjee in ACC after it acquired the company. Mr Banerjee, an IIT Kharagpur alumnus, joined as ACC's managing director on April 1, 2007, when ML Narula retired after four decades of service. Prior to joining ACC, he was the managing director of Tube Investments. Under his tenure, ACC's topline grew 20% to Rs 9,479 crore and bottomline 10% to Rs 1,564 crore.
    Anil Singhvi, who was spearheading a planned foray into the cement business by the group, left early this month to join I-Can Investment Advisors where he had worked for one year. The 49-year-old former Gujarat Ambuja CEO had relinquished his executive responsibilities, but would continue to be the vice-chairman of Reliance Natural Resources (RNRL) and work as a consultant for the group. CONCRETE PLANS
Mr Banerjee will fill in the vacancy that was created due to the exit of Anil Singhvi from ADAG Anil Ambani group had floated Reliance Cementation two years ago as a subsidiary of R-Infra to implement its ambitious plan in the country's cement market

RCOM may buy Digicable in cashless deal

RELIANCE Communications(RCOM) is likely to acquire privately-held cable television company Digicable in a cashless deal, an investment banker familiar with developments told ET.
    The Anil Dhirubhai Ambani Group (ADAG) company will spin off its direct-to-home (DTH) television service called Big TV into a special purpose vehicle in which Digicable will also be housed, the banker said.
    RCOM will hold 60% in the special purpose vehicle, while Ashmore, a private equity fund, Jagjit Singh Kohli, the managing director and chief executive of Digicable and Yogesh Shah the joint MD will own the remaining stake, the banker said. Mr Kohli, earlier, was heading Wire and Wireless India, an Essel group digital cable distribution company, that was demerged from Zee Telefilms in 2006. Reliance Big TV, that has recently seen a plateau in subscriber additions, will get access to a ground digital cable distribution network to compliment its satellite distribution.
    Digicable has also applied for a licence to distribute cable TV via a technology called Headend-in-the-Sky, or HITS, which will prove beneficial to Big TV.
    RCOM already emits signal from a satellite which can be collected by a large dish, or the headend. The signal can then be decrypted at low-cost cable stations and distributed to individual houses. It also gives Big TV an edge over numerous DTH operators that have mushroomed over the past couple of years. Entry of Bharti Airtel and Sun TV over incumbents Tata
Sky and Dish TV has intensified competition in the sector. Companies are currently subsidising hardware costs of around Rs 2,000 per customer to get subscriptions. Distributing through land cable will eliminate individual dish costs, making it a cheaper option for consumers and the operator, said an analyst requesting anonymity. Many societies are also restricting residents from putting individual dishes on buildings in metros like Mumbai. The cable distribution business can help overcome that issue and reach more high-paying subscribers, the analyst, who tracks media at a domestic brokerage said.

Mukesh, DE Shaw close to deal

Joint Venture To Offer Services Like Energy, Carbon Trading & Derivatives

THE Mukesh Dhirubhai Ambani group is close to signing an equal joint venture agreement with global private equity and hedge fund company DE Shaw to enter the financial services sector, two persons familiar with the development told ET.
    Reliance Industries Ltd, or RIL, the group's flagship, recently made a spectacular entry into the telecommunications sector after annulment of a non-compete agreement between Mukesh and younger brother Anil. Financial services was included in the non-compete, signed in 2006, when Reliance was split into two groups headed by the siblings.
    The joint venture will help the MDA group offer services like energy and carbon trading as well as derivatives linked to these, areas in which DE Shaw has expertise, one of the persons said. It will also enter more conventional sectors such as private equity, mutual funds, and other security-linked offerings, the other person said.
    Neither of the two sources specified the size of the initial investment in the joint venture, or whether it will be established under Reliance Industries or held directly by Mr Ambani. The deal signing is imminent, possibly as early as this week, they said.
    Mukesh Ambani is on the controlling board of DE Shaw India, an entity that oversees the operations here. The negotiations are being handled by Manoj Modi, a close lieutenant of Mr Ambani, one of the persons said.
    He said the joint venture may eventually seek a banking licence in India, something which will almost certainly be denied to RIL, India's largest private sector company, if it goes solo.
    Earlier this year, the government had said it would reconsider norms for issuing banking licenses but the Reserve Bank of India has indicated that it would not allow industrial houses such as the Tatas or RIL to enter this sector. Whether even a joint venture will get such a license is also debatable. Financial services logical for RIL
HOWEVER, the JV is unlikely to encounter too many problems if it sets up a non-banking finance company, or NBFC, that can offer an array of services ranging from broking to investment banking.
    Many business groups such as the Tatas and the Aditya Birla group house an NBFC in their ranks. Unlike banks, NBFCs cannot offer cheque facility to individuals and are, therefore, more lightly regulated than banks.
    Both DE Shaw's New Yorkbased spokesman, Paul Welsch, and the Reliance Industries' spokesman declined to comment.
    DE Shaw specialises in debt and equity financing to distressed companies and start-ups, which may also be of interest to RIL, an analyst who asked not to be named said. The firm was founded by David E Shaw in 1988. Dr Shaw is currently the chief scientific officer of DE Shaw Research LLC and is a an Adjunct Professor at Columbia Medical School, according to the firm's website.
    Financial services was part of the Reliance group prior to the split between the brothers in 2006. After RIL forayed into retail over three years ago, financial services was seen as a logical next step for the group.
    Anil Ambani-controlled Reliance Capital, which was part of the undivided RIL, is in businesses such as brokerage, mutual funds, and has a private equity arm.
    ET had earlier reported that RIL could enter the financial services sector. The company was most likely to start with insurance and stock broking, according to discussions at a company board meeting held earlier this month.
    RIL also recently acquired 95% stake in a company that won licences to offer high-speed wireless access all over India. And at the company AGM, Mr Ambani had said it would enter the power sector. The scrapping of the noncompete agreement on May 23 unshackled RIL, allowing it to enter businesses such telecom, financial services, and energy, with the exception of gas-based power plants. The company has committed an investment of $5 billion to its telecom foray, and has sufficient surplus cash to make a second similar investment of that degree, the analyst said.
    While most of the group's investments are channelled through RIL, Mr Ambani has invested in a personal capacity in a company called Reliance Life Sciences and also owns a stake in a special economic zone (SEZ) near Mumbai. In the past, Reliance Infocomm, the new economy arm of the undivided RIL, was jointly owned by Mr Ambani and Reliance. That company was later transferred to Anil and is now known as Reliance Communications.

Tatas cry foul over ban on Chinese vendors

HARSH CALL DEFER 3G ALLOTMENT

THE informal ban on import of Chinese telecom gear has led to an ugly spat among mobile phone firms. The Tatas, who operate the country's fifth-largest mobile company, have demanded that the Centre withhold allotment of third-generation (3G) spectrum to successful bidders till the new guidelines on security clearance for equipment import are in place. Successful bidders are scheduled to get 3G airwaves on September 1.
    Even as the Centre maintains that there is no ban on imports from Chinese vendors, Tata Teleservices has said the telecom department is currently clearing only equipment imports from Western vendors. Large GSM-based telcos such as Bharti Airtel, Vodafone Essar and Idea Cellular mostly import gear from Western vendors.
    "By virtue of permitting sourcing of equipment from particular vendors and not allowing others, it vitiates the principle of level playing field and thus means extending the advantage to a few of the successful 3G bidders to order their network upgrades," the company said in its communication to telecom secretary PJ Thomas. Tata Teleservices has also demanded that the department of telecom (DoT) put all 3G airwaves allocation on hold until security-related issues are resolved. GSM operators hit back
LEADING GSM operators have hit back, saying both Tata Teleservices and Reliance Communications (RCOM) are already operating 3G services 'illegally' and are now attempting to delay the launch of similar high-end services by competition.
    "In the case of CDMA telcos, both 2G and 3G services are offered using the same airwaves or spectrum—their data offerings such as high-speed internet through data cards are nothing but illegal 3G EVDO services," said a top executive with a leading GSM operators.
    Vodafone Essar had recently approached DoT alleging that RCOM and the Tatas are already offering 3G services and should be charged higher levies that are applicable to 3G operators. An executive with another GSM telco pointed out that COAI, the industry body representing GSM operators, has been campaigning for the Centre to take 'penal action' against their rivals for operating 'quasi 3G' services in the country.
    A top telecom department official, directly involved in the recently-concluded 3G and broadband spectrum auctions, said the Tatas' demand for level playing field with relation to equipment imports was valid, but added the government may find it 'practically impossible' to delay awarding 3G airwaves. "The Indian government has signed a contractual agreement with all successful bidders in the auctions and any delay will amount to violation of this contract. The letters of intent have been issued. The money for the spectrum has been collected. The government will have no legal standing to delay awarding these airwaves," this official added.
    The spat has taken another twist as AUSPI, the industry body representing telcos such as Tatas and RCOM, has now accused GSM telcos of delaying the process of formulating new security guidelines for import of network gear. It has said the consultation process on revised security guidelines has been held up as GSM telcos are yet to submit their views on it. AUSPI also said all other stakeholders have submitted their views and demanded that the government finalise new guidelines at the earliest and not wait for participation from the GSM lobby.
    "It is requested that the model template may kindly be finalised immediately without waiting for comments from COAI, and allow our members immediately to import equipment," AUSPI said. But COAI director general Rajan S Mathews said the association has given its views, and while added that there are no differences between mobile phone companies on the proposed security guidelines.
    Earlier this year, the central government had stopped approving import of Chinese telecom equipment after the home ministry and the Prime Minister's Office expressed concerns that it posed a threat to national security. But after protests from both operators and Chinese vendors like Huawei and ZTE, the government came up with a temporary solution, which involved allowing import of Chinese-made telecom gear certified by international security audit firms. The government had last month also decided to allow self-certification of imported telecom equipment by mobile operators against a bank guarantee given to the communications ministry. The government said these interim norms would be replaced by detailed security guidelines that would be issued soon.
    But Chinese gear maker Huawei and operators such as RCOM and Tata complain that even after the self-certification process was introduced, the government has only been clearing orders placed on Western vendors. "Equipment from Chinese vendors should be cleared where self-certification has been provided by operators. Only once the revised guidelines for security clearance of equipment are released, must 3G equipment ordering be allowed…" the Tata Teleservices communications added. Last week, RCOM had also approached the telecom department saying the ban on Chinese gear was delaying the expansion of its 2G services and would also delay its 3G launch, if not addressed immediately.
    "It is understood that security clearance has been given to service providers that are importing equipment from European vendors like Ericsson, Nokia Siemens as their networks are primarily based on technology from these vendors. But in the case of Reliance, we have deployed technology from Huawei, ZTE and import of equipment from these vendors being Chinese is not allowed at present. This is creating a non-level playing field between us and incumbent operators," RCOM said in a letter to DoT.

NETWORK ERROR

SBI sets base rate at 7.5%, focus now on other banks

Switch Unlikely To Benefit Home Loan Borrowers

    STATE Bank of India (SBI) on Tuesday kicked off the new lending rate regime, known as base rate, at 7.5%, aimed at eliminating banks' opaque lending practices, improve policy transmission and do away with poor subsidising the rich. The bank's base rate is a good 200 basis points above its six-month cost of funds that would protect its profit margins, but would raise short-term borrowing costs for companies. A basis point is 0.01 percentage point. For SBI, about 3% of the corporate loans are below 7.5%. These will migrate to base rate once they come up for renewal.
    "Over a period of time, several concerns have been raised about the way the benchmark prime lending rates system has evolved," the Reserve Bank of India (RBI) had said. It includes, "lack of transparency, downward stickiness and perception of cross-subsidisation in lending."
    Bank of Baroda, Union Bank of India and Punjab National Bank have pegged their base rate at 8%. The new rates are effective July 1.
    No bank can now lend below their base rates, unlike the way they were doing under the prime lending rate, or PLR, regime, which was in effect from 1994 when the nation took early steps toward freeing up lending rates. But it became a mockery when banks began lending far below the PLR to top corporates while retail and small corporates were paying a rate far higher than that. The practice also made the central bank's adjustment of policy rates less effective, since banks were not adjusting their lending rates proportionately. While the latest move is expected to see some shift in short-term borrowing to commercial paper (CP) market, there may not be a significant loss to banks or a majority of the customers.
    "The business for short-term borrowing will move to the CP market and that is one of the intentions," said Mr Bhatt. "Interest rate may go up or down by 25 basis points on consumer loans."
    SBI's home loan customers will continue to pay the same rate under the new system as they paid earlier. If the benchmark lending rate was at 12% and the loan was priced at 200 basis points below that, then the interest rate on the loan was 10%. Under the new system, the customer will be charged base rate plus 250 basis points.
    The impact of interest rate on other consumer loans will be neutral. But some companies, which rely on short-term funds, may have to shell out more as interest. "There may be some rise in the rate offered on the short-end corporate loans to those who currently avail of loans at much lower rates," said Paresh Sukthankar, executive director, HDFC Bank.
    Mr Bhatt said he has proposed to RBI that the bank be allowed to introduce a sunset clause making it compulsory for all customers to shift to the base rate.
BUILDING FROM THE BASE
WHAT'S BASE RATE?
The new benchmark rate below which banks will not provide loans. It is linked to the cost of funds and will replace the benchmark prime lending rate, or BPLR, and bring in transparency in loan pricing. RBI has given banks the flexibility to fix their base rate. It will kick in from July 1.
WHAT'S CUSTOMERS' GAIN?
Small customers will no longer subsidise the larger ones. The range between the best and the highest rates charged by a bank is likely to narrow down. Also, any future changes in interest rates will be effected by varying the base rate. This will ensure that rate hikes or cuts are uniformly passed on to all borrowers.
WHICH SECTORS ARE EXEMPT?
The base rate will not apply to concessional loans for agriculture, exports and other specified sectors.
WHAT'S THE IMPACT OF SBI'S MOVE?
Experts feel most banks are likely to keep their base rates as close as possible to SBI's in a bid to stay competitive. On Tuesday, Bank of Baroda, Union Bank of India and Punjab National Bank pegged their base rate at 8%.

RIL’S 36TH AGM: ALL EYES ON WHAT MUKESH WILL ANNOUNCE

My dear shareowners...

On the afternoon of Sunday, May 23, Anil and Mukesh Ambani announced the scrapping of a 2005 non-compete agreement, signalling a thaw in hostilities. For the three weeks that followed, a barrage of news reports about potential acquisitions, stake sales and investments by companies on both sides have dominated business headlines. Stock prices of flagship group companies soared during this period. As curtains go up on the keenly awaited AGM, here's a list of reports that have appeared in the run-up to it. Some real, some surreal, but all sensational. Much like the Ambani saga.

30 May: Anil Ambani stays at RIL's Sri Krishna Guest House at Tirupati. 
31 May: R-ADAG and US-based CBS Corporation to form an equal stakes joint venture to launch a network of television channels. 
1 June: MTN and RCOM to resume merger talks. 
Shares of JM Financial Asset Management rise on speculation that RIL is considering buying a majority stake in the firm. 
2 June: RIL likely to make big-ticket investments in coal-based power plants. 
3 June: RCOM likely to sell a strategic stake to fund 3G spectrum acquisition. 
Etisalat, AT&T and MTN said to be interested in RCOM stake. 
7 June: RCOM board approves a 26% stake sale. The company will also explore M&A opportunities. 
8 June: Anil Ambani drops a Rs10,000-crore defamation case against Mukesh Ambani. 
10 June: RIL drawing up plans to enter telecom space. 
Reliance Power acquires three coal mines in Indonesia for Rs 7,520 crore. 12 June: RIL enters the broadband space, acquiring 95% in Infotel, a big winner in BWA auctions, for Rs 4,800 crore. 
13 June: Ambani brothers and their families vacation together at the Kruger National Park in South Africa. 
14 June: RIL board approves the group's entry into pharma, power and financial services. 
ADAG might buy Star India's 25% stake in production house Balaji Telefilms. 
15 June: RCOM board approves restructuring its tower-owning unit, Reliance Infratel, into an independent company. American Towers, GTL and a consortium of Crown Castle and Blackstone, in talks to acquire the unit. 
16 June: Reliance Capital (R-Adag) to buy 18% in Bloomberg UTV. 
17 June: RIL considering acquisition of a 26% stake in Fortis hospital chain. 
RCOM considering selling a 26% stake in its wholly-owned subsidiary Reliance Globalcom. 
Mukesh Ambani might invest in R-ADAG firms, including RCOM. 
THEN AND NOW 
"With the blessings of Srinathji, I have today amicably resolved the issues between my two sons, Mukesh and Anil, keeping in mind the proud legacy of my husband, Dhirubhai Ambani." 
— statement by Kokilaben Ambani, 18 June 2005. 
Five years to this day, the Reliance empire was split between the two brothers. Will today's AGM mark a new milestone in the Ambanis' remarkable journey?BIG-BOX AGM ANNOUNCEMENTS 
2005: Restructuring of RIL 
Demerger of power, financial services and telecommunication businesses from RIL 
2006: Embarking on Retail Revolution 
Presence in 1,500 cities across India at an investment of nearly Rs 25,000 crore and promise of more than 10 lakh jobs. 
2007: Towards a Quantum Leap 
"We crossed two significant milestones--the Rs100,000 crore mark in turnover and the Rs10,000 crore mark in net profits." 
2008: A Historic Leap Towards India's Energy Security 
"Two very large projects, founded on the energy growth platform, will be commissioned in the second half of this financial year." 
2009: Time for Transformations 
"Business transformation initiative would create a Reliance that is able to scale up existing businesses; add new businesses both organically and inorganically."

Nifty may rise, but resistance seen at 5215

AFTER making the recent low of 4786, the Nifty rose to test a high of 5148 in the previous week. It remained choppy for three trading sessions before rising smartly on Wednesday.
   The Nifty is likely to move higher in the next couple of days and may face some resistance at the 50DMA level of 5152. A breach of this level may see the Nifty heading towards the stiff resistance zone of 5190-5220. On the downside, 4960 is a very strong support in the short term.
   In the large cap segment, RIL, L&T, Tata Steel and Jindal Steel & Power may rally in the next couple of days. IT and banking stocks are likely to remain subdued. It would be prudent now to have hedged long positions in the short term. If the Nifty sustains above 5220, then only signs of strength will emerge. The broader range for the market over the medium term is likely to be 4780-5220.
   Profit-booking took place in Nifty Call options of strike 5000 which shed open interest by 15664 lots while Put writing was also visible at the same strike which had a buildup of 34168 lots. Volatility index is currently at 26.50 and appears likely to decline over the next few trading sessions.
   Reliance Industries, IFCI, Divi's Labs and BRFL are some of the stocks which had a long build-up on Wednesday and may exhibit strength in the near term. On the other hand, short-covering is also likely in metal stocks like Tata Steel, Hindalco and SAIL.
   Vinit Pagaria
   VP-investment strategies
   Microsec Capital

Kotak Bank seen interested in Karnataka Bank

TALK of Karnataka Bank being acquired refuses to die down. A couple of weeks ago, there was a speculation about Axis Bank looking to buy Karnataka Bank. The latest buzz is that Kotak Mahindra Bank may be in talks to buy the private bank. Senior Kotak Bank officials denied that they were in talks to buy out Karnataka Bank. But investors seem to be convinced about the possibility of Karnataka Bank being a takeover target. The stock, which has gained about 23% in a month, closed at Rs 161, up roughly 3% on Thursday.

'Dutchman MF' woos sellers with Frankfurt junket

THE 'Dutchman' is leaving no stone unturned to ensure the success of its equity funds. Sources say that 'Dutchman Mutual Fund' has dangled a 'Frankfurt' carrot to distributors. Accordingly, if a distributor sells 200 equity SIPs of 'Dutchman MF' (aggregate SIP amount being Rs 2,500) by July end, the fund house will take the distributor on a five-day 'all-expenses-paid' trip to Frankfurt. If industry grapevine is to be believed, 'Dutchman MF' has given this offer to only big distributors like 'Baja Captain' and 'Enjoy Invest'.

Basket-selling helps FIIs reduce exposure to SBI

SOME FIIs appear to be grabbing with the opportunity that basket-selling in index stocks in recent sessions has presented in some stocks. The buzz is that this selling reduced FII holdings in SBI, where these investors are not allowed to hold more than 20% of its total equity capital. According to brokers, Merry Lunch bought a sizeable chunk of shares in SBI on Thursday, on behalf of its clients. The stock rose by 2.38% to close at Rs 2,327.05 on Thursday.
Contributed by Nishanth Vasudevan, Apurv
   Gupta, Shailesh Menon & Harish Rao

Street struggles with low volume,sharp swings

Turnover Down To Rs 18k In H1 This Year From Rs 25k In H2 Last Year

SHARP fluctuations in share prices over the past couple of months have sparked a vicious circle of lower volumes and more volatility. As trading volumes fall, impact cost — the variation from the ideal order execution price — for investors rises. If an investor ends up paying Rs 101 for a stock quoting at Rs 100 on the screen, or receives Rs 99 by the time his sell order is through, the impact cost is 1%.
   Dealers say small buy or sell orders are causing sharp movements in stock prices, of late.
   "Given the uncertainty in global markets, most of the large traders and retail clients are playing safe," says Rahul Rege, business head-retail, Emkay Global Financial Services.
   "There is very little leverage in the market and margin funding is not finding enough takers. If the current trend persists, retail participation will further decline. There is not enough depth in the market leading to high impact cost," he said.
   In the second half of the previous year, the daily average turnover in the cash segment of both BSE and NSE was about Rs 25,000 crore. This has fallen to about Rs 17,000-18,000 crore in the first half of this year. The share of the cash market turnover in the total turnover has gone down from one-fourth in 2007 to less than one-fifth in the current quarter. A similar trend is playing out in the derivatives segment as well.
   "Retail investors are trading lesser with each passing day," says Vinay Agrawal, executive director (equity broking), Angel Broking.
   "In January, 10-11% of our active clients were trading on a regular basis. This has reduced to 7-8% in May and June," Mr Agrawal said, adding that low retail activity was the main reason for rising impact cost in mid-, and small-cap counters.
   The Sensex has been moving in a range of 16,000-18,000 for the past three quarters. While there was good demand for mid-cap stocks during the first quarter of this calendar, lack of liquidity in these stocks is deterring buyers. Dealers say that large orders in second-line stocks are difficult to execute because of lack of a counterparty.
   "Only a further correction or a major breakout will bring them back into the market," said a dealer at an institutional broking firm who did not want to be named.
   Analysts say that a rise in delivery percentage shows that day traders and arbitrageurs are completely out from the market, leading to low volumes in most stocks. Further, there are almost 600 stocks — nearly one-fifth of the total stocks listed on BSE in the 'T' or trade-totrade. The exchange includes stocks in this category to curb speculative activity, and only delivery-based transactions are allowed in the 'T' group.
   So, almost one-fifth of the total stocks listed on BSE constitute a turnover of about Rs 50 crore only.
   Broking houses are feeling the pressure of declining trading volumes in the cash market on their margins, as it is cash market trades that earn them the fattest commission.
   apurv.gupta@timesgroup.com

Zain’s the kind of challenge we’ve been looking for’

With Zain Africa Under Its Fold, Bharti Has To Now Deal With 15 Currencies, 15 Governments & 15 Regulators, Says Sunil Mittal

SUNIL Mittal, 52, is a content man today. His Bharti Airtel is firmly in control of the second-largest telco in Africa after making a $7.9-billion cash payment to Kuwait-based Zain. He is confident that he has not overpaid for Zain's Africa operations and says that the interest outgo will be less than $200 million annually. In an exclusive interaction with ET'sJoji Thomas Philip, he shares his insights on the African market and plans integrating the operations across the Arabian Sea. Excerpts:

How different will be the new Bharti from the old one? What are the key challenges?
Parts of old Bharti must stay — these include our agility, decision-making process and focus on customers. But, large parts will have to undergo a change. Zain presents us with 15 currencies instead of one, and some of them are volatile. Then there are 15 governments and 15 regulators. Another issue is that we don't speak French and most of the documents in many of the countries are in French. Thankfully, we are inheriting a well-oiled machine with 6,500 professionals. From predominantly being an Indian company, we will now be present across 18 countries and will be a global player. Such growth typically happens over a period of 20-40 years if you look at global examples. But, for us, it is like boom and then suddenly we are in 18 countries. We have the best hand to lead us in Manoj (Kohli), who will be moving to Africa along with another 20-25 people from Bharti.
You tried twice to get MTN. There is a perception that in Zain, you settled for the second best...
We did not settle for the second best. Zain is just a smaller company. The brand Airtel can now be in Africa. In the case of MTN, it would have been their brand and their management. Yes, they have a larger footprint, but Zain works out better for us. It allows us to export our business model to Africa.
It is believed that you are looking at infrastructure sharing with MTN...
I talk all the time with MTN's CEO Phuthuma Nhleko and there will soon be an open invitation to it from our side for infrastructure sharing. We believe that Bharti Airtel is pretty good with that as we have done sharing deals with our fiercest rivals in India —Vodafone Essar and Idea Cellular. I am sure we can do the same in Africa. But, it is up to MTN. In many countries our operations are overlapping. I have spoken with them and it makes sense to share networks.
What will be the debt position at Bharti after the deal and the payment made for 3G licence?
We paid more than Rs 12,000 crore for 3G and it now depends on where the broadband wireless spectrum auction goes. So, suddenly, from no debt to more than $10-billion debt. The total payment we have to shell out to Zain is $9 billion. But the high point is that we picked up this debt at less than 2% (interest). So, if we look at Africa separately, it is costing me less than $200 million a year. The EBIDTA of our Africa operations is currently about $1.2 billion. We also have to pay the principal of the loan, but this is a long-term loan. Africa is already generating free cash flow and so the loan will be taken care of. Coming back to India, our EBIDTA is close to $3.5 billion and even if we pick up debt for 3G and BWA, our debt is less than three times that amount. People say this is very high, but Reliance Communications is close to four times.
When will Zain's African operations begin to make profits for you?
In our industry, if you stop growth, you will be profitable tomorrow. Remember how long Airtel was in losses? If I have to reach 100-million customers in Africa fast, it needs more investment in networks and then net profit will not be upcoming soon. That is a good problem to have. We used to say the same thing to investors in India. Do you need profit or growth? They all went for growth and for 15 years we did not give dividend, but at the same time we built a $50-billion market-cap company. But, this was prior to all the regulatory uncertainties that is impacting the sector today.
Investments in Zain...
Zain has been investing about $1.2 billion every year, of which about $700-800 million has been on networks. All I would like to say is that we would like to accelerate the network rollout. The $700-800-million network rollout in our hands will work much longer and so we are in good shape. Mostly, expansion will be financed by internal accruals because our buying is significantly better.
Can you share some operational details on Zain?
Zain will be a100% subsidiary of Bharti. We have not decided as to who the chairman will be, but Manoj Kohli will be its managing director. We see Zain as part of Bharti Airtel — when they are 100%-owned companies, it does not matter who the chairperson is because we are not going to be running a separate board. But, there will be an Africa advisory board that will have specialists from that continent. There will then be the main Bharti board, which will now have one or two people who will understand Africa better. There are already two executives in my mind whom I plan to bring to the Bharti Airtel board. Zain DB will now be called Bharti Airtel International BV. For the first few years, Africa needs to run on its own steam and our operations there will rely heavily on what we have done so far with IBM, Ericsson, Nokia Siemens here along with the processes we already have in place for supply chain and IT. One area that will get stitched very quickly is IT platform, it will get integrated first as this is the bedrock for all telecom companies.
We understand that not all of the leadership team wanted to move to Africa. Did you have to force people to move?
There was no resistance from people to move to Africa. Mr Manoj Kohli, who could have run the operations from here, first took a call that he would be based in Africa and then other people decided to move there along with him. At Bharti Airtel, we put out a mail just two weeks ago on our Africa policy-benefits, packages for moving and other details. Over 120 top employees applied and we selected about 20. To say all the people we had in our minds agreed to move will be wrong.
There have been reports that you have not got regulatory approvals in Kenya, Ghana, Malawi and Nigeria...
In Nigeria, no approval is required. As for Ghana, we have already got the approval. Even in Kenya, we have got the requisite approvals. The Kenyan government has constituted a committee to look into the transaction and see if taxes have been paid, and we have provided all the details. But that does not mean they will not ask more questions. In Nigeria, for example, there is a litigation with some shareholders, but the Nigerian government has said their approvals are not required.
African operators fear that you will lower tariffs, which will destroy their business model...
Tariffs in Africa are nearly 15-20 times that of India. There is huge scope for reductions. When we had entered into an agreement with MTN, their share price was at 160 and it is down of 100. So, there is this fear. But, we will not be reckless and will grow the minutes and then bring down tariffs. We can stroke tariffs a bit, but it cannot be as low as that in India because it is spread over 15 countries and each one has a different market condition. But certainly, we will make it far more affordable.
Your Indian business models leads to a lot of outsourcing. We understand that you will outsource all key functions of Zain in Africa. What is the status of these initiatives?
Yes, we will outsource all key operations of Zain and tenders for the same are already out. I will meet IBM executives over the next couple of days. We have invited bids from IT firms too and Mr Premji has even met me on this issue.
Personally for you, you have been chasing an acquisition for the last three years. Is this because you feel that growth in India will no longer be as it was in the last 10 years?
This is one of the factors, but not the main factor. If you look at it, even in 1997 we were looking at Africa. Our growth in India happened only after that. (Bharti launched services in India in 1995). We were bidding for licences in Botswana in 1997, then we launched operations in Seychelles and then again in 2005, we tried to buy Celltell (in Kenya), but Zain acquired the firm. Then we went through MTN-I and MTN-II. At the time of MTN-I, the growth in India was blistering. We want to grow and it is our desire to have $20 billion in revenues and we have set a time frame for that. In India, the revenue has tapered down and we have been hanging at the Rs 40,000-crore mark for a while.

HUL takes water wars with Eureka to the top

FMCG Powerhouse Targets Rival With New Product

HINDUSTAN Unilever has intensified its long-running battle with Eureka Forbes for domination in the fast-growing water purifier market by pitting a new product against its rival's in the premium category.
   By pitching Pureit Marvella against Aquaguard, the soaps-to-skincare company is hoping to break Eureka Forbes' ironclad grip over the market. HUL has priced Marvella at Rs 6,990, a tad below Aquaguard, and with the same USP as it did in 2004— that it does not run on electricity.
   "The base technology remains the same but it offers key additional features at that price such as a built-in storage for purified water that saves consumers the issue of refilling," says Vikram Surendran, head of Pureit at HUL.
   Eureka Forbes says there will be no knee-jerk reaction. "Comparing Aquaguard and Marvella is like comparing a Honda Accord and Maruti 800," says Marzin Shroff, CEO of direct sales at Eureka Forbes. "What is the difference between a Pureit kept on a stool or mounted on a wall? It is the same technology packaged differently and customers are being charged double the amount."
   HUL and Eureka Forbes have a history of feuds, notably a bitter legal tangle fought in the Bombay High Court. In 2009, HUL moved court against Eureka Forbes, alleging disparagement of Pureit by Aquasure advertisements. HUL alleged that the ads mocked the Pureit mascot and also the taste of water from its purifiers, attributing it to chlorine.
   The case has since been settled out of court.
   Eureka Forbes and HUL apart, Philips, Whirlpool and Kent are also key players in the water purifier market, estimated at more than Rs 1,500 crore and growing at nearly 20% a year. But the huge potential, especially in the mass or entry level, in a market comprising Ultra Violet-based purifiers, reverse osmosis purifiers and storage/resin-based purifiers, has attracted new players. For example, Hitech Plast & Clear Plastics, an Asian Paints offshoot, recently launched an instant purifier, a 650-ml personal water bottle. Likewise, the Tatas launched Swach.
   "The market is huge but it the business is serviceoriented and therefore not just another durable sold over the counter, " said an industry expert. "The money has really to be made in the upper end of the market. The question is whether companies will be able to effectively straddle the entire pyramid both at the front end and service-end."
   HUL says it has a portfolio that spans all price categories — the Pureit Compact at Rs 1,000, Pureit Classic at Rs 2,000 and Autofill at Rs 3,200 and Marvella. The success of Pureit is important to HUL, especially after constant catcalls that it lacks new growth pillars. But experts wonder if the FMCG powerhouse will succeed in selling a consumer durable product. Mr Surendran is unfazed. "We have the product across 15,000 outlets and are quite comfortable with the profile of distributors today. Also, our products does not really have the need for heavy duty after sales maintenance." HUL also has the support of parent Unilever in the water business because it wants to take the model to other markets.
   Even so, beating Eureka Forbes will not be easy. The company was fixated on expensive water purifiers and its direct selling business model was largely urban-focused. But after companies such as HUL launched low-cost products, Eureka Forbes decided a change in strategy was in order. The company recently launched Aquasure targeted at the mass segment and an inexpensive product is in the works. In any case, the company says Marvella does not compare with Aquaguard and could possibly compare with Aquasure. "And Aquasure will compete effectively, unit for unit and rupee for rupee."

Everyone a Hero in Munjal settlement

BM Munjal Family Keeps Hero Honda

 THE Munjals of Hero Honda have a habit of doing things differently, even if it is slicing the family cake. The businesses born out of the partition of the nation, have been partitioned, of course without the bad blood.
   Twenty companies, billions of dollars of businesses and investments, and much more have all been assigned to different Munjals, without a whimper. The entire cashless settlement was completed by May 31, avoiding higher tax rates that came into effect afterwards, said people familiar with the development.
   As a result, the Delhi-and-Ludhiana-based Munjals, who own the world's largest-selling motorcycle company Hero Honda, have successfully disentangled their cross-holdings in more than 20 group companies. This has been done in such a way that each family member or faction gets ownership of the businesses they currently manage.
   Hero Honda Motors, the flagship of the Munjal family and the most valuable company in the group, will be owned and managed by Brijmohan Lall Munjal family with all the 26% stake in the company. His sons Pawan Kant, Sunil Kant, Suman Kant and late Raman Kant's family will have a combined ownership.
   Brijmohan's three brothers and their kin get to control and manage firms such as Hero Cycles and Munjal Showa, according to the settlement.
   `The idea was to make sure the arrangement causes minimum management disruption in group companies,'' said a person with a knowledge of the arrangement. "The employees, suppliers, clients of every group company will face no changes."
   Sunil Kant Munjal, son of patriarch Brijmohan and the family spokesman, declined comment. So did some others.
   Management of Indian businesses becomes difficult by the time the third generation takes charge. The cobweb of holding companies and the many siblings often indulge in acrimony, at times even sinking businesses. Any peaceful settlement between brothers and cousins has become a rarity.
   Om Prakash Munjal and his family now control and manage Hero Cycles. Brijmohan's other brother Satyanand Munjal's sons have got Majestic Auto, Highway Cycle, Munjal Auto and Munjal Showa. Ashok Munjal, son of late Dayanand Munjal, the eldest of the first generation, gets Sunbeam Auto while his brother Vijay gets Hero Exports.

Realignment after 60 years


FAMILY members, who hold shares in group companies, have already transferred their stakes to the respective business heads through internal as well as stock market transactions. Under the family settlement, Brijmohan's family will also own Rockman Cycle, Hero Corporate Service, Hero ITES, Hero Mindmine, Hero Soft and Easybill.
   The exercise, which started with unlisted firms, has culminated recently with listed firms Hero Honda and Munjal Showa transferring shares through a series of stock market transactions. Only five companies in the group are listed—Hero Honda, Majestic Auto, Munjal Showa, Munjal Auto and Shivam.
   Shardul S Shroff of law firm Amarchand Mangaldas advised the family in the settlement process. Shardul Shroff's younger brother Cyril was also the key person behind the settlement between the Ambani brothers. The realignment has happened more than 60 years after the four Munjal brothers started their business by supplying component to bicycle makers in the bylanes of Amritsar. The group hammered out the final contours of the settlement after detailed deliberations at family conclaves. "It was discussed threadbare at family gatherings and the patriarchs wanted to do it amicably," said a management consultant close to the Munjal family. "It's a smooth and dignified decision," said a legal expert close to the settlement. The family was clear it did not want to either restrict growth and entrepreneurship or become divisive. As a result, the settlement has been arrived at without acrimony. The Munjals are one of the few business families that remain united even after the third-generation members have entered the business.

Approvals in, Bharti wraps up Zain deal

Putting the MTN debacle firmly behind him, Sunil Mittal realises his dream of making Airtel a global brand

Our Bureau NEW DELHI

BHARTI Airtel said it will move swiftly and aggressively to expand its newly-acquired overseas domain on a day it announced the closure of its $9-billion purchase of the African operations of Kuwait's Zain Telecom.
   India's largest cellphone company is aiming for a more than two-fold increase within three years in the number of users in Africa while it pursues the low-cost outsourced business model of operations that has served it so well at home.
   "A billion people, 10 times the size of India, it poses truly amazing opportunities to grow within the 15 countries, and we're looking at more opportunities as we build and roll out in Africa," Bharti Airtel chairman Sunil Bharti Mittal told ET.
   In March, Bharti agreed to buy Zain's African operations across 15 countries in what is India's second biggest overseas deal after Tata Steel's $13-billion purchase of Corus in 2007.
   The completion of the deal gives Bharti Airtel a firm foothold in a market that it has long coveted: two previous attempts to enter Africa with MTN, the continent's largest phone firm, came to nought.
   Cash from the African operations will pay for the about $9-billion loan that Bharti has taken to fund the deal, Mr Mittal said, and will cost the company less than $200 million a year in interest payments.
   Bharti shares fell 3.7% to Rs 258.35 on the BSE on Tuesday.
   Many analysts have said that Bharti is taking on too much debt for the Africa deal at a time when the profitability of its Indian operations is under stress.

Growth comes first


THE tariff war in the country and the huge sums Bharti must pay for 3G and wireless broadband spectrum are seen to be putting a strain on the company. But Mr Mittal said profitability can wait; growth comes first. "In our industry, if you stop growth, you will be profitable tomorrow. If I have to reach 100 million customers in Africa fast, it needs more investment in networks and then net profit will not be upcoming soon." The combined entity will be the world's fifth largest, with 180 million customers, 42 million of them in Africa. By 2012-13, it will generate earnings before interest, tax, depreciation and amortization of just under $5 billion with revenues of $12.5 billion, Mr Mittal said.
   Manoj Kohli, the chief executive of Bharti's international unit, will head the African operations and be based in the new headquarters in Nairobi. He said Bharti will hive off Zain's towers and other infrastructure in Africa into a separate firm, part of an effort to share resources and reduce costs. Other phone companies, including main rival MTN, may get an offer to be part of the tower arm, similar to an agreement in India where the three leading GSM operators have all combined their telecoms infrastructure to form Indus Towers, the world's largest tower company. The Airtel brand will be rolled out in all 15 of its African operations by October. Bharti also runs mobile services in Sri Lanka, Bangladesh, Seychelles and Jersey Islands. Bharti has negotiated with regulators in all 15 African countries where Zain has operations and some disputes still remain. Econet Wireless Holdings, a minority shareholder in Nigeria, is disputing control of Zain's unit in Nigeria. But Mr Mittal said Bharti has reached a settlement with Broad Communications, which had filed a lawsuit against the Nigerian operations of Zain. Zain's chief executive officer Nabil bin Salama told a news conference in Kuwait that the company has received $7.9 billion in cash from Bharti Airtel, while an additional $400 million would be paid by the yearend upon certain milestones being achieved.

GLOBAL AMBITIONS: Sunil Bharti Mittal with CEO (International), Bharti Airtel, Manoj Kohli (R) and deputy group CEO, Bharti Enterprises, Akhil Gupta

Coal to power RIL’s future ambitions

NEW-FOUND FREEDOM POWER IS LUCRATIVE

 

 RELIANCE Industries, freed from its non-compete agreement with the Anil Dhirubhai Ambani Group (ADAG) that barred it from investing in high-growth sectors, is likely to make its first big-ticket investment in coal-fired power plants.
   RIL, which is looking to invest surplus cash, is likely to settle on coal-based power plants thanks to the surging demand for electricity and the attractive rates of return, a person familiar with the group's thinking said.
   An RIL spokesperson declined to comment on the issue.
   As part of the peace formula announced by RIL and ADAG two weeks ago, the non-compete agreement signed between the two companies in 2005 was scrapped, allowing Mukesh Ambani's group to enter power, telecom, and financial services. The deal also gave ADAG the freedom to enter the petroleum, refining, and petrochemicals sector.
   RIL's possible entry into the power sector could throw up the intriguing possibility of the two brothers going head-to-head for the first time. But there is unlikely to be a clash as ADAG is already implementing two large power projects and may not be in a position to bid aggressively for more, the person said.
   RIL is unlikely to enter the telecom sector, which has seen a steady fall in margins and rising competitive pressures, unless it can find a new-generation technology that will be capital efficient, the person said. He did not, however, rule out the possibility of RIL acquiring an existing telecom company. As far as financial services are concerned, RIL is unlikely to get into the space immediately as the market is still evolving, he added.
   The company is clear that among the three new sectors open to it, power is the most lucrative and the challenge will lie in developing plants in record time and with the best technology. "The challenge is to come in before demand starts petering out, which is in the next six to seven years. We will have to build the plant within three years if the normal practice is five years and most importantly, we have to adopt cost-effective technology like clean coal to maximise the returns," the person added.
   The rationale is simple. The sector has a demand-supply gap of 14%, requiring capacity addition of 90,000-100,000 mw every five years, and power-generating companies rake in a healthy rate of return of around 20% on an average. The company would have to become a player within the next three years or else would miss the bus, the person said.
   As the second-largest growing economy, India is still far below global standards in electricity capacity. China, for instance, adds 100,000 mw of capacity every year to fuel its economy.
   RIL may have preferred to get into the gas-based clean power sector since it is the largest gas producer. But having reserved that sector for ADAG for the next 12 years, the company is looking at cashing in on mega coal-based power projects.
   It is estimated that the average return on an efficient coal-based power project is upwards of 20%. Add to this the new policy that allows power companies to sell a percentage of the electricity generated in the spot market (industry jargon as merchant power).

POWER PLAY


THE ATTRACTION

Peak demand shortage of 14%

Needs capacity addition of 90,000-100,000 mw every five years

Healthy returns of about 20% on an average

Sustained growth of sectorabout 9%

Technology advantage-to use clean coal technology

Business synergy in energy vertical

Private participation in power sector set to grow to 45%


OTHER PLAN

Unlikely to get into telecom immediately because of low margins

Entry into financial services not in the short term

Financial services plan may roll with retail plans



States looking to set up power plants


FOR such players, the rate of return is easily as much as 25%. Jindal Power, which developed a 1,000 mw plant, has sold most of its power at merchant rates that could be as high as Rs 11-12 per unit at peak times.
   According to Power Trading Corporation chairman TN Thakur, as much as 4%, or 30 billion units of electricity generated in the country, is traded in the short term where tariffs average Rs 5-7 per unit.
   There is a huge demand-supply gap in the power sector and the next five to six years would see new capacities being built to meet the economy's growing needs. According to the integrated energy policy, the country needs to add 8 lakh mw by 2032 to sustain GDP growth at 9%-plus.
   RIL sees a huge potential in this. Several states, including Mahatrashtra, Gujarat, Madhya Pradesh, Tamil Nadu Andhra Pradesh, have been advertising and inviting expressions of interest from potential power plant developers. In many of these, the state governments have already secured land, environmental clearances and even coal linkage so that the plant can be put up fast.
   "Private power producers that comprised just 10% in the 10th Plan period are expected to go up to 45% by the end of the 12th Plan," says RV Shahi, former power secretary.
   So while RIL will concentrate on offshore investments as far as oil and gas and petrochemical are concerned, where it will be open to inorganic growth, its big play in the domestic market will be coalbased power.
   The company plans to get as much as 30% of revenues from offshore operations. It has made a beginning with shale gas. A foray or a buyout of petrochemical assets abroad also cannot be ruled out.