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Quasi - racism, barely camouflaged in the nam e of branding

Fri, 18 Jan 2008 02:09:37 EST

Quasi - racism, barely camouflaged in the nam e of branding - by niranjanms

Ratan Tata says he is a nice guy who does not believe in hostile takeovers. But this has consequences, it means that a takeover target can spit in your face and say that mere association with you will be demeaning, leaving you looking like an oppressed Harijan. This is the situation Tata faces after being spurned in no uncertain terms by Orient-Express Hotels, the international luxury hotel chain.

Till now, Tata has negotiated several friendly global takeovers, ranging from Tetley Tea to Corus. However, his group ran into rough weather after Indian Hotels, its group company, wooed Orient-Express Hotels. Indian Hotels built up a double-digit stake in the multinational, and then proposed a strategic alliance. This looked like the first step in an acquisition.

. Orient-Express bristled at the proposal. It declared that any association on of its brands and hotels with a predominantly domestic Indian hotel chain would hurt its brand image and hit its ability to charge premium rates.

This was quasi-racism, barely camouflaged in the language of branding. However, berating Orient Express is somewhat beside the point. If global business was a white racist citadel, then Orient-Express' slur, no matter how hurtful, would be factually accurate. In fact, global money today is largely thought not totally, colour-blind.

This was proved when Lakshmi Mittal bid last year to take over Arcelor, the top European steelmaker. Arcelor's chief, Guy Dolle, declared that his company produced perfume, whereas Mitlal merely produced eau-de-cologne. But this supposedly suave put-down fell flat on shareholders more interested in future profits than a perfumed balance sheet, and Mittal won the battle.

The company's share price skyrocketed after takeover. The very name Mitlal now smells of money, and hard-headed investors prefer it to French perfume.

Cultural attitudes are not easily changed, but money can do the job. In the days of apartheid, South Africa gave visas only to white businessmen. But when the Japanese became too powerful to be ignored, South Africa bestowed "honorary white" status on them.

In the last decade, the US has become dependent on Asian countries, to buy its treasury bills and finance its huge trade deficit. After the recent financial crisis arising from sub prime mortgages, Citibank turned to Abu Dhabi for a $ 7.5 billion bailout and UBS (of Switzerland) to Singapore for $10 billion.

Nothing drives home the end of white supremacy more than the appointment of Vikram Pandit to head Citibank. After sinking into the quicksand of the sub prime mortgage crisis, the world's biggest bank has turned to a non-white for rescue.

But while global finance is mostly colour-blind, white snobbery still lurks in luxury goods. Ford is selling its Jaguar and Land Rover brands. And the three bidders are Tata, Mahindra and One Equity Partners. The association of US car dealers says a sale to Tata or Mahindra will affect the brand value of these luxury brands. This is on par with the racist slurs of Guy Dolle and Orient-Express. Yet, it is clear that the once-proud Jaguar brand has sunk close to termination under a series of white owners, including Ford.

Scotch whisky is a luxury item associated with Scots in kilts. Vijay Mallya, India's liquor baron has taken over Whyte and Mackay, which has 9% of the scotch market. Its sales have boomed after acquisition. The colour of the owner has nothing to do with the success of a luxury brand.

Let's return to the Orient-Express slur. Tata can claim that the Taj the brand name of its hotel chain has more cachet than the Orient Express. That's why Donald Trump named his mega-casino resort in Ailantic City the Trump TajResort. But the Orient-Express management is not listening. It has a controlling shareholding in the company, so a hostile takeover is not technically possible. But it will be possible in future cases. Learning from this episode Ratan Tata would do well to re-examine his opposition to hostile takeovers. Such timidity is a weak foundation for a global empire.

Tata's philosophy is doubtless influenced by his Indian experience. Tata Sons, the holding company of the group, has historically held. a minority share in various Tata companies, and is fearful of being ousted by a hostile bidder.

However this historical Defensiveness sits ill with the requirements of a global multinational. Tata managers tend to talk in disparaging terms about Mittal and his business tactics. Yet, the Tata group itself would not be where it is today but for the pathway cleared by Mittal. By becoming world No 1 in steel, he gave Indian business a cachet it never had earlier. But for this, Tata would not have been able to acquire Corus.

Hostile takeovers are only one of many routes to global expansion. For a limited period, any company can steer clear of hostile battles. But if you give up a crucial weapon available to others, the gap in your armoury will leave you vulnerable in the inevitable battles of the future. The history of business is littered with the corpses of nice guys. To flourish as a global multinational, Tata needs to become more like Mittal. He needs to inspire fear no less than respect.

Rediif - Red or Balck?

Fri, 14 Dec 2007 07:48:57 EST

Rediif - Red or Balck? - by prakash

Rediff.Com India Ltd (NASDAQ GM: REDF)

Indian Internet Industry

During the first three years of VSNL monopoly, the Internet subscriber base grew very slowly. By the end of March 1998, it had barely reached 140,000 subscribers. The end of VSNL’s monopoly changed things dramatically wherein, the entry of private players, unlimited and open competition, and the lowering of tariffs, among other factors, led to the phenomenal surge in the subscriber base growth. Between March ‘99 and March ‘01, the subscriber base grew more than 200 percent per year, from 280,000 to 3,000,000. However, from April 2001 onwards, the growth rate started declining on all India basis. The current Internet subscriber base in India is 3.3 Million and the user base is 16.5 Million. The planned projection is 230 Million by the end of this year.

The reason for this slow growth is because the Government of India is slow in the implementation of Information Age and Convergence policies. The ultimate goal of such initiatives is Internet for All. The delay is mainly due to various operational, procedural & regulatory issues and supporting legal framework. This in turn is inhibiting the reach and benefit of Internet to the masses in the Country. The growth rate in the subscriber base which was as high as 54% per quarter during the period Apr ‘99 to Mar ’01 is on a constant decline and was of the order of 3-4 % during the quarters ending June, Sept & Dec 2001. It is, therefore, imperative that the Internet Scenario in India be reviewed and effective steps initiated to trigger a faster growth of Internet penetration and usage.

Company Background

Rediff.com is an online service provider of news, information, communication, entertainment and shopping. Focused on the Indian sub continent, Rediff.com provides a platform for Indians worldwide to connect with one another online. Rediff.com additionally offers the Indian American community the largest Indian weekly newspapers, India Abroad. Rediff.com was founded in 1996 and is headquartered in Mumbai, India. Registered users as of September 30, 2007 are 59.8 million. This is a 25% increase over the number of registered users as of September 30, 2006, according to the company. In India it earns money from advertising and fee-based revenues and in the US from the Publishing Business.

Strengths

The Company’s video platform iShare launched last quarter has gathered momentum. Rediff added a new video and audio player with auto play, facility to view videos in full screen mode and a lighter version of the iShare client.
To gain greater momentum the company is beta testing Rediff Language Search in eight Indian languages. It allows users to enter Indian language queries using QWERTY keyboards and obtain results in their desired language.
It’s Consumer Finance Channel, Moneywiz with Market Voices, a live running commentary that is updated every few minutes during the trading hours of the Indian stock markets is its latest attraction, which is slowly gaining momentum.

Weaknesses

Heightened competition from Yahoo, Google, MSN and AOL due to which the company incurred high capital expenditure, as well as expenditure on product development and bandwidth.
Rediff is finding it difficult to retain talent as its competitors have greater resources to train and retain their employees.
Rediff has not come out with any innovation that can be termed as a “killer app”.

Financials

Gross margins increased to 82% for the quarter ended September 30, 2007, compared to 80% for the quarter ended September 30, 2006. Operating EBITDA decreased marginally to US$1.04 million for the compared to US$1.14 million for the quarter ended September 30, 2006. Net income for the quarter was US$0.89 million, or 3.04 cents per ADS, compared to a net income of US$1.50 million, or 5.14 cents per ADS, for the quarter ended September 30, 2006.

The number of companies advertising on Rediff’s website totaled 190 which is a slight increase from 160 during the same quarter in the prior fiscal year. Consumer Finance, Employment, Travel, Matrimonial and Insurance accounted for 56% of the Company’s advertising revenues in this quarter.

Operating EBITDA decreased marginally to US$1.04 million for the quarter ended September 30, 2007 as compared to an Operating EBITDA of US$1.14 million for the corresponding quarter last fiscal year.

There was a foreign exchange loss of US$0.12 million during the quarter ended September 30, 2007 arising from the conversion of cash deposits and other balances held in US Dollars into the Company’s functional currency (the Indian Rupee) for financial reporting purposes due to the strengthening of the Indian Rupee against the US Dollar.

Outlook

Investors were excited about the India growth story sometime back and Rediff.com became the Indian dot-com darling. But with severe competition the company is struggling to grow in the world's second-most-populous country.

The India Online market is entering a phase of accelerated growth with the increase in the number of mobile subscribers, higher PC sales and the increased penetration of broadband connections as recognized and encouraged by the TRAI. The India online advertising industry is in a promising stage of development with more marketers experimenting with the medium with significantly larger budgets. Growth in this industry is largely dependent on the advertising industry collaborating with online providers like Rediff to cohesively promote the medium to leading marketers across the country.

The stock price surged earlier this year when New Delhi's Hindustan Times reported that the company was receiving interest from companies like Yahoo! and Google for a possible acquisition but nothing has happened so far.

Rediff is a great Indian dot com story, considering others who are still struggling to maintain functionality. But unless Rediff conjures something new and innovative, its growth story will be interspersed with lots of struggle. So is Rediff in red or black?

Essar OIl - Buzzing

Mon, 10 Dec 2007 09:47:37 EST

Essar OIl - Buzzing - by prakash

Essar Oil Limited

Industry Overview

India ranks sixth in the world in terms of petroleum demand and by 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China and Japan. Since India is dependent on imports for nearly 70 per cent of its petroleum requirements, energy security has become a prime Government concern. In recent years this has taken the form of trying to get a stake in oil and gas fields from Myanmar to central Asia and Africa. However, the major thrust still lies in searching for hydrocarbons in onshore and offshore blocks in India. Recent finds are making oil majors take notice of the potential in prospective basins. Estimated to be a US$ 110 billion industry, the Indian oil and gas industry is among the largest contributors to the central and state exchequers in India. Its share approximates US$ 13.58 billion. Most of the country's 19 refineries, barring two, with a capacity to process about 160 million tonnes per year are run by state-run companies. The country's crude oil output for the financial year ended March 2007 was up 5.6 per cent to 33.98 million tonne (mt) compared with 32.19 mt in the previous fiscal. During the same period, the country produced 31.55 billion cubic meters (BCM) of natural gas. The cost effectiveness of refining in India is drawing many global players here. This is because India is logistically well placed for refineries. Besides being a major market for crude oil and petroleum products, it adjoins major demand centers such as China. Also, crude oil from West Asia can easily be brought to refineries in India. In May this year, Steel magnate L N Mittal was allowed to pick up 49 per cent stake in Hindustan Petroleum Corporation (HPCL) refinery in Bathinda. This could mark the beginning of several others moving in, who are also looking to tie up with Indian refiners. They include Saudi Aramco, world's largest oil producer, Cairn Energy, Exxon Mobil, Petrobras, Shell, and China Petro (CNPC).

To become a major global fuel exporter, the Indian government plans to expand refining capacity by 62 per cent to 4.82 million barrels per day (mbpd) over the next five years. While state-run refiners are planning to add about 1.06 mbpd of capacity by 2012, about 50 per cent of their present capacity, private companies would undertake the rest. Indian Oil Corp (IOC) plans to spend US$ 13.8 billion over the next five years on expanding its refining capacity from 60.2 million tonnes per annum of crude oil to 76.7 million tonnes. ONGC plans to invest more than US$ 16.5 billion in the refining business over the next four to five years to scale its refining capacity up to 45.5 million tonnes by 2009-10. Bharat Petroleum Corp Ltd (BPCL) has lined up US$ 492.8 million at the 7.5-million-tonne-per-annum Kochi refinery. HPCL is looking for a strategic partner for the US$ 4.43 billion expansion of its Vishakhapatnam refining complex to 300,000 barrels per day by August 2010 RPL is setting up a US$ 6 billion Greenfield petroleum refinery and polypropylene plant at Jamnagar, Gujarat, with a capacity of 580,000bpd. While the new refinery (which is going to be the world's only full-export-oriented refinery) will be the world's sixth largest, the combined capacity (RPL along with RIL) will turn the Jamnagar complex into the world's largest single-location refinery.

During 2006-07, refined petroleum products formed the largest chunk of total exports overtaking the Gems and jewellery sector. Besides the refining sector, giants such as ONGC, RIL, Cairn India, Gujarat State Petroleum (GSPC) and others are making heavy investments in the petroleum exploration and production (E&P) sector. India's production of natural gas is also slated to double in the coming couple of years as the gas fields off the eastern coasts commence production. Of late, a number of players have evinced a keen interest in laying pipelines in the domestic market to supply gas to the consumers. For example, Gujarat State Petronet Ltd, a group company of the Gujarat State Petroleum Corporation, plans to connect all 25 districts of the state with 2,200-kilometre high-pressure gas pipeline laid down across the state. Reliance will invest US$4 billion to lay a 1,386-kilometer pipeline from Andhra Pradesh to Gujarat. India is also one among the four countries, which have the world's richest gas hydrate reserves. Overseas Investments To meet its spiralling demand, India is investing heavily in oil fields abroad. India's state-owned oil firms already have stakes in oil and gas fields in Russia, Sudan, Iraq, Libya, Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar.

Oil and Natural Gas Corporation (ONGC) has signed agreements with ENI to take 20-25 per cent stake in a Congo oil block and in return give the Italian firm 30-35 per cent stake in its Mahanadi basin block.

ONGC's foreign arm, ONGC Videsh Ltd (OVL) is all set to acquire 33 per cent stake in the Egyptian deepwater block from operator Royal Dutch Shell for an investment of US$ 380 million.India has 20 per cent participation in Russia's Sakhalin I and has 20 per cent participatory interest in that country's national company, Rosneft.

IOC and Oil India Ltd (OIL) are set to pick up a 50 per cent equity stake in Sunetra Nigeria OPL 205 Ltd with an investment of over US$ 60 million. Brazilian oil major, Petroleo Brasileiro S.A. (Petrobras), has offered 25-30 per cent stake to ONGC in three exploration blocks and, in return, ONGC has offered 15-40 per cent stake in its three deep-water blocks. Currently, 100 per cent FDI is allowed in petroleum refining, petroleum product and gas pipelines and marketing/retail through the automatic route. A number of global majors have already made their presence in this sector. Shell has invested in refining and retail; British Gas has invested in city gas distribution; BP has invested in to lubricants and exploration; Exxon Mobil has invested in lubricants; other significant foreign players in India include Gaz De France, Chevron, Total, BG Group among others. The Government is working on increasing the country's investment potential to US$ 250 billion. And with the current investment wave, it appears that day would not take long in arriving.

Company Background

Essar Oil is a part of Essar Group and is engaged in the exploration and production of oil and gas properties. It also operates an oil refinery and sells petroleum products through its retail outlets across the country. The company primarily operates in India. It is headquartered in Jamnagar, India. Shareholding pattern

Other Investors include Private corporate bodies and NRI’s.

Quarterly results

	Sep ' 07	Jun ' 07	Mar ' 07	Dec ' 06	Sep ' 06

Sales	176.60	191.33	265.27	137.21	27.43
Other Income	3.65	6.62	2.90	3.61	2.59
Stock Adjustment	-0.68	-28.81	21.00	-59.41	19.60
Raw Material	0.00	0.00	239.43	0.00	0.00
Employee Expenses	0.52	0.56	0.48	0.54	5.72
Admin And Selling Expenses	1.08	1.22	1.00	1.17	17.81
Other Expenses	192.59	229.02	1.50	193.22	13.51
Operating Profit	-16.91	-10.66	1.86	1.69	-29.21
Interest	-0.01	1.17	2.57	3.80	1.78
Gross Profit	-13.25	-5.21	2.19	1.50	-28.40
Depreciation	0.73	0.29	1.07	1.17	1.14
Taxation	0.11	0.17	0.13	0.21	0.16
Net Profit / Loss	-14.09	-5.67	0.99	0.12	-29.70
Equity Capital	1,139.53	1,139.53	1,139.53	1,139.53	1,083.58
Agg.Of Non-Prom. Shares (in lacs)	1,371.62	1,371.62	1,371.62	1,371.62	1,371.63
Agg.Of Non PromotoHolding(%)	12.04	12.04	12.04	12.04	12.66
OPM(%)	-9.57	-5.57	0.70	1.23	-106.48
GPM(%)	-7.35	-2.63	0.81	1.06	-94.60
NPM(%)	-7.81	-2.86	0.36	0.08	-98.93
EPS (in Rs.)	-0.12	-0.05	0.01	0.00	-0.27

Balance Sheet

	Mar ' 07	Mar ' 06	Mar ' 05	Dec ' 03	Sep ' 02
Equity Share Capital	1,156.13	1,100.18	955.90	371.75	371.75
Reserves & Surplus	1,839.00	1,420.55	1,448.92	1,288.65	1,268.01
Secured Loans	7,739.08	5,602.96	4,833.06	5,826.75	5,188.83
Unsecured Loans	832.36	464.62	281.65	267.52	333.50

Total	11,566.57	8,588.31	7,519.53	7,754.67	7,162.09
Gross Block	303.86	279.12	233.52	217.65	582.76
Less : Accumulated Depreciation	107.59	94.76	88.63	73.52	198.12
Net Block	196.27	184.36	144.89	144.13	384.64
Capital Work-in-progress	10,633.63	8,304.07	7,429.74	8,241.48	7,109.35

Investments	109.37	89.65	73.05	78.19	76.27

Current Assets, Loans & Advances	4,637.07	942.77	1,124.18	887.66	762.60
Less : Current Liabilities & Provisions	4,009.77	932.54	1,252.33	1,596.79	1,212.93
Total Net Current Assets	627.30	10.23	-128.15	-709.13	-450.33
Miscellaneous expenses not written	0.00	0.00	0.00	0.00	42.16

Total	11,566.57	8,588.31	7,519.53	7,754.67	7,162.09

Book Value of Unquoted Investments	109.37	89.65	73.05	78.19	76.27
Market Value of Quoted Investments	0.00	0.00	0.00	0.00	0.00
Contingent liabilities	3,842.63	1,051.72	1,580.39	1,831.65	1,382.24
Number of Equity shares outstanding (in Lacs)	11,395.31	10,835.77	9,392.98	3,551.44	3,551.44

The company recorded revenues of INR4, 843.8 million (approximately $107.3 million) during the fiscal year ended March 2007. The net loss was INR675.1 million (approximately $15 million) in the fiscal year 2007. The 300 per cent jump in Essar Oil’s stock over a fortnight has confounded company watchers. The company had planned to triple its 10.5-million tonne capacity in its Jamnagar refinery with a $6-billion investment. But that was hardly the reason for the stock to make the spectacular climb. The market got wind of the Ruias’ decision to pump in $2 billion — of the $3.5 billion raised abroad using Vodafone-Essar stock as collateral — as owner’s equity into an issue of global depository shares (GDS) by Essar Oil (the remaining $4 billion will come from other investors in the GDS).

The buzz was that Essar would invest this amount at Rs 200 a share through its Cayman Islands-based holding company Essar Global. This price was at a huge premium over Essar Oil’s share price on BSE of Rs 57 on 5 November. Over the next fortnight, the market ramped up the price to Rs 200 and touched Rs300 recently.

With its rival, the 27-million tonne Reliance Petroleum (RPL), being valued at $20 billion, it’s hoped that Essar Oil’s expansion will match that kind of valuation; one that could feed even bigger and more ambitious plans, such as building a special economic zone.

The sudden rush to raise the game stems from both monetary and operational imperatives. First, a refinery that can refine both heavy and light crude could play a significant part in transforming Jamnagar into Asia’s refining hub. Second, significantly larger refining capacity can improve the Ruias’ bargaining power in world crude markets. Third, they could sell a stake in Essar Oil — perhaps part of Essar Global’s GDS — to an international partner. (The Ambanis sold a 5 per cent stake to the US oil company Chevron recently.) That could help shift sales from domestic to high-margin exports, and a partner who could give them access to global markets. That’s a far cry from a decade ago, when the Ruias were running from pillar to post to stay afloat, under pressure from lenders and with some businesses on the verge of defaulting on their loans. They were also trying to hold on to their proposed Jamnagar project, one that lenders insisted they shelve unless they could put up owner’s equity. Ironically, Shashi Ruia, chairman of the Essar Group, spotted the potential of the location ahead of his rival, the late Dhirubhai Ambani, but was unable to capitalize on it. So the Ruias — brothers Shashi and Vice-Chairman Ravi — borrowed from family, friends and relatives and put up their equity, and held on to the refinery project, now Essar Oil. Last year, fortune smiled on them. When Hutchison sold its share of the telecom joint venture with Essar to Vodafone, the Ruias’ 33 per cent was valued at $6.5 billion, which allowed them to raise $3.5 billion abroad against the collateral. But the group’s shareholders have not been a very happy lot; their returns have not been exactly spectacular. One wonders whether Dame Fortune will smile on them as well this time.

Comparative Valuation study

Focusing on Essar Oil, it is very tough to value the company, which is going into production, which does not have earnings as of now. The total valuation would be different if the comparison is with plans to manufacture a certain amount of oil versus future plans, which would kick in 2010. The returns made by these two companies - Essar Oil gave a return of a whopping 50% over the last one-week compared to about 9% by RPL. On valuation parameters, the capacity of RPL is about 0.58 million barrels per day and that of Essar Oil is 0.21 million barrels per day. The Nelson Complexity index for RPL is 14 and for Essar Oil is 12. The Enterprise Value for RPL comes to around Rs 28,000 crore and that of Essar Oil comes to around Rs 10,000 crore. If EV/bpd is taken into consideration, the valuations for RPL is about USD 48,000 compared to Essar Oil’s USD 46,700 and on EV/comp bpd - the valuations of RPL is about USD 3,430 compared to Essar Oil’s USD 3,900. On the basis of these numbers, Essar Oil seems to be fairly valued with respect to RPL, but it might be slightly overvalued too. But the management has decided to infuse USD 6 billion more to triple the capacity all the way from 10.5 mt p.a. to about 34-mt p.a. This is going to be completed by 2010 with a Nelson complexity of 12.8. Taking the expansion plans into consideration, the enterprise value by bpd comes to around USD 14,800 and enterprise value by complex bpd comes to around USD 1,160, which is much cheaper than what RPL is commanding at this point in time. It depends on the perspective, but that’s the reason why the stock is buzzing at 17-20% increase on a day-to-day basis.

Essar group that owns Essar Oil Limited is acquiring 50% stake in a Kenyan refinery firm from international oil players as a part of its move for a global footprint. The refinery in Mombassa has an annual production capacity of four million tonnes and is owned 50% by the government of Kenya. Essar is also looking forward to buy out the remaining 50% stake held by three global energy giants -- Chevron, Royal Dutch and British Petroleum -- in Kenyan Refinery and Petroleum Ltd. Today Indian government announced that it would offer 57 oil and gas blocks for bidding in the seventh round of auctions under New Exploration Licensing Policy (NELP) on 13 December. Bids are due on 11 April 2008 and the awards would be decided by June. Essar will be one of the contenders as it unleashes its positional in the E&P segment adding more muscle to its refinery business.

Source: Businessworld,moneycontrol,www.bseindia.com