Want big bucks? Try the realty sector

The following is the gist of article published by rediffnews.com on the emerging career opportunities in the real estate sector.

In the back drop of DLF raising India's biggest IPO, the Bombay Stock Exchange introducing an index for it, with foreign investment of $10 billion is expected to flow into the sector over the next 12-18 months and with the sector growing at 30-plus per cent in the next few years, the realy sector is slowly on its way towards consolidation and transparency.

The growth potential of real estate is immense for people looking to make a career in it. Among college students, graduates and working professionals -- especially those with management, engineering and architecture backgrounds -- realty studies are fast becoming a favourite.

Enrolments are increasing in institutes offering short-term diploma courses as well as in colleges offering real estate specialisation in their Master's programme. P.S.N. Rao, professor at the SPA, says that on an average 20 of the 75 students from the Masters in Planning program choose to do a thesis on real estate. "This figure was negligible when the course was introduced as an elective 10 years ago," he adds.

Dedicated institutes have sprung up and management schools have introduced specialised courses on the subject to cater to the increasing demand. Indian School of Business (ISB), Hyderabad, launched a course titled 'Property Finance and Investment' last year. The Pune-based Indian Institute of Real Estate (IIRE), affiliated with the National Association of Realtors (NAR), a leading association of realtors in the US, had 10 students when it was launched in 2001. "Today, we get more than 3,000 enquiries per month for our online course," says Suresh Malkani, founder and academic dean, IIRE.

A number of real estate MNCs have already set up shop in India; more are following suit. Home-grown firms, too, are joining the fray, pushing up the demand for qualified personnel. "There is an immense dearth of trained manpower in this sector," says Nirmal Purushottam, principal, Yajnas Academy of Real Estate Management, Hyderabad. His views are backed by Haresh Motirale, senior manager, marketing and sales, G:Corp Properties, Mumbai, who completed a course from the IIRE in 2002. "A specialised course definitely gives you an edge over those who haven't done it," he says.

Besides the technical essentials, realty education focuses on management studies. "Realty management courses give students a managerial perspective and help them understand finance and marketing," says Purushottam. Industry watchers say the day is not far when campus recruitments will become the norm in the real estate sector. "Our students are posted in companies like Tischman Speyer, JLLM and Macquarie Group," says Bhuvana Ramalingam, director (communications), ISB. "They are offered positions like general manager and senior manager."

Consider Delhi-based Anu Punj, 23, a graduate from the SPA with specialisation in Housing. She was snapped up immediately after her course by Emmar-MGF, a leading realty MNC. She is working as an assistant manager (planning) in the firm now.

Master's courses are generally comprehensive, covering several aspects related to housing and real estate. Says Madhu Bharti Sharma, head of the Department of Housing at CEPT, "The Programme of Planning, with Housing as a specialisation, covers housing policy, housing requirement, housing finance, land economics, real estate development and various methods of development (commercial, residential, resorts and leisure)."

Expect five-figure salaries at the entry level. As the property market gets more organised and competition intensifies, the figures are bound to get better.

The ISB, in partnership with two London-based schools, has instituted the country's first Research Chair in Real Estate and Urban Studies, besides forming a Real Estate Club to promote realty education.

Full Article:-

Want big salaries? Try the realty sector - Rediff News - September 07, 2007

The effects of appreciating Indian Rupee in Q1 - A snapshot - Part 2

With more software companies announcing their Q1 results, the impact of rupee appreciation is clearly visible. Some more snippets on this issue.

• Wipro, India's third largest IT firm, has weathered a strong rupee to protect its operating and net margins during the first quarter (Q1) of the fiscal year 2007-08. Though the rising rupee impacted the company's sequential operating margin by 250 basis points (0.25 percent) in Q1, a healthy revenue growth of 35 per cent in dollar terms ($726 million) year-on-year (YoY) by its flagship IT division enabled it to beat the guidance of $711 million. Admitting the adverse impact of a strong rupee on its margins, Wipro's chief financial officer (CFO) Suresh Senapaty said operational improvements helped the company to partially offset the pressure on profitability arising out of rupee appreciation and limit the decline in operating margin by 250 basis points quarter-on-quarter (QoQ).
• The Hyderabad-based Satyam Computer Services Ltd., which is targeting to join the $2-billion league this fiscal, suffered a sequential slip of 3.88% in net profit for the first quarter ended June 30 to touch Rs 378.32 crore. On the year-on-year basis, the company posted an increase of 6.8% in net profit. The company did manage to put in place buffers to minimise the rupee shock. Although the impact of the rising rupee was to the tune of 400 basis points (bps), the company managed to restrict the impact to 64 bps. The company’s operating margins dropped by 64 bps in Q1 FY08 against the sequential quarter and 218 basis points when compared to the same quarter last year. The Indian currency has surged by nearly 7% against the dollar in the first quarter with every 1% rise shaving off 30 basis points at the operating margins level. Addressing the media, Satyam chief financial officer V Srinivas said, “In dollar terms, we have grown by 10% and rupee terms, the growth is 3%. The 7% difference represents the rupee impact. Revenue would have been higher by Rs 138 crore if the rupee impact was not there.” Explaining the various measures to stem the rude rupee shock, Mr Srinivas said, “Margins took a knock of 230 bps due to rupee, 100 bps on higher visa expenditure and 70 bps on restricted stock options. We could offset it by 330 bps on increased prices, higher offshoring and improved loading factor. The net margins impact was 64 bps.” Talking about forex management, Mr Srinivas said, “We have currently hedged over $750 million, bulk of which is under option-based contracts. Forward contracts account for only $175 million. But hedging does not help in improving operating margins. It only comes in handy to lower translational losses.” Currency hedging has helped Satyam bring down the translation loss to Rs 96 crore.

Related Reports:-

• How the rupee played villain for tech biggies - Moneycontrol.com - July 21, 2007
• Satyam joins Re-hit list, Q1 net down 3.9% - The Economic Times - July 21, 2007
• Wipro battles rising rupee to protect margins - The Economic Times - July 19, 2007
• Wipro: Strong Rupee Slowed Profit Growth - Forbes.com - July 19, 2007

The effects of appreciating Indian Rupee in Q1 - A snapshot

The Indian Rupee appreciating against all major currencies including US Dollar. It has appreciated from a low of Rs. 45-46 a Dollar to almost Rs. 40-41 a dollar at present, an almost 11-12% appreciation. This appreciation has effected all industries, but the brunt is borne by I.T. Sector, Textile sector and leather industry.

Information Technology Sector

India's software exporters, like Infosys, TCS, Hexaware, derive much of their income in foreign currencies and see such a rise eroding rupee earnings. A majority of these firms provide services, primarily to the US followed by Europe and the rest of the world. But the rupee has appreciated across all major currencies during the quarter – 7.1 per cent against the US dollar, 4.8 per cent against the euro, and 5.8 per cent against the pound. It is estimated that each 1 percent rise in rupee against dollar effects the margin by 35-50 basis points or 0.35 to 0.5% of software companies whose major revenue is derived from software exports. Most of the software service oriented companies reported a 10-30 per cent dip in their net profit compared with the trailing quarter’s net profit figure. While a big IT major such as Tata Consultancy Services (TCS) could offset the rupee appreciation to some extent due to its hedging, the smaller players have not been as lucky. They have just about started to hedge against the rupee appreciation.

• The 7% rupee appreciation against the US dollar during the first quarter ended June 30, 2007 took its toll on the revenues and margins of Infosys Technologies, India's second largest software exporter. “For the first time in as many years, an appreciating rupee had a 3.5% direct fallout on our operating margins. While a 13-15% increase in offshore wages and 5-6% hike in onsite salaries had an impact of 2.5%, higher visa costs contributed another 1% to the overall operational impact,” Infosys CFO V Balakrishnan said. He said Infosys was successful in neutralising the negative impact of a strong rupee by hedging against the US dollar (1.5%), increasing the utilisation rate (3%) and securing better pricing (1%) to the extent of 4%. "As a result, the impact was brought down to 3% on the operating margin. We had hedged $925 million to take forward cover at the conversion rate of Rs 40.58 per US dollar. We will increase the forward cover, if required, by hedging more. The rupee had also appreciated against euro by 4.9%, pound by 5.5% and other currencies during the quarter,” Balakrishnan pointed out.
• Tata Consultancy Services, India's largest IT services exporter, posted solid revenue and profit growth in its first fiscal quarter despite the appreciation of the rupee and escalating wage costs. TCS said its use of a hedging policy to mitigate the fluctuations in the various currencies in which it bills is paying off, and it closed the quarter with $2.5bn in outstanding hedges. Another way in which the company is attempting to offset pressure on its margins is by increasing the prices it charges to existing clients when current deals come up for renewal. During the first quarter, pricing rose 0.6%, and said it was looking at a raise of between 3% to 5% on forthcoming renewals.
• Indian software firm Hexaware Technologies Ltd. operating profit margins fell 2.8 percentage points in April-June quarter, primarily due to a rise in rupee's external value.
• Software services firm Aztecsoft, which posted a near 63 per cent decline in profit for the first quarter ended June 30, said the sharp rupee appreciation had impacted its performance. "Rupee appreciation was the fundamental reason. However, our tight control on operation and hedging has enabled us to reduce the impact," Aztecsoft Managing Director V Sunderajan said. "The revenues were impacted by 6.8 per cent on account of unanticipated exchange rate variation. However, tight control over operations, better utilisation and favourable hedging ensured that the bottomline impact was limited to 1.2 per cent of revenues," the company said.
• KPIT Cummins' profit as compared to the preceding quarter declined by 9.77 per cent due to the rupee appreciation and salary increments, a company statement said. The rupee appreciation has forced the company to revise its PAT guidance for FY08 downwards from around Rs 70 crore to around Rs 63-68 crore.

STRATEGY

To offset the rupee appreciation, the companies have managed to effect a hike in the billing rates by 3-8 per cent. They have also improved their employee utilisation rates, managed wage cost by hiring more freshers and are moving to other geographies, where the currency impact is lower. The traditional levers of utilisation, onsite-offshore mix, employee rotation and scale efficiencies should kick in, but with a lag, said ABN-Amro analysts. The key differentiator, they added, should be how quickly the companies manage costs.

Related Articles:-

• Small IT firms bear the rupee brunt - Business Standard - July 19, 2007
• Side effects of the rise in Rupee - Cybernoon.com - July 18, 2007
• Re virus hits Infy Q1 - Business Standard- July 12, 2007

Manufacturing Sector

• Textile exports declined by 6% in the April-June period of this fiscal because of an all-time rupee appreciation of 14%.
• CII said its survey of textiles and apparel export companies in the last financial year revealed that there has been a decline in total revenue, operating income and profit margin to the tune of 7.9 per cent, 8.9 per cent and 7.9 per cent respectively. Further, there could be an erosion of profit margins to the extent of 10.4 percent during the next six months only on account of a stronger rupee,” it said. “If we add the impact of rise in interest rates on the profit margins, it is a further decline of another 1.5 percent,” it said.
• Small- and medium-sized, export-oriented pharmaceutical companies are expecting a 5-10 per cent decline in their bottom line for the April-June period, owing to the rupee appreciation. The impact will be minimal on the larger companies such as Ranbaxy, Sun and Wockhardt, as they are fully hedged against the net exposure of the rupee in the international markets. “The effect of rupee appreciation will be severe on companies, which are primarily export-oriented. Any pharma or contract manufacturing firm, whose 60-70 per cent revenues come from foreign markets, will find its bottom line affected by around 10-12 per cent. The companies are unable to compensate for the losses due to the long-term contracts,” Venkat Jasti, managing director, Suven Life Sciences, said. Suven, a major Contract Research and Manufacturing Services (CRAMS) player, has most of its revenues from foreign contracts. However, major players are unfazed. “We have 10 production facilities outside the country that serve as automatic hedging towards rupee-dollar transactions,” a Ranbaxy spokesman said.
• The National Manufacturing Competitive Council (NMCC) has expressed concerns over the impact of appreciating rupee on the manufacturing sector, especially small and medium enterprises (SMEs).

Related Articles:-

• Rising rupee squeezing textiles, leather exports - Hindustan Times - July 19, 2007
• Textiles hoping to perk up exports with package - Financial Express - July 18, 2007
• CII warns of loan defaults in textiles, leather - Hindustan Times - July 16, 2007
• Re rise may not hit pharma companies - Business Standard - July 16, 2007
• Rupee appreciation hurting the SME segment in manufacturing - domain-b.com - June 21, 2007

PM's Panel is bullish on Indian economy but with caution

The Prime Minister’s Economic Advisory Council, headed by former Reserve Bank governor C Rangarajan has observed and also recommended following measures.

1. Riding an investment boom, the Indian economy will grow 9% in the current fiscal on top of last year’s 9.4% growth and price rise will be contained at 4%.
2. The economy’s managers will have to make some tough choices like curbing the inflow of external debt, allowing the rupee to appreciate further and removing “administrative and procedural impediments” to acquisitions abroad. It sees the external environment as still being benign and expects sustained investment to keep growth booming. The need to curb capital inflows comes from the mismatch between the current account deficit, which is seen at $17.4 billion, and surpluses on the capital account (nearly $58 billion). The excess inflow of foreign capital can make the rupee far too strong; managing this would mean jacking up money supply which could harden inflation and eventually interest rates. A sensible policy response is to allow all these three things to happen in moderate doses and to discourage external borrowing for rupee expenditure.
3. The council is not in favour of disrupting foreign equity investments. “Equity investment by its very nature is high risk and policy continuity is an essential element to initiate and maintain such flows. They cannot be turned on and off at will. However, on the debt side, there are some areas that can do with some scrutiny,” it said.
4. The panel suggested three instruments to face the strong capital flow: allowing the rupee to appreciate, sterilising capital inflows in excess of what can be absorbed into reserves without pushing money supply growth above 17.5%; and instituting a policy of encouraging capital outflow and discouraging external borrowing for rupee expenditure.
5. The report pegged farm growth at 2.5%; industrial output at 10.6%; and services at 10.4%. Mr Rangarajan cautioned that unless the farm and power sectors grow, the current rate of economic growth cannot be sustained. “Food security is an extremely important issue. Agriculture should be priority, as 60% people are dependent on it.”
6. The Council expects that there will be no unemployment by 2010, if not earlier. Whether people are satisfied with their remuneration or not is a different matter, panel's chairman C Rangarajan qualified promptly. "The unadjusted employment elasticity for the latest period (1999-2000 to 2004-05) is 0.48. Even after adjusting sectoral elasticities to lower figures, it is seen that with a GDP growth rate of 8%, by 2010 the workforce will become equal to the labour force. A stronger growth rate, which is quite possible, will take economy to this point even in a shorter period. Economic growth has been a major driving force in achieving higher level of employment," EAC's Economic Outlook 2007-08 said.

Related Articles:-

• PM's panel seeks inflow curbs - The Economic Times - 17-07-2007
• Jobs for everyone by 2010: Economic panel - The Times of India - 18-07-2007
• GDP growth to be 9 pc; inflation 4 pc: PM's economic panel - The Hindu - 16-07-2007
• India can achieve 10% growth in 2008-09 - The Economic Times - 17-07-2007
• PM panel pegs GDP growth at 9%, inflation at 4% - 16-07-2007 - Business Standard - 18-07-2007
• PM's panel sees economy growing at 9% - Moneycontrol India - 16-07-2007
• Official optimism - Business Standard - 19-07-2007
• EAC projects 9 p.c. GDP growth - The Hindu - 17-07-2007
  

Rising rupee will continue to hit the bottomlines of I.T. companies

A strong rupee is likely to lop Rs 1,000 cr off blue-chip IT company Infosys Technologies’ topline in FY08. Though Infosys witnessed a healthy 7.5% sequential growth in top line in dollar terms , the hardening rupee took the sheen off its performance. Infosys reported a 5.7%sequential decline in consolidated net profit, which stood at Rs 1,079 crore in the first quarter (Q1) ended June 30, 2007, against Rs 1,144 crore in the fourth quarter (Q4) ended March 31, 2007. The appreciating rupee has taken away Rs 287 crore in Q1 from Infosys, besides enquring that it misses its quarterly guidance for the second time running. “Infosys will have to maintage the appreciating rupee with higher volume growth,” said CEO & MD Kris Gopalakrishnan.

So is it the end of the euphoric times that the Indian IT sector has been getting used to — and all because of the relentless appreciation of the rupee against major currencies. The answer seems to be yes, given the fact that the Indian IT sector earns four out of every five rupees from overseas clients and that most IT exporters’ margins are being squeezed on account of stronger home currency. However, the picture is not all that sombre as there are still some sons of the soil, that have significant India operations in the highly export-oriented IT industry. ETIG has taken a closer look at some of the companies that generate sizeable revenue by serving the domestic market. These companies run operations in India profitably. They are shielded from the currency fluctuations to a great extent as only a small portion of their income is earned in foreign currency. Tulip IT Services, CMC, NIIT and Spanco are among them. While Tulip earns all of its revenue domestically, the others generate more than three-fourth of their total income from India. Larger firms like Ramco Systems and Rolta India have about two-third of revenue coming from the domestic clients. IT companies in India have traditionally looked westward for business. This was probably because the domestic market appears to be a tiny dot compared to the larger opportunities globally. Nasscom estimates the global IT market for Indian IT companies to be $45 billion.

There is something puzzling about how the government appears to be thinking about policies relating to capital inflows and the rupee. On the one hand, it is going all out to attract more foreign capital inflows and is also encouraging overseas borrowing by Indian companies. On the other hand, it now appears undecided about whether or not to allow further significant appreciation of the rupee against the dollar, a highly likely outcome if net capital inflows continue to surge. The rupee has gained more than 9 percent against the dollar since the start of the year, and touched a nine-year high of 40.28 rupees per dollar in late May. Its surge triggered complaints from small and medium-sized exporters, which account for 45 percent of the country's exports.

It is hard to fathom that April's uncharacteristically huge appreciation of the rupee against the dollar was solely the RBI's decision. It is equally hard to imagine that the central bank's return to intervention in the foreign exchange market in recent weeks is without the government's sign-off, or perhaps the intervention is at the government's suggestion.

Ambit Capital has come out with report on rupee appreciation impact on IT sector. They say every one percent Rupee appreciation could hit IT sector EBITDA margins by 40-60bps or 0.4 - 0.6%.

At the end, we have to realise that the rupee appreciation is going to stay. Many analysts say that the Rupee could appreciate upto a lvel of Rs. 35-37 per one Dollar by the end of 2007. Of course, if the government does not take any measures to reduce FII inflows, the above scenario may become a reality. As Infosys chairman and chief mentor N.R. Narayna Murthy has said, the rupee appreciation was a macro economic issue and called upon corporates to become more efficient, productive and reduce costs in operations. This meant that the revenue generated per employee in I.T. sector would have to be improved. Is this an indication of lower level of growth in employment in IT sector or lower wage increase in the IT sector?

In this respect, I would request the viewers to read the reports of Goldman Sachs, an international consulting firm, on emerging economic super powers of tomorrow - BRICs (Brazil, Russia, India, and China).

1. Dreaming With BRICs: The Path to 2050 - October 01, 2003
2. How Solid are the BRICs? - December 01, 2005
3. India’s Rising Growth Potential - January 22, 2007
4. The BRICs Dream: Web Tour

Related Articles:-

• Strong rupee hits Infy’s topline - The Economic Times - July 15, 2007
• Rupee appreciation drags down Infosys’ Q1 profitability - Navhind Times - July 12, 2007
• Infosys CFO explains the firm's currency challenge - Marketwatch - July 11, 2007
• Infosys Q1 net up 35 pct, rupee worry hits shares - Reuters India - July 11, 2007
• India's handling of rupee remains a riddle - Rediff News - July 14, 2007
• Govt eases pain of exporters hit by rupee rise - Reuters India - July 12, 2007
• A disappointing Q1 seen for tech cos - Business Line - July 06, 2007
• Re appreciation to dent ITfirms'Q1 result - Moneycontrol.com - July 06, 2007
• Rising rupee and IT stocks — Smart strategies can minimise the risk - Business Line - July 01, 2007
• Re appreciation could hit IT sector EBITDA by 40-60bps - Indiaearnings.com - March 31, 2007

The new National Mineral Policy is claered by GoM

A Group of Ministers (GoM) cleared the national mineral policy that retains freedom of mining comapnies to export iron ore without any restrictions on quantity or quality. The policy would be sent to the Cabinet for approval.

There is a difference of opinion on iron ore exports between mining and steel industry. While the steel industry supported a cap on iron ore exports to meet the requirement of the growing domestic steel industry, the mining industry favoured unrestricted exports citing comfortable reserve position on iron ore. The domestic steel manufacturers fear that if all the proposed steel plants come in India, some will be deprived of iron ore and if free exports of iron ore are allowed, then prices also go up making the cost of making steel much higher.

The highlights of the proposed national mineral policy are

• It has been decided to give free hand to companies to export iron ore without any restrictions on quantity or quality
• It has been decided to provide captive mines to all steel units in operation up to July, 2006
• As part of policy, a process of competitive bidding could be intiated for allocation of captive coal blocks
• The new policy gives more powers to states to facilitate value addition within the country and give a boost to steel production. the state governments would be able to give preference to companies undertaking value addition within the state while alloting iron ore mines. This would mean that stand-alone mining activities would be disincentivised.
• The entire country would be treated as one economic region and states would have to permit transfer of iron ore outside the state if no one is willing to set up a plant there.
• While approving the policy, the GoM has reatined most of the recommendations of the Hoda Committee.
• The policy is mainly aimed at procedural simplication for attracting investments in the sector. It would also benefit the states, as under the new policy, the present system of specific rate royalty would shift to an ad valoreum rate of 7.5 percent. This move would increase the royalty earnings of ths states by almost six times.

Related Articles:-

• India should not export iron ore: Muthuraman - MD - TATA Steel - The Hindu - 21-05-2005
• METALLIC MINERALS IN INDIA - mapsindia.com
• India could emerge as iron ore powerhouse - BHP - Yahoo India News - September 19, 2005
• India Core Reports - Mining - indiacore.com
• The market for iron ore - current trends and future prospects - steelonthenet.com

Is Small Bazaar replacing Big Bazaar in retail food chains in India

Pantaloon's Kishore Biyani is bringing his new stores - call it 'Small Bazaar' - , which will be small, like Subhiksha, which is a convenience store format and will look to address the daily shopping needs of consumers. For the past 18 months, Pantaloon has ben working on new project for the launch of KB's Fairprice Value Stores (KBFVS), a no-frills, deep discount format, sometime in August that will focus on local catchment areas and service the daily requirements of consumers. This is a radically different concept and services model which is based on a German no-frills discount format, LIDL (Owned by Schwarz). Pantaloon is planning a 'bombardment strategy' that will see the group swarming a particular area with clusters of stores. The group plans to set up 1500 stores over 18 months across top cities.

These non-ac, basic format stores will offer limited stock-keeping units with massive discounts, but will not compete with kiranas. The launch is also the result of consumer learning that

• Indians prefer fresh supplies and proximity of stores in residential areas to make frequent purchases
• More often than not, indian consumers do not have access to good roads, cheap fuel or have large storage space to stock up the bug volume purchases
• the traditional kirana style is best suited to the Indian consumer's needs

In fact, most of the modern food retailers have recently begun following the kirana (local mom-'n'-pop stores) business strategy of setting up smaller convenience food and grocery stores. These stores have positioned themselves as upscale kiranas with back-end efficiencies of a large retailer, new format such as Trumart. Spencers Daily, Wadhwani's Spinach, Vishal, D Mart and others are offering the kirana convenience of being situated locally and offering similar services such as taking orders over phone and making home deliveries.

Change in Strategy

Earlier, most of them had set up stores in the larger format hoping a higher conversion rate (consumers actually making purchases) from the footfalls in these farmats, a strategy which did not prove too profitable. Retailers say most consumers tend to visit these areas as entertainment zones rather than making their daily basic grocery purchases.

Convenience store formats are also able to get better bargains with suppliers and manufacturers by offering business scales higher than the local kirana. Consequently, manufacturers have begun stepping up discounts to the new formats, industry players said to ET.

Kishore Biyani - In Brief

Biyani, 45, is CEO, Future Group, which is designed to cater to the entire Indian consumption space. After graduating in commerce, Biyani joined the family textiles business. Five years later he launched the first branded ready-made trouser, called Pantaloon, marketed through The Pantaloon Shoppe.

Founded in 1987, as a garment manufacturing company, Pantaloon entered modern retail in 1997 with the opening of a chain of department stores, Pantaloons. In 2001, Biyani evolved a pan-Indian, class-less model — Big Bazaar, a hypermarket chain, leading to the democratisation of shopping in India. With Food Bazaar, a supermarket chain, he blended the look, touch and feel of Indian bazaars with western hygiene and it has now evolved into the favoured destination for Indian homemakers. The Future Group operates through six verticals: Future Retail (encompassing all lines of retail business), Future Capital (financial products and services), Future Brands (all brands owned or managed by group companies), Future Space (management of retail real estate), Future Logistics (management of supply chain and distribution) and Future Media (development and management of retail media spaces).

The group's flagship enterprise, Pantaloon Retail, is India's leading retail company with presence in food, fashion and footwear, home solutions and consumer electronics, books and music, health, wellness and beauty, general merchandise, communication products, e-tailing and leisure, and entertainment.

India - A preferred destination for low cost mobile handsets manufacturing

From a slow start, mobile manufacturing in India is beginning to take off and may soon rival China as a base for low-cost handset production. According to US research group Gartner, in the last 12 months alone, the number of units produced in India has soared by 68%. The subcontinent is forecast to have the highest growth in mobile manufacturing again this year.

The first factories for mobile phones were not established in India until 2005. Since then however, growing demand at home coupled with a relatively cheap labour force, has seen production increase dramatically. In 2006, Gartner reports that India produced nearly 31 million mobile phones, with a street value of US$5 billion. For 2007, it has forecast that handset production will increase by 68% in units to nearly 95 million handsets and 65% in value terms. Over the next five years Gartner says that the Indian market will see a compound annual growth rate in terms of mobile phone production of 25%.

The rampaging growth of demand for mobile connections in India is driving the demand for home-based mobile manufacturers. India is the fastest growing mobile market in the world, with a further 6.57 million mobile subscribers signing up for services last month alone. At the beginning of June 2007 the sub-continent was home to 178 million mobile users. Over six million users are being added every month and there is a captive local market for mobile manufacturers. Low mobile penetration and favourable government policies are driving mobile phone original equipment manufacturers to set up manufacturing facilities in India. Nokia started its unit in Chennai in January 2006 and produced a record 25 million handsets in the first year of operation. The vendor is also exporting mobiles from India to Sri Lanka. Motorola and electronics manufacturing service vendors (EMS) like Foxconn and Flextronics have also set up plants in India.

Gartner said though the world's top five handset makers will retain a major share of production volume, it expects local manufacturers to capture up to a fifth of India's overall mobile phone production volume by the end of 2011. It is believed that growing demand for low-cost and ultra-low-cost mobile phones and the need for EMS vendors to reduce their revenue exposure to Nokia, Motorola and Sony Ericsson, for whom they are now manufacturing in India, will contribute to the growth of local-brand mobile phones in the Indian market, said the report.

Another key challenge will be to keep handset prices low, as Indian consumers are very price sensitive. This will be achievable by gaining access to low-cost, feature-rich and local-specific chip designs, as well as a strong distribution network. Key stakeholders in the mobile phone industry value chain can provide this, so local manufacturers must look to form alliances and partnerships with them in order to succeed, it said.

In April 2005 Finnish company Elcoteq was the first company to set up a telecoms manufacturing unit in Bangalore. Korean giants LG and Samsung quickly followed suit, before market leader Nokia also got in on the act in 2006. However, Nokia has begun to export mobile phones from its plant near Chennai (Madras) to the Gulf States and Africa. In addition there are a few locally branded phone vendors and manufacturers such as Spice, Usha Lexus, and BPL that are either manufacturing locally or import the handsets.

A recent MacKinsey research report says "India leads the market in offshored back-office services, but as a manufacturing center it lags behind China, Thailand, and the rest of Asia. The reasons are well documented: multinational companies operating in India must overcome erratic electricity supplies, poor roads, and gridlocked seaports and airports while contending with government policies that discourage hiring and hold back domestic demand for goods in many sectors. Such obstacles can be considerable, but they haven't stopped some multinational manufacturers from setting up shop in India."

The research report further says "already just over half of all offshore manufacturing by US companies involves skill-intensive sectors, and that figure could rise to 70 percent by 2015. With high-skill sectors accounting for almost 40 percent of the manufacturing output of India, it is in a good position to absorb some of that increase. For one thing, the country offers abundant engineering and technical talent: every year, it produces 400,000 graduate engineers, second only to China's 490,000. Companies might also be attracted to India (and to other developing countries) by the increasing availability of reliable suppliers, the chance to escape unrelenting price pressures at home, and the size of the domestic market. LG, for example, plans to make handsets in India to take advantage of its rapidly growing demand for mobile telephones".

It also says "multinationals willing to make the effort to source and manufacture products in India are likely to obtain first-mover advantages such as exclusive relationships with the best suppliers, access to the brightest talent, and government support. Overall, these companies will learn how to cut their costs more quickly, to improve their returns, to increase their competitiveness in Western markets, and to position themselves for leadership in Asian ones. What's more, India's combination of a highly educated workforce and a large, lower-income, and underserved population could help companies learn lessons and develop products with applications in emerging markets around the world.".

Related Articles:-

• India - Fastest Growing Base for Mobile Manufacturing - BWCS Consulting - 26-06-2007
• Nokia manufacturing unit in India for Base Station Controllers - March 31, 2005
• When to make India a manufacturing base: Mckinsey - January 28, 2006

Farming sector is heading for government tax sops

On the back of a retail big bang near the horizon, the government wants to boost the slagging agriculture sector by way of tax sops. In order to strengthen the linkage between industry and agriculture, certain agriculture zones may receive tax holidays on the lines of incentives available for certain industrial units. The government is considering a proposal to grant five-to-ten year tax holidays in semi-arid and arid regions of the country to attract corporate investments in the farm sector. These incentives will be available for companies investing in contract farming. Proposed incentives include a weighted deduction of 150% for expenditure incurred in the development of farm lands in semi-arid regions and 200% for such expenditure in arid regions of Rajasthan and Gujarat. Besides, investment in these areas may also be considered for cheaper loans from banks as part of their priority sector lending norms.

The proposed move is part of a long-term agricultural strategy being finalised by the governemnt to increase the growth rate of the sector (currently around 2%) and achieve the targeted 4% growth during the 11th plan. Once the plan is approved by the National Development Council (NDC), it will encourage large companies like ITC, Reliance and Bharti to increase their exposure to the agriculture sector. It would also encourage development of farming infrastructure in dry area that contribute 40% of total food production of the country at present. The idea is to offer sops to private sector investors for increasing production in cultivable arid and semi-arid areas and bringing degraded land under cultivation. As per the government estimates, out of the total land area, while 43% is cultivable, another 45% is degraded land.

Source : The Economic Times

Related Articles:-

• 11th Five Year Plan (2007-12) - Reports & Recommnedations of the working Groups
• Report of the Working Group on agriculture marketing infrastructure and policy rquired for internal and external trade (11th Plan)
• Towards Faster and More Inclusive Growth - An Approach to the 11th Five Year Plan (2007-2012)
  

UB takes 26% stake in Air Deccan

Deccan Aviation Ltd, the company that runs low-cost carrier Air Deccan, on Thursday announced it has sold 26 per cent in the airline to Vijay Mallya's UB Holdings for Rs 550 crore. UB Holdings has already paid Rs 150 crore and the remaining amount would be paid in the next three months, Air Deccan Managing Director G R Gopinath told reporters after the company's board meeting. The transaction, which values Air Deccan at Rs 155 a share, would be through allotment of non-preferential shares to UB, he said. UB Group runs the premier full-service, true-value carrier Kingfisher Airlines. The combined market share of both the airlines will be around 34% (Air Deccan - 22-24% and King Fisher - 11-12%).

Related Articles:-

• Deccan, UB shares soar 10% on merger news - The Economic Times
• Deccan Aviation offers 26 p.c. stake to UB - The Hindu
• Kingfisher buys 26 pc share in Air Deccan - Deccan Herald
• Capt Gopi, Co-Promoters' stake value at today's price - The Economic Times
• 'UB deal is not about losing control' - Capt. Gopinath - The Economic Times
• Cash-starved Deccan gets breathing space - The Economic Times

Sun Pharma to acquire Israel firm for $454 million

Sun Pharmaceutical Industries Ltd., has signed a definitive agreement to acquire the Israeli firm Taro Pharmaceutical Industries ltd in an all-cash deal of $454 million. This acquisition will be financed with internal accruals and proceeds from it ealier $350 million FCCB. The deal values Taro's equity at $230 million or $7.75 per share which is at a 27% premium to its May 18,2007 closing price of $6.10.

Sun Pharma will also refinance $224 million in debt of Taro. In addition, it will provide interim financing to the extent of $45 million to provide liquidity for Taro. This is Sun Pharma's 14th acquisition.

In the words of Dilip Shangvi, Chairman and Managing Director of Sun Pharma, "We intend to build on Taro's expertise in dermatology and paediatrics, along with speciality and generic pharmaceuticals and over the counter (OTC) products. With the addition of 170 scientists to our team, we look forward to increasing the number of product filings of higher complexity".

Taro is a multinational generic manufacturer with subsidiaries, manufacturing and products across the US, Israel and North America which represents more than 90% of Taro's sales. Taro, headquarted in Haifa, Israel, operates through three entities, namely Taro Pharmaceutical Industries Ltd, Taro Pharmaceuticals Inc., Canada and Taro Pharmaceuticals USA Inc. Sun Pharma is a leading speciality pharmaceuticals company with revenues Rs. 2,357 crore, PAT Rs. 774 crore and market cap of over $4.8 billion for the financial ending March 31, 2007.

Meanwhile the minority share holders who own nine percent of Taro's equity namely Franklin Advisors, Inc., and Templeton Assets Management Ltd., have filed a motion in Tel Aviv district court for a temporary injunction to prevent Taro from entering into any transaction which might result in dicrimination against minority public share holders.

Source : Deccan Chronicle

The brief financials of Sun Pharmaceutical industries Ltd for the last three years (source: Myiris.com)

Related Articles

1. Sun Pharma to buy Taro - The Financial Express

2. Sun Pharma to buy Taro for $454 million - Rediff News

3. Sun Pharma acquires Taro Pharma for $454m - Moneycontrol.com

4. Corporate Notices - Sun Pharmaceuticals

5. India-based pharmaceutical company completes convertible bond allotment

LIC leaps with its highest premium in March, 2007

Life Insurance Corporation of India has mobilised Rs. 12,361 crore of new business premium in Mrch, 2007 - the highest recorded by the corporation in any single month. This has enabled the corporation post new business premium of Rs. 55,934 crores in 2006-07 a 118% growth over the previous year. LIC's has been the growth driver for the the entire life insurance industry which grew 110.7% to Rs. 75,406 crore in current financial year from Rs. 35,897 during the previous year.

The rise in premium gives LIC a market share of over 74% of the total new business premium mobilised in India, which is substantially higher than the 72% as on March 31, 2006. The rise in premium is mainly on account of unit-linked policies which account for nearly 70% of the total individual premium.

The corporation faces a challenge in growing its business during the current fiscal given the huge base. Also a large portion of the policies are in the nature of single premium policies, which contributed an amount of Rs. 24,927 crore, a nearly 44% of the premium raised by the corporation during the F.Y. 2006-07.

Meanwhile, the private life insurance industry has recorded a growth of 89% with total new business premium of Rs. 19,471 crore as against Rs. 10,252 crore in the corresponding period last year. ICICI Prudential continues to be the largest private life insurance player with a market share of 7% followed by Bajaj Allianz Life Insurance which has a market share of 5.7%.

The comapnies that have recorded fastest growth in the fiscal '06-07 include Reliance Life Insurance, which grew 381%, followed by SBI Life Insurance which grew 209%. The high growth has enabled SBI Life to move into the number three postion after Bajaj Allianz Life Insurance.

B-schools catching up with emeging SME sector

The SME (Small and Medium Enterprises) sector, which has witnessed rapid growth in recent years, has been drawing attention from every possible quarter - global businesses eyeing India and private equity firms et al -, is now at the centre of focus for business institutions who see an opportunity to hawk short-term courses to this segment.Institutes such as IIMs, ISB and IIFT have rolled out courses and modules aimed at small and medium businesses. Existing programs are also suitably modified for the changing needs of this segment.

ISB is the latest to offer training for professionals in the sector. The business school has launched three-day workshop in three cities - Delhi, Mumbai and Chennai - starting in June (details). The programme, titled "The Global Growth Entrepreneurship Programme", is targeted at senior executives from SMEs in industries that are poised for growth like auto components, textiles, food processing, pharmaceuticals, chemicals and engineering. "The SME sector is witnessing huge growth and there is immense scope for executice training programmes here. Though there are similar programmes available, we will try and differentiate on the content. Trying to understand the global impact on SMEs is one such efforts", says Deepak Chandra, Assistant Dean, ISB's Centre for Executive Education.

Related articles:-

1. Small and Medium Enterprise in India - Overcoming Policy Constraints to Achieving Rapid Growth in a Globalizing Economy - Synopsis

2. Small and Medium Enterprise in India - Overcoming Policy Constraints to Achieving Rapid Growth in a Globalizing Economy - Full Report (In PDF)

3. Emerging SMEs in India - Textiles

4. The Micro, Small and Medium Enterprises Development Act, 2006 (In PDF)

5. A world of small business (A power point presentation)

6. International Entrepreneurship - Lectures

Emerging Sectors in Ad spending

The year 2006 would not only be remembered for sky-rocketing property prices but also for the big ad moolah that was shelled out by realtors, making them the biggest advertisers on television and on print. Realtors edged out automobile brands and educational institutions in the race to emerge as the largest advertiser of 2006 with spends of around Rs 510 crore between January and November, a 60% growth over 2005.

Another emerging category, travel and tourism, registered the highest growth of 70%, a feat that propelled it into the top 10 league, according to media agency Mindshare Insight’s estimates. Cars and Jeeps vroomed with a 16% rise and occupied the number two slot. Educational institutions and two-wheelers were the third and fourth-largest advertisers respectively during the period, while independent retailers stood fifth in the pecking order with a 41% increase in ad bucks compared to 2005.

Real estate analysts attribute this surge in ad spends to IPO build-up of various companies. “With 350 malls coming up in the next two years, the retailers will have a choice of malls to locate themselves. So one will see a spate of ad campaigns by mall developers. Moreover, as real estate is emerging as a preferred asset class, developers are keen to enhance visibility to attract investors,” Knight Frank India chairman Pranay Vakil said.

Surprisingly, the FMCG sector, which used to take up a lion’s share of the ad spends, has only one entry in the top ten (toilet soaps), as shampoos and other categories saw sluggish spends. “Although, the FMCG sector recorded a positive growth last year, it was not able to match up with the growth in other buoyant sectors such as real estate, retail and telecom,” said Mindshare Insight national director Sanchayeeta Bhattacharya. Another trend that emerged in 2006 was the entry of branded jewellery segment in the top 20 rankings with a 40% increase in ad spends. Interestingly, despite the growth in travel and tourism, airlines have dropped out of the top 20 list. “Last year there were a larger number of airline IPOs. Also, as losses increased in the airline industry, ad spends got adversely impacted,” Bhattarcharya added.

Media planners say that as the Indian economy, increasingly, takes global cues, where retail and automobile sectors occupy the top most slots as the biggest ad spenders, India, too, is showing similar signs in the ad space as auto and retail gears up with more ad budgets. “Some categories which are obvious misses include financial advertising, which should have fared better considering the boom in the capital markets and an overall heathy economy,” said Lodestar Universal CEO Shashi Sinha.

Source : The Economic Times

Global outlook for the Steel industry in 2007 & beyond

The global steel market is enjoying its fifth consecutive year of strong output and demand growth. The outlook for 2007 is expected to remain relatively bright, but a less vibrant world economy should slow demand and production growth, according to industry and government officials at the OECD's Steel Committee meeting in Paris on 7-8 November 2006. The situation in world steel markets remains strong. Continued capacity expansions observed in various parts of the world could, however, endanger positive market developments.

World steel production

Crude steel production is on track to grow by around 90 million tonnes in 2006, i.e. by 8%, to reach 1.22 billion tonnes as a result of synchronized production growth in most regions of the world.

1. China continues to drive world production developments. In the first nine months of 2006, Chinese steel production reached 339 million tonnes, up 23% from one year earlier. Elsewhere in Asia, Japan and South Korea continued to register only modest growth. Steel deliveries in Japan are nevertheless expected to rise by 1.9% to 100.6 million tonnes thanks to brisk demand from the manufacturing sector.

2.The European Union is seeing steel production rebound strongly, reflecting improvements in the economic situation and steel demand. Steel output is expected to rise by 9 million tonnes to 197 million tonnes in 2006.

3.In the CIS countries, steelmaking activity has re-accelerated, led by Russia, where crude steel production is expected to increase by 4 million tonnes this year to reach 70.2 million tonnes supported by capacity expansions in electric-arc furnace steelmaking.

4.In North America, steel production in the U.S. and Canada is rebounding following last year’s steep declines. Reflecting strong demand, steel production in the United States should increase by around 9% to 102 million tonnes in 2006.

5. South American steel output continued to slump in the first half of 2006. Production in Brazil, the largest producer in the region, fell by 1.4 million tonnes, or 9.1%, partly due to a five-month blast furnace outage, but for the year as a whole should reach the same level recorded in 2005.

In fact, the total steel demand is expected to rise by 60 million tonne in 2007, with the European, Indian and Asian steel markets registering a 10% growth in demand. Regional and country differences in consumption growth will come into play, with rates in Asia, North America and the European Union generally expected to slow while steel demand in India, Latin America, Africa and the Middle East will grow more quickly, Ian Christmas, secretary-general of the International Iron and Steel Institute (IISI), said at the group's annual conference in Buenos Aires, Argentina.

World demand for steel

Global demand growth has accelerated in 2006, in line with the strengthening pace of world economic activity and buoyant infrastructure and other investment in rapidly growing developing economies.

Chinese steel consumption reached 287 million tonnes in the first nine months of the year, up 28.75 million tonnes or 10% from a year earlier. Indian consumption is also increasing swiftly, though from a much lower level of 38 million tonnes. The shipbuilding, auto, and industrial machinery industries are boosting steel use in Japan and South Korea.

In the European Union, robust export demand and recovering domestic demand for goods manufactured in key steel-using industries will raise apparent steel consumption by 9.3% to 198.5 million tonnes. Within the CIS, Russian consumption is being bolstered by strong growth in mechanical engineering, construction, and railroad transport.

In North America, apparent consumption in the United States should reach 121 million tonnes, up 10% from 2005. In Canada and Mexico consumption is also expected to rise strongly. The overall 9-percent increase this year should lift apparent steel use to 1.12 billion tonnes from 1.03 billion tonnes in 2005. The more moderate 5.2-percent growth foreseen next year should push usage to 1.18 billion tonnes, according to IISI predictions, which embrace both real and apparent use.

Steel prices

After declining through much of 2005, steel prices recovered during the first half of this year. In some markets such as China, however, prices have remained soft this year reflecting local oversupply of steel. More recently, prices have started to recede in some markets in response to high inventory levels. As per Madhukar Sheth, member of the Bombay Stock Exchange, with consolidation going on in the global industry, prices could remain stable at the $560 per tonne level. The steel industry mirrors the economy and with the auto and construction industries in China, India and other Asian countries growing at a healthy rate, demand for steel should maintain its present growth, industry analysts feel. This will come as good news to Corus, which through Tata Steel, has been looking to enter the Asian markets for its construction and auto grade products.

Long-term issues

Consolidation in the industry has accelerated, highlighted by the recent Arcelor/Mittal and envisaged Tata/Corus mergers. Arcelor-Mittal will account for around 10 per cent of world steel production. Though consolidation will strengthen steel companies’ influence in world markets, the industry remains very fragmented as compared to the concentrated iron ore industry for example. Concern was expressed that steel producers in various parts of the world have increased capacity significantly or intend to do so in the years to come by extending existing capacities and/or creating new capacities, whilst most forecasts for demand over the years to come suggest that worldwide steel capacities are largely sufficient to satisfy demand requirements in the future.

Forecast upto 2010

MEPS (International) Ltd has upgraded its previous forecast for global crude steel production in 2010. Finished steel consumption is expected to be well over 1 billion tonnes. The oxygen process is predicted to provide around 65 percent of all steel making in 2010 - more than double the amount from electric melting.

The desire for self sufficiency in steelmaking is driving producers in many parts of the world to invest in new plant and equipment. By 2010, MEPS estimates that China's total steel output will be significantly above 500 million tonnes. India & Russia will become an increasing force.

In 2007, a correction is forecast in the European Union and NAFTA countries. This will, almost certainly, result in a growth rate below the figures recorded in the previous two years. Moreover, the pace of steel demand growth in China appears to be stabilising at a level slightly below the percentages in the recent past. Furthermore, China will be a net exporting country in 2006. The high volumes of foreign sales will be curbed in 2007 by government actions. Output growth in China is likely to be held back.

As outlined in their previous report, a two speed steel industry is developing. Asian and Russian demand is racing ahead. At the same time, the industrialised nations are exhibiting more modest real growth conditions. New capacity is migrating towards steel demand. Furthermore, with high energy and steelmaking raw material costs, new capacity is often being scheduled for installation nearer to the location of the input materials.

Manpower Management, Real Estate and Supply Chain will be the key in Retail

A revolution is set to sweep across the country in the next three-to-five years in the retail sector, as traditional markets make way for departmental stores, hypermarkets and western-style malls. While penetration of organised retail in India remains slightly below 4%, domestic major retail players have announced aggressive expansion plans even as a plethora of new flashy malls are mushrooming in metros and second-rung cities. Three ‘big bang’ initiatives are shaking up the retail sector: Reliance Industries’ Rs 25,000-crore mega plan to create 100 million square feet of retail space and a sales target of Rs 100,000 crore by 2011, Aditya Birla Group’s Rs 15,000-crore retail foray and retail giant Wal-Mart’s entry via a joint venture with Bharti.

Even with net profit margins of only 4%, the return on investment is 16-18%. Besides, India’s vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets.

While there may be droves of young people applying for a spot behind the register, without any tradition of large retail stores in India, there is a paucity of experienced manpower available for mid-management positions. Meeting suitable manpower requirements and managing human resources in the future will become a challenge as competition hots up, experts feel. This is great opportunities for MBA students to look at this sector wherein you have also chance to prove your mettle and it is a emerging sector which may play for atleast next ten years. The other opportunities in these sectors include supply chain management and agricultural management. In fact, Reliance want to acquire 2000 acres of land in Karnataka in all District and Taluka headquarters for agriculture and it is also recruiting fresh agricultural graduates for a pay package of Rs. 3-3.50 Lakh per annum, till now an unkown figure in this sector.

Moreover, due to the increasing demand for manpower at the junior management level, number of schools and institutions have started offering retail specific syllabus. Retail management has come up as a seperate course in many B-schools. In fact, ISB has recently introduced an elective on retail management in its curriculum.

Presently, due to the dearth of experienced talent in this field, Reliance Retail is in the process of hiring around 100 senior expat managers, of which, 50-60 managers with 15-20 years of retail experience in global biggies like Wal-Mart, Best Buy, Tesco, ASDA and Kroger, have already joined the company. The AV Birla Group, which is readying itself for a retail venture, also intends to tap expats with overseas experience for its leadership team comprising 30-40 persons.

With some 350-odd mall expected to come up in the next three years, availability of reatil space is another major concern. Technopak Advisors pegs the gap between supply and demand of reatil space at a staggering 400 million square feet. Given the fact that large pockets of land are more easily available in smaller towns than in the metros, players such as Reliance have announced major retail forays in tier 2 towns. Tier 2 and 3 cities will be major growth drivers in future. So, if you are taking a management job in this sector, be ready to move to Tier 2 or 3 cities. However, while tier 2 cities represent an immense opportunity, infrastructure remains a major issue.

Another major issue is supply chain management. Significant invetsment in restructuring of the existing fragmented market in supply chain management is needed. According to a recent report by Enam Securities, cutting the number of intermediaries between the farmer and the reatiler could reduce costs by almost 7%. An estimated investment of Rs. 5000 crores will be needed to restructure the supply chain.

Detailed articles brought by ET Retail Survey

1. Mall Mania

2. Retail’s the next big-bang story

3. Shopping for space

4. Search warrant for human resources

5. The race is on

Opportunities in Retail:-

1. Reliance Retail

Poaching is the new game in retail sector

The Indian retail space has recently seen hectic action with Bharti’s Sunil Mittal joining hands with US-based world No 1 Wal-Mart. The $300-billion Indian retail sector is attracting foreign retail giants and local majors such as the Reliance group and the Tatas. With Wal-Mart coming to India with Bharatis as JV , Indian retail sector is hotting up with poaching exercise. As time and energy are involved in establishing new outlets, major players are looking for inorganic growth, by going out for acquisitions of companies with presence in multiple cities. These acquisitions will help these big players to come out with sufficent outlets before the Wal-Mart can make its presence felt in India.

1. Reliance Retail acquires Gujarat-based Adani Retail:-

In the first week of December, 2006, Reliance Retail started its first acquisition by buying out Gujarat-based Adani Retail lock, stock and barrel for Rs 100-110 crore. Sources confirming the news said the buy-out will give Reliance access to 54 retail locations (neighbourhood stores, supermarkets and hypermarkets) across nine cities in Gujarat in one shot, besides its infrastructure and sourcing facilities. As commercial real estate prices shoot up across India, the acquisition will help the company control costs substantially because 60% of Adani’s retail outlets are company-owned. The deal also works well for Adani as it will now focus on its core competencies like shipping and exports.

At present, Adani Retail operates a total of 54 supermarkets and hypermarkets and is likely to launch another outlet in Bharuch this week. The Rs 16,000-crore Adani group forayed into retail by acquiring a leading supermarket store V Ravjis in 2000. While in the first two years, the company did not expand into other cities, it moved faster in the last four years with presence in Ahmedabad, Vadodara, Jamnagar, Surat, Rajkot, Anand, Nadiad, Mundra, Gandhinagar and Navsari. Adani's neighbourhood stores are typically 1,500-3000 sq ft and sells food & grocery.

The supermarkets, around 3,500-4,000 sq ft each, sell plastic items, crockery, cosmetics, imported products and the hypermarkets, around 8,000-25,000 sq ft, have dedicated sections for grocery, fast food, fresh fruits and vegetables and apparel among others.

2. AV Birla Group acquires Hyderabad-based supermarket chain Trinethra Super retail.

In the new year, the AV Birla group has kicked off its retail plans by acquiring Hyderabad-based supermarket chain Trinethra Super Retail and its fast-growing online shopping outfit, Fabmall. Trinethra Super Retail was founded in 1986 and is southern India's fastest growing grocery retail chain. While the Trinethra brand is used in Tamil Nadu and Andhra Pradesh, in Kerala and Karnataka, it is known as Fabmall. Trinethra is scheduled to open stores in tier II cities such as Mysore, Coimbatore and Tirupur. The group also has warehouses in Hyderabad and in the states of Karnataka, Tamil Nadu and Kerala. Currently, the Trinethra supermarkets offer groceries, fresh fruits; vegetable and diary products; bakery, frozen foods and many have food counters / pharmacies attached to them.

Although the financial details of the Birlas’ retail business isn’t clear, it is said that the group would pump in Rs 5,000-Rs 6,000 crore at least in the initial phase, which could be subsequently ramped up once the business grows. Birla TMT Holdings, an unlisted company, is likely to part finance the investment, while some debt could also be raised. The Birla group, via Birla TMT, has raised close to $980 million through the sale of about 33% of its equity stake in telecom unit Idea Cellular, to about six private equity firms.

Relevant News :

1. Reliance acquires Adani Retail

2. Trinethra: Birla's first retail takeover

3. Birla group may pump in Rs 6,000 cr in retail initially

Rural market will drive the consumer goods demand

With 62% of the Indian population living in rural areas, no marketing strategy can neglect this mass during the next decade. As per the research conducted by Assocham on the future of FMCG products in india, demand from rural and semi-urban centres will propel the growth of the consumer goods industry to touch a market size of over Rs. 1,00,000 Crore by 2012. Urban pockets, which have the biggets market size for all the FMCG products, would in the next 4-5 years switch over their consumption patterns for organic products, as per the report. Demand for FMCG products, including the replacement market, may stagnate by 2012 in urban pockets thus forcing the manufacturers to shift supplies to rural and semi-urban folks.

FMCG products like toothpaste, skin and hair wash, talcum, powder, branded atta, dish wash, instant cofee, ketchups, deoderants and jams, which have less than 30% penetration in rural and semi-urban areas would grow by 50% in next 5-7 years on account of rising per capita income of people living in these areas.

As per the current estimates, the percapita income of semi-urban population is Rs. 14,000 -15,000 per annum and that of a person in rural area is less than Rs. 7000 per annum. While per capita income of rural population would double by 2012, that of semi-urban people would more than double leading to a hike in their consumption patterns for FMCG products. This massive size and demand base offers huge opportunity for FMCG companies. In the process of expanding their operations into rural and semi-urban areas, these compnies will also generate huge employment in the hinterland of India.