Three in one. These words best sum up what’s Bates David Enterprise, strung together by WPP through mergers over the past three years. DNA Money’s Arcopol Chaudhuri and Nirmal John caught up with the top team of Sonal Dabral, chairman, Bates David Enterprise, India & regional executive creative director, Bates Asia, Subhash Kamath, CEO, Bates David Enterprise, India, and Jeffrey Yu, president, BatesAsia141.
How did the AAAI and the Ad Club truce come about?
Subhash: Well, I am a committee member of Advertising Agencies Association of India (AAAI) and some of us recently got together and felt that whatever had happened over the past two years was ridiculous. We’re one industry and the split in the middle for whatever reasons was stupid. This year it’s a whole new team and some of us decided to bring the unity back.
They say that the biggest problems happen because conversations do not take place. Even when two events happened, the judges were the same. We spoke to some of the top creative directors and we heard from everyone that let’s just have one award. And let’s respect it and cherish it and encourage people to win it. Moreover, it is good for the youngsters.
The infighting sets a very bad example for youngsters. We are here to inspire. What is the point of subsidising them, taking them all the way to Goa and not inspiring them?
So that’s one award less for your kitty …
Dabral: Well, but we’ll try and win more of it (laughs). But honestly, even sitting outside India, I was disappointed because someone or the other would be boycotting this award and participating in the other.
Bates is seeing a lot of changes. Take us through the plan.
Kamath: Change is inevitable. It began two years ago when we acquired and merged with Enterprise, then also with David, part of the Ogilvy fold, and now we’ve just completed the acquisition of Sercon. It was part of a strategy because we wanted to achieve a certain critical mass and size to be in the big league. And now with Mohd Khan’s imminent retirement, the succession plan was also thought of.
A new era for the agency has begun and I’m sure with Sonal coming in, our creative abilities will get a boost. We’ve grown almost three times in the past two years through mergers and acquisitions. We have 450 people across the country as well as 5 regional offices and 15 satellite offices. We now have advertising, CRM, activation, events, digital, retail, out-of-home (OOH) — all under one roof.
So the acquisition mode is over?
Kamath: I can’t say it’s over. But if we are looking at any acquisitions now, it will be in strategic areas. For example there can be specialists like digital strategists or even design as a separate focus. It is going to be acquisitions for specialised skills. So there may be acquisitions, tie-ups but not necessarily to grow in size. The expansion in terms of size is now over.
Internationally, how is India emerging as a market for Bates?
Yu: There are two important markets in Asia - China and India - and India is one of the most exciting markets for us both in terms of talent and work. India has a good history of advertising and there is a lot of good, mature work that is coming out of this country. In China, this history is not older than 10 years. The good thing is there are Indians who work abroad and they come back to India again. So India is like a model country for the rest of Asia.
You lost Nokia, one of your biggest clients. How do such movements affect you and the brand?
Kamath: Well, yes, Nokia is gone from January. But then accounts come and go, especially when it is a globally aligned business. An organisation has got to be strong not to be dependant on one account. As far as India is concerned, Nokia contributed to less than 8 per cent of our total revenue. I certainly regret Nokia leaving, we have had a very close relationship over the past 10 years and we’ve done some fantastic work. I guess change is inevitable and Nokia had to take a call on a worldwide level. It has been one of our most visible clients. A change like this will certainly affect the brand.
How important are awards for an agency?
Dabral: Fortunately or unfortunately the thing about award shows is that they are the only concrete barometers for an agency’s creative health. They very quickly tell the world about our work and now even clients are taking notice of it. In fact the performance of advertising networks in Cannes, actually affects their share price.
Saturday, December 29, 2007
Best investment ideas for 2008
Back in January 2007, Jim Stack, editor of Whitefish Montana's InvesTech Research and Portfolio Strategy, surveyed the US economic landscape and didn't like what he saw. There was a growing risk of a recession, he thought. The residential real estate market was unwinding. Stack shared his worries with readers that month.
"If complacency breeds danger," Stack wrote, "then we might be sitting on a powder keg heading into 2007."
Stack positioned his portfolio in a defensive crouch, believing that the degree of risk out there, in his opinion, warranted higher caution. He avoided the financials and real estate-related sectors. His cautious bets have payed off. His managed accounts, year-to-date, are up 8.1 per cent. That beats the 5.6 per cent gain of the Dow Jones Industrial average and the 2.2 per cent increase of the S&P 500.
For worrywart Stack, its vindication of his "safety first" approach.
"We were called doom-and-gloomers," he says. "But we felt there would be a serious unwinding in the housing market. There is now some feeling of comfort at this point, if no other reason than we haven't lost money."
The year 2007 probably left a lot of investors feeling financially seasick, with its dizzying ups and downs. The blue chip Dow surpassed historic milestones, but market turbulence returned with vigor. U.S. markets were choppy and volatile as investors worked through a web of concerns: oil prices kissing $100 a barrel, a busted housing boom and ugly write-offs by big banks.
As the year comes to a close, there is a lot of worry out there on Wall Street. For evidence of that hand-wringing, just check out a simple stat on stock market volatility: the CBOE Volatility Index -- a literal measure of volatility reflecting the premium that options traders are willing to pay on the S&P 500 Index options -- spiked 250 per cent from January through mid-December. This was one of the quickest and most dramatic increases in volatility since early 1994.
Heading into the New Year, Forbes.com checked in with a few market pros to see where they're putting money in 2008. These gurus had some wide-ranging opinions on how they plan to position their portfolios, which sectors they like and which ones they're planning to avoid. These big-picture professionals were at odds over which areas of the market had the most prospects and where they would counsel investors to commit capital.
Let's start with a sector that has made headlines this year for all the wrong reasons: the financials. Wall Street heavies like Citigroup and Bear Stearns suffered big losses due to risky mortgage-related holdings that went bad. The Financial Select Sector SPDR is down, year-to-date in 2007, about 20 per cent.
But are these financial companies ready to turn around in 2008?
Stack isn't buying primarily because he expect "extreme volatility" in the financial sector in 2008. He cautions investors to avoid the companies until they see at least three to four months of bottoms in stock prices. Only then, Stack says, should investors start to think about pushing money into the sector.
"There is so much still coming out of the woodwork," Stack says. "How do you judge the internal risks when all the unknowns aren't out on the table?"
By contrast, "growth at a reasonable price" fan Jim Oberweis, editor of the Oberweis Report, thinks there could be some opportunity in this sector. "My inclination is to buy early out the gate," Oberweis says. "Don't wait too long."
In the financials, Oberweis says to look for cheap valuations. He says one possibility, for example, is Citigroup, which has gotten badly beaten up this year (the stock is down 45 per cent), but is now trading at eight times estimated earnings.
"If those earnings are correct, that is a bargain," Oberweis says. He notes that the company has historically traded at an estimated price-to-earnings ratio between 10 and 15.
In contrast to the fumbling financials, materials have turned in a strong performance in 2007. Materials Select Sector SPDR is now up, year-to-date, about 17 per cent. But some market pros aren't so sure the sector can turn in another solid performance next year.
Art Hogan, chief market analyst at Jefferies & Co., is a skeptic.
"Materials are not going to outperform," he says. "A lot of material prices are driven by an accelerating global economy. But now that economy is decelerating. So materials will come under pressure."
Hogan adds, "On the whole, we will still have strength in non-Japan Asia. But the magnitude of the increase will be less. You will have efforts to slow the Chinese economy, for example, to a sustainable rate. If China slows its economy down to, say, 9 per cent or 8 per cent, that slows the global economy to 4 per cent."
Oberweis is also down on the sector, but for a different reason. He doesn't tend to find a lot of materials companies that hit his 30 per cent minimum growth rate requirement.
Rather than materials, Hogan prefers energy, where he sees real opportunity. Energy Select Sector SPDR jumped 30 per cent year-to-date. And he continues to favor health care, where his picks include Array BioPharma, a Boulder-based company where he sees strengthening fundamentals.
Oberweis is wary of health care stocks in 2008 despite demographic trends heavily in favor of robust health spending.
"I think health care is somewhat subject to the political arena," he says. "The leading candidate is someone who has historically advocated a government takeover of the health care system. That wouldn't obviously be a good thing for health care companies."
So Oberweis plays the sector through health care-related tech companies. He likes Hologic, which invented a new way to test for breast cancer. Revenues were up 60 per cent in 2007. And he favours Intuitive Surgical, which makes robotic arms used in surgery. Revenues at the company were up 60 per cent in 2006 and 2005, and 50 per cent in 2004.
One sector Oberweis is extremely bullish on in 2008 is technology, which had a strong year in 2007.
Says Oberweis, "Tech will be the sector for 2008. U.S. tech companies are likely to exhibit accelerating earnings growth. Stock valuations, by historical standards, are reasonable."
One Oberweis pick in the tech arena is Santa Clara, California-based Synaptics, which creates products for electronic devices. The company has a market cap of about $1.4 billion. Compared with its industry peers, it has better operating margins and is cheaper on expected growth.
Alec Young, equity strategist at S&P, agrees that tech is a smart bet.
"We are looking for 24 per cent earnings growth there," Young says. "That's above average. Earnings visibility is weak for most sectors. Investors are willing to pay up."
Young adds, "There is still a lot of consumer demand for electronics. There is lots of growth in the emerging markets and also a great deal of excitement around game consoles. Tech still looks OK."
Belt and suspenders guru Jim Stack thinks buying tech stocks is a mistake.
"Keep in mind, if you line up the 10 major S&P 500 sectors, as far as downside risk in a bear market, over the past 35 years information technology is right at the bottom," Stack notes. "Historically, it's one of the highest risk areas in a bear market. In a recession, an easy way for businesses to cut back is those technology upgrades."
For those risk-averse investors worried about the possibility of a recession, Stack recommends consumer staple stocks, which provide cover for investors during down periods in the economy and markets. Year-to-date, the Consumer Staples Select Sector SPDR is up 10 per cent.
"These are the things that the consumer has to buy after gas prices take the wallop out of their wallet," Stack says.
Among consumer staples Stack prefers is PepsiCo.
He says the beverage and snack food company ideally meets his investment criteria of having superior profitability, dominant market share and excellent financial standing. The company should generate in excess of $4 billion in free cash flow in 2007, which should easily allow it to raise its dividend for the 36th consecutive year, Stack says.
The US consumer is under some pressure right now, facing rising energy prices and housing woes. Those worries have sent consumer discretionary stocks tumbling. The Consumer Discretionary SPDR has dropped about 14 per cent this year.
But, so far, consumer spending doesn't seem to be rolling over. In fact, retail sales rebounded in November, rising 1.2 per cent and beating analysts' forecasts.
Jefferies' Hogan is bullish on a number of global luxury brand retailers. "There is a great deal of international demand for Tiffany and Coach," he says. "Have you been to Tiffany in New York City? People come in by the bus load to spend euros."
Given market volatility and the ugly surprises investors experienced during 2007's wild market ride, there is one bit of investment advice all of the gurus agree. Stack sums it up well: "Stay skeptical and do your own homework."
"If complacency breeds danger," Stack wrote, "then we might be sitting on a powder keg heading into 2007."
Stack positioned his portfolio in a defensive crouch, believing that the degree of risk out there, in his opinion, warranted higher caution. He avoided the financials and real estate-related sectors. His cautious bets have payed off. His managed accounts, year-to-date, are up 8.1 per cent. That beats the 5.6 per cent gain of the Dow Jones Industrial average and the 2.2 per cent increase of the S&P 500.
For worrywart Stack, its vindication of his "safety first" approach.
"We were called doom-and-gloomers," he says. "But we felt there would be a serious unwinding in the housing market. There is now some feeling of comfort at this point, if no other reason than we haven't lost money."
The year 2007 probably left a lot of investors feeling financially seasick, with its dizzying ups and downs. The blue chip Dow surpassed historic milestones, but market turbulence returned with vigor. U.S. markets were choppy and volatile as investors worked through a web of concerns: oil prices kissing $100 a barrel, a busted housing boom and ugly write-offs by big banks.
As the year comes to a close, there is a lot of worry out there on Wall Street. For evidence of that hand-wringing, just check out a simple stat on stock market volatility: the CBOE Volatility Index -- a literal measure of volatility reflecting the premium that options traders are willing to pay on the S&P 500 Index options -- spiked 250 per cent from January through mid-December. This was one of the quickest and most dramatic increases in volatility since early 1994.
Heading into the New Year, Forbes.com checked in with a few market pros to see where they're putting money in 2008. These gurus had some wide-ranging opinions on how they plan to position their portfolios, which sectors they like and which ones they're planning to avoid. These big-picture professionals were at odds over which areas of the market had the most prospects and where they would counsel investors to commit capital.
Let's start with a sector that has made headlines this year for all the wrong reasons: the financials. Wall Street heavies like Citigroup and Bear Stearns suffered big losses due to risky mortgage-related holdings that went bad. The Financial Select Sector SPDR is down, year-to-date in 2007, about 20 per cent.
But are these financial companies ready to turn around in 2008?
Stack isn't buying primarily because he expect "extreme volatility" in the financial sector in 2008. He cautions investors to avoid the companies until they see at least three to four months of bottoms in stock prices. Only then, Stack says, should investors start to think about pushing money into the sector.
"There is so much still coming out of the woodwork," Stack says. "How do you judge the internal risks when all the unknowns aren't out on the table?"
By contrast, "growth at a reasonable price" fan Jim Oberweis, editor of the Oberweis Report, thinks there could be some opportunity in this sector. "My inclination is to buy early out the gate," Oberweis says. "Don't wait too long."
In the financials, Oberweis says to look for cheap valuations. He says one possibility, for example, is Citigroup, which has gotten badly beaten up this year (the stock is down 45 per cent), but is now trading at eight times estimated earnings.
"If those earnings are correct, that is a bargain," Oberweis says. He notes that the company has historically traded at an estimated price-to-earnings ratio between 10 and 15.
In contrast to the fumbling financials, materials have turned in a strong performance in 2007. Materials Select Sector SPDR is now up, year-to-date, about 17 per cent. But some market pros aren't so sure the sector can turn in another solid performance next year.
Art Hogan, chief market analyst at Jefferies & Co., is a skeptic.
"Materials are not going to outperform," he says. "A lot of material prices are driven by an accelerating global economy. But now that economy is decelerating. So materials will come under pressure."
Hogan adds, "On the whole, we will still have strength in non-Japan Asia. But the magnitude of the increase will be less. You will have efforts to slow the Chinese economy, for example, to a sustainable rate. If China slows its economy down to, say, 9 per cent or 8 per cent, that slows the global economy to 4 per cent."
Oberweis is also down on the sector, but for a different reason. He doesn't tend to find a lot of materials companies that hit his 30 per cent minimum growth rate requirement.
Rather than materials, Hogan prefers energy, where he sees real opportunity. Energy Select Sector SPDR jumped 30 per cent year-to-date. And he continues to favor health care, where his picks include Array BioPharma, a Boulder-based company where he sees strengthening fundamentals.
Oberweis is wary of health care stocks in 2008 despite demographic trends heavily in favor of robust health spending.
"I think health care is somewhat subject to the political arena," he says. "The leading candidate is someone who has historically advocated a government takeover of the health care system. That wouldn't obviously be a good thing for health care companies."
So Oberweis plays the sector through health care-related tech companies. He likes Hologic, which invented a new way to test for breast cancer. Revenues were up 60 per cent in 2007. And he favours Intuitive Surgical, which makes robotic arms used in surgery. Revenues at the company were up 60 per cent in 2006 and 2005, and 50 per cent in 2004.
One sector Oberweis is extremely bullish on in 2008 is technology, which had a strong year in 2007.
Says Oberweis, "Tech will be the sector for 2008. U.S. tech companies are likely to exhibit accelerating earnings growth. Stock valuations, by historical standards, are reasonable."
One Oberweis pick in the tech arena is Santa Clara, California-based Synaptics, which creates products for electronic devices. The company has a market cap of about $1.4 billion. Compared with its industry peers, it has better operating margins and is cheaper on expected growth.
Alec Young, equity strategist at S&P, agrees that tech is a smart bet.
"We are looking for 24 per cent earnings growth there," Young says. "That's above average. Earnings visibility is weak for most sectors. Investors are willing to pay up."
Young adds, "There is still a lot of consumer demand for electronics. There is lots of growth in the emerging markets and also a great deal of excitement around game consoles. Tech still looks OK."
Belt and suspenders guru Jim Stack thinks buying tech stocks is a mistake.
"Keep in mind, if you line up the 10 major S&P 500 sectors, as far as downside risk in a bear market, over the past 35 years information technology is right at the bottom," Stack notes. "Historically, it's one of the highest risk areas in a bear market. In a recession, an easy way for businesses to cut back is those technology upgrades."
For those risk-averse investors worried about the possibility of a recession, Stack recommends consumer staple stocks, which provide cover for investors during down periods in the economy and markets. Year-to-date, the Consumer Staples Select Sector SPDR is up 10 per cent.
"These are the things that the consumer has to buy after gas prices take the wallop out of their wallet," Stack says.
Among consumer staples Stack prefers is PepsiCo.
He says the beverage and snack food company ideally meets his investment criteria of having superior profitability, dominant market share and excellent financial standing. The company should generate in excess of $4 billion in free cash flow in 2007, which should easily allow it to raise its dividend for the 36th consecutive year, Stack says.
The US consumer is under some pressure right now, facing rising energy prices and housing woes. Those worries have sent consumer discretionary stocks tumbling. The Consumer Discretionary SPDR has dropped about 14 per cent this year.
But, so far, consumer spending doesn't seem to be rolling over. In fact, retail sales rebounded in November, rising 1.2 per cent and beating analysts' forecasts.
Jefferies' Hogan is bullish on a number of global luxury brand retailers. "There is a great deal of international demand for Tiffany and Coach," he says. "Have you been to Tiffany in New York City? People come in by the bus load to spend euros."
Given market volatility and the ugly surprises investors experienced during 2007's wild market ride, there is one bit of investment advice all of the gurus agree. Stack sums it up well: "Stay skeptical and do your own homework."
Friday, December 28, 2007
Individual Tax Rates for the assessment year 2008-09
Individual Tax Rates for the assessment year 2008-09 | |
| Total income | Rates |
| Less than Rs 1,10,000 | NIL |
| Rs 1,10,000-1,50,000 | 10% of the total amount above Rs 1,10,000 |
| Rs 1,50,000-2,50,000 | Rs 4,000 plus 20% of the amount above Rs 1,50,000 |
| Above Rs 2,50,000 | Rs 24,000 plus 30% of the amount above Rs 2,50,000 |
SIP: All you need to know
Regular visitors and clients of Personalfn appreciate the importance of the systematic investment plan (SIP) route of investing in mutual funds. However it is surprising to note that it takes difficult times (read volatile markets) for the investing community at large, to appreciate the importance of such a handy facility.
Simply put, investing via an SIP entails making regular investments (generally) in smaller denominations as opposed to making an one-time lump sum investment. The intention is to capitalise on the volatility in equity markets by lowering the average purchase cost. While few would dispute the utility that an SIP can offer, there is a flipside to the same as well. In this article, we discuss the pros and cons of SIP investing.
How an SIP helps…
1. Lowers the average purchase cost
Perhaps the single most important advantage offered by an SIP is the opportunity to lower the average purchase cost. This is achieved in periods when equity markets experience a turbulent patch. Since the investment amount for each installment is fixed, the investor gains by receiving a higher number of units. An example will clarify this better. Suppose the monthly investment installment is Rs 1,000 and the fund’s net asset value (NAV) is Rs 50; this will lead to 20 units of the fund being credited to the investor. However, in the next month on account of the volatile markets, the fund’s NAV falls to Rs 40. This will lead to a lowering in the average purchase cost; as a result, the investor will have 25 units credited to his account. In other words, an SIP can help investors benefit from volatility in equity markets.
2. Induces disciplined investing
Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investment purpose end up getting used for extraneous purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor continues to be invested in a disciplined manner and thereby stays on course to achieve his financial goals.
3. Lighter on the wallet
An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, while the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000, for an SIP it can be as low as Rs 500. As a result, investing via the SIP route becomes lighter on the wallet.
4. Makes market timing irrelevant
Alongwith cricket and movies, timing the market ranks as a popular pastime. Investors have an inexplicable urge for timing markets and trying to get invested when markets have bottomed out. It’s a different matter that timing markets to perfection and doing so consistently is beyond most investors. An investment via the SIP route makes market timing irrelevant. On account of the on-going investments, investors can afford to bid adieu to one of their favourite pastimes and concentrate on more pressing matters.
When an SIP won’t deliver…
1. In rising markets
An SIP could fail to deliver on its proposition of lowering the average purchase cost, if equity markets rise in a secular manner. Such a scenario is fairly possible over shorter time periods. As a result, investing via an SIP could prove to be more expensive vis-à-vis a lump sum investment. Hence, the solution lies in opting for an SIP that runs over an appropriate time frame, say at least 12-24 months.
2. A directionless SIP
By a directionless SIP, we are referring to an SIP that is not a part of an investment plan or an aimless SIP. It should be understood that an SIP is not an ‘end’; instead, it is the ‘means’ to achieve an end. Hence starting an SIP in isolation is unlikely to be of too much help. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective.
3. An SIP in the wrong fund
Investing via the SIP mode doesn’t improve the prospects of a wrong fund. A poorly managed fund stays that irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.
As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.
The changing face of microfinance funding
In the three decades since Muhammed Yunus gave his first $27 loans to women in Chittagong, Bangladesh, the microfinance industry has come a long way. What began as a collection of individual non-governmental organisations funded by development donors has become a professional business offering not just credit, but a full range of banking services to poor people.
Hundreds of microfinance institutions have matured and become profitable. Local commercial banks are beginning to see opportunities at the low end of their retail market. Even mobile-telephone operators are innovating with cellphone-based banking services.
It's attracted a flood of new money from investors and big commercial banks. There are now 80 investment funds that specialise in microfinance, 30 of which were established in the last three years. These funds are still small and highly concentrated in the leading institutions in Latin America and Eastern Europe, but their pool of capital available is growing fast. Big banks are also getting in the game: Citigroup, Deutsche Bank, TIAA-CREF, Morgan Stanley, ABN AMRO and Societé Generale are deploying their structuring and fund-management skills to offer investment products that appeal to a broad range of investor-risk profiles and social motivations.
However, public commercial-investment agencies, such as the World Bank's IFC, the German KfW or the European Investment Bank, are currently the largest investors in microfinance. IFC, for example, currently has $640 million in outstanding commitments to microfinance and plans to double this amount over the next three years. These investors offer equity, loans and guarantees -- and were a natural follow-on from the early grant money that helped build microfinance institutions into credit-worthy investments. Several are now providing local currency loans. IFC, for example, broke new ground in 2006 with its first local currency loan to Fundacion WWB Colombia.
Thus a heated and healthy debate has emerged over whether these public-sector investments are now "crowding out" the private-investment funds by flocking to the same successful institutions. So what is the role of public agencies when so much investment capital is flowing in?
Traditional public donors were the angel investors of microfinance in its formative years, providing the seed capital for fledgling microfinance institutions, often through grants. Now, decades later, there are still critical gaps that the traditional aid agencies are best placed to fill despite the flood of new money:
Nascent markets: First, since the commercial-oriented investment is going mainly to advanced microfinance institutions and markets, many countries are left behind. Who will build the microfinance field in Sudan? Reaching poorer, more rural clients remains a key challenge. Research shows that microfinance actually tends to reach those at or around the poverty line, rather than those at the very bottom of the pyramid. The aid agencies, with their grant money and willingness to take higher risks for social aims, will be the ones to support early-stage microfinance in these markets.
Training: Second, most institutions need to strengthen managerial, information technology, product development and financial skills in order to grow. Technical assistance and training are the domain of development agencies.
Consumer protection: Third, governments all over the world are recognizing the potential of microfinance and are increasingly eager for advice on how to make it grow. Helping governments create laws and regulations that stimulate poor people's access to finance, while protecting customers, has long been a key role of organizations like the World Bank.
Financial infrastructure Fourth, creating local financial markets in poor countries that can work efficiently for their citizens means creating public goods like credit bureaus, payment systems, rating agencies. These require subsidies and technical assistance that traditional agencies can provide.
The endgame, of course, is for microfinance to principally fund itself -- as most retail banks do --through local deposits. Local funding is more stable and carries no foreign-currency risk. Moreover, secure deposit services are highly valued by poor people, some say far more than loans.
New technologies -- especially wireless services --promise to dramatically transform microfinance, allowing us to bring services to even the most remote and isolated areas where no branch would be viable. But this will only happen with the cooperation and complementary efforts of public and private players to develop markets and institutions that work for poor people.
Mega IPOs of the year 2007 India
The booming IPO market, which has given stellar returns this year, could prove even more lucrative for the retail investor. Of the 85 issues listed till date in 2007, 64 ended in positive territory on day one. About 62% of the IPOs are now trading above their issue price. Here's a compilation of IPOs listed during the year.
Religare Enterprises' shares surged 182% over the issue price on its debut trade on the bourses.
Religare is promoted by Ranbaxy Laboratories and provides financial product and services. The company offers wide range of services including equities, commodities, insurance broking, wealth advisory, portfolio management services, personal finance, investment banking and institutional broking services.
As on Dec. 3, 2007, the stock was trading at Rs 505.45.
DLF is one of India's leading players in the real estate development industry. The company has been in existence since 1946 and has completed 224 million sq ft of development.
The stock price was quoted at Rs 944.40 as on Dec 3, 2007.
Religare Enterprises
The public issue of Religare Enterprises was offered at a price band of Rs 160-185 per share to raise Rs 140 crore. The IPO was subscribed 160.56 times. The stock got listed at Rs 323 on November 21, 2007.Religare Enterprises' shares surged 182% over the issue price on its debut trade on the bourses.
Religare is promoted by Ranbaxy Laboratories and provides financial product and services. The company offers wide range of services including equities, commodities, insurance broking, wealth advisory, portfolio management services, personal finance, investment banking and institutional broking services.
As on Dec. 3, 2007, the stock was trading at Rs 505.45.
DLF
The mega public issue of DLF hit the markets on June 11, 2007 to raise Rs 9,625 crore. The IPO issue, initially scheduled for June 2006 faced a lot of hiccups. DLF shares rose 6% in their market debut, propelling the firm to the list of India's 10 most valuable companies. The issue was subscribed 2.47 times. The price band of the IPO was fixed between Rs 500 and Rs 550 and the shares got listed at Rs 526.60.DLF is one of India's leading players in the real estate development industry. The company has been in existence since 1946 and has completed 224 million sq ft of development.
The stock price was quoted at Rs 944.40 as on Dec 3, 2007.
Power Grid Corporation
The Rs 2984.45-crore public issue of Power Grid Corporation hit the capital markets on October 5, 2007. The price band of the IPO was Rs 44-52 per share. The issue got overwhelming response and was subscribed by almost 10 times. The shares got listed at Rs 85 per share, 63 per cent more than the issue price.
Power Grid Corporation (PGCIL) is the country's principal electric power transmission company and has been designated a miniratna category-I public sector undertaking.
The scrip closed the trade on Dec. 3, 2007 at Rs 147.90.
Idea Cellular
In order to fund its expansion plans, the Aditya Birla Group-promoted Idea Cellular came out with a public issue to raise Rs 2,500 crore. The public issue was oversubscribed 49.51 times. The IPO was offered at a price band of Rs 65 to Rs 75 per share and the shares got listed on March 9, 2007 at Rs 92.40. The scrip gained 23% on debut.
Nearly 65.15% of the equity shares of Idea Cellular are held by companies belonging to Aditya Birla Group.
The scrip was quoted at Rs 122.65 as on Dec. 3, 2007HDIL
The public issue of HDIL was offered at a price band of Rs 430-500 per share. The 3-crore sale was subscribed 6.6 times. The IPO got listed on July 24, 2007 at Rs 567.60.
Housing Development and Infrastructure Ltd (HDIL) is a real estate development company based in Mumbai. After listing, HDIL ranks third among realty companies in India.
On Dec 3, 2007, the scrip was quoting at Rs 822.40.
Omaxe
The Rs 552-crore IPO of Omaxe was offered at a price band of Rs 265-310 per share. Omaxe shares, oversubscribed 68 times, were listed at Rs 400 on August 9, 2007, 29% above its offer price.
Omaxe is a real estate development and construction company with operations in 30 cities and 9 states across the country. Omaxe's operations span across all aspects of real estate development, from the identification and acquisition of land, to the planning, execution and marketing of projects.
As on Dec. 3, 2007, the stock was trading at Rs 434.
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Central Bank of India
Central Bank of India came out with a public issue with a price band of Rs 85 to Rs 102 per share. The Rs 816-crore issue was oversubscribed by 62.07 times. The shares got listed on August 21, 2007 at Rs 130.10 with a premium of 27.5% to its issue price.
Incorporated in 1911, Central Bank of India is a premier public sector bank with branches in 27 out of 28 States and also in 4 out of 7 Union Territories.
The stock price was quoting at Rs 135.30 as on Dec 3, 2007.
ICRA
The Rs 85-crore public issue of ICRA hit the capital markets with a price band of Rs 275-330 per share. The ICRA public issue, oversubscribed by 75 times, made a grand debut on April 13, 2007 at Rs 550 on the NSE and ended the day's trade with a gain of 143.5%.
Established in 1991 by a consortium of financial institutions, commercial banks and financial services companies, ICRA is one of the four credit rating agencies in India providing a wide range of products and services.
The scrip closed the trade on Dec. 3, 2007 at Rs 955.45.
Motilal Oswal Financial Services
Motilal Oswal Financial Services came out with a public issue on September 11, 2007. The price band of the IPO was Rs 725 to Rs 825. The company's shares, oversubscribed 27 times, were listed at Rs 999, recording a premium of 21.09%.
Motilal Oswal Financial Services Ltd is a diversified financial services firm offering a range of financial products and services such as retail wealth management, portfolio management services, institutional broking, venture capital management and investment banking services.
On Dec 3, 2007, the scrip was quoting at Rs 1728.
Indian Bank
The Chennai-headquartered Indian Bank had made a dramatic turnaround and was keen to enter the equity markets at the right time. The IPO, to raise Rs 782 crore, was issued in the price band of Rs 77 to Rs 91 per share. The shares were oversubscribed 57.1 times and got listed on March 1, 2007 at Rs 85 on the NSE and Rs 92.4 on the BSE.
Incorporated on March 5, 1907, Indian Bank is a leading public sector banking institution with the largest network of branches in Tamil Nadu. It was nationalised in 1969, along with 13 other major commercial banks.
The scrip closed the trade on Dec. 3, 2007 at Rs 190.85.
Cairn India
Cairn India tapped the equity markets to raise Rs 6,247 crore. The IPO was offered in the price band of Rs 160 to Rs 190. The issue, oversubscribed by 1.35 times, got listed on January 9, 2007 at Rs 140 per share.
Cairn India closed Day 1's trade 14 per cent below the issue price due to the unenthusiastic response to the issue, concerns about the quality and evacuation of the company's crude and falling global crude prices.
Cairn India, promoted by Cairn Energy Plc, is engaged in the exploration, development, and production of oil and gas in India.
The stock price was quoting at Rs 214.95 as on Dec 3, 2007.
Let Sensex play itself out 2007
t is best that watchdogs of a country’s economic performance, especially, the custodians of public finance, refrain from making off-the-cuff comments on the complex happenings in bourses in motley gatherings where it is difficult to substantiate such observations with any kind of professional analysis.
From this perspective, the Finance Minister, P. Chidambaram, could well have avoided using the Hindustan Times Leadership Summit as the platform from which to make a confessional about how the Sensex sometimes surprised, and sometimes worried him, without clearly indicating when it did the one, and when the other! This was in the context of the Mumbai Stock Exchange closing on October 11 at its 15th record high in 17 sessions, and the Sensex being all set to race past 19,000.
His on the spot explanation that it was due to ‘copious inflow of funds from a number of sources’ could not also be said to be a breath-taking discovery, considering that foreign funds have bought a net $16.2 billion worth of shares this year, of which $2.8 billion was accounted for during October, and $370 million on October 11 alone. He gave out as his impromptu assessment that ‘these capital inflows are more copious than we would like them to be’, creating a ‘new situation’ over which, he assured the audience, ‘we will gain mastery’.
The occasion being what it was, there was no way he could elaborate on how copious he would like capital inflows to be and how and to what purpose he proposed to gain mastery over them. A few days earlier too, he had asked investors to be cautious before investing, in the now familiar standard disclaimer that appears with every market offering. He must have felt rewarded for his pains when the market slid down conspicuously soon after his cryptic pronouncements.
One can only surmise the reason for the uneasiness of the Finance Minister. He is perhaps haunted by the memory of one of his predecessors who is now the Prime Minister, and who was accused of having a restful sleep all through a similar boom in the early 1990s. That boom ended in a bust and turned into a scam, and Chidambaram does not want history to be repeated.
Robust conditions
His keenness to demonstrate that he is wide awake is understandable. But, there are many features which make the present situation different, though not necessarily new. First, there are no Harshad Mehtas manipulating the market and carrying out fraudulent transactions on an astronomical scale with the help of insiders in pivotal positions. Second, the Indian economy, touching a trillion dollars, has seen tremendous growth spread across the board - retail, telecommunications, aviation, auto, pharma, real estate, the works - and has the capacity to absorb the swings with the roundabouts.
Third, there is plenty of money in the hands of the country’s middle-class, larger than the population of the European Union or the US, and casting its lure for companies from all over the globe. This class of investors is market savvy and evolving into good risk managers.
Fourth, in the last 10 years, the RBI and the SEBI have put in place adequate early warning and surveillance systems making it possible to take pre-emptive action against occurrence of catastrophic contingencies. Fifth, one consequence of heavy capital inflows - rupee appreciation - can pinch at first, but business and industry are learning to circumvent it by being competitive in upgraded technology, delivery and quality, besides increasing the volume, velocity and variety of transactions.
Conditions are so very robust that the Finance Minister can very well let the Sensex play itself out as it may!Merger & acquisitions in India 2007
Indian companies continued their acquisition spree in 2007 also with nearly 210 M&A deals reported. At this pace, the M&A numbers may touch 400 by the year 2010. India is now among the world's most competitive producer of steel, auto component, pharmaceuticals, chemicals offering low-cost high value products, and the future merger & acquisition (M&A) activities between India and Europe would concentrate around them. Cross-border deals by Indian firms during the year are expected to be in the region of $35 billion, compared with $15 billion in 2006 and $4.3 billion in 2005.
This year, amongst the biggest overseas buys by an Indian company was the acquisition of Anglo-Dutch company Corus for $12.2 billion by Tata Steel. The deal is likely to catapult the combined entity to among the world's largest steel companies with a total capacity of about 24 million tonnes per year. The Tate Steel-Corus deal would be at No. 5 among the top deals witnessed by the global steel industry over the last couple of years. The highest rank goes to Arcelor-Mittal Steel deal of $32 billion followed by the NKK Corp-Kawasaki Steel deal of $14.1 billion.
Hindalco’s acquisition of Canadian company Novelis Inc for $ 5.9 billion is also one of the biggest overseas acquisitions by an Indian company. Hindalco is Aditya Birla Group’s flagship company. The all-cash transaction has made Novelis, Hindalco’s subsidiary. This transaction also makes Hindalco the world's largest aluminium rolled products company. The acquisition bodes well for both the entities. Novelis, processes primary aluminium to sell downstream high value added products. This is exactly what Hindalco manufactures. This makes it a marriage made in heaven.
Suzlon Energy acquired German wind turbine maker REpower for $1.7 billion. Suzlon has taken controlling stake in the company. French company Martifer already holds a 25 per cent stake in REpower. Suzlon has the call option to acquire the 25 per cent stake that Martifer holds at a later date. Similar to Suzlon, REpower is exclusively focussed on the wind power business, but the two were not competitors. REpower’s growth plans fitted into Suzlon’s expansion plans for the near future.
Vijay Mallya's United Spirits bought out the Scotch major Whyte & Mackay for $1.11 billion, which includes a payout to bridge a pension fund deficit in W&M's Pension Trust. Whyte & Mackay has an array of brands including their USP W&M Scotch Whisky, Dalmore Scotch Whisky ,Isle Jura Single Malt and Vladivar Vodka. United spirits will look to promote these products in India and several markets overseas.
Essar Global Limited, through its wholly owned subsidiary Essar Steel Holdings Limited, acquired majority stake in Canadian company Algoma Steel Inc for an amount aggregating $1.74 billion. This acquisition fits in with Essar’s global steel vision. Algoma provides an excellent platform for the Canadian and North American markets. The Canadian company’s revenues are derived primarily from the manufacture and sale of rolled steel products including hot and cold rolled steel and plate. Essar Steel already operates a cold rolling complex in Indonesia and has now finalized plans to setup an integrated steel plant for flat products in Trinidad and Tobago and a hot strip mill in Vietnam.
Acquisitions by Indian pharmaceutical companies have also taken centre stage this year. Ranbaxy Laboratories has acquired Be-Tabs, the South African pharma major for a whopping $70 million. This will make the company the fifth largest generic pharmaceutical company in South Africa. In March, Glenmark Pharmaceuticals acquired 90 per cent stake in Medicamenta, a pharma marketer and manufacturer in Czech Republic for an undisclosed amount. Wockhardt bought out Negma Laboratories of France for $265 million in May. In June 2007, Zydus Cadila acquired a privately owned mid-sized Brazilian company, Nikkho, for $26 million. In July, Elder Pharmaceuticals acquired 20 per cent stake in the Neutra Health of UK for £5.63 million.
This year, amongst the biggest overseas buys by an Indian company was the acquisition of Anglo-Dutch company Corus for $12.2 billion by Tata Steel. The deal is likely to catapult the combined entity to among the world's largest steel companies with a total capacity of about 24 million tonnes per year. The Tate Steel-Corus deal would be at No. 5 among the top deals witnessed by the global steel industry over the last couple of years. The highest rank goes to Arcelor-Mittal Steel deal of $32 billion followed by the NKK Corp-Kawasaki Steel deal of $14.1 billion.
Hindalco’s acquisition of Canadian company Novelis Inc for $ 5.9 billion is also one of the biggest overseas acquisitions by an Indian company. Hindalco is Aditya Birla Group’s flagship company. The all-cash transaction has made Novelis, Hindalco’s subsidiary. This transaction also makes Hindalco the world's largest aluminium rolled products company. The acquisition bodes well for both the entities. Novelis, processes primary aluminium to sell downstream high value added products. This is exactly what Hindalco manufactures. This makes it a marriage made in heaven.
Suzlon Energy acquired German wind turbine maker REpower for $1.7 billion. Suzlon has taken controlling stake in the company. French company Martifer already holds a 25 per cent stake in REpower. Suzlon has the call option to acquire the 25 per cent stake that Martifer holds at a later date. Similar to Suzlon, REpower is exclusively focussed on the wind power business, but the two were not competitors. REpower’s growth plans fitted into Suzlon’s expansion plans for the near future.
Vijay Mallya's United Spirits bought out the Scotch major Whyte & Mackay for $1.11 billion, which includes a payout to bridge a pension fund deficit in W&M's Pension Trust. Whyte & Mackay has an array of brands including their USP W&M Scotch Whisky, Dalmore Scotch Whisky ,Isle Jura Single Malt and Vladivar Vodka. United spirits will look to promote these products in India and several markets overseas.
Essar Global Limited, through its wholly owned subsidiary Essar Steel Holdings Limited, acquired majority stake in Canadian company Algoma Steel Inc for an amount aggregating $1.74 billion. This acquisition fits in with Essar’s global steel vision. Algoma provides an excellent platform for the Canadian and North American markets. The Canadian company’s revenues are derived primarily from the manufacture and sale of rolled steel products including hot and cold rolled steel and plate. Essar Steel already operates a cold rolling complex in Indonesia and has now finalized plans to setup an integrated steel plant for flat products in Trinidad and Tobago and a hot strip mill in Vietnam.
Acquisitions by Indian pharmaceutical companies have also taken centre stage this year. Ranbaxy Laboratories has acquired Be-Tabs, the South African pharma major for a whopping $70 million. This will make the company the fifth largest generic pharmaceutical company in South Africa. In March, Glenmark Pharmaceuticals acquired 90 per cent stake in Medicamenta, a pharma marketer and manufacturer in Czech Republic for an undisclosed amount. Wockhardt bought out Negma Laboratories of France for $265 million in May. In June 2007, Zydus Cadila acquired a privately owned mid-sized Brazilian company, Nikkho, for $26 million. In July, Elder Pharmaceuticals acquired 20 per cent stake in the Neutra Health of UK for £5.63 million.
Cement Sector 2007
The cement sector is one of the booming sectors in the country. Huge demand for cement arises from housing sector's growth, infrastructure development and also global demand. Most cement companies are actively considering their expansion plans to meet future requirements. The present scenario is very good in terms of the surging demand and the rise in prices. Few years ago, housing sector was the biggest consumer of cement with 65 per cent, but this year an unexpected growth in infrastructure and several other projects made the housing sectors consumption to come down to 50-55 per cent. Infrastructure sector's consumption of domestic cement has grown to 45 per cent.
Production:
Globally, India stands second in cement manufacturing. The cement industry comprises of 128 large cement plants with an installed capacity of 165 million tonnes and more than 365 mini cement plants with an estimated capacity of 11.10 million tonnes per annum.
The cement industry faces a number of constraints in terms of high cost of power, high railway tariff, high incidence of state and central levies and duties, lack of private and public investment in infrastructure projects, poor quality coal and inadequate growth of related infrastructure such as sea and rail transport, ports and bulk terminals.
FDI inflows:
The cumulative FDI inflows into the cement industry have been $995 million from August 1991 to November 2007. The FDI inflows for cement industry are 2.26 per cent of the whole country's FDI into the country.
Financial performance:
The Top 5 companies in the cement sector are Grasim Industries, Ultra Tech, Gujarat Ambuja, ACC and India Cements. All these 5 companies have registered more than 50% growth when compared to last 5 years.
Operating profit (in Rs crore)
| Companies | 2007 | 2006 | 2005 | 2004 | 2003 |
| Grasim Industries | 2409.35 | 1421.79 | 1615.31 | 1294.97 | 1019.91 |
| Gujarat Ambuja | 103.74 | 76.09 | 60.49 | 51.46 | 33.58 |
| ACC | 1877.20 | 1623.22 | 623.38 | 383.09 | 292.51 |
| India Cements | 22.82 | 18.51 | 2.91 | 1.37 | (0.34) |
| Ultra Tech | 1417.81 | 554.26 | 272.81 | 199 | 133 |
Exports:
Cement exports have increased over the years, giving a boost to the industry. Among the cement majors, Gujarat Ambuja Cements and UltraTech Cement are the largest exporters; their production centres being close to the Western Coast. UltraTech exports over 3 million tonnes of clinker and cement per annum. Cement and clinker are exported to countries around the Indian Ocean, Africa, Europe and the Middle East. Europe and the UAE are the major markets for UltraTech Cement. Export realisations saw a rise during the last fiscal, due to the construction boom in West Asia. The surplus position that was long enjoyed by the Indian cement industry is steadily on the decline on account of increased demand.
Future:
Cement industry projects an annual growth at 10 per cent in the coming years as more money is poured into infrastructure projects like roads, bridges, ports and houses. Cement companies are running plants at full capacity to catch a fast expanding economy and producers have pledged to add another 110 million tonnes of capacity by 2009/10 to the existing 177 million tonnes a year.
It is an impressive growth but in terms of per capita consumption, India is well behind average. As a result of huge investments in infrastructure, the Indian cement industry is likely to grow rapidly. Indian cement companies are considered as the most efficient globally because of its low cost technology. There is a huge potential for Indian cement companies in the export market. The rules and regulations for FDI are also investor-friendly. It is a favorable factor for India to attract investments from global majors. Despite some consolidation, the industry remains somewhat fragmented and merger and acquisition possibilities are strong.
Real estate 2007: Scaling new heights
Real estate market is touching new heights as the boom in the property prices is spreading in all directions. The India realty sector sees immense growth on account of demand from the commercial, residential and retail sector. Huge growth in outsourcing and IT industry creates great demand for commercial offices, lot of upcoming projects in retail sector and housing sector is in shortage of more than 20 million sq. ft. India is currently seen as a prime destination for overseas investors. The country's favourable demographic and economic scenario makes it an attractive destination for the real estate investors.
Growth drivers
The propellants for the real estate sector are:
- Growth in the country's middle class creates a huge demand for housing.
- India has the second largest population in the world and the growth rate of population is still rapid.
- FDI has increased significantly which increase commercial space requirements by foreign firms.
- Organised retail sector is in the expansion mode.
- Financing for real estate is getting easier seeing its huge growth.
India has displaced US as the second-most favoured destination for FDI in the world. India receives more than $8 billion as FDI in real estate sector this year. The largest FDI in India is from Emaar-MGF for projects with a capital outlay of $4 billion. DSP Merrill Lynch, Barclays Bank and Mauritius-based TH Holdings and groups have so far invested Rs 11, 460 crore in real estate in India. Wall Street powerhouses such as the Blackstone Group ($1 billion) Goldman Sachs ($1 billion), Citigroup Property Investors ($125 million), Morgan Stanley ($70 million) and GE Commercial Finance Real Estate ($ 63 million) have invested in Indian realty sector. In mid-2007, Morgan Stanley sealed a $150-million deal with Oberoi Constructions. The Nakheel Group in Dubai entered into a $10-billion deal with DLF for residential projects in Tier I and II cities.
Housing projects: Several factors, including rapid population growth, rising incomes, emergence of nuclear families, tax incentives, availability of home loans at competitive rates, are responsible for the growing demand for houses and hence extensive residential construction. There is currently a shortage of around 20 million units and the demand is expected to rise in the forthcoming years. The current scenario is very conducive for investment in the housing real estate sector.
Real estate is a highly fragmented sector with only a few organised players. Most real estate developers have only a local or regional presence and there is moderate participation from big corporates till now. The top players in the real estate and construction industry are Omaxe, Unitech, Hiranandani, DLF and Ansal group.
Investment opportunities:
Investment opportunities exist in the following:
- Residential Complexes
- Office/ Industrial Complexes
- Commercial Space for Organized Retailing
- Hotels and Hospitality Sector
- Special Economic Zones
- Venture Funds
Positives:
The growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector. The new stand adopted by Indian government regarding foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest in Indian properties.
The Indian government is following China's growth strategy, by promoting SEZs and industrial parks, offering various tax and duty holidays to developers or units setting up base in these zones. The government has indicated that tax holidays and other benefits could be discontinued for industrial parks from 2009.
Commercial and private rents have also soared. The price of office space has climbed by 55 per cent in Mumbai in the past year, making it the second costliest office market in the world after London. Main positive factor for the growth is the expansion plans of technology majors, big retail players and other commercial parties.
Negatives:
The Government's post-budget move is quiet negative towards real estate. Service tax is been extended in renting of properties to the commercial and business purposes; this will have a negative impact towards the market. Construction costs are marginally up because of the increase in excise duty on cement, which is an important raw material. Increase in infrastructure spend, increase in highways outlay, marginal increase in allocations for Jawaharlal Nehru National Urban Renewal Mission are all indirect positives.
Future projects:
- Omaxe forays into SEZ development, by signing MoU with the Government of Rajasthan to develop a multi product SEZ in Alwar district of Rajasthan spread over the area of 5000 hectare.
- SVP Builders India Ltd., a Rs 2000-crore real-estate development company announced the launch of 'Gulmohur Gardens', a sprawling residential complex, with a targeted revenue of Rs 200 crore ($50 million), from 700 dwellings near Ghaziabad.
- Simplex Infrastructures Ltd plans to construct a largest marine project at Kochi.
- DLF Ltd has attracted participation of private equity real estate funds in its township projects by diluting 49% equity stake at a premium, in seven residential projects to a Merrill Lynch & Co entity for a consideration of Rs 1481 crore.
- GTL Infrastructure Ltd has signed a MoU with IDFC Project Equity Company Ltd to form a Special Purpose Vehicle (SPV) that shall address the Telecom Tower Infrastructure acquisition opportunities.
- Bahrain-based Gulf Finance House (GFH) is investing over $ 2 billion in a greenfield site close to Navi Mumbai, near to the commercial capital's airport. GFH has already raised $ 630 million towards the initial development and infrastructure requirements of the project.
- Real estate developer Vipul plans to invest Rs 13,000 crore in the next five years to expand from its base in North India to other markets in the country. The major investment will go towards developing its existing land bank.
- Nagarjuna Construction Company Ltd has announced that Infrastructure Development Department, Government of Karnataka, has selected a consortium of Maytas Infra Ltd (Maytas), NCC Infrastructure Holdings Ltd., (A 100% subsidiary of the Company) and VIE India Project Development and Holding LLC (VIE) to develop and operate airport proposed at Gulbarga and Shimoga on BOT basis.
Pharmaceuticals: Mixing the right dosage
The pharmaceutical industry looks ahead at a colourful horizon. Indian pharmaceutical industry ranks 4th worldwide, accounting for 8% of the world's production (in terms of volume) and 13th in terms of value. Pharma companies export drugs worth over $4.5 billion. Indian exports cover more than 200 countries including the highly regulated markets of USA, Europe, Japan and Australia. The key to the success of Indian pharmaceutical companies is their ability to retain their cost advantage while matching the quality standards of the west.
Growth potential
The domestic Indian pharmaceutical industry is likely to more than triple to $20 billion by 2015 from the current $6 billion to become one of the top 10 pharmaceutical markets in the next decade, says McKinsey report. Significantly, patented drugs are likely to see increased sales in the domestic pharmaceutical market, growing from virtually nothing at present to about $2 billion in seven years.
Consequently, a number of multinationals have entered the Indian pharmaceutical space. Already 15 of the 20 largest pharmaceutical companies in the world have a presence in India. In fact, drugs and pharmaceuticals is the eighth largest FDI-attracting sectors in India.
Positives factors
Cost advantage: Apart from contract manufacturing, contract research is gaining momentum in the pharma industry. Instead of producing in their respective countries, large global pharmaceutical companies are finding it profitable to outsource production. To tap this opportunity, many large companies are becoming US FDA compliant. It is also profitable for global pharmaceutical companies to outsource instead of producing in their own country. At present, India has 75 US FDA approved plants.
Growth opportunities: Various joint ventures have been formed between Indian and MNC pharma players for strengthening their manufacturing capabilities, technology-sharing and leveraging on the partner's experience in product filings, regulatory compliance, etc.
R&D space: Greater investment in R&D has led to a major change in the industry. Contract research also offers significant opportunity to the Indian pharma industry that is becoming a global R&D hot-spot for innovative pharma companies. The global contract research opportunity is expected to reach $24 billion by 2010. Declining R&D productivity, coupled with an increasing number of products going off patent is expected to drive the growth of the contract research segment.
Tax exemption: On the regulatory front, the government is also trying to promote the growth of this industry by providing a tax exemption on all services carried out by the contract research and clinical trials industry. This step is likely to further boost clinical trial outsourcing to India.
Negative factors
Lack of facilities: For global pharma majors, India remains the key outsourcing destination as companies here are cost competitive in manufacturing bulk drugs. This is basically a commodity making skill and is the lower end of the pharma value chain. Indian pharma industry still lacks facilities to conduct clinical tests. To undertake expensive clinical tests, Indian companies have to depend on international peers.
Patent regime: For the small companies, the new patent rule might not be good to survive in the environment. Domestic pharma majors will find it difficult to launch new products and it may slowly reduce. The law favours MNC pharma companies to increase their product launches. As a result, this will pose competition to the domestic players.
Thus the patent regime will be a major drawback for the Indian companies.
Competition: Competition in the generics market has. Consequently, the prices are wearing away. The condition is expected to be worsen further. Companies will have to face stiff competition. In order to compete in the market, companies have to make a right acquisition plan.
Generics
Indian pharmaceutical companies with their reverse-engineering expertise, abundant investment in research facilities and availability of skilled manpower are favorably placed in the global generic market. According to a report by global pharmaceutical market intelligence company, IMS Health, Indian generic manufacturers will grow by 14-15% next year, to more than $70 billion as drugs worth approximately $20 billion in annual sales will face patent expiry in 2008.
Already, Indian drug companies account for over 25% of the total generic drug applications made to the FDA of US, which accounts for over half of the $60 billion market.
Global acquisitions
Many Indian pharma companies have been setting up new plants or acquiring existing plants to increase their scale of operations and their share in the branded generic drug segment.
- Zydus Cadila, the Ahmedabad-based pharma company, has acquired 100% stake in Nippon Universal Pharmaceutical, Tokyo.
- Ranbaxy has 50% stake in Nihon Pharmaceutical Industry (NPI), a joint venture between Ranbaxy Laboratories (RLL) and Nippon Chemiphar of Japan. It has also acquired the rights from Bristol-Myers Squibb (BMS) of US to manufacture and market 13 dermatology brands.
- Sun Pharmaceuticals has bought Israel's Taro Pharmaceutical Industries for $454 million. The company, on the whole, has 13 acquisitions to its credit, which include manufacturing sites, brands and companies. Taro is its 14th buy.
- Jubilant Organosys, a leading domestic player in the pharmaceutical CRAMS segment, has acquired 100% stake in US-based contract injectable maker Hollister-Stier Laboratories LLC (Hollister) for $138.5 million.
- Lupin has acquired 80% stake in Kyowa Pharmaceutical Industry (Kyowa), one of the top ten generic pharmaceutical companies in Japan.
- Intas Biopharmaceuticals Ltd (IBPL), an Ahmedabad-based biopharmaceutical company, has entered into a strategic R&D pact with the US based Virionics Corporation.
- Wockhardt Ltd has acquired Paris-based Negma Laboratories and US-based Morton Grove Pharmaceuticals.
Pharma stocks index
During the year, the pharma index shows volatility. But its overall performance is good. It has ended up than what it was at the beginning.
Forecast
Goldman Sachs predicts that India will be the fifth largest pharmaceutical market in the world by 2020, with sales of $43 billion. India must update its patent laws to international standards, thereby truly encouraging and rewarding innovation. A patent law change is inevitable as the reform will benefit domestic drugmakers, which are increasingly involved in R&D, as well as foreign players. If changes are not undertaken, investment in the country will fall, severely hampering economic development.
IT sector 2007: Stung by the rising rupee
India continues to be the top destination for IT and IT related services.
IT-ITeS sectors will contribute $115 billion to the economy from allied sectors as well. This emerging sector is expected to create about 11 million jobs over the next three years. By 2010, the sector is expected to generate exports worth $60-75 billion. IT sectors has done pretty well in 2007 despite the rupee shock and the subprime crisis in the US.
| Positive factors | |
Outsourcing: India is a powerhouse catering to almost all the leading global companies of the world. IBM, Cisco, Yahoo! Amazon and Oracle all outsource from India. India gives complete solutions supported by its technological ability, quality, flexibility, and cost effectiveness; time to market and in turn the competitive edge. Most of the services provided by our IT major are software, web design, logo design, Flash design, search engine optimisation services etc.
| Broadening their portfolio | |
Indian software companies are consistently broadening their portfolio of offerings and moving fast up the value chain. Given that traditional services, such as application development and maintenance (ADM), are getting commoditised, it is imperative for these companies to move higher up the value chain into areas like consulting, package implementation and systems integration. Not only will this help Indian companies get higher billing rates from their clients, it will also give them an opportunity to work closely with the top managements of client companies.
Other positives
Among other positive factors for the Indian software industry, the major ones are large availability of talented manpower, cost advantage and geographical advantages (time-zone advantages). The companies involved in IT outsourcing in India provide high quality work, meeting international standards and complying with the ISO & SEI-CMM standards. Three out of every four SEI-CMM 5 companies worldwide are located in India.
| Negatives | |
IT companies are facing the heat of depreciating dollar. The value of the rupee against the US dollar has increased by over 15 per cent in the past seven months forcing the companies to rethink their strategies. Most of the IT companies receive their revenue as dollars, because of this the margins have come down. So many IT companies have decided to cut down their costs to save margins. India's high growth rate has led to problems with inadequate public infrastructure, salary inflation and high attrition rates.
Dependence on US markets: Out of India's total IT exports, US market accounts for around 60%. Such a high level of dependence on a geographical location implies high risk for the Indian IT sector. The US economy is facing a crisis and hence outsourcing to low-cost countries like India make take a hit. Also, opposition to outsourcing of jobs to India also pose worries to Indian companies.
More competitors: Despite remaining the top spot for IT hub, India is facing threat from China, Ireland, Singapore and Malaysia. Demand for experienced professionals is high which leads to attrition rate of about 40%. The other key factors posing as threat are poor infrastructure and rising wages. As the attrition rate is high, employees are paid high in order to retain talent. So ultimately the margins get affected. China is rising as an attractive location.
Higher attrition rates: Attrition is not unique to India. The attrition rates in the US and UK are much higher than in our country. It is new to India, but our businesses are designed around attrition. In fact, the attrition rate is pretty high at the management level. One way of dealing with attrition at the management level is to empower managers to take decisions. At the agent level, departments have to be structured to provide fulfiling work conditions.
Tax model: Exemptions for export-oriented enterprises such as software outsourcing firms have been cut. IT companies have to pay Minimum Alternative Tax for their exports. The dividend distribution tax has been raised from 12.5% to 15%.
| Performance of Top IT companies (Last 5 years) | |
| Net Profit | 2007 | 2006 | 2005 | 2004 | 2003 |
| TCS | 3757.29 | 2716.87 | 1831.42 | 1637 | 1176 |
| Infosys | 3783 | 2479 | 1864 | 1243.63 | 954.77 |
| Wipro | 856 | 657.5 | 421.4 | 411.7 | 230.2 |
| Satyam Computers | 1131 | 894 | 712 | 555.79 | 459.88 |
| HCL Technologies | 1,101.82 | 638.39 | 329.27 | 325.72 | 312.47 |
As per the above report the top IT companies has posted a wonderful net profit for the particular year ends. Net profit has subsequently raised year on year. The companies has shown a great growth.
| IT Index performance during 2007 | |
The stocks of the IT companies have not performed to their best as a whole. IT index is highly volatile and sloping downwards from January 2007 to December 20'07.
Outlook
The Indian IT sector is expected to show robust growth in 2008. From an economic perspective however, the overall growth outlook is positive, with the economy still growing at a strong rate and annual GDP growth expected between 7% and 8%. However, some risks pertain to this scenario including uncertainty over the future evolution of the tax regime governing computer manufacturers, importers and rupee appreciation could cost for IT sector. IT sector face moderate threat through resource crunch, weakening dollar, sub-prime crisis, recession fears in the US.
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