Friday, August 31, 2012

Billions of dollars investment increase; what’s up with agriculture?

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

We’ll jump straight out of the chaff. According to the Annual Report 2009-10 of the Ministry of Agriculture, the public and private sector investment in agriculture has been steadily increasing since 2004-05. While public sector investments in agriculture have increased from $3.61 billion in 2004-05 to $5.5 billion in 2008-09 (52% increase), private sector investments have increased from $14 billion in 2004-05 to $25.5 billion in 2008-09 (82% increase).

While the general think has been that agriculture has slowly been losing out its sheen – both at the grass roots level (more and more farmers preferring to migrate to cities) and at the corporate level – the actual figures allude to a situation that seems clearly quite to the contrary. Not only has the agriculture sector been able to attract investments, it also has been able to do the same across the value chain – right from the fields to the point of value added disbursement.

On afterthought, this shouldn’t have been that difficult to forecast, as much of the planned investment is arising purely because of the clear cut rising gap between the demand and supply of food items like cereals, pulses, edible oil and sugar. Consultant and industry body estimates that the rising gap will further give birth to a plethora of service-providers and firms that would try to develop newer business opportunities between the consumer and food-manufacturer.

Data from FICCI corroborates this perspective – FICCI research claims that the food processing industry in India would reach an astonishing size of `1 lakh crore by the end of 11th plan. And in this food processing chain are involved grading, sorting and packaging (GSP) service providers, venture capitalists, and other food processing firms. At the front end of this supply chain, organized retailers are targeting consumers with attractively packaged processed agri-commodities; and at the back end, are companies specialising in setting up cold chain facilities. At the vanguard of these opportunities are some of the biggest names of India Inc like Tatas, ITC, Reliance who are consciously linking to Indian farmers in various ways.

Star Bazaar (the hypermarket formats of Tatas) has recently collaborated for setting up a supply chain of UK’s Tesco that will ensure exports of agri-commodities from India. Reliance Fresh is building a logistics business that includes a massive cold storage operation; this should be operational by 2011. Tata Chemicals has set up a banana ripening centre in a joint venture with Irish company Total Produce. Christened as Khet Se, this venture was started in 2007 and within a time span of three years it has managed to grow at more than 30 per cent. And these are the top examples that signify the impetus driving the sector currently.


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posted by Editorial at 1:30 PM

Thursday, August 30, 2012

Frugality in the city of dreams!

There is tremendous buzz about CRZ redevelopment and the long-pending SRD in Mumbai. But can these policy initiatives ever hope to clear those elusive execution hurdles? by Mona Mehta

With a bird’s eye view from the middle of the Arabian Sea, one can easily view some newly constructed tall buildings adorning the Mumbai skyline – a spectacular and grand view, any which way. But when you come closer to the coastline, say, between Versova and Cuffe Parade, there are around 2,500 old dilapidated buildings falling under the coastal regulatory zones (CRZs) awaiting increase in floor space index (FSI) as part of the redevelopment process. Understandably, residents here seems to have got a sigh of relief as the state government’s recent decision to involve the Maharashtra Housing And Area Development Authority (MHADA) in housing projects in the CRZ areas is expected to yield one lakh affordable homes in the city.

The move has come in the wake of Centre agreeing to allow private participation in the redevelopment of dilapidated buildings and large slum pockets falling under the CRZ. Following that, state environment minister Suresh Shetty recently met Union environment minister Jairam Ramesh and broadly agreed to allow private participation to the extent of 49% and Maharashtra Housing And Area Development Authority (MHADA) to have 51% stake.

Around 38% of the city is governed by stringent CRZ rules that have blocked redevelopment of around 5,000 dilapidated buildings and slums in areas such as Colaba, Girgaum, Mahim and stretches in Borivali. Hemant Shah, Head, Slum Rehabilitation Authority (SRA) told B&E, “The state government is trying to increase the FSI from the existing 2.5 to 3 for the redevelopment of old dilapidated buildings. Due our involvement in various slum redevelopment projects between Versova to Cuffe Parade in Mumbai, we will be able to redevelop several dilapidated buildings and slum pockets falling under the CRZ.” Ackruti City is one instance of a builder in the affordable housing space. As there are affordable housing projects with lesser margins the company will be using cost efficient techniques. Hemant Shah, Chairman, Ackruti City told B&E, “Though the projects are under affordable housing, the customers are still looking at premium amenities such as Club House, Gym, Kids play area, good entrance lobbies et al.”

A lot of areas are covered by CRZ because of the vicinity to the sea. Smaller rivers like Meethi and areas covered by salt land make matters complicated when it comes to developing CRZs. But if there is a road between land and sea, the impact of CRZ comes down. According to Pranay Vakil, Chairman, Knight Frank India, “As for redevelopment of CRZ, work is being done on exploiting the Eartern waterfront in Mumbai between JJ School of Architecture and the Columbia University. The idea is to improve the infrastructure and connectivity of the island city with the that of mainland.” 

Read more....

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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posted by Editorial at 4:35 PM

Wednesday, August 29, 2012

PHARMA: MID SIZE COMPANIES

Ever since the growth models of the 1990s began to elude the big guns of Indian pharma, a sordid phase of consolidation seems to have set in; raising fears of total disaster for the players. However, there is a light at the end of the tunnel with an interesting clutch of mid-sized players showing the way towards future sustainability and growth.

So where and how did the good times for the mid-sized players begin in this scenario? It all started in 2005 when the patent regime was enforced in India. At that point of time, these companies were small entities and found the going even tougher. On one hand, they were battling the patent regime and on the other they faced stiff competition from global and Indian giants. Some went into oblivion but others decided to fight hard and reinvent themselves. Necessity ultimately became the mother of invention and these companies began to develop smart business models that thrived as the best were faltering. As mentioned earlier, Arch Pharmalabs became a `12 billion entity by manufacturing just three API's. Similarly, there is another company that is now doing very well and has a turnover exceeding `6.5 billion. Unimark Remedies was founded in 1983. Till 1995 its primary business came from marketing drugs of large pharma and chemical companies. Soon, the company realised that after being in the industry for almost 12 years, its team knew which products were selling like hot cakes in the market. With this assumption, the company took the plunge into the API manufacturing segment. After tasting success as an API manufacturer, Unimark Remedies decided to tie up with competitors by asking them to manufacture products that Unimark could no longer do on a large scale. In turn, Unimark started selling such APIs based on a profit sharing agreement. Unimark has so far filed for 12 patents and is doing very well.

Another success story is that of Acharya Chemicals. This outfit was founded in 1974 with an initial capital investment of `40,000. It started its production with a few products like Benzyl Benzoate IP and Methyl Nicotinate IP/BP. The plant set up was with two 50 ltr. and 20 ltrs distillation assemblies along with 1 centrifuge, 3 vacuum pumps and 1 water ejector. In its pursuit to innovate the company came up with an R&D lab in 1980. Despite the small size, Acharya Chemicals had huge ambitions. Although it operated in the API and clinical trial domain, it soon realised that the future lay in contract manufacturing. After a tie up with a giant Swiss pharmaceutical company till 1999, it realised that its core strength was in Chemistry. Starting with a capital of `40,000 today the company has a turnover ranging between Rs.300 million and a cumulative production capacity of around 200TPM of Chemical Entities. Aurobindo Pharma, which had humble beginnings in 1986, has now become an inspiration for many pharma companies. Bulk actives are Aurobindo’s core area of competence. It has become an internationally reputed name. In 2009, Pfizer entered into a deal with Aurobindo Pharma for contract manufacturing of 39 drugs. Since 1986, Aurobindo has invested significant resources in creating infrastructure for APIs and the results are showing. As of August 2010, Aurobindo Pharma expects its revenues from US to go upto $350 million as compared to the $200 million last year. The crux was that these players carefully chose their areas of competence and pursued them with unbridled aggression.


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posted by Editorial at 2:33 PM

Friday, August 24, 2012

“Our concern was – How do we manage our rate of debt?”

In the midst of the general concern and uncertainty in the market regarding the realty sector and companies like DLF, the company’s Group Executive Director Rajeev Talwar is optimistic of a more evolved market & consistent supply in the coming years. In this exclusive with virat bahri of B&E, Talwar talks about DLF’s downturn adjustments and future vision. Some excerpts

B&E: Market reports are highlighting the fact that DLF missed its targets for FY 2009-10. What is your view of the company’s performance?
Rajeev Talwar (RT): This question (by analysts) is unreasonable on two grounds. Firstly, is it due to lack of knowledge about the recession in the developed economies, including Japan, and downturn and meltdown in the other economies? That should answer one half of your question – why the targets were missed. Secondly, real estate is a hugely complex and intricate business. People talk at times of a price bubble in booming economies. There was no price bubble (in India) at all. There was a mere gap between demand and supply. It may take a gestation period of less than an year for a particular processed product in the manufacturing sector; in this sector it takes very often 4-5 years between conception to delivery. Whenever economies boom and there is no regular supply chain, there is bound to be a price rise due to shortage of housing or office space. If the economy grows at 8%, then the CAGR of real estate sector should be around 20%. That is the reason for demand-supply gap and increase in prices and speculators coming in. On the other side, in a downturn, people’s jobs are affected, emotional security is affected; there is an immediate drop in interest to acquire. Downturn and slide is much greater in the real estate sector. We were certain that there is bound to be a tight leash on targets of sales and revenues in downturn. But expenditure targets have to be exceeded, since that is the time when you have to concentrate and focus on execution and delivery. Construction in the last 1 year, which had dropped down from peak levels of 65-70 million sq. ft. (msf), a large percentage of construction in the private sector to 40-41 msf has picked up again to around 56 msf. So we are focusing on execution and in better times to come they would reflect better deliveries and constant supply.

B&E: How do you see the demand scenario picking up now?
RT: A good economy which is coasting along, hopefully a good monsoon, better crops, lower inflation and pressure on RBI reduced to hike up rates and possibly to go back to a low interest economy regime – if that happens, one sees a growing confidence from consumers and strongest demand from the residential sector. A good economy will also reflect that the corporate sector is getting stronger, which will reflect itself in increased demand for office space. In retail segment, while last year’s festive season was good, a good period of economic growth will shore up confidence among people and if there is a good festive season this year, the next fiscal should see some growth signs back in the retail segment.

B&E: What potential does DLF see in middle income/affordable housing?
RT: Due to our legacy, it is high income, because our locations and plots are extremely valuable. We are taking projects and seeing to it that we launch at the most competitive levels in order to make them value for money housing. Revenue growth should come. Government talks about Rs.10 lakh and above as mid-income. In tier 1 and super metro cities, it should be probably above Rs.50 lakh. Land here is usually controlled by government or it becomes very valuable if it is in private hands too.

Therefore your cost of acquisition becomes high. It therefore becomes impossible to give you what is normally called affordable housing or middle income housing below Rs.20 lakh. But Rs.10-20 lakh homes, even below, will be available for the poor. If housing costs Rs.50-75 lakh as mid-income housing in the super metros; in a tier 1 city it will cost Rs.45-60 lakh and going down to a tier 3-4 cities, you will get good homes at even less than Rs.20 lakhs. Since we are not in those cities and towns, I don’t think it will be possible for DLF. Our value housing even below Rs.5 lakh and Rs.10 lakh will be adjunct to the service category of our mid-income and high income group housing in super metros & tier 1 towns. Due to our name, quality, & location in the heart of the town, we tend to be in the upper end, but certainly, we also provide housing for the economically weaker section. Those will also be coming & will be costing anywhere between Rs.5-20 lakh depending on their proximity to premium locations.

B&E: Downturn increased debt levels significantly. How have you managed them over the past year?
RT: Some time after 9/11 in the US, everyone thought there was no end to the upswing. When it did come, it caught everyone by surprise. They weren’t unmanageable levels of debt for us but the only concern was how do you reduce the rate and increase the tenure. There was so much commercial paper in the market prior to that. Anywhere from 120-180 days seemed to be a long cycle till the time we realized that a good long cycle commercial paper or debt is of a period from 3-5-7-9 years. The second lesson was to reduce the interest rate. Our debt from under 1 year has increased to 3-5 years in tenure and also has portions of 7-9 years. At the same time, from 11.98% interest level, we have already come down to 10.5%. In real estate, people ask whether your debt levels are high or going higher. The fact is that there is so much of embedded value in your assets that debt is not something that you are normally so worried about, till the time a company is so highly leveraged that it cannot meet its development requirements (front flow) or its overhead costs for its normal cash flow. For us, thanks to various policies before and therefore very far-sighted policies even to take care in a downturn where you have a steady rental inflow of income, we have been through that much more easily. It’s already established that whatever overhead developmental costs or interest costs we have are well met from our usual leasing and launch businesses; so DLF doesn’t face pressures that some other overleveraged companies may face.




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posted by Editorial at 4:42 PM

Wednesday, August 22, 2012

US POLITICS: AFRICAN AMERICANS

African Americans still struggle

Recently, Rep. Artur Davis lost his bid to be the first black governor of Alabama, which was the latest in a series of defeats for African American politicians for state wide offices this year. More shockingly, he lost by a 62% to 38% margin, that too, after being the favourite in exit polls held in the run up to the election.

It would be too simplistic to consider this as a race problem in itself. Davis in fact lost in counties with a majority of African Americans, and was criticised for not reaching out to his own community and its power brokers. Moreover, seats are less at the top and there are fewer black candidates who are in contention for the same. Also, Obama had the ability to rally a large portion of America behind him. Few politicians of his ilk seem to possess that calibre today.


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posted by Editorial at 3:58 PM

Tuesday, August 21, 2012

Fox snaps!

Megan Fox will not be seen in the next installment of the Transformers franchise, and she wants it known that she has opted out and has not been dropped from the film. Recently, a topless photograph of hers was leaked, which was taken on the sets of the film Passion Play. The miscreant should be a worried man, for the furious Megan wants to personally cause physical harm to him! People are advised to think twice before messing with Megan!


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posted by Editorial at 5:44 PM

Tuesday, August 14, 2012

Miley’s milestone birthday

Miley Cyrus’ 18th birthday this November promises to be an eventful one. For one, she plans to move in to her own home at the Toluca Lake in Los Angeles on her birthday, which she will be renovating this summer. The young starlet has already spent a whopping $3.4 million on her dream house. The singer-actress will also be tying the knot with boyfriend Liam Hemsworth once she turns 18. Miley sure seems in a rush to shed her image of a cute teenager!


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posted by Editorial at 4:38 PM

Monday, August 13, 2012

“We will enter the interactive space”

And if you are thinking about the rationale behind the move, this is what Amit considers a need!

B&E: Among all businesses that you have handled so far which one do you think you enjoyed the most?
AG: I enjoyed all of them. In fact, I am very much part of all of them, but from day to day perspective I run Playwin and as such is more involved with it. Playwin keeps me on my toes constantly. It’s a very dynamic business as it keeps on changing quickly and drastically, both from the consumer perspective as well as the regulatory perspective. Thus, I have to keep a close watch on things around.

B&E: One particular business area that you would like to handle and get involved intensively in the near future?
AG: I think for us as a group there is lot to be planned in the coming years. Currently, there are few areas where we are not strong or are not present, for instance, interactive space. This is one area where we would like to strengthen going forward and I think that will happen soon. In fact, this is something in which I want to get involved personally. We’re working on it and a couple of announcements are in the pipeline. May be in the next 6-9 months you might see a lot of things happening in this regard.

B&E: What kind of growth is expected from Playwin in the next one year?
AG: Playwin business has grown rapidly over the past seven years. But currently there are a lot of changes happening on the regulatory sides as the government is working on to put together a regulatory framework for this industry. So, once we get little more clarity on what’s happening there, we would be in a position to really figure out things. Otherwise, as of today, our growth rate has come down to a single-digit number, which, unless there are some drastic policy changes, is not going to change in the near future.


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posted by Editorial at 12:33 PM