ECONOMY

Interest hike hits fresh projects in automobile, real estate

Mumbai: With another rise in interest rates imminent, India Inc.’s confidence on future investments and fund-raising has taken a hard knock.
Companies are likely to shelve new projects which have not been closed financially as expensive bank credit will raise the cost of doing business. Sectors such as automobile and real estate, which depend heavily on consumer finance, fear demand will get choked in the days to come. And the price spiral in commodities will cut profit margins in a sluggish market.
A quick survey of CEOs carried out by Business Standard a day after the Reserve Bank of India raised two key rates by 50 basis points each to contain monetary expansion confirmed the worst fears of industry — a slowdown definitely looms ahead, thanks to the steady climb in interest rates as the Center and the RBI grapple with double-digit inflation.
Most CEOs were reluctant to say if they have cut their business projections for the current financial year. (A General Motors executive did say that any further rise in interest rates could erode sales by 5 percent.)
Still, they all said that high growth in the country’s gross domestic product had become history. “It will be impressive if we are able to maintain even 7 percent growth,’’ Cairn India CEO Rahul Dhir said.
“Fresh investments will be shelved. Wherever projects have not achieved financial closures, they will have to be reviewed,’’ said Seshagiri Rao, director (finance), JSW Steel, which is expanding its steel capacities and foraying into power. “Sentiments of companies on investments and fund raising have turned negative,” Naresh Thakkar, managing director of ICRA, an affiliate of Moody’s, said.

Spice in Idea fold

New Delhi: Idea Cellular, the fifth biggest mobile operator in terms of subscribers, will acquire 40.8 percent in Spice Communications for over Rs. 2,700 crore. This deal will give Idea Cellular, having over 2.6-crore subscribers in 11 circles and another 44-lakh subscribers of Spice Communications in Punjab and Karnataka circles.
“Spice group’s investment vehicle, MCorpglobal Communications Pvt. Ltd. (MCPL), holding 40.8 percent in Spice Communications, will divest its entire holding to Idea Cellular at a price of Rs. 77.30 a share. MCPL will receive an additional payment of Rs. 543.97 crore from Idea Cellular as non-compete fee,” Spice group said in a statement.
This acquisition, which will be completed by December, is being seen as yet another step towards consolidation of the one of the world’s fastest growing mobile markets where over 80-lakh subscribers are being added every month.

GMR Infra buys 50 percent in InterGen for $1.1 billion

Mumbai: In the largest -ever acquisition of a global energy utility by an Indian company, GMR on June 25 announced the signing of a definitive documentation for the acquisition of 50 percent stake in the US-based InterGen N.V., a global power generation company.
The transaction is valued at $1.1 billion and GMR Infrastructure (Malta) signed the share purchase agreement with AIG Highstar to acquire the 50-percent stake. The remaining 50 percent is held by Ontario Teachers’ Pension Plan Board (OTPPB).
GMR is an infrastructure company with a presence in energy, airports, highways and urban infrastructure. InterGen has power plants across the UK, the Netherlands, Mexico, Australia and the Philippines, with a total capacity of 12,766 MW (8,086 MW of operational capacity and 4,680 MW of assets under development). The transaction is subject to regulatory approvals in each country where InterGen has operations and is expected to close in the third quarter of 2008.

Exports rise 22.9 percent in FY’08

Mumbai: India’s exports grew by 22.9 percent in FY’08, marginally higher than a 22.6 percent growth registered in the previous fiscal, the Reserve Bank said.
Exports stood at $155.4 billion in 2007-08, against $126.4 billion in the previous fiscal, mainly driven by a huge jump in engineering goods, gems and jewelry and petroleum products, RBI said in its June bulletin.
RBI said the growth in exports, during FY’08, was close to the average export growth of 23.5 percent recorded during the previous five years, indicating a strong upward momentum, the apex bank said.
Of the total exports, agriculture and allied products, engineering goods, gems and jewelry and petroleum products alone contributed 68 percent of the export growth during April-January FY’08, RBI said.
However, the growth in exports of petroleum products sharply decelerated to 36.7 percent as compared to 66.7 percent in the year-ago period.
Meanwhile, manufactured goods exhibited moderation in export growth in April-January period owing to deceleration in the exports of chemicals, engineering goods and textiles.

Mall revolution in India ‘mind blowing’ for visiting NRIs

New Delhi: “Mind blowing,” said an Indian professional from Dubai, after visiting a shopping mall. No, he was not commenting on a shopping mall in Dubai but one in New Delhi. He said it was one of the biggest and most modern shopping complexes he had seen. Plus, it had lots of shoppers with bags.
He is a very well-traveled person and knows what he is talking about; so if he was overwhelmed it was because of the sheer size and the ambience of the newest mall that covers 1.3 million sq ft spread over six acres in south Delhi with 125 shops, a cinema, restaurants and a huge cultural open space.
Just outside the southern limits of the city, in neighboring Gurgaon, over 30 malls have sprouted in the last six years. This centre for BPO (business process outsourcing) has young professionals with high disposable incomes who need to live it up and thus the malls are chock-a-block with huge signs and trappings.
Gurgaon has almost come to be known as ‘Mini Dubai’. No wonder a proper Gold Souk came up here with over 250 jewelers from all over India to cater to the wedding market and the new super rich.
Similarly, huge malls have come up in west, north and east Delhi, and across the state border in Noida. These malls have come up in all big Indian cities, moved on to smaller cities and now to smaller towns as well, just because there are buyers out there even in places like Meerut and Lucknow with money to spend.
When confronted with upper middle class fashion products in the malls, Indians staying abroad usually get taken aback as all this does not fit into the image of the country they left many decades ago. Yes, they know that India is a rising economic power and the back-office of the world, but the poor state of the masses stuck in poverty and overall lack of cleanliness in the towns and cities does not fit with these squeaky clean, sanitized, hassle-free places to go shopping for global brands that used to be available only to them abroad.
And when this NRI saw the malls, he said: “Now I know India is moving up.” But the big question is: are these islands of plenty in a sea of poverty? The answer is “yes” and “no” and it depends on how to view today’s India. If you are only looking at the poverty, then India has one of the highest numbers of poor people (earning less than a dollar a day) in the world. If you are looking at progress, then India has arrived with high growth and more people rising out of poverty in the last decade than any other time. The overall “look” of urban India is not all glass, chrome and neon.

Estee Lauder adds color to beauty business in India

Mumbai: It’s adding color to the beauty business in India. Luxury cosmetics brand Estee Lauder is the latest entrant in a market that is seen as the beauty spot in the emerging markets.
The cosmetics brand has become a part of American folklore, thanks to its founder, Estee Lauder who built the brand with some revolutionary sales methods - from introducing the model spokesperson to the free sample. A path followed by her granddaughter Aerin Lauder who is spearheading the company today.
While most foreign brands have come in through local distributors, Estee Lauder is making a direct entry, like Chanel, its closest competitor in the luxury segment.
“The Indian prestige market is growing by 25 percent plus, that’s a great opportunity, where else will you get such a market?” The Regional director of Estee Lauder, Sonia Michon-Floc’hlay, said.
While globally the trends have veered towards the anti-aging segment of skin care, Estee Lauder expects a younger audience in emerging markets like India. But luxury comes at a price, which often takes the gloss off the product especially with high import duties.

India’s first electric car Reva launched

New Delhi: After 13 years of research and development, India’s first electric car “Reva” was launched in the national capital by Delhi Chief Minister Sheila Dikshit on July 25 morning.
Describing Reva as “a little cute car,” Sheila Dikshit said her government was committed to taking steps to improve the city’s environment.
“It is a green day for Delhi. I have been using the car myself for short distances and I like it a lot,” she said.
To popularize the battery-operated car, the government announced a 15 percent subsidy on its base price, 12.5 percent exemption of value-added tax (VAT), and a refund of road tax and registration charges.
The subsidy and exemptions would bring down price of Reva’s base model to Rs.299,000, and it would cost users 40 paise per kilometer.
Following are some of the main features of India’s first battery-powered car:
- Manufacturer: Bangalore-based Reva Electric Car Company
- Name of car: REVAi.
- Time taken: 7 years of research and development (1994-2001).
- Sold in 13 countries.
- About 2,500 vehicles sold till date.
- Investment: $20 million on research.
- Price in Delhi: Starting from Rs.299,000, ex-showroom.
- Incentives in Delhi: Exemption of 12.5 percent value added tax.
- Other fiscal sops: 15 percent subsidy on base price.
- Speed: Up to 80 km/hr as compared to 65 km/hr in earlier models.
- Fuel efficiency: 80 km per charge with a/c and 129 km without a/c.
- Economy: 40 paise (about 1 Cent) per km.
- Servicing: Provision for servicing at customer’s home.
- Power Mode: Improved torque.
-l Acceleration: 0-40 km in 7 seconds.
- Braking: Disc brakes and increased regenerative braking.
Other features: Trip odometer, climate control seats, battery regenerator.
- Battery life: 120 km per charge.
- Air conditioning: Remote AC plus electronic temperature control.
- Hill restraint: Automatic hill restraint feature.

Gujarat turns to Shanghai developers to build a ‘towering’ financial hub

Ahmedabad: Mumbai’s Shanghai dreams may not have taken off, but Gujarat may soon be getting there. The state is working on a customized financial services and business district, to be designed by a company that has built more than two-third of Shanghai’s buildings.
A team of designers from the East China Architectural Design and Research Institute (ECADI) was here last week to present concept designs of six skyscrapers — one may possibly be the tallest in India — for the planned Gujarat International Finance Tec-city.
The project, which will be located along the eastern banks of Sabarmati on the outskirts of Gandhinagar, will have the region’s tallest high-rise — over 350 meters. The signature skyscraper is likely to be called “The Diamond Tower” to mark Gujarat’s eminence as the diamond hub of the world.
The other high-rises too will be based on a special theme. While promoters are tightlipped about the project details, the towers are expected to measure 200-350 meters high, and will “carry the imprint of Gujarat’s cultural heritage.”
“First, we have to sell the space,” says GIFT chairman Sudhir Mankad, amid hectic parleys that have seen memoranda of understanding for over 80 million sq. ft. of business space against 75 million sq. ft. planned for the first phase by 2010.
A joint venture between the Gujarat Urban Development Company (GUDC) and Infrastructure Leasing & Financial Services Ltd., (IL&FS), GIFT is to be benchmarked as a global finance hub on the lines of London Dockyards, Lujiazui Shanghai, or Shinjuku in Tokyo.
While some work in the form of leveling of land has already begun, sources say the construction activity was likely to begin in September. Spread over 500 acres, the core area of GIFT would be a showcase business district, with its engineering geared for a “plug-n-play” and “walk-to-work” concepts.
“Details are being worked out keeping in mind 100 years of scalability, so that the ground infrastructure would need no changes,” say sources.

Bachchans sign Rs. 1500-cr. deal with Anil Ambani

New Delhi: Just days after news came in that Anil Ambani’s Reliance Entertain-ment is in talks with Steven Spielberg’s Dreamworks SKG for an investment of around $500 million in equity; the group has now reportedly signed a Rs. 1500-crore deal with the Bachchan family.
The deal includes film production, television series, reality shows, Internet and mobile content besides live shows.
While Reliance Big Enter-tainment will look into the managerial, marketing and distribution of the projects in the deal, the creative inputs would come from the four Bachchans.
This joint venture professionally formalizes business ties between Anil Ambani and Amitabh Bachchan who have been family friends for long.
Though, Reliance Big Enter-tainment has confirmed the deal, it was non-commi- ttal about the funding involved.
Meanwhile, in a press release the Big B said: “I am delighted, with the coming together of Reliance Big Entertainment with members of my family and myself. I look upon this associa- tion as a progressive step towards the future, and a healthy marriage between creative output and professional corporate management.”
Earlier this year, Reliance Big announced in Cannes that it had signed deals with Hollywood stars Nicolas Cage, Jim Carrey, George Clooney, Tom Hanks and Brad Pitt and filmmakers Chris Columbus and Jay Roach to make films generating revenue of up to $1 billion. And if talks with Spielberg succeed, Ambani’s Entertainment wing could be funding DreamWorks up to $1.5 billion — the biggest deal by an Indian media and entertainment group.

India’s richest five incur Rs. 5-trillion loss in group cos

New Delhi: Companies run by India’s five richest, including the two Ambanis, have lost a whopping Rs. 5 trillion in market value in the current bear phase that began early this year.
The cumulative market value of companies belonging to the groups led by five wealthiest of the country — Ambani siblings Mukesh and Anil, real estate magnate Kushal Pal Singh, software czar Azim Premji and telecom tycoon Sunil Mittal — on June 23 fell to about Rs. 8.5 trillion.
This marks a significant fall from over Rs. 13 trillion on January 10 — when market benchmark Sensex hit a life-time high of 21,206.77 points before going southward.
The Sensex has plunged close to 7,000 points from its peak and on June 23 recorded its fourth consecutive day of losses to settle at 14293.32 points — marking a loss of close to 1,500 points in the past four trading sessions.
Among the five groups led by the five richest Indians, the one led by the wealthiest of them, Mukesh Ambani, has recorded the maximum value erosion of about Rs. 1,71,000 crore.
Mukesh emerged as the richest person in India in March this year with a net worth of about Rs. 2 trillion. Although Forbes’ magazine named steel tycoon Lakshmi Mittal on the top of its India’s Richest list with a net worth of $ 51 billion, Mittal is not a resident of India.
Interestingly, market capitalization of ArcelorMittal, in which Mittal holds a 43 percent stake, has grown by close to Rs. 2 trillion (about $46 billion) during the same period and is currently valued at over $142 billion.
In the Forbes India list, Lakshmi Mittal was followed by Mukesh ($49 billion), Anil Ambani ($48 billion), K.P. Singh ($35 billion), Azim Premji ($14.8 billion) and Sunil Mittal ($12.5 billion).

Go to top