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M&M
to Rev up Aussie Tractor Mart
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Mahindra
& Mahindra (M&M), the country's largest
tractor manufacturer by market share,
is looking at capturing 10 per cent of
the Australian tractor market by 2009.
Australia with a population of 18 million,
has a market volume of 10,000 tractors,
growing at 10 per cent annually. M&M has
exported 200 tractors in the 28 horse
power (HP) to 80 HP segment from its Chinese
and Indian manufacturing facility during
the last financial year. While the company
exports low-end tractors from its Chinese
base, the high-end variants are from its
Indian facilities located at Mumbai and
Nagpur. "M&M is expecting to increase
its exports to Australia (in the 28-80
HP category) by manifold to cross 10 per
cent of the market share by 2009," said
Anjani Kumar Chaudhari, president, farm
equipment sector, M&M. The company has
also set up a unit in Australia to assemble
completely knocked down kits (CKD), he
said. The Australian market is dominated
by companies such as Kubota, Shibaura,
Mitsubishi, New Holland and Daedong. Customers
also prefer used tractors. Many of these
companies have only assembly facilities
as the market size is too small for manufacturing.
M&M is hoping to enrich the company's
brand presence in the country with its
range of tractors and sports utility vehicle
(SUV) in the country. Mahindra supplies
CKD kits from its tractor plants in Kandivli
near Mumbai and Nanchang (of Jiangling
Motor Co) in China. The company also exports
tractors to countries like US, Europe,
and Egypt. The company's tractor exports
in financial year 2006 jumped 29.6 per
cent to 6,981 units, while domestic sales
surged 30 per cent to 85,029 units. The
operations of the company's subsidiary,
Mahindra Australia, began in Brisbane
in early 2005. The Australian strategy
came on the heels of successful tractor
exports to the US. The company has started
its Australian operations, beginning with
Queensland and New South Wales. Three
dealers have launched Mahindra brand in
Brisbane, Lismore and Wauchope inland
from Port Macquarie. It has introduced
both 4WD and 2WD tractor models ranging
from 28 to 80 hp in Australia.
Courtesy:
www.business-standard.com, June 29, 2006
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Tanishq
to Enter US Market
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Tata
Group company Tanishq in an attempt to
secure a larger pie of the international
market has decided to enter the US market
soon. "We will enter the US market with
our own Tanishq brand shortly," Tanishq
Chief Operating Officer C K Venkatraman
said at the launch of the first concept
store. He, however, said the strategy
to roll out the brand store was not yet
finalised and it would either be franchisee
or company owned. "We will start with
one to two stores initially. Location
is also yet to be decided, but it would
be on the East coast of the world's largest
jewellery market," Venkatraman said. Currently,
Tanishq exports to a few middle East and
farEast and also sells through store-in-store
concept. Exports contribute about five
per cent of the total sales.
Courtesy:
www.financialexpress.com, June 29, 2006
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India's
Mobile User Growth Exceeds China: TRAI
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Registering
a phenomenal rise, mobile subscriber's
annual growth rate in India is around
85 per cent since 1999, ahead of China,
which posted a 16 per cent growth in the
mobile user base in 2005. This is one
of the findings of TRAI, which brought
out a study on Tuesday on "Financial Analysis
of Telecom Industry of China and India."
Indian mobile market is much more competitive
than the Chinese mobile market, the report
said. "The growth of mobile services in
India over the past few years has been
phenomenal. Now over 4 million mobile
subscribers are added every month. On
the other hand China has registered a
growth of 16 per cent in the mobile subscriber
base in the year 2005 with monthly addition
of 5 million subscribers every month",
the study said. Total telecom revenue
of Chinese telecom companies increased
from $65 billion to $72.70 billion during
the calendar year 2005. Telecom revenue
in India during 2005-06 was $19.50 billion.
Average revenue per user in India and
China is comparable in GSM pre-paid segment
but ARPU for post paid segment in China
is much higher. ARPU for CDMA services
are also higher in China in comparison
to India. ARPU for Basic Telephone Services
is higher in India when compared to ARPU
for Basic Telephone services in China.
Minutes of Usages (MOU) of cellular mobile
Telephone services are much higher in
India when compared to China's Cellular
mobile telephone services. Minutes of
Usage of GSM and CDMA based cellular mobile
telephone services in India are 32 per
cent and 70 per cent respectively, higher
when compared to Chinese cellular mobile
telephone services, it said. But there
is lower ARPUs in India in spite of higher
usage due to much lower tariffs in India.
The capital employed per subscriber for
the Basic Service is much lower when compared
to India. However, capital employed for
the cellular segment is lower in India.
Chinese companies are able to generate
higher rate of EBIDTA margin than Indian
companies. Chinese Companies earn higher
rate of return on the capital employed
(RoCE) than it Indian counterparts.
Courtesy:
The Economic Times, June 29, 2006
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Praj
Bags US$ 20 Million Order From US Ethanol
Plants
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Bio-fuel
technology major Praj Industries has bagged
two orders worth US$ 20 million to supply
production technology and machinery for
two ethanol plants in the US. The order
not only marks the successful entry into
a stringent market such as the US, but
also promises a quantum leap for Praj
in its quest of becoming the world leader
in ethanol plants. The order is the company's
largest ethanol-making installation after
the two 3,00,000 litres per day plants
it supplied to in Columbia earlier this
year. Pramod Chaudhari, chairman, Praj
Industries, said on Tuesday that the order
by California-based Cilion group is to
supply technology and machinery to erect
two ethanol plants of 6,00,000 litres
per day (55 million gallons per year)
capacity each. Chaudhari said the Cillion
group is planning eight ethanol plants
and has selected Praj's technology for
four of them. "The company has been selected
for supply of machinery for the first
four plants. Cilion has yet to release
machinery orders for the other four,"
he clarified. The order will be commissioned
over a period of 12 to 15 months, he said,
adding that the machinery will be manufactured
in the company's factories in India. This
order is a manifestation of the efforts
of Praj and its vast and varied experience
in the ethanol industry, Chaudhari said.
"With these contracts, Praj will be recognised
as a major supplier to ethanol plants,"
he said. The financial fallout of the
order will be partly witnessed in the
current year itself, Chaudhari informed,
adding that the company's sales revenue
mix will shift strongly in favour of exports
from the current 55:45 tilted towards
the home market. The company's forays
into the US markets will also pick up,
Chaudhari said. "We are looking at strong
engineering capabilities that are suitable
for us in our expansion in the US, though
we have neither finalised a target for
acquisition nor firmed up the possible
structure of our business entity," he
clarified. Chaudhari informed that the
company is planning to set up a new research
and development centre at Pune in order
to focus on industrial biotechnology such
as bio-fuels and bio-energy technologies.
Courtesy:
Business Standard, June 28, 2006
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India
Inc. on Global Shopping Spree
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Indian
pharmaceutical companies have been aggressively
making acquisitions overseas, especially
in the US and Europe, in the last two
to three years. Most of the acquisitions
have been in the generics space, and have
resulted in Indian firms gaining access
to manufacturing facilities in common
trade areas like the European Union, from
where products could be rolled out in
potential markets. The latest announcement
was from Nicholas Piramal this month,
when it acquired Pfizer Inc's integrated
pharmaceu- tical manufacturing facility
at Morpeth, UK, for an undisclosed sum,
making it the company's third acquisition
in the UK since December 2004. NPIL also
entered into a $350 million, 5-year manufacturing
agreement with Pfizer for 12 products,
making it the MNC's largest custom manufacturing
partner in the world. In March this year,
Ranbaxy Laboratories made three acquisitions
in quick succession. It acquired generics
company Ethimed NV, Belgium, for an undisclosed
sum targeting the Benelux territories.
Belgium is the seventh largest pharmaceutical
market in Europe and Netherlands is the
sixth largest market with a combined market
size including Luxembourg, of $7.6 billion
(MAT Dec 05). The company also acquired
96.7% of Romania's Terapia from Advent
International for $324m. Terapia, with
2005 sales of $80 million, is the largest
independent generic company in Romania
and has a strong brand name and profitability.
Ranbaxy also acquired the unbranded generic
business of Allen SpA, a division of GlaxoSmithKline
(GSK), in Italy, through Ranbaxy's Italian
subsidiary, Ranbaxy Italia SpA, thereby
targeting the Italian generics market.
What's driving these companies to clinch
deals abroad? The quest for new markets
and manufacturing licences was a major
factor. According to Mahesh Sawant of
Frost & Sullivan. "Indian companies are
trying to tread the global path in order
to achieve a critical mass and at the
same time to reach global customers. With
product patents being accepted, Indian
companies are also trying to increase
their basket of patentable/patented products
through acquisitions. We can see the consolidation
wave not just in by Indian pharma but
also by global pharma companies as well,
with some of the bigger generic players
merging or acquiring to become still bigger."
In February 2006, Dr Reddy's Laboratories
made the biggest overseas acquisition
by an Indian pharma company, when it acquired
the fourth-largest German generic drug
maker Betapharm Arzneimittel GmbH for
euro 480 million (approximately Rs 2,550
crore) from 3i, a private equity house.
This was the company's second acquisition
in Europe. In 2002, it acquired the UK-based
BMS Laboratories and its wholly-owned
subsidiary, Aurigene Discovery Technologies,
for around $12 million. In the year 2005,
Indian pharma companies made nearly 15
acquisitions.
Courtesy:
The Financial Express, June 28, 2006
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India
Inc. Goes on The M&A Prowl
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India
Inc is on a M&A binge like never before.
The 10 cross-border, big-ticket deals
closed in June alone with a combined transaction
value of US$ 1.5 billion, have dramatically
changed the picture. Around 76 deals worth
US$ 5.2 billion were cut in six months
between January and June this year. Compare
this with 136 deals, valued at $4.7bn,
in the whole of '05. This, perhaps, marks
the emergence of Indian MNCs. First, it
was information technology (IT), followed
by pharma firms. "Today, corporates from
almost every sector is pursuing M&A abroad,
and everyone has a clear logic," says
Harish HV, partner at Grant Thornton India.
The month of June saw a flood of global
M&As by Indian corporates. Aban Loyd's
takeover of Norway's Sinvest (for $446m),
Ballarpur Industries' takeover of Malaysia's
Sabah Forest Industries ($261m) and Tata
Coffee's buyout of US's third largest
coffee chain Eight O'Clock ($220m) are
larger in size. Six other deals - including
Subex Systems' takeover of UK-headquartered
Azure Solutions for $140m, Aditya Birla
Nuvo's $125m open offer for Canada's leading
BPO provider Minacs Worldwide, and GHCL's
takeover of UK's largest home textiles
retail chain Rosebys for $40m - have taken
cumulative transaction value to $1.5bn
in June, a monthly record, so far, for
India Inc. Many pharma, IT, retail, consumer
goods and oil/gas companies are currently
snooping around for international acquisitions.
Investment bankers say that some of the
deals may be concluded in next 3-4 months.
They are confident that the deal size
would cross $1bn by '06 end. Analysts
point out that international M&A deals
by Indian corporates are on the ascent
since '02-03, and the deals are getting
bigger in size. "Most transactions are
leveraged deals, with 50-60% of debt and
some deferred considerations. Subsequently,
they raise less-expensive FCCBs or GDRs
and retire the high cost bridge loans,"
said an analyst. A fascinating side to
the story is that, say analysts tracking
M&As, is the comfort that Indian corporates
are beginning to enjoy acquiring global
companies which are much larger in size.
For instance, the US-based Eight O'Clock
(EOC) is around 2.5 times the size of
Tata Coffee and the acquisition may be
funded through a mixture of non-recourse
debt and equity. It's similar to what
its parent, Tata Tea, which surprised
India Inc in '00 by acquiring the UK heavyweight
brand Tetley, for a staggering 271m pounds.
The acquisition of Tetley made Tata Tea
the second biggest tea company in the
world, after Unilever, owner of BrookeBond
and Lipton. Analysts say that Mittal Steel's
long-drawn takeover of Arcelor has boosted
India Inc's confidence levels. The deals
struck in June present an unusually rosy
picture of India Inc, with newer sectors
striking the M&A route. Offshore, paper,
retail, BPO, consumer goods and the list
is getting longer.
Courtesy:
The Economic Times, June 28, 2006
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Tata
Tea in Race to Gulp Moroccan Company
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After
acquiring Czech brand Jemca last month,
Tata Tea Ltd is gearing up to buy Moroccan
tea brand Somathes, a company that specialises
in Chinese green tea. On the domestic
front, the tea major is scouting for regional
brands to strengthen its product portfolio.
According to industry sources, Tata Tea
is ahead in the race to acquire the Moroccan
tea company along with seven Chinese companies,
who are also in the fray. "After acquiring
Good Earth in the US, Tata Tea is very
aggressive to buy this brand as Somathes
controls 30% of the Moroccan market. The
minimum bid price is around Rs 240 crore,"
the sources pointed out. This yet-to-be
clinched deal will follow a string of
acquisitions by the Tata Group in various
geographies, including Tetley globally,
Good Earth in the USA and Jemca in Czech
Republic. When contacted by FE, Percy
T Siganporia, managing director, Tata
Tea, said, "We are constantly on the look
out for growth opportunities in areas
where we are not present or in a category,
where it makes sense for us to get in.
To mention anything specific at this point
of time will be entirely speculative."
The annual revenues for the target company
for 2004 was $40 million. In India, Tata
Tea is in talks with local and regional
brands to extend its product range. After
test-marketing Tetley Ice Tea in Great
Britain, the company is rolling out the
brand across the country. After Britain,
the company is gearing up to introduce
its ice tea brand in the USA. Tata Tea
(GB) Ltd, the UK subsidiary of Tata Tea,
had acquired Jemca, which is part of the
Czech food processing company, Alima Znac
kova Potravina. Jemca enjoys a healthy
26.6% share of the tea market in the Czech
Republic.
Courtesy:
The Financial Express, June 28, 2006
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TCS
Top Software Exporter in FY06: Nasscom
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Tata
Consultancy Services has retained its
position as the number one software services
exporter (excluding ITeS and BPO) followed
by Infosys and Wipro in Nasscom's list
of Top 20 IT Software and Service Exporters
in India. This list does not include companies
like Cognizant, Accenture, IBM and HP,
which are US listed companies but have
significant offshore operations in India
and would have been placed amongst the
top 10 in the list, were they to be ranked,
Nasscom said. While Satyam Computer Services
has been ranked fourth in the list, HCL
Technologies follows it. The others software
companies in the list are Patni Computer
Systems, I-flex Solutions, Tech Mahindra,
Perot Systems TSI (I), L&T Infotech, Polaris
Software Lab, Hexaware Technologies, Mastek,
Mphasis BFL, Siemens Information Systems,
Genpact, i-Gate Global Solutions, Flextronics
Software Systems, NIIT Technologies and
Covansys India. India's software exports
in FY06 touched $ 17.3 bilion.
Courtesy:
Business Standard: June 28, 2006
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Indian
Real Estate, a Big Bargain For Foreign
Investors
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Indian
realty appears to be truly going global,
with many overseas investors looking to
cash in on the burgeoning property scenario.
Interestingly, this is in spite of the
sharp run-up in property prices over the
past several years and the steep rally
on the stock market (before the sell-off).
Despite suspicion of a bubble, foreign
investors believe Indian real estate to
be a bargain with initial yields north
of 15 per cent on developments and 10
per cent on acquisitions. While accepting
that higher yields are not without risks,
they believe that some of these risks
are built into the high yields that can
be found in emerging markets. To provide
an insight into the Indian property market,
UBS Investment Research has decided to
host a meeting with private real estate
companies on June 29, to coincide with
the last day of the real estate investment
world conference in Singapore. Citing
the heightened activity in Indian real
estate as a result of higher prices and
genuine improvement in underlying demand
conditions, a CLSA Asia-Pacific report
maintains that an excess of $5-billion
worth of funds is to be invested in the
domestic market. "Traditionally, Indian
property market has been largely residential
market and this segment still continues
to be the most significant portion of
the overall market. However, this is now
changing with the emergence of IT/ITES
sector and organised retail as big growth
drivers," the report said. A Citigroup
Research report on real estate investment
trust (REIT) strategy has identified over
$15 billion of capital raised by opportunity
funds targeted at India. Identifying IT
office space as the most straightforward
investment option given the strong demand
and defined rental rates of about $8-10
per square feet per year, Citigroup reports
that India may need $1.5 billion of IT
office space and a few billion more of
other development.
Courtesy:
The Hindu Business Line, June 27, 2006
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Nissan
Plans 1.3 Litre Small Car From New Maruti
Unit
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Japanese
auto maker Nissan is likely to roll out
a 1.3-litre, three-cylinder small car
as its first made-in-India vehicle to
roll out of Maruti Udyog's upcoming plant
in Manesar (Gurgaon). The first Nissan
car, according to industry sources, is
expected to hit roads in the first quarter
of calendar year 2008. The new small car
from Nissan will be used to address both
the domestic and export markets. The initial
capacity is expected to be one lakh units
a year, which will be ramped up to two
lakh units at a later stage. Nissan has
started talks with select component makers
in the country, which will supply the
critical parts for the car. Spokesperson
of the largest domestic car maker Maruti
Udyog, in which Suzuki Motor Corporation
owns a majority stake, refused to comment
on this development. Industry experts
said Nissan is known in Japan, the US
and Europe for its economy class mid-size
sedans - and not for small cars. Hence,
the Japanese company's plans to produce
small cars in India should definitely
have developing markets like India as
target. However, it is not known in which
model of Nissan, the 1.3-litre engine,
code named XH-5, will be fitted. Earlier
this month, the two Japanese auto majors
- Nissan and Suzuki - announced a global
production alliance, which will see Nissan
supply mini vans to Suzuki on an OEM basis
starting from 2006-end. The deal also
included Suzuki's commitment to supplying
a mini vehicle to Nissan on an OEM basis.
Nissan cars are likely to be rolled out
of Maruti's upcoming second plant at Manesar.
Maruti is building its new plant with
an initial capacity of one lakh units
a year. The fresh demand from Nissan would
necessarily mean that India's largest
car company has to start planning fresh
capacity expansion, which the Suzuki and
Nissan's global manufacturing alliance
demands. Maruti Udyog Managing Director
Jagdish Khattar, at the time of announcing
the alliance between Nissan and Suzuki
and its impact on Maruti, had indicated
that there was sufficient land at the
new Manesar plant and expansion of capacity
to accommodate fresh demand from Nissan
can be built at the same location. Industry
sources also said a fresh team with a
new head is likely to be created by Nissan
to handle the India project. Nissan Motor
India is currently headed by Managing
Director Yoshi Moto Hiro, who is expected
to continue to head the sale operations
of the company.
Courtesy:
Business Standard, June 27, 2006
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ONGC
FY06 Net up 11% to Rs 14,431 Crore
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ONGC
Videsh (OVL), the overseas investment
arm of ONGC which has built up an impressive
portfolio with 21 oil equity projects
spanning 21 countries, is now set to begin
oil production in yet another oilfield
in Sudan. OVL will use block 5A, which
it had acquired as an exploration block,
for oil production. "Sudan's block 5A,
in which OVL has a 24.125% stake, began
oil production today," OVL managing director
RS Butola told reporters on the sidelines
of the conference for announcing ONGC's
financial results for '05-06. At present,
the Tharjhat field in block 5A is producing
38,000 barrels per day (bpd) and production
may be stabilized at 40,000 bpd soon,
Mr Butola said. "Mala field in the same
block would come to production in '07
with an output of 10,000 bpd, which would
rise to 20,000 bpd by '08. Our share from
the entire 5A output would be 15,000 bpd,"
he said. "OVL is expected to be the growth
vehicle for ONGC, with the company scouting
for oil properties in Africa and Latin
America," said RS Sharma, chairman and
managing director of ONGC. The upstream
company on Monday reported its highest
ever net profit of Rs 14,431 crore in
'05-06, up by 11% from Rs 12,983 crore
in the previous year. A final dividend
of 200% was declared over and above an
interim dividend of 250%, thus taking
the total dividend payout for the last
fiscal to 450%, an increase of 12.5 percentage
points from 400% paid out to investors
in the previous fiscal. This translates
to a total payout of about Rs 6,417 crore,
of which the government's share will be
Rs 4,758 crore. The company has reported
a gross turnover of Rs 50,556 crore for
'05-06, up from Rs 48,442 crore in the
previous year, a 4% jump. "ONGC earned
the highest ever net profit despite a
payout of Rs 11,956 crore on fuel subsidies.
Courtesy:
Economic Times, June 27, 2006
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Major
Concessions By Mittal Clinched the Deal
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Lakshmi
Mittal and Joseph Kinsch, chairmen of
Mittal Steel and Arcelor, on Monday announced
in Luxembourg details of the merger of
their companies at a joint press conference.
As per the agreement, Mr. Mittal will
become a non-executive president of the
new company, Arcelor-Mittal, and Mr. Kinsch
will retain his post. Arcelor's chief
executive Guy Dolle, who had made personal
attacks against Mr. Mittal, will leave
the company once the merger is firmed
up. "I have spoken to Guy Dolle and he
thinks that to implement the merger we
should now choose a new chief executive,"
Mr. Kinsch said. Expressing satisfaction
at the merger, Mr. Mittal said he hoped
the "marriage" of the two groups would
be a happy and lasting one. The new group
would employ 320,000 people worldwide,
and have an annual output of 116 million
tonnes of steel - three times that of
its nearest rival, Japan's Nippon Steel.
The price of Arcelor shares rose 6.7 per
cent following the merger announcement.
The details of the agreement made it clear
that Mr. Mittal had made a series of major
concessions to win over Arcelor. From
January, when he first announced his takeover
bid, valued at 18 billion euros, Mr. Mittal
steadily increased his offer to reach
27 billion euros. The Arcelor stock, valued
at 23 euros a share in January, is now
priced at 40.40 euros. This is clearly
a shareholder victory. The offices of
the new company will be located in Luxembourg
and not in Rotterdam, where Mittal Steel
is headquartered. The Mittal family will
have a 49 per cent stake in the new set-up
and will not be in a majority position
on the board. However, on Mr. Kinsch's
retirement next year, Mr. Mittal will
be at the helm. His son Aditya, now Mittal
Steel's Chief Financial Officer, is expected
to find a place on the management board.
So the family will clearly retain a great
deal of influence. There was bitterness
in the camp of Russian company Severstal.
Its chief Alexei Mordashov has threatened
to sue Arcelor for breach of contract.
Courtesy:
The Hindu, June 27, 2006
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India
Inc. May Soon Take an Europe Tour
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Mittal
Steel's mega deal with Arcelor will open
the doors for other Indian steel companies
to Europe, and the coming months are expected
to see domestic steel companies acquiring
small and medium-sized companies in Europe,
industry insiders and analysts said. They
also said that the Mittal-Arcelor deal
was done at an 'almost fair' valuation
and the mega deal is now expected to lead
to a re-rating of the industry. This would
make it difficult for Indian steel majors
to look at any sizeable acquisition overseas.
"One has to look at the long-term advantages
of the deal for assessing the valuation
of the deal. At one stroke, the deal will
add about 53m tonnes to Mittal's current
capacity, a capacity which otherwise would
have taken very many years to build. The
deal also enables Mittal Steel access
to technology for high end products, besides
market dominance in Western Europe," said
the head honcho of an Indian steel company,
who did not want to be quoted. Industry
analysts also said though the valuation
'looks' a bit on the higher side, it is
justified because of the strategic nature
of the deal. "In this case, the number
one player is acquiring the number two
player and becomes almost 4 times the
size of the number 3 player. In such a
scenario, this kind of valuation is justified,"
said Religare Securities CIO, Kunj Bansal.
Mittal's latest offer price of Euro 40.4
for each Arcelor share is about 82% premium
over the closing price of Arcelor on January
26, the last working day before the announcement
of Mittal Steel's initial offer. Industry
insiders, however, said Indian companies
currently do not have the financial wherewithal
to make any big time acquisition within
Europe or elsewhere overseas. "Indian
steel companies are facing the constraints
of comparatively high cost capital and
lower valuations and therefore any high
cost acquisitions are still much beyond
their reach," a senior Essar Steel executive
said. According to Hemendra Kothari, chairman,
DSP Merrill Lynch, Indian companies could
now look at the merger route to become
big, provided there are no regulatory
issues. "It (the deal) will pave the way
for Indian listed companies to look at
the possibilities of merging with international
listed companies," he said. Mr Bansal
said though there would be a re-rating
in the steel sector, Indian companies
would be looking at only small and medium
sized companies and the valuations for
these companies may not go up sharply
as there would not be any strategic importance
to such deals. "Internationally, many
of the steel companies are now valued
at a PE of 10 to 12, while Indian companies'
PEs are way down. This limits their ability
to go for any significant acquisition,"
said Arvind Parekh, director (finance),
Jindal Stainless.
Courtesy:
The Economic Times, June 27, 2006
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Tatas
Buy Eight O'Clock Coffee
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Mittal
Steel was not the only company with an
Indian connection which was in acquisition
mode over the weekend. Tata Coffee, a
51% owned subsidiary of Tata Tea, on Sunday
announced that it had acquired the US-based
Eight O'Clock Coffee Company (EOC), from
Gryphon Investors for Rs 1,015 crore ($220m).
The acquisition, which will be financed
through a combination of equity and non-recourse
debt, is in line with Tata Coffee's plans
to enter the US market. "By the end of
the decade, we expect the Tata Tea group,
including Tata Tea, Tetley, Tata Coffee
and Eight O'Clock Coffee combine to become
one of the largest and most admired beverage
players in the world. This move is in
line with the Tata Group's international
strategy," RK Krishna Kumar, chairman,
Tata Coffee said in a statement. JP Morgan
was the financial advisor to Tata Coffee
on this acquisition, while Rabo Bank is
funding the deal, which was signed on
Saturday night. Tata Coffee shares rose
20% on the BSE to reach Rs 325.65 in the
course of a special trading session on
Sunday. "This acquisition is a strategic
fit with our growth plans and helps Tata
Coffee in attaining its objective of becoming
an international and fully-integrated
player in the coffee industry," said MH
Ashraff, MD, Tata Coffee. The acquisition
of EOC by Tata Coffee is thus, in many
ways, similar to parent company Tata Tea's
acquisition of UK tea major Tetley in
the summer of '00. Tata Tea had paid $450m
for a leveraged buyout of Tetley, in what
was then the largest cross-border deal
by an Indian company. It was also among
the first large leveraged buyouts by an
Indian company. The size of the acquisition
was four times Tata Tea's net worth. At
that time, Tetley was twice the size of
Tata Tea in terms of the topline. The
move resulted in Tata Tea becoming the
second-largest tea company in the world,
after Unilever. Though Tata Coffee is
a smaller company-in terms of both topline
and bottomline than EOC - it's parent
company, Tata Tea is, of course, considerably
larger. For the year ended March 31, '06,
Tata Tea reported consolidated sales of
Rs 3,240 crore and a net profit of Rs
305 crore. The consolidated results include
that of Tata Coffee and Tetley, which
is 85.7%-owned by Tata Tea. For the year
ended March '06 (standalone), Tata Tea
posted a 44.9% increase in net profit
to Rs 186.9 crore and a 9.1% jump in revenues
to Rs 982 crore. Some of the Tata Tea
group's earlier acquisitions include,
besides Tetley, Good Earth in the US and
Jemca in the Czech Republic. Good Earth
is a speciality tea brand with a 3.7%
share of the US speciality tea market
and an estimated turnover of $16m. The
acquisition of Good Earth, which was carried
out in October '05, was financed through
borrowings and set an important milestone
in Tata Tea's plans for further acquisitions
around the world. Last month, Tata Tea
subsidiary Tata Tea (GB), UK signed an
agreement to acquire the assets of tea
company Jemca in the Czech Republic, from
the food processing company Alima Znackova
Potravina. The acquisition was funded
by The Tetley Group. JEMCA has an estimated
26.6% volume share of the tea market in
the Czech Republic and a turnover of $12.5m.
It sells black, green, fruit and herbal
teas.
Courtesy:
Economic Times, June 26, 2006
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