Addressing the shareholders, Sikka said Infosys is making disruptive changes to traditional businesses, backed by an aggressive sales strategy to pull the company out of its slumber Less than a year after taking the helm of India's second-largest software services exporter, Infosys Ltd's managing director & CEO Vishal Sikka has roped in 221 new clients. His first priority is to take the company's profitability to 30 per cent, from the current from the current levels of 22 per cent. He has been signing all the big deals of Infosys himself; signaling to the world that he wants his organisation to be ahead of the competition. The former SAP AG executive expects that it can be achieved by increasing revenues from existing application development and maintenance businesses. Sikka is confident that the initiatives Infosys has taken under his watch should help the company clock 13 per cent growth in its traditional software services exports business in each of the coming five years as its sets out to become a $20 billion entity by 2020. He also wants to make a big foray in platforms, which he believes is the bet that Infosys can risk. Infosys on Monday (22 June) secured shareholders' approval for buying its healthcare business subsidiary for $100 million (Rs 625 crore), a company official said. Traditional business models were being disrupted by new technologies and new ideas, which pose challenges and opportunities, Infosys' non-executive chairman R. Seshasayee said on Monday. "We are in the midst of tremendous changes in the IT industry and our company. (Chief Executive) Vishal Sikka and his management team have articulated a clear strategy to exploit these emerging opportunities," he told investors at the company's 34th annual general meeting in Bangalore. Addressing the shareholders, Sikka said the IT company is making disruptive changes to traditional businesses, backed by an aggressive sales strategy to pull the company out of its slumber. Sikka, who has had hundreds of client meetings in the last 10 months, said the company is focusing on improving sales performance. The accent is also on renewing core business with clients and innovating in fresh areas. The AGM, chaired by the new non-executive chairman R. Seshasayee, also approved the appointment of Roopa Kudva as an independent director on the company's executive board. Earlier, Sikka in an internal company blog on Sunday highlighted some of the biggest achievements for India's second-largest software exporter over the past year and also spoke about some of the big bets it has made, including what the company internally calls 'Zero Distance'. Sikka said the company started the Zero Distance initiative as part of an internal push to infuse innovation into each of the company's existing client projects. Infosys currently has roughly 23,000 projects with customers. Can Infosys do it? Here's the entire plan laid bare in the presentation
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Madhavi Pandrangi on what happens when one of the JV partners buys out the otherIt is often observed that when a joint venture dissolves, the separation process is messy and marked by dissent. This can happen whether the split is by mutual consent of the JV partners, or by one party deciding to end the partnership. This article examines situations where one of the JV partners buys out the other, keeping the company’s operations ongoing. Dissolving the company itself is another ballgame with enough complexities to deserve a separate discussion by itself. The key area of difference is valuation of the outgoing partner’s stake, often resulting in protracted negotiations and sometimes ending in arbitration. Intuitively, one would expect the purchase consideration to be at fair market value, but that is where the complications start. The possibilities for variation are numerous– the method of valuation, projections for the business, discount rate applied, choice of comparable companies, application of premium or discount, treatment of contingent liabilities, etc.– and lead to a wide range in value expectations. Human bias comes into play – we have come across instances where the seller comes up with hockey stick projections for the business and views the business as low risk with a correspondingly lower cost of capital, while the buyer assumes just the opposite! It is difficult to reconcile such wide variances in value expectations and this leads to escalation of the conflict. None of the above is new, and many joint venture partners try and ward off future problems by including a clause relating to valuation within the JV agreement itself. This is eminently sensible, but like anything worthwhile in life or in business, needs to be thought through properly in order to be really useful. Based on our experience, a few common issuesto be taken care of whilst drafting the JV agreement are listed below: Category I: Valuation process 1. Valuer appointment: The JV agreement may specify that exit by either of the JV partners would be at fair market value, to be determined by an independent valuer. Some JV agreements even name one or more reputed valuers who are acceptable to both parties. 2. Valuation process: However, the agreement stays silent on the process itself – would both parties agree on the financial projections to be provided to the valuer? What happens if they are unable to agree on the business plan? Is there an alternative route, such as appointment of twovaluersand taking an average of their valuation conclusions, or providingasingle valuer the liberty (and the responsibility) to consider his best estimates of future performance, after listening to all parties?A formal process including agreed timelines for provision of information by each side and for completion of the valuation would help reduce uncertainty. Depending on the size of the transaction, it may be a good idea to provide for appointment of a third valuer if differencesin value estimates by the two valuersexceed an agreed threshold limit.3. Data to be used for valuation: The financial projections to be considered as a basis for valuation are often the main area of dispute between the parties, and the bias exhibited by each party (whether the seller or the buyer) is naturally reflected in the DCF value that results. Setting a system of medium-term plans to be prepared annually on rolling basis (e.g. current year plus three to five years, as may be feasible) will ensure that whenever the time for dissolution comes, there would be a basic set of projections ready to be used, which are pre-approved by both parties.4. Regulatory requirements: the final transaction price would be subject to the prevailing regulatory guidelines, particularly in the case of cross-border transactions. Currently, the Reserve Bank of India has mandated that valuation of equity shares should be at market value in the case of listed companies and at fair value in the case of unlisted companies, considering internationally accepted valuation methodologies. Given that the fair value thus determined would form a floor or ceiling price for the transaction, and would over-ride any pre-decided exit valuation between the two parties, it becomes all the more important that the parties are in agreement over selection of the valuer and that standard valuation methodologies are adopted. Category II: valuation methodology 1. Linking exit to a multiple without providing for a loss situation: a popular option is to link the exit valuation to an agreed multiple. This seems fair, as the valuation paid to the exiting partner is linked squarely to performance – but what happens in situations where the company has incurred a loss? What if the company was profitable until the preceding year, or has broken even for the first time, or if it has never been able to generate profits? What if the underlying financial statements for the period ending on the exit date are not audited/ are subject to management’s bias? If the stipulated valuation methodology does not cover suchcontingencies, it can throw the valuation wide open to each party’s mode of interpretation. 2. Stipulation of only one methodology: in our experience, it is preferable to leave the choice of valuation methodology to the independent valuer, rather than specifying the approach in the JV agreement. There is no “one size fits all” principle in valuations, and adopting a combination of approaches is preferable as it reduces the chances of error or bias in the analysis. Category III: valuation subject 3. Including asset valuation in the agreed valuation guidelines: sometimes, the JV agreement guidelines for fair market value include consideration of the asset value at the exit date. However, the agreement does not clarify whether assets should be revalued or considered at book value, and whether the asset valuation is to be used as a reasonableness check or as a primary valuation approach. Asset valuations would typically form the minimum value for the business, and can be particularly important in businesses which have interests in real estate. However, the book value of assets does not reflect future earnings capacity. Further, while surplus assets may be revalued, the earnings from operating assets are already reflected in earnings based valuation models. Inclusion of such a clause without specifying how the assets are to be considered leads to ambiguity and hence offers scope for different treatment by both parties. 4. Financial instruments – option to convert has value implications: structuring of investments as a combination of equity and convertible instruments is a popular option, particularly with private equity investors. The terms of the debentures and preference shares often give the holder the option to convert the instrument into equity shares at any point during the tenor of the instrument. Such an option gives rise to value in the hands of the debenture or preference shareholders and should be factored into the exit price. If the exit is to happen before the expiry of the instrument, valuation of both the existing equity shares and the convertible instruments may be needed. Differential rights in the form of voting and dividend rights in the hands of the equity holders versus right to preference dividend/ interest in the hands of the preference share/ debenture holders need to be considered. It is never easy to visualize what may happen when the time comes to dissolve the JV, particularly in the heady days leading to the entity being formed. In our experience, it is usually helpful to stipulatein the JV agreement that the exit price would be based on fair market value as determined by an independent valuer, based on a mutually agreed or Board-approved set of projections. That said, the scope for differences in opinions and valuation expectations will always be high and it is not possible to cover every contingency. While an experienced valuer should be able to handle the process in as painless a manner as possible, the parties should be prepared for the long haul unless both come to the table with a reasonable approach and a mutual will to get it done. The author, Madhavi Pandrangi, is Associate Director, Price Waterhouse & Co LLP
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The e-commerce companies like Flipkart and Snapdeal continue to run in losses. Are heavy discounts and high degree of returns the way to run e-commerce, asks Vishal KrishnaFlipkart and Snapdeal are the flagbearers of the Indian e-commerce boom. Along with Amazon India they have make over 2 crore deliveries per annum. This number is only going to grow provided they have capital supporting the heavily discounted industry which also has a high degree of returns. The reader should see this profit and loss account and judge for himself. Is this the way an e-commerce company can be built? Crores of rupees have been spent in acquiring customers. If this trend continues, we see that the Indian ecommerce business will consolidate by benefiting only the investors and not the consumer. We at BW|Businessworld pitch for long term capital to support the Indian businesses. Meanwhile, let us look at their current state of affairs. We present to you the P&L of Flipkart as a basis for judging the ecommerce business in India.
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Japan's SoftBank is to team up with Bharti Enterprises and Taiwan's Foxconn to invest about $20 billion in solar projects in India as the country steps up efforts to boost the renewable energy sector. SoftBank, which has said it will invest $10 billion in India over time, said on Monday (22 June) that the companies had a minimum commitment of generating 20 gigawatts of energy. The rapidly falling cost of solar power, which is expected to reach parity with conventional energy by 2017, has ignited interest in its potential in India. Prime Minister Narendra Modi has looked to industry for help in funding what could be a $100 billion expansion in clean energy. Softbank chief executive Masayoshi Son said Foxconn will help with planned solar equipment manufacturing for the projects. The companies are looking at manufacturing equipment in India, he added.(Reuters)
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Jain Irrigation Systems' fruit and vegetable processing division has launched its IQF plant in Jalgaon, Maharashtra. The IQF plant incorporates both Individual Quick Frozen (IQF) and Block Quick Frozen (BQF) technologies and has 40 TPD IQF capacity and 16 TPD BQF capacity. The IQF plant is designed to handle around 60,000 MT of fruits like mango, banana, pomegranate, papaya, jamun, strawberry, sapota, etc. annually.The IQF plant incorporates both Individual Quick Frozen (IQF) and Block Quick Frozen (BQF) technologies and has 40 TPD IQF capacity and 16 TPD BQF capacity. The IQF plant is designed to handle around 60,000 MT of fruits like mango, banana, pomegranate, papaya, jamun, strawberry, sapota, etc. annually.The plant has all quality standard certifications like BRC, ISO 14001, OHSAS 18001, ISO 50001, Halal and Kosher. The products from this IQF facility would be exported to US, Europe, Japan, Australia, New Zealand, Middle East from which the company expects to earn Rs 100 crore in foreign exchange annually.Jain Irrigation Systems Limited (JISL) has more than 10,000 associates worldwide and revenue of Rs 60 billion. It has manufacturing plants in 28 locations across the globe. It is engaged in manufacturing of Micro Irrigation Systems, PVC Pipes, HDPE Pipes, Plastic Sheets, Agro Processed Products, Renewable Energy solutions, Tissue Culture Plants, Financial Services and other agricultural inputs since last 34 years. It has pioneered silent revolution with modern irrigation systems and innovative technologies in order to save precious water and has helped to get significant increase in crop yields, especially for millions of the small farmers.
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The current ad ‘war’ between Snapdeal and Flipkart too revolves around creating a buzz in Twitter, with #AchhaKiya and #YahanSeKharido. Others have also jumped in, writes Manish Kumar PathakE-retailing giant Flipkart is back with its big app shopping days. This app specific sale, is seen a concerted effort, to shift away from desktop to an app specific market. Myntra, which is now a Flipkart owned company, has already become an app only platform, and it will be very interesting to observe, if the parent company too treads that path. However, the build up to this day has been very interesting, with extensive advertising, hogging both print and visual mediums. The #AchhaKiya slogan created quite a buzz. There is another development that merits a vociferous mention. The billboards are replete with the twitter slogan of Flipkart. Nothing out of the ordinary so far. Matters become interesting, when the riposte posted by Snapdeal is both a jibe and also a marketing stunt to attract audiences towards its own sight. The hoarding is placed strategically below Flipkart's, and is a concentrated effort, to put forth continuity in the message, and lure the audience away. Although Snapdeal is offering a dead bat towards the query dished out regarding this particular stance, which is a form of ambush advertising. Ambush Advertising is new term; a technique that helps raise awareness about a brand in an inconspicuous manner. Ambush marketing appears in numerous ways, but they have one definite purpose to serve, which is to generate curiosity without having earned the rights by paying to be a sponsor. The trait that stands out when it comes down to ambush marketing is that very often this is unforeseen. Smaller companies, who are still in their infancy, and companies which do not have enough financial strength employ innovative ways to brand its own products, not by becoming official sponsors, but by resorting to novel ways that helps in their visibility. Since, they have nothing to lose in such cases, any attention they receive, the better it for the brand. In the contemporary scenario, when use of social network plays a massive role in determining the success of any venture, the brains behind ambush marketing will have to keep in mind this domain also. A bit of humour coupled with aggressive push towards creating a foothold will definitely attract eyeballs. This current ‘war’ between Snapdeal and Flipkart too revolves around creating a buzz in Twitter, with #AchhaKiya and #YahanSeKharido, designed specifically to outwit each other, and make it a trending topic. Apart from this, the out of home marketing strategy too forms a pivotal point in creating visibility. How strategic is the placement of hoardings, and how observable is it to people commuting outside? Others have joined the bandwagon! Coupon Dunia, does not want to shy away! OLX does not want to let go this opportunity too!And paisabazaar, certainly offers a lucrative proposal. Not very long ago, there was another jostle, but this time in a different sector altogether. OYO Rooms, India’s largest network of technology enabled rooms, during the launch of their app, faced a belligerent marketing stint by rivals ZO Rooms, when they put up signboards and standees. This battle has begun in India, and it will be very interesting to observe, if the audiences will be taken for one hilarious ride. Who sells will depend a lot on who will make people smirk?
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Sterlite Technologies is looking to grow its business through smart cities and National Fiber Scheme. It has also de-merged its Power business from its Telecom vertical to provide more value to its retail investors as the company sees huge opportunity in the proposed Smart Cities in the country that would require technology at every door step. In an interview with BW|Businessworld, Anand Agarwal, CEO, Sterlite Technologies, discussed his company’s plants for the future and the way forward post de-merger. Excerpts from the interview. You are into the telecom fibre business. What opportunity does a mega project like National Fiber Scheme provide you?Currently, the scheme is becoming larger and larger. The government has set an aim of connecting 2.5 lakh gram panchayats with fast internet connection. Earlier, the national fiber scheme was to be implemented with the help of PSU companies. However, looking at the scale and the speed of the project, now the government has decided to involve the private sector as well. The scheme is a very big opportunity for us and we already have got the order for supplying products. However, the bids for laying down fiber will open in a couple of months and we will be participating in that. How does a private company like yours, with limited scale of operations in the power transmission sector, leverage against a behemoth like Power Grid Corporation to win projects?The power transmission sector has a huge opportunity in terms of growth. And PGCIL (Power Grid Corporation) itself has its hands full at the moment. Its order book would be around Rs one lakh crore. So a lot of projects in the country require to be done by the private sector. So we are looking for those projects in the sector. You have decided to de-merge your telecom and power business, with power sector being de-listed. Is there no growth in sight for the power sector that you have decided to quit the market?Well, power and telecom are two different types of businesses. While in telecom we provide products and solutions, the power business is more of an infrastructure development. Globally, we see that power transmission business is like an annuity business. It requires the company to take huge debt on its books and then execute the projects. The business has three cycles. So we have realized that this business is not good for general public because there are short term gains in the sector. So what we have done is that we have asked private equity players to stay invested in our company because they can make long term gains in the sector. But recently, your parent company Vedanta Ltd merged Cairn India into it. The management gave an argument that it is good to have diversified portfolios in a company to ward off any cyclic pressures of a particular business on the stock price.See, for the last 7-8 years, we have been a diversified company. But then we realised that if we were addressing the same value chain, then it would have been justified. But in the power sector we have to invest a lot. So the business models become very different from each other. Whereas, the Vedanta and Cairn India are in the same business. Both the companies extract natural resources and sell. But in Sterlite Technologies’ case while we sell product in the telecom sector, we have to invest our own money to set up transmission lines in the power business. So the two businesses do not go together to reap any benefits of a diversified stock. So we have demerged two different business models because the investors for the two businesses are very different from each other in terms of expectations from the rate of return as well as gestation period. Moreover, we went for the demerger after getting feedback from our investors. When do you think you would list your power business?At the moment, we don’t think we would be listing our power business anytime soon. Because the investors who are interested in the power transmission business are not the general public. These are institutional investors like pension funds who come directly into the company. You recently announced your tie-up with Ericsson to provide solutions in the Smart cities. Could you please elaborate on the kind of opportunity you are looking at in the smart cities?Essentially, Ericsson and we are working on many projects. Ericsson has many great products to offer for a smart city whereas we have an expertise in system integration.So both the companies will complement each other in providing infrastructure in the upcoming smart cities in the country.
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Lupin replaces Tata Power in the Sensex. Sutanu Guru on how changing names in the 30 members Sensex is also about rise and fall of corporate fortunes In the frenetically mad world of Dalal Street, this piece of news was expected for a month. But today, the Bombay Stock Exchange completed the formalities. The pharma company Lupin has replaced the utility Tata Power in the elite list of 30 companies that constitute the Sensex. For those looking for some gossip, Adani Power, whose promoter Gautam Adani is often used to attack the so called pro business credentials of prime minister Narendra Modi, has been dropped from the BSE 100 Index! Coming back to Lupin and Tata Power, the change was in the offing for a while and was announced by the exchange in the third week of May. In many ways, it is a routine thing and merely reflects, at a very basic level, that in terms of market capitalization, Lupin is now a more valuable company than Tata Power. At another level, the change also reflects the relentless change in corporate fortunes and the structure of the Indian economy when economic reforms were unleashed in 1991. Till then, the Sensex was dominated by some multinational corporations and traditional brick and mortar companies controlled by leading business families of the day. In the 1980s, the one player which gate crashed into this cosy club was Reliance Industries promoted by the late Dhirubhai Ambani. The company continues to be a member of the 30 company Sensex list of elites. But it was only in the 1990s that corporate fortunes started changing rapidly and dramatically. This was reflected in the changing names in the Sensex. New age sectors like financial services, IT, Pharma and telecom grew at phenomenon rates. These sectors also threw up new corporate powerhouses. It is around this time that now big names like Bharti Airtel, ICICI Bank, HDFC Bank, Tata Consultancy Services, Wipro, Axis Bank, Dr Reddy’s, Cipla, Sun Pharma and Lupin started emerging and flourishing as big new corporate players. Virtually all of them have found a place at some time or other in the Sensex. Back in the 1980s, both India Inc and the Sensex were dominated by names like Singhania, Birla, Tata, Bajaj, Mafatlal, Podar, Modi and the like. Most of them have faded out from the top leagues and the new stars are promoters and CEOs of the later entrants to the Sensex. Two decades ago, hardly anyone knew about Sunil Bharti Mittal and Bharti Airtel. Now, they are household names. If you look at the Sensex as it stands today, you will be tempted to come to the conclusion that some traditional business families have managed to survive the onslaught of competition from new comers. For instance, Bajaj Auto lost the number position in the two wheeler industry to Hero Motor Corp (originally Hero Honda), but is still there in the Sensex. The Tata group just lost Tata Power from the Sensex, but Tata Motors, Tata Steel and TCS are very much there. And the Aditya Birla group run by Kumarmangalam Birla is there with Hindalco. Group company Grasim too has been there in the Sensex till recently. Then again, the Sensex also reflects the sudden rise and fall in corporate fortunes, at least relatively speaking. Back in 2008, when the Indian and the global economy were booming and it looked like the good times would never end, some prominent names to be found on the elite Sensex were DLF ( at one time the promoter K. P Singh had become the richest Indian!), Mahindra & Mahindra, ITC, L&T, Maruti Udyog, Reliance Communications and Reliance Energy. The last two companies were jewels in the crown for Anil Ambani, who had split from his elder brother Muksesh Ambani in 2005. That Anil Ambani companies have not lived up to the early hype and expectations is no state secret. And they have lost their places in the Sensex. Without a doubt, more changes are inevitable. A time will come when relatively new companies like SnapDeal, Flipkart, Ola cabs and others will be listed in the stock exchange. Who knows, they might be the new boys to join the elite club of Sensex companies.
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