Is the brand Hutch going to Die??

Is the brand Hutch going to die? This strike first in my mind when the news about the sale of Hutchison Whampoa came in the news paper. I don'n have the statistics of numerical value of this brand but it is obvious that this is one of the super brand of India. Hutch is seen as the innovator of almost all the value added services in Cellular service provider. It entered in India in 1994 by acquiring a license to operate in Mumbai. It started as Max Touch but changed to Orange in the year2000. Orange is also the successful brand of Hutch. In rest of the country it entered with the name Hutch.

In order to make one brand in 2006, it changed the logo from orange to pink.By 2006 it had wide presence in all over the country and in order to have a feel of one big brand it removed the orange color and choose pink. This was necessary especially in Mumbai circle where it was branded as Orange. It has won the Creative Advertiser of the Year Award of the year for 2003 at ABBYs- the Indian advertising awards.

Now when Hutch is for sale and bidders are also good brands in the market it seems this brand is going to die. There are three serious bidders in the race to acquire Hutch stake in India. Reliance is one among them. Reliance communication is under Anil Ambani's ADAG. Though he gave a new name to his group after the split with his brother but he did not change the brand name Reliance. Reliance in itself is a big brand. So it is obvious that he will no way compromise his brand with Hutch.
The next bidder is Maxis, the Malaysian telecom giant. It has a large stake in Aircel in India. The company was going to reposition Aircel as Maxis. But when the news of Hutch going to sale came it thought of buying Hutch. So for the time being it has stopped thinking about repositioning of Aircel. It will definitely go for repositioning after the merger (if it happens to buy the stake in Hutch).
The next bidder is Vodafone. It is without any doubt one of the big brand in telecom sector worldwide. It is bigger than the Hutch brand. So the company will use its own brand name rather than the company it is going to buy. So the point here is that whoever buys the company Hutch the brand Hutch is going to die. Let's see if any miracle happens and the brand is able to do the magic of being a successful brand.

ICICI moves ahead for Sangli Bank

India’s largest private sector bank ICICI has moved in to takeover one of the country’s smallest banks, Sangli Bank. This may be the result of the lost chance in UWB (United Western Bank) bid in which ICICI lost the bid to IDBI. Sangli bank is also a seek bank and waiting for RBI’s order to sale. ICICI has taken fast step to takeover this bank before RBI invites the interested bidder to acquire this bank.

This deal will cost ICICI Rs 300 crore. The book value of ICICI bank as on March 31, 2006 was at Rs. 248 crore. There are many advantages for ICICI in this deal. Snagli bank has 194 branches which will give inorganic growth to the bank. Again the bank has a good presence in rural India with 96 braches representing the bank in rural and semi urban regions. The bank has presence in Karnataka, Gujrat, Andhra Pradesh, Tamil Nadu, Goa and Delhi along with wider presence in Maharastra. This is an added advantage for the acquiring bank.

One of the reasons behind banks going for inorganic growth is the restrictions imposed by RBI in opening of the new branches. By acquiring the seek banks the acquiring bank get the advantage of the branches operated by the seek bank. The valuation of the seek bank is done looking at its number of branch and the locations. In this deal each branch is valued between 75 lakhs to 1.5 crore.

If we look at the financial position of the Sangli bank, it is quite evident that the bank isnot in a position to solely operate for a long time. It is necessary to merge this bank with a strong bank. As on March 3, 2006 the net loss for the bank was Rs. 29.27 crore when the net worth of the company stood at Rs. 25 crore. Deposit was at around Rs. 1,990 crore. The NPA of the bank was at around Rs. 62 crore (4.3%) while the NPAs were at around Ts. 21 crore (2.34%).

ICICI has acquired Madura bank earlier. This bank is quite experienced in the acquisition and it will be able to sustain its earlier success. So if RBI approves this acquisition this will give strength to the growth of the ICICI bank.

Hutchison Whampoa for sale

The battle for Hutchison Essar has taken a completely new twist. Hong-Kong based Hutchison Whampoa Group is believed to be considering a sale of its telecom business, including its lucrative India operation.

According to the news Hutchison Group is getting out of its Telecom business by selling its stake in all the telecom companies it owns. If this happens this will be the largest sale in the telecom industry.

The Hutchison-Essar, the fourth largest mobile operator in India, is valued at $11 billion. In this the Hutchison’s stake is valued at around $ 8 billion. Private equity firms like Texas Pacific and Blackstone group are looking for the sale of Hutchison’s stake in its telecom buiness.

It is believed that Anil Ambani group Reliance Communication is in the race to acquire the stake of Hutchison’s stake in Hutchison Essar along with Blackstone. If this deal comes through this will give Reliance communication a good GSM network which it was going to start. Reliance may be looking for inorganic growth which will save its time in establishing the GSM network from scratch. This may be one of the reasons that Reliance is eyeing in Hutchison Essar.

But Reliance may face regulatory problem. TRAI does not allow two companies (owned by the same operator i.e; stake is more than 10% in each company) to operate in the same circle. Hutch has presence in many areas where Reliance operates. So it may be a hurdle for Anil Ambani in acquiring the stake in Hutchison- Essar stake. Tata had to sale its stake in Idea due to this regulatory problem.

Another option can be Essar (it has 33% stake in the joint venture Hutchison-Essar) buying the remaining stake of Hutch is Hutchison-Essar. Both this groups are not having good relationships for last few months. These disputes arise after the acquisition of BPL by the Essar group, which was then sold to the Hutchison-Essar group.

Source: Business Standard

‘Index play’

It is not just the vast majority of retail investors that are unimpressed by the toppling of benchmark equity indices frequently over the last six months.

The profit for the day traders is decreasing with the upward move of the SENSEX. The stock market is in upward move due to some frontline shares. The upward move is not reflected in all the stocks. Again there is high volatility in the market. In such a scenario it is difficult for the day traders to predict the market.

Though it is not possible to prove all these movements in the stock market is due to few individual foreign and domestic investors. They are repeatedly churning their portfolio by buying those stocks which have very few sellers. If suppose there are two stocks A & B. If investors are selling their stock of A these investors are buying the stocks of B so that the fall in price of A is neutralized by the gain in B. So as a whole the portfolio is not loosing instead it is gaining.

So the retail investors and the fundamental investors are unhappy with such movement of the stock market. It has become difficult to know the right time for the investment in their chosen stock. On Wednesday and Monday the Reliance Communication stock help the index to maintain its position. The favorite stocks for the so called controller of the index are Wipro, Suzlon and State Bank of India.

Source: Economic Times

Problem in Bengal. What is the underlying truth?

The controversy of Singur land is at its pick. So what actually is the truth behind all this controversy. Few days back the Bengal government’s work for the Singur land were appreciated and were considered as the best way to compensate the farmers. There are many issues in this case. First the land which is being provided is either single-crop land or double-crop land. This is not permitted in the Special Economic Zone rules to give the fertile land for manufacturing purpose. Here double-crop land is being given to TATA.

But if we look at the compensation it is high. The compensation for the single-crop land is Rs. 8.4 lakh per acre and 12 lakh for double-crop land. It is huge compared to Rs. 24,000 per acre given to the firmers in Maharastra. There is a reason behind this huge compensation. The land being acquired is close to N. H. 2 which connects Kolkata with Delhi.

Over 9000 farmers (94 percent of the total land to be acquired) have already agreed with the Bengal government’s proposal. So the government or the TATA motors will not face much problem with the opposition parties which are against this deal. But they have to keep patience to let the political problem calm down.

Another factor is that in Bengal rand reforms had started in last three decades. The work-force for agriculture have three distinct classes- land owners, share-croppers (persons who get the land cultivated and share the produce with the land owners) and the farmer who work on daily wage basis for the land owner and do the actual cultivation. So the compensation being offered is offered to the land owner and in some cases the share croppers. But the actual farmer is not getting any benefit out of this deal. If this deal carries forward the farmers are the person who will be affected more. They will loose their earnings as well as they will not get any compensation. So the government should work out some formula so that these people should not be excluded in all this process.

Another factor is that TATA wants 997 acre of land to manufacture 1 lakh car per annum. If we see at the Maruti Udyog’s plant its total land area is 300 acre and it produces 3.5 lakh cars per year. So TATA should give some explanation like why it needs such a large area which is more than 3 times of the area of Maruti Udyogs plant to manufacture one third number of car of Maruti.

Source: This article is an analysis of the editorial coloumn in Business Standard by Mr. A K Bhattacharya

Detariffing Insurance Sector

Detariffing means that the pricing of insurance policies are left to the individual insurance companies concerned, to decide and offer, based on their analysis and perception of risk.

The IRDA Act in 1999 paved the way for private insurance player in to this market. Presently there are 30 insurance companies in the market of which 14 are in the general insurance business. The PSU’s are loosing their market share. The four PSU’s together holds 77 percent of the market as on March.

IRDA has now taken a major decision of detariffing the general insurance industry from January 1, 2007. The Detariffing will lead to higher penetration in the country. The under writing system of the subject matter will change form rule based underwriting to risk-based decision making. So the pricing will differ form one insurance company to another. So the margin will gradually decrease for the insurance companies due to competition. The PSU’s will further loose their market share as the private player will try to get more market by operating at the least margin.


The consumer is going to get the fare value. The risk assessment for each customer will be different. On reinsurance the good customer will lesser claims will benefit because of his low risk profile. But a customer with higher claim will have to pay more because of his high risk profile. Again it is being expected that the premium on commercial motor vehicle, medical insurance are going to decrease. Further the premium for trucks and other transport vehicles is expected to go up substantially as the related claims ratio, especially for the third party legal liability segment, has been very high and the premium charged has not been commensurate with the risk exposure.

With the difference in premium the consumer will have wider choice which may lead to his confusion. So they may seek the advice of the insurance brokers to get the best of the market offers.

Source: Business Line

Bottom lines bleed

It has been a windfall for the customer but it has left analyst wincing. The Hero Honda- Bajaj price war for a larger share of the motor cycle market has hit margins and pinched bottom lines for both companies.

Bajaj and Hero Honda together hold more than 80% of the market in the two wheeler auto segment. Earlier Bajaj was the market leader with its successful scooter like “Chetak”. But the market shift from scooter to bike and Hero Honda became the market leader with its key bike “Splendor”.

Bajaj has fight back with consistent improvement in its bike and getting out of the scooter business. Bajaj has challenged Hero Honda from bothe end. At the lower end it is launching new bikes at regular interval of time which are cheaper than the cheapest bike of Hero Honda and also fuel efficient. Though these bikes are not much profitable they help Bajaj to grab the market share. At the upper end it attacked Hero Honda with its bike Pulsar. The result is known to everyone. Pulsar has the highest market share (60%) in that segment.

Hero Honda is has also adopted the strategy of Bajaj. It has relaunched its bike CBZ to compete with Pulsar. Again it is giving promotional offers for the lower segment so that it will maintain its leadership in the two wheeler auto industry. This year both the companies are launching many new bikes. The problem they are facing is that the profit is reducing because of the competition. But no one is taking responsibility to improve the situation. The two wheeler industry has very few players and the market has duopolistic competition.

Hero Honda on the 4-wheeler bandwagon

Hero Honda, the largest motor cycle company in the country, is now eyeing the four wheeler segment.

Hero Honda is the market leader in the two wheeler vehicles in Indian market. It is the market leader for more than last 5 years. It is because of its consistent performance with introduction of good and upgraded products each time and good service. The company understands the consumer behavior in the two wheeler segment and is successful in most of its bikes.

Every company sets vision for the future. They not only compete at the present market condition but prepare themselves for the future market. They compete for the future market without knowing what can be the conditions then. But they predict and make their strategies accordingly. With increasing per capita income the consumers are shifting to four wheelers from two wheelers. Last year the 4 wheeler market crossed the 1 million units. So the market size is increasing.

Now, more and more foreign companies are entering in the Indian market. Maruti is the undisputed leader in this market with a market share of more then 50%. There is a huge market for other players if they are able to give better product then Maruti. Tata has plans to introduce Rs. 1 lack car in next two years. If Tata is successful in its plan it will further increase the 4-wheeler market.

If we look at the Indian 4-wheeler market, we can find that it is different from the other developed market. Indians prefer diesel car over petrol car. Small cars are preferred unlike big cars in the western countries. So the foreign players will take time to understand the market conditions prevailing in the country. But domestic players know the market pulses better. It will not be a difficult task for them to come out with the product as per the expectations of the Indian consumer.

This is a good strategy adopted by Hero Honda. Now the competition in the 2-wheeler market is increasing. So the profits are decreasing at equal rate. It is better to diversify the business so that the company remains profitable and give a good return to its stake holders.

Source: Business Line

GDP grows by 9.2%

The economy grew by 9.2% in the July-September quarter (Q2) and 9.1% during the first half of the current fiscal.

In the next five year plan the target GDP rate is set as 9%. It seems that this target is achievable with the result of the second quarter GDP growth. This is a good sign as far as the Indian economy is concerned.

This is the highest growth in the GDP from the time the Central Statistical Organization started compiling the quarterly GDP data (in the year 1996-97). The highest growth was seen in the Trade, Hotels and Transport Communication sector (13.9%). The growth is not equally distributed across the various sectors of the economy. The agriculture which contributes up to 26% in the GDP has seen a growth of just 13.9%. The manufacturing sector has a good growth (11.9%) over the past year.
Last year the GDP growth for the second quarter (Q2) was 8.4%. The growth in GDP for the first six month of this year is 9.1% which shows a consistent good performance over the last years 8.5%. The important thing is the consistent performance. Now the major thrust should be given to maintain this growth rate. It is a difficult task to have a GDP growth of 8 to 9 percent on a continuous basis. But it seems quite achievable due to the good performance across various sector of the economy. The only concern is the agricultural sector. Now it has become important to look in to this sector more seriously.