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10�THE ECONOMIC TIMES | BENGALURU | WEDNESDAY | 26 OCTOBER 2016Brands & Companies
Our Bureau
Mumbai: The next batch of FM ra-dio auctions starts on Wednesday.As many as 90 mostly medium-andsmall-sized cities are up for grabs.However, since many big broadcas-ters have chosen to stay away fromthe auctions, citing high reserve pri-ces and other issues as the reason, itis likely the auctions may end up adud. Experts believe as many as two-thirds of the frequencies may fail tofind buyers.
Broadcasters like Big FM, RadioCity, Fever (HT), My FM (D.Bhaskar)and Radio One are not bidding.
High reserve prices were the rea-son why the recent telecom auctionsalso failed, with only 12% of the va-lue on offer being realised.
The story is no different in FM ra-dio. The reserve price in Dehradunis a whopping `̀15.6 crore, the sameas for Chandigarh.
But Dehradun’s radio advertisingmarket is much smaller than Chan-digarh’s, possibly just one-fourth orone-fifth.
Why then were the two cities pri-ced similarly? The answer lies in abizarre government policy whichconsidered both cities equal basedon population.
The fact that Chandigarh’s popula-tion was far more valuable to adver-tisers was not considered. If Dehra-dun looks overpriced, considerthree other even smaller towns –Muzaffarnagar, Shahjahanpur andSaharanpur – which carry the same`̀15.6 crores price – again becausetheir populations are similar toChandigarh’s! What makes mattersworse is that this sum has to be depo-sited with the government in advan-ce, as soon as the licence is won.
In addition to humongous reserveprices, a winning bidder also has tospend on creating transmission in-frastructure, and a lot more in wor-king capital.
With so much investment, there isvery little scope to generate mea-ningful returns.
As per industry experts, a winningbidder would have to generate reve-nues of `̀7-8 crore in the very first ye-
ar to justify such investments. Con-sidering there are 4 frequencies onoffer in Dehradun, the total marketwould have to be `̀28-32 crore in thefirst year.
This is as big as Chandigarh is now,10 years after FM radio services be-gan. The high reserve price compli-cates matters for everybody.
For the government, because it isvery unlikely that all four frequenci-es in a town will be bought. What ifonly one is bought? How will the go-vernment then auction the remai-ning three? Will it reduce prices inthe future?
According to radio experts, reser-ve prices will have to come down by60-70% in the future. If that happens,the winning bidder of this roundwould be left holding the expensivefrequency.
A bidder who participates in thisround will thus end up losing whenprices are reduced later. This is afact worrying potential bidders.
The reserve price in small towns inthe South like Kakinada, Kurnooland Belgaum is a whopping `̀7.02crores. Again, it is highly unlikelythat all four frequencies on offer inthese towns will be taken up at thisprice.
The brave bidder who wins a frequ-ency at this price will feel like a loserwhen the prices come down later.
High Reserve Pricesin FM Radio AuctionWorry Bidders
High reserve prices and other issues are likely to keep broadcasters away
Broadcasters likeBig FM, Radio City, Fever FM, My FM and Radio One are not bidding
Few Takers
A winningbidder also has to spend on creating transmission infra and a lot more in working capital
Cos have to deposit sum with the govt in advance as soon as the licence is won
Experts believe as
many as two-thirds of
the frequencies may
fail to find buyers
OFF FREQUENCY
Since many significant broadcasters have cho-sen to stay away fromthe auctions, the auc-tions may end up a dud
Rasul Bailay & Rajat Arora
New Delhi: The next time you book a rail-way ticket, don’t be surprised if you get anoption for Uber to take you to the station. Ordrop you when you reach your destination.
The US ride-hailing company, targetingsome of the millions of Indians who travelby train, has approached the Indian Rail-ways with a host of proposals – from integ-rating its service with its app and websiteto ferrying passengers to and from stationsin various cities, according to a person fa-miliar with the development.
A deal could add about .̀ 150 crore in reve-nue for the railways annually from com-missions on cab bookings and leasing ofpremium space at stations to Uber for pick-ups and drops, according to the person.Uber did not respond to an emailed ques-tionnaire sent on Monday. The Indian Rail-way Catering & Tourism Corporation Ltd(IRCTC), an arm of the Indian Railways,manages services such as online ticketing.Its website also allows passengers to makehotel, cab and bus bookings.
IRCTC generates more than $3 billion of
revenue annually, making it one of India’slargest ecommerce sites.
The Indian Railways runs 12,000 trainsthat carry over 23 million passengers a day,connecting about 8,000 stations.
Uber has proposed setting up kiosks atstations to assist passengers in booking ri-des, dedicated pick-up and drop locationsat stations and providing technologicalhelp to the Indian Railways to upgrade its
app. The person said that by integratingUber’s service in IRCTC’s app and website,passengers will be able to book cabs on the-ir travel dates. The person said Uber hasnot specified the number of stations andwhich cities it would be targeting if a dealgoes through. Initially, it may want to startwith all metro cities. “The number of sta-tions are not specified so far,” said the per-son who asked not to be identified.
“We are seriously considering this propo-sal and a decision could be taken soon. Therevenue model with Uber is yet to be finali-sed,” a top rail board official told ET.
Earlier this year, Uber formed a partners-hip with American Airlines to guide pas-sengers to pick-up locations in 11major air-ports in the US.
In India, rival Ola has tied up with Mum-bai Metro to offer shared rides from sta-tions on the Versova-Andheri-Ghatkoparcorridor for .̀ 3 per km. The move has ange-red local taxi and autorickshaw operatorswho say such low prices would jeopardisetheir businesses. India has assumed grea-ter significance for San Francisco-basedUber after it sold its operations in China torival Didi Chuxing Technology.
Uber Plans to Hitch its Wagon to RlysRide-hailing co moots proposal to integrate its service with railways app and ferry passengers to and from stations
JOY RIDE
Adeal could add .̀150 crore inannual revenues for railwaysfrom commissions and leasingof premium space at stations
New Delhi: The Prime Minister’s Officeis looking to address complaints by ecom-merce companies that the current rulesare too restrictive pending the drafting ofa longer-term plan for the key job-generat-ing sector by a NITI Aayog committee. Ameeting of top officials was held at thePMO on Tuesday to discuss a range of is-sues including taxation, marketplacecurbs and the offline-online conflict.
“There are a number of issues confront-ing the sector, including foreign invest-ment, taxation,” said a government offi-cial who attended the meeting. “The ideawas to take stock.” The government has al-ready set up a committee under NITIAayog chief executive officer AmitabhKant to review the ecommerce policy andissues faced by companies. The PMO wasdrawn into the matter after ecommerceplayers approached several departmentswith multiple issues and in the absence ofa single nodal ministry.
BRICKS AND MORTARThe Department of Industrial Policy andPromotion (DIPP) had issued a press notein March laying down a new foreign directinvestment (FDI) framework for ecom-
merce aimed at creating a level playingfield vis-à-vis brick and mortar business-es. It allows 100% FDI in the marketplace
model through the automatic route butsuch entities are not allowed to influenceprices by offering discounts.
A single vendor cannot account for morethan 25% of sales on an online market-place. On the other hand, offline retailersmet finance minister Arun Jaitley lastweek to press their case and raise the issueof unfair competition from online playersthrough what they described as predatorydiscounting.
TAX ISSUESTaxation has emerged as a major irritantfor the ecommerce sector along with re-strictions imposed by state governments.
States like Gujarat have imposed a sepa-rate entry tax on goods sold on online por-tals while others want to impose valueadded tax on top of the Centre’s servicetax. The ecommerce companies say theyonly facilitate sales and are not sellersthemselves so they should only face ser-vice tax. States such as Uttar Pradesh evenrequire consumers to file declarationswith the state VAT department for goodsabove 5,000.
The NITI Aayog committee is expected tosubmit its report in a month’s time, spell-ing out a clear framework and bringingabout predictability in the overall secto-ral policy. Morgan Stanley estimates In-dia’s ecommerce market will swell to $119billion by 2020.
The government sees ecommerce as hav-ing a huge potential for job creation byproviding market access to small entre-preneurs and businesses that would findsetting up physical retail establishmentstoo expensive.
PMO Steps in to Hear Ecomm WoesMeeting held to discuss
taxation, marketplace curbs
and offline-online feud
Policy Puzzle
MULTIPLE PROBLEMS
Ecommerce policy under scrutiny at highest level
PMO has held meeting to discuss issues; industry sounded out
Govt sees huge employmentpotential in ecomm
Committee set up to chart a course to resolve issue
Government wants to address issues it can even beforecommittee sends its report
Multiple restriction on market-place to provide level-playing fi eld with brick-&-mortar format
States have levied multiple taxes while GST will bring a cash tax
100% FDI allowed in mar-ketplace modelof ecomm
QUICK FIX
Mumbai: Textiles firm Arvind has rai-sed `̀740 crore by selling a 10% stake inits retail arm to Multiples, a privateequity firm, in an effort to pare debt.
The retail division houses more thantwo dozen in-house and global franchi-see brands such as Gap and US Polo,along with joint ventures with CalvinKlein and Tommy Hilfiger.
The company’s debt currently standsat `̀3,540 crore, which is expected to de-cline to ̀̀ 2,500 crore once the deal is effec-tive in November. “We are going to usethe funds to retire debt. I don’t like longterm debt and I don’t want to ever worryabout cash flows. We have sufficient cashflows for growth engine,” said SanjayLalbhai, chairman, Arvind Limited.
With an enterprise value of `̀8,000 cro-re, Arvind’s retail arm is more than do-
uble than the market capitalisation ofShoppers Stop, which stands at ̀̀ 3,102 cro-re and nearly four times that of FutureLifestyle, which stands at `̀2,588 crore.The valuation of the retail arm is close tothe market cap of the parent company,which stood at ̀̀ 10,427 crore on Tuesday.
The stock of Arvind jumped over 12%after the announcement and closed at a
52-week high of `̀403.60 apiece on theBSE.
Apax Partners and ChrysCapital werealso in the race to pick up stake in thecompany. However, Multiples, foundedby former ICICI Ventures head RenukaRamnath, had an upper hand as it alrea-dy holds 4% stake in Arvind, which it bo-ught for ̀̀ 150 crore four years ago.
Powering GrowthToday, thesegment accounts for over 30% of sales at `2,300 cr,growing at aCAGR of 25% for the last three years
A decadeago, Arvind’s retail business contributed just 7% to the parent’s annual sales
Four brands — Arrow, Tommy Hilfiger, US
Polo and Flying
Machine — contribute the lion’s share
Arvind Sells 10% in Retail Armfor ̀̀ 740 crore to PE Multiples
Sugata Ghosh & Arijit Barman
Mumbai: The Ruias of the heavily in-debted Essar Group have told lendersthat American hedge fund Farallon Ca-pital Management has offered “bridgeequity” to the tune of .̀ 1,500 crore tohelp bolster efforts to revive Essar Ste-el, said multiple sources aware of ong-oing negotiations.
Under the plan, Farallon is supposedto take a quasi-equity exposure in anoffshore vehicle controlled by the Es-sar promoters. This entity will in turninvest the money in Essar Steel’s equi-ty. The investment will be against sha-res pledged by Essar Group foundersShashi and Ravi Ruia, who will repaythe hedge fund once the Rosneft-EssarOil deal is completed. Farallon will re-ceive a fixed return on its investment ifthe deal goes through. The promotersof Essar Steel are supposed to channel$300 million from the sale of their Es-sar Oil stake to Rosneft and others intothe steel business as part of their equi-ty contribution in the recovery planthat is being negotiated with lenders. Ifthe money isn’t repaid, Farallon willend up owning a big chunk of EssarSteel. Farallon declined to comment.
With $21.5 billion of assets under ma-nagement, San Francisco-headquarte-red Farallon manages equity capitalfor institutions, including colleges, en-dowments, charitable foundations,pension funds and ultra high networthindividuals. Having invested .̀ 847 cro-re in seven Indiabulls Real Estate pro-
jects in 2007, it exited with a 42% gainin six years. In 2008, Farallon teamedup with steel magnate Lakshmi Mittalto buy 37.5% of Indiabulls’ power unitfor about $400 million.
Essar Steel Revival PlanGets Farallon Support
San Francis-co-based Faral-lon is a global
hedge fund with $21.5 b
AUM
Essar Steel lenders want Ruia family to make a `2,500-cr equity contribution as promoters, banks eye 49% stake in co, keep existing mgmt
Farallon Fulcrum
Essar promoters are to channel $300 m from Essar Oil proceeds into steel business as part of their equity contribution to recovery plan
Farallon Capital to take quasi-equity exposure of `1,500 crin offshore vehicle of Essar promoters
Promoters to pledge shares, repayment after Essar-Ros-neft $10.9-b deal consummates
Essar Steel10 mtpa steel unit in Gujarat
DEBT
`44,000CRORE
Farallon to receive fi xed
return forinvestment
Ruias to use Fallaroninvestment as bridge equity
Sobia Khan & Kailash Babar
Bengaluru | Mumbai: Infosys Tech-nologies is locking up huge office spa-ces across the country, and has leasedover 9 lakh sq ft across major cities toexpand its business. In a recent trans-action, Infosys Technologies haspicked up over 2,10,000 sq ft office spa-ce on lease in Bhartiya City at Thani-sandra Road in Bengaluru, said twopersons having direct knowledge ofthe deal. This is one of the largest lea-sing transactions in terms of spacetaking place in Bengaluru so far thisyear. The software major will be pay-ing an annual rental of about ̀̀ 9 crore.The lease term is a total 9 years with a
clause of rental resetevery three years.
Infosys’ employeecount stood at over197,050 as on June 30,2016.
“The company willpay ̀̀ 45 per sq ft for thenew property. Infosyswill occupy the spacein November and canseat around 2,000 emp-loyees a shift,” saidone of the persons
mentioned above. An email query toInfosys remained unanswered till thetime of going to press. Bhartiya Cityplans to develop 10 million sq ft officespace over the next few years. In thefirst phase, around 6 lakh sq ft of thatwill be fully operational by Novemberthis year. IBM has also taken 220,000sq ft earlier this year to expand its pre-sence in the city.
In the last quarter, the country’s se-cond-largest software exporter hassigned two large office leasing trans-actions in Pune and Bengaluru. Info-sys took 6,20,000 sq ft office space onlease in International Tech Park, Pu-ne, operated by Singapore developerAscendas in Hinjewadi Phase III. Inanother leasing deal, Infosys signed1,50,200 sq ft space in the ConfidentOctans property in Electronics Cityin Bengaluru. Infosys also plans to ex-pand to cities including Indore, Mo-hali, Belgaum, Hubli and Nagpur, ac-cording to information on the compa-ny’s website. In Nagpur, it is develo-ping a campus to house over 5,000people. Overall prime office space ab-sorption across the seven leading citi-es as of September 30 was about 28million sq ft for the year. Demand wasled by Bengaluru with a 24% share,Mumbai 16%, Chennai 16%, and Pune13%, the property consultant said.
Infosys onExpansionDrive, Leases 9 L sq ft Space
In a recenttransaction,Infosys haspicked upover 2,10,000sq ft officespace onlease inBhartiya City inBengaluru
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