We'll use FPO funds to raise capacity: SCI chief

Hajara , chairman and managing director of Shipping Corporation of India (SCI), spoke exclusively to ET NOW ahead of the company’s planned offer of shares in the secondary market. State-owned SCI is doing roadshows with international investors for its follow-on public offer ( FPO . slated to hit the market by November-end or early December. SCI will use part of the proceeds to expand capacity. The government, which owns 80% of SCI, plans to offload 10%.Excerpts:
How much funds does SCI plan to raise? Also, can you tell us more on the valuations and the pricing of the issue?



Currently, the Government of India holds a 80.12% stake in SCI and has decided to sell 10% of this through the FPO. Also, another 10% fresh equity will be raised by the company. So, the offer will be for a 20% equity of SCI. After which, the government’s share ownership will come down to 63.75%. The Empowered Group of Ministers will decide on the pricing. If you see our scrip price, it has been hovering around the Rs 170-180 range for the past few months, which will be duly considered by the EGoM while pricing the issue.

The DRHP mentions that you will be adding 29 vessels by 2012 and you will soon place orders for new vessels. Can you tell us more on that and what will be the average age of the fleet after that?

Our average age of fleet is 16 years, which is far below the world average of 23 years. Post-acquisition of new vessels, the average age of the fleet will fall below 13 years. We will order 30 new vessels by 2012. In 2011, our capacity would have reached six million dead weight tonnage (DWT), which is the highest in the company’ss history. We plan to expand our capacity to eight million DWT in the next two years.

There are media reports that you plan to enter into a joint venture with Coal India and Steel Authority of India (SAIL) to provide logistics solutions for coking coal and coal transportation. Can you briefly tell us more about that?

We already have one JV with SAIL for logistics solutions for coking coal transportation. We are acquiring additional tonnage for the same and will start operating the same soon. We are always on the lookout for JVs, be it with Coal India or anyone else. We may also support ventures with attractive and stable freight rates.

You were also in talks with shipyard companies like Pipavav, ABG & Bharati etc for a stake purchase. What is the development on that front?

That is in a very nascent stage. SCI being one of the largest shipping companies does have the vision to be a full-fledged maritime player and logistics solution provider. Most of the global shipping companies have interests in both shipping and shipbuilding. Yes, we have received letters of interest from various shipyard players. But as I had told you earlier it’s in a very nascent stage and will not happen anytime soon.

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Merck scouting for Indian partners

The world's second-largest drugmaker, Merck & Co , is looking for partnerships with Indian companies in manufacturing, R&D and innovative branded generics. In his first interview after being named the new CEO of the American company, Kenneth C Frazier , 55, told ET that the partnership could include taking equity stake in local companies. Mr Frazier, a lawyer by training who led the defence of Merck's Vioxx product-liability suits, says the company will price its products to make it affordable for patients in emerging markets. Excerpts:



You are becoming the CEO of Merck at a very challenging time for the drug industry. Key drugs of many innovator companies will go off-patent in the next few years. How do you plan to offset revenue loss?

Our business is all about innovation. It is an inevitable part of being in the pharmaceutical industry that the drugs you invented and sold will eventually go off-patent. So that is nothing new. What is new is that the number of products going off-patent in next 3-5 years is unprecedented.

At Merck, we have the benefit of having a very strong late-stage pipeline. So my primary focus, as we move forward, is to help my colleagues in research and commercial labs collaborate to execute our late-stage programmes and bring to market new medicines and vaccines that have a significant impact on health.

What are your five top priorities as CEO of Merck?

First, as I said, is to translate research into medically important products. Secondly, with the merger between Merck and Schering Plough , we have a strong portfolio of products in market, 70 of them in India. We will continue to drive the growth of our inline portfolio. Thirdly, we have a number of products that are going to be launched, including a significant number in India. So, it is our priority to successfully launch these products. Fourth, because we are working in a highly price-sensitive environment, we want to ensure we run the company in an efficient way and are in a position to bring innovations and products to markets like India at affordable prices. So, we have an emerging market strategy to make drugs accessible to these parts of the world.

Finally, like any other company, we will continue to operate and innovate, within our own business model, so that we can maximise our ability to bring products at affordable price points.

In which therapeutic segments will your new launches take place?

If I have to single out one segment, it would be cardiovascular, where we have a number of medicines in late-stage development.

Three of them are close to coming to market. They are anti-clotting drug Vorapaxar and two cardiovascular drugs Tredaptive and Anacetrapib.

What are the key planks of your emerging markets strategy?

The first key plank is to be here. We want to be a company in India and a company of India that contributes to growth and progress of the country, particularly provide better healthcare to patients. We would continue to innovate and bring the best medicine in India. We were able to price our anti-diabetic medicine Januvia at a affordable price. We think our products portfolio overlaps with the disease burden faced by Indian patients and physicians. Secondly, we want to take advantage of all innovations taking place in the country, from IT, to manufacturing, to R&D.

So, our strategy is to be here and take advantage of the growth opportunities and contribute in developing R&D and manufacturing. We want to increase revenue from emerging markets from 18% to 25% by 2013. If you look at IMS study, 90% of pharma growth is in emerging markets. There is no way we cannot make India a major focus due to its large business opportunity, not just for selling drugs but for innovations.

What specifically are your plans for India regarding R&D and manufacturing?

Many of our products sold in India are manufactured here, through third parties. We are looking at partnerships with Indian firms that have their own R&D and manufacturing capability, where we can take advantage and also bring our innovative capabilities. So, we want a mutually beneficial partnership with local companies.

Most global drugmakers are using their Indian operations as a platform to grow their global business though tie-ups and buyouts, particularly in emerging markets. For Merck, it seems the focus is merely to tap the Indian market.

I would say that is not true. We have exactly the same strategy. May be, the one difference is that some of other companies have made acquisitions in India.

We want to be in India because it is an important market by itself. But at the same time, we see India as a platform that can provide a better fit to our entire emerging market and global strategy. So our preferred route is partnership with Indian companies as opposed to buying or acquiring a company. We believe those partnerships will allow both Merck and its Indian partners to grow together.

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'IIM-Rohtak should be a global leader'

P Rameshan , former professor of strategy and economics at the Indian Institute of Kozhikode, took over as the first director IIM Rohtak, one of the newest IIMs, late last month. Like any other fledgling institute, IIM-Rohtak faces faculty and infrastructure problems. Professor Rameshan tells ET how Rohtak’s proximity to rapidly-developing industrial centres in the National Capital Region can be leveraged to aid the institute’s growth.

How do you plan to position yourself, vis-a-vis the existing IIMs, in terms of curriculum and management development programmes?

My 13-year association with IIMs would be useful. There is a vast market for executive education, and IIM Rohtak’s proximity to Delhi should help it in developing executive training programmes. We are in the process of carrying out faculty selection.

What are the best global practices you plan to experiment with?

Case-based teaching and in-house development of case studies to empower instructors, are common practices around the world. The institute will make research output a part of every faculty member’s portfolio. The adoption of new technological tools of learning and delivery, is another one. A third is to give students substantial exposure to management practitioners, international practices and cultures through visits abroad or visiting faculty. In addition, providing opportunities to students to practice entrepreneurial management, is vital.

Brand building does not happen in a short time. How do you plan to go about it?

Ancient India had a great institution in Nalanda that attracted scholars from al over the world. Today, if any institution has that kind of draw, it is probably an institution in the US. Why can’t India produce a modern-day Nalanda in management studies, and become the centre of global attention in the years to come? My vision is to see IIM Rohtak emerge as a global leader in management thinking and education in the next 20-30 years. My role would be to create the initial structures, systems and processes required for achieving this vision.

How do you plan to address faculty shortage?

I do not consider faculty recruitment as my biggest challenge. I always believed we can find faculty if we put the right effort (if we have the right attitude, sense of reality, and willingness to spend time to help youngsters develop). When I was dean in charge of faculty recruitment at IIM Kozhikode, in one year I helped nearly double the faculty size (to over 50) without compromising on the quality. I am confident that I can find enough quality faculty members for IIM Rohtak.

In fact, I believe that the task of IIM Rohtak would be easier than IIM Kozhikode, given the location of IIM Rohtak. My main challenge would relate to mobilising financial resources sufficiently rapidly to match the fast pace of progress being planned for IIM Rohtak.

From teaching to administration, you have garnered a wide range of experiences from IIM Kozhikode. Is there anything you want to emulate at IIM Rohtak?

The rapid progress of IIM Kozhikode is worth emulating. Its healthy social environment (of faculty, students and staff) is worth taking note of. Its efforts to carve a niche and stand on its own feet deserve to be emulated, as does its social commitment.

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McCormick bullish on $5-bn Indian market

McCormick is planning a major expansion in India following its tie up with Kerala-based Eastern Condiments. But for Alan D Wilson , chairman, president and CEO, McCormick, business with India is a two way street. A global leader in spice, herbs, flavours and seasonings, McCormick is planning to market its products, especially seasonings, in India. At the same time, the company with nearly 50% market share in the US, will introduce Indian products in some of the overseas markets. Mr Wilson spoke to ET about growing market for seasonings and his plans for Asia.Excerpts:



How big is the US seasonings industry? How did the recession impact this segment?

The actual use of spices in the US has doubled in the last 20 years. Earlier, there was only a narrow range of products. But now the consumption has broadened. Currently, the US market for spices is worth $1.5 billion and it is growing well. In Europe, the overall flavour market including spices is worth $16-20 billion. The recession did not have a major impact on our business. That is because industries account for only a 40% of our consumption. Due to the recession, more people started cooking at home, which in turn benefited us.

How important is the Asian market for you?

The Asian market is very important for us. Right now Asian markets account for 7% of our business. Within the next five years, we want to increase it to 15%. In countries like India, the spice consumption is already very high. We want to leverage on this and achieve higher growth.

What would be the roles of Indian and Chinese markets in this growth?

McCormick runs its biggest business in Asia in China. We have two plants and whatever we produce is consumed locally. We have adapted our products for the local market since the Chinese have different preferences. For instance, the Chinese use a lot of soya sauce. We have tried to localise all products in China. The Indian spice market is valued at $5 billion, of which less than 10% is branded, and hence it presents a huge opportunity for McCormick.

What are the new trends in the industry?

The new trend is variety in cuisine. The popularity of Thai, Indian, and Mexican cuisines is increasing in the world market. It is consumer- driven and convenience-driven. The consumers determine flavours. There is a big opportunity in the ready-to-cook and ready-to-eat segments.

You have a strong recipe-driven sales in other markets...

Just like our other markets, we have plans to introduce our recipe-driven sales strategy in India as well. We have to decide what is best for the local market and provide pre-blended and measured spices which could be used to create a flavour. It is an inspiration for creating a recipe. Recipe-driven sales have been a success in many other markets.

Which are the spices you source it from here? Are you happy with the quality standards of such products?

We are sourcing around 40 spices from India. Pepper is the most important item that we are buying from here. This is because black pepper is the most widely consumed spice in the US. We generally maintain a high quality standard. Sourcing products of such standards is not an issue because of our long-standing supply relationships. Our relationship with the suppliers has been continuing for decades. We do not buy products from the open market.

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'For-profit MFIs worse than money lenders'

For microfinance companies, bad news continues to pour. Former RBI governor Yaga Venugopal Reddyhas equated microfinance lending with the activities of sub-prime lenders in the United States. In an interview with ET on the occasion of his book launch in Mumbai, Mr Reddy says for-profit MFIs should be treated at par with money-lenders and should not be subject to soft regulation as they are a bigger risk to the system than individual lenders who extend loans out of their own net worth. Mr Reddy has also blown the whistle on another flavour of the season - financial inclusion. According to Mr Reddy, some financial intermediaries are looking to exploit the situation in the guise of financial inclusion, and new unregulated entities are getting a toehold in the financial sector in the name of technology.



How do you assess RBI's tightening of policy? Has it taken the right steps to control inflation?

I think contextually and directionally, RBI is right on the spot. The exact timing and the magnitude are matters of judgement. The problem for policymakers today is the uncertainty in the global economy. Inflationary pressures are generalised among the developing countries. The pressure on food prices is particularly acute in India. Inflation may settle earlier in India. I think for India, the stronger inflationary pressures are somewhat behind us. Whereas it may get possibly added for a country like China.

Do we need to give more banking licences, especially to corporate houses?

It is difficult to say specifically about the licence. More important is the issue of ownership and governance and how you ensure regulation. The debate should not be whether to give new licences, but whether a bank's dominant owner can be an industrial house or not. If there is a conflict of interest (between the bank promoter and the bank), then how to address ownership and governance issue? Then there is a universal recognition that banks are special, which again means that there should be discomfort if there is a serious conflict of interest involving banks.

In the context of the current debate around the Andhra government ordinance, how do you think they should be regulated?

One should look at the incentive mechanism. If you go back to the person who originated the whole concept of MFIs (Mohammed Yunus), his view of for-profit MFIs is a money lender. So if it is forprofit and if there is aggressive lending, it's just money lending. Also, if you look at the way resources are leveraged, it's more than a money-lending business. The money lender normally lends out of his own money whereas here, MFIs are actually borrowing money from depositors and lending the money. So essentially, he is a leveraged money lender. In a way, therefore, a for profit-MFI should be regulated like any other money lender and there should be good money lending legislation in every state. This is one way of bringing money lenders into a better regulatory framework. Also, ultimately it's something like sub-prime lending. The same incentives are operating here. The only difference is that it was securitisation and derivatives that operated in the US while here it is priority sector lending by banks which is pushing in the money. The idea that MFIs should be treated like banks but given soft regulations is dangerous.

At a global level, the level of financial exclusion is huge, both globally as well as domestically. Is financial inclusion in India mere sloganeering?

Improvement in technology has enabled financial inclusion. Secondly, given the huge government programmes covering so many people, it becomes economical for the government to promote financial inclusion. So there is convergence. But there is one danger where like in sub-prime lending, some financial intermediaries in the name of financial inclusion start exploiting the situation. Sub-prime started with the good intentions of providing affordable housing.

The construction industry wanted to build more houses and the financial sector wanted to lend more. So irresponsible lending and uncontrolled construction of houses led to money being lent to those who could not afford houses. You may end up in a situation, where in the name of financial inclusion, you may come across financial intermediaries who would exploit the situation, or in the name of technology virtual financial functions may be taken over by some other companies. I can see signs of this happening.

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