Sucheta Dalal :Valuation enhancer
Sucheta Dalal

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Valuation enhancer  

Oct 15, 2006

The Infrastructure Development Finance Corporation (IDFC) has always been a little confused about its role. For several years, it was accused of being a research company that earned its living through treasury operations. However, under managing director Rajiv Lall, the company has acquired the speed and aggressiveness that comes from his Wall Street background. IDFC made its investors happy with a successful listing and rapid expansion into different aspects of infrastructure funding from shopping malls to finance companies. However, the 33.3 per cent stake acquired in brokerage firm SSKI for a massive Rs 100 crore seems set to change its image from an infrastructure institution to an aggressive finance company. According to Lall, the investment allows IDFC to offer “a one-stop solution to our infrastructure clients” through SSKI's relationships in institutional broking, its research strength and footprint in corporate finance and equity capital markets. However, sources say that the biggest immediate advantage to IDFC in acquiring SSKI is the benefit of the sky-high valuation of all large brokerage firms — such as Indiabulls and IndiaInfoline — today. Sources also say that SSKI's better known retail arm, Sharekhan, may not be part of the deal. Interestingly, not everybody is gung-ho about the investment and SSKI has seen the exit of at least one senior person.


Encasing differently


IDFC's acquisition of a stake in SSKI makes the infrastructure institution look more and more like Infrastructure Leasing & Financial Services (IL&FS), whose retail brokerage outfit IL&FS Investsmart has given it a bigger public profile. However, just around the time that IDFC picked up its SSKI stake, IL&FS was selling Investsmart to US based E*Trade. The American brokerage firm has announced a change in management control and has made an open offer for 20 per cent of Investsmart's equity. IL&FS Investsmart went public in July 2005, placing its shares at Rs 125 while the E*Trade offer is at Rs 210 per share, which is a significant premium to the price at which Investsmart was traded notmore than a few months ago. Does this mean that the two major infrastructure companies think very differently about having a brokerage firm in their product suite? Or are they merely cashing in on the valuation in their own different way? After all IDFC is publicly listed and IL&FS has not managed to list its shares in the 15 years since it warehoused them with Unit Trust of India.


Parking earnings


Crossroads, one of Mumbai's first shopping mall, is truly living up to its name. The Ashok Piramal Group has sold the mall to Kishore Biyani of the Pantaloon/Future group for more than Rs 350 crore and the latter has yet to move in. The mall consists of two structures that are separated by a covered courtyard that turned into an atrium like business space since the Fire Brigade helped stretch the rules. One building housed the Pyramid mall owned by the Piramals, which is now shut and being systematically dismantled. The other section had a variety of expensive shops that are gradually closing down, barring the jewellery section that probably hopes for a last round of business during the Diwali season. With most shops on the verge of closing, the mall seems to have converted its expensive parking space into a revenue generation machine by fleecing unsuspecting customers who are unaware that most shops are closed because of the ownership change. At Rs 30 an hour and another Rs 30 for every subsequent 20 minutes — no longer redeemed against shopping bills — this has got to be the most expensive parking lot in the country. The company obviously gets away with it because most customers who drive into the mall cannot find anyone to complain to or are embarrassed to demand Rs 30 back. But it is not building any goodwill for the future owner Kishore Biyani who has always insisted that he does not believe in making his customers fork out a fat parking fee.


Cable v/s DTH


In large metro markets like Mumbai, an all out war has broken out between the much reviled cable operators and recently launched Direct to Home (DTH) services like Tata Sky; and so far cable operators are winning. They have sent out pamphlets to their captive subscribers offering a cost ‘comparison’ between DTH services and cable television. This smartly drafted pamphlet offers detailed hardware and software costs, including the price of additional connections, taxes applicable and premium charges that DTH will allegedly recover for movies. The obvious conclusion is that cable is much cheaper and far superior to DTH. One the face of it, it seems completely implausible that DTH will enter a market that is already occupied by the cable-wallah by offering a service that is much more expensive. After all, even unhappy Indian subscribers are acutely cost conscious and need an incentive to switch. While cable guys are offering easy instalment schemes to purchase set top boxes and are locking in customers, all that is known about the DTH service providers are a few advertisement hoardings with very little details. This is one situation where the consumer will probably lose out because the competition is neither savvy nor aggressive.


-- Sucheta Dalal