celestri.org

Anil Ambani is at it again with his “unlocking value” theme with his various holdings. Reliance Power when it IPO’s in Feb 2008 will be the largest Indian IPO ever at USD 3 billion. The company will be valued at USD 10 billion when it lists at the upper end of the offering price of Rs. 450 (USD 11.25, based on Rs 40 = USD 1).

Reliance Power is planning to go after the power generation and distribution market which the gov’t of India is looking to spend USD 200 billion. If the gov’t actually spends the money remains to be seen. The government estimates it will invest around USD 500 billion over five years for enhancements in infrastructure like roads, ports and power. The numbers being thrown around these days from the gov’t of India sometimes makes me wonder if they are confusing millions with billions.

So what has Reliance Power done so far…not much. I looked through the monstrous 350+ page red herring document which contains some gems in it:

- “For fiscal year 2007, we generated revenues of Rs. 39.3 million (USD 1 million) . The sources of these revenues were Rs. 22.5 million from project construction and supervision services and Rs. 16.8 million from mutual fund investments.”

- “In September 2007, we entered into a brand licensing agreement with ADAV, allowing us to use the logo for our services and products for Rs. 800 million (USD 20 million).” Yup, that logo at the top of the post is worth a cool 20 million. And who is ADAV? That would be Anil Dhirubhai Ambani Ventures Private Limited – which is 100% owned by Anil and family.

Lastly, credit rating agencies CRISIL and ICRA have given 4/5 for the issue indicating above average fundamentals. My question is what fundamentals are they looking at?

One of the most frustrating experiences I have in India is dealing with the customer service department of a company. For the most part a companies idea of customer service is hanging up a sign saying “Customers Are #1 To Us” and then offering up a comment card for any service they provide.

Recently, I went to the Airtel office in Lower Parel, Mumbai to change the name on my account. It should have taken 10-15 minutes but instead we waited 1 hour and then got the run around for the various forms we needed. They could have improved the process flow through two options: have the correct information on the internet or have a person at the entrance give you the correct information. But in reality they don’t have to because they really don’t need my business.

In mature markets there are various studies on the cost of acquiring new customers. It can be as little as pennies (via Google AdWords) or thousands of dollars (property, cars, etc..) to acquire and retain customers. But in emerging markets such as India, the cost to get new customers is almost nil. Take a look at the mobile phone market in India, during November 2007 the country added 8 million NEW connections. In one year they’ll add around 100 million new users. In India with so many new potential customers, the cost to acquire them is next to zero when people are falling over themselves to buy your product.

At some point this will change when the market becomes mature/saturated. Then companies will look to streamline operations and make customers a priority. Hopefully sooner than later.