The convergence revolution has just begun to take root in India. Hinduja Finance has put a convergence model in place through a holding company structure. Hinduja Finance Corporation (HFC) which was only into financial services earlier, now has a business model that has all elements of Telecom, Media and Technology (TMT). Explains Solomon Raj, vice chairman, Hinduja Finance, "The company will remain a holding company for all companies in the TMT segment and we plan to list these on the NASDAQ. However, before that we plan to get strategic investors in these companies."
The Hinduja group has a diverse presence in these areas which enabled the creation of this new structure for HFC. Though plans are in the incubating stages of convergence, performance in the short term may not be great, but the valuation of these businesses will give a boost to stock prices.
Software
The first step of its convergence umbrella under HFC saw Ashok Leyland Information Technology (ALIT) come under its fold. This IT company has over 150 professionals and has a wholly owned subsidiary in the US. ALIT was merged with HFC. It is the largest business partner for BaaN in India for ERP and also is focused on e-commerce and web based applications. The company plans to focus on solutions for financial services and manufacturing industry in the future. The exchange has been approved at 1:20 taking the post merger equity of HFC to Rs 23.99 crore.
Media
In the media segment, HFC is taking a majority control in Indusind Media & Communications (IMC) by merging Richman Investrade. IMC is the largest broadband cable multiple systems operator (MSO) offering services under the brand `In CableNet' with over four million households under its belt. It is also building an information super highway, with 550 Mhz cable system, being upgraded to broadband network with fibre optic trunking.
It is classified among the 10 largest cable TV operators in the world in terms of subscribers. The network operates in nine cities. In Mumbai, it services over 80 per cent of the cable market and in the principal cities of Delhi, Bangalore, Hyderabad and Ahmedabad it has over 60 per cent of the cable and satellite market segments.
The merger of Richman Investrade has also resulted in acquisition of majority stake in Indusind Entertainment (IEL). IEPL operates local television under brands like `In TV', In Mumbai, In Time the city specific cable channels operate in Mumbai, Bangalore, New Delhi Ahmedabad, Indore besides offering local language programming has given it better coverage to the local people.
The board has also approved acquisition of over 51 per cent control in Cable Video India (CVIL) through its decision to merge Melody Trading with the company, but the swap ratio is yet to be declared. CVIL operates the highly popular movie channel CVO .
Thus, in Media, the company has created a niche by putting up local channels, creating a closer consumer approach, besides catering to various tastes of viewers through a mix of movies, music and broadcasting region specific programmes. Movies and music will be the focus. Adds Solomon Raj, "In media, 80 per cent of ad revenues come from movie and movie-music based channels."
Intel plans to pick up a 49 per cent stake in Hinduja group company Grant Investrade. Grant is a subsidiary of Hinduja Finance. Grant already holds 3.7 per cent in the Hinduja group's media company IndusInd Media & Communications (IMC)and will increase its holding to 6.7 per cent by directing the investment from Intel into IMC. The final aim is to hike Intel's stake in IMC to 20 per cent. Commenting on the Intel's stake explains Solomon Raj "Intel will provide technology for high quality picture through cable."
To move forward on the convergence front, the company has acquired majority shareholding of 51 per cent in IN2Cable.com Ltd, an ISP with a category A license permitting it to offer services across the country. IN2Cable will have an access to the cable network of IMC to offer a host of broad band services including Virtual Private Networks, e-commerce, web hosting. IN2Cable has already had a soft launch of its services in Mumbai and Bangalore. The company also plans to acquire control of 37 per cent in Pacific Internet India (PII) where an agreement has already been signed. Pacific Internet is the largest ISP in Asia and has been promoted by government of Singapore, is a NASDAQ listed company. PII would be offering both dial up and broad band Internet access.
Telecom
Hinduja Telecom India holds 30 per cent in Fascel. Fascel is the cellular operator in Gujarat with a subscriber base of over 100,000 from a single circle outside metros. Now, Hinduja Telecom will become the subsidiary of HFC, in effect creating an opportunity to tap growing opportunities in the mobile cellular sector.
Finance
The Finance division is still the major revenue earner for HFC. For the nine months ended March 2000, HFC's income from operations was Rs 11.76 crore with a net profit of Rs 16.17 crore. The company's earnings has been volatile in the past. The finance operations of the company began since 1995. It operates in corporate finance, equity trading besides advising for euro issues and offering syndicated structured loans for corporates.
Commenting on the future of the finance business, adds Solomon Raj "We propose to hive off the finance business into a subsidiary at a later date, and a final decision will be taken later." The hive off of the business into a separate subsidiary will have a better impact as profitability of finance operations has been highly volatile besides it would not suit the new TMT business model.
The company's equity will increase to Rs 29 crore after the merger of IT and IMC. The final share capital would depend upon the swap ratios for the telecom and entertainment companies. The company further plans to raise money for its future expansions in media and telecom which would increase equity. Explains Solomon Raj "We could go in for a private placement or a public issue but our aim is to keep the equity capital at Rs 40-45 crore, subsequent to all mergers and private placement and we are aiming for a profit of Rs 40 crore in the current year."
Conclusion
For shareholders of Hinduja Finance. The company's adoption of the TMT model is a positive move. The company has a competitive position in the media segment. However, on the technology and telecom segment, its will face challenges as it has to gain critical mass in these sectors and their business dynamics are quite different.
The opportunities, of course, are in the complementary roles as the software arm would be utilised for implementing WAP (wireless application protocol) to offer M-commerce for its telecom business. Its presence in delivery through cables business can create e-commerce related business for subscribers. Though its presence in cables gives it an edge as convergence picks up in true form, HFC will be able to deliver value added services through its cable connections integrating its ISP business, and with a software backup the transition will be much smoother.
However, this story is a long term one. A lot depends on how HFC capitalises on its existing infrastructure, raises financial resources and harnesses the opportunities that are emerging in this segment.
