Value Creation in the Downturn

TiECON 2002, New DelhiJanuary 12, 2002

The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.

- Martin Luthur King, Jr.

Where is the downturn ?

Sensex at 3400; NASDAQ at 2000

9/11, Afghanistan, Indo-Pak tensions,

Dot com bust, Cut in tech spends

IPO drought

The current market conditions are not conducive to Raise funds Monetise the investments

But…

The challenge is to use the “downturn” to create

enterprise value

An Example : Subhiksha

Chain of discount retail stores selling grocery, promoted by Shri. R. Subramanian in 1997

Network of 100 discount retail stores across 20 towns in Tamil Nadu

Leader in Chennai with 12% market share

Clear price leadership in the grocery and medicines market

Database of 85,000 customers

ICICI Venture took a 10% stake in July 2000

Subhiksha

The economic downtrend impacted overall consumer spending in the retail markets.

But Subhiksha …

reinforced its proposition as a discount store offering the “best prices in town”.

leveraged the increased sales turnover to negotiate better terms with suppliers

Bucking the “downtrend”, Subhiksha has grown from Rs. 80 crore to Rs. 280 crore in 2001

Subhiksha

Today, Subhiksha is controlling costs by :

Rationalising its range of stocks

Optimising work-flow at customer interface

Using IT to manage inventory controls

Simultaneously, it is using the depressed market conditions to:

Acquire other retail chains

Increase outlets and expand to other cities

Invest in warehouse & logistics

An Example : EasyBuyMusic

Multi-channel retailer of music through telephone and Internet media

Incubated by Arthur Andersen's e-Business Incubation Advisory Services

Distribution network in 8 cities across India

Back end logistics supplier of music for all major online shopping portals in India (Rediff, Indya, Sify, etc.)

Customer database of over 1 million email users and 1.2 million cell phone users

ICICI Venture invested in the company in October 2000

EasyBuyMusic

EasyBuyMusic reacted to the dotcom bust by leveraging its strengths in logistics and redefining its business.

Expansion of product range beyond music items - EasyBuyStore

Distribution backend for all products for online shopping portals like Sify and Indya

Fulfillment of orders on phone for Nestle, Cadbury’s, Jet Mall, Outlook, BPL Mobile, etc.

Expansion of its music business to distribute Indian music in international markets

EasyBuyMusic

Today, EasyBuyMusic has successfully redefined its business and has:

Reinforced its position as a multi-channel music retailer

Leveraged its logistics network to sell other products and provide the backend to other players

Built a database for effective cross-selling and CRM activity

An Example: RelQ

An IT company providing software

verification and validation services

RelQ is an independent testing agency for

software and has its own facility and

software tools

Company has a longstanding clients like

Wells Fargo, PingTel, Citibank (Brussels),

Hitachi (Europe), etc.

Inspite of IT downturn, RelQ is registering

25% growth in current year

ICICI Venture invested Rs. 5 crore in

September 2000

RelQ

The IT downturn could have meant the end of the road for a fledgling company like RelQ. However, the company has taken up the challenge by :

entering new markets like Ireland, Belgium, Netherlands, Singapore, etc.

focussing on domain skills in areas like real-time embedded systems, EDA, Avionics etc

entering into strategic partnerships with some of the high value customers to establish a stable revenue stream

developing frameworks and tools to reduce cost of service delivery

RelQ

Today, RelQ is successfully addressing the depressed IT market and registering growth in revenues and profitability.

It has increased focus on Europe and Japan

It has started a new division to focus on testing of avionics software

It has acquired a small testing services company in Europe and is planning more acquisitions in future

It has plans to set up offshore facilities in low cost centers like Philippines, China and Vietnam

In Conclusion

Today, the only real value lies in the ability of a company to :

adapt to a rapidly changing environment

identify and leverage its strengths

be willing to change path and redefine

business strategies