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The Indian Airspace has undergone
tremendous changes since its monopoly
days and today several players exist in the
market offering diversified services and a
range of fares. Jet Airways has the
highest market share among the domestic
carriers. Jet Airways together with its
budget arm Jetlite commands 27% of the
market share among domestic Indian
carriers. Kingfisher comes in second, with
20% of market share. They are followed
by Air India, with a market share of
18.3% and IndiGo with a market share of
16.4%.
Jet Airways:
Copper Business
• Sterlite Industries (India)
Ltd.
• Konkola Copper Mines.
• Copper Mines of
Tasmania Pty Ltd.
Zinc Business
• Hindustan Zinc Limited.
Aluminium Business
• Bharat Aluminium Company
Ltd. making zinc, copper and aluminium. In Cash Cows - Cash cows are low-growth
• Vedanta Aluminium Ltd. just two years, Sesa Goa is a hugely businesses or products with a relatively
profitable entity, with an operating high market share. They have relatively
Iron-ore Business margin of 60%. little need for investment and need to be
• Sesa Goa Limited. managed for continued profit.
In response to critics, Vedanta Resources
acquired mining assets of another Goa- Question marks - Question marks are
Power Generation Business based mining firm V S Dempo last year businesses or products with low market
• Sterlite Energy Limited. for Rs 1,750 crore. In May last year, share but which operate in higher growth
• Madras Aluminium Company Ltd Vedanta also bought zinc assets of global markets. They have potential for growth,
rival Anglo American for USD 1.34 but may require substantial investment.
Acquisitions Prior to the Cairn billion.
Dogs – The term "dogs" refers to
Deal
businesses or products that have low
Acquisitions and diversification have relative share in unattractive, low-growth
The Four Box Strategy
always been a central theme in the markets. They are rarely worth investing
group’s growth, which shot into the Anil Agrawal, the group’s chairman, is a in.
limelight about a decade ago by buying firm proponent of the Four Box strategy
majority stakes in BALCO for Rs 551 – a strategy to create a diversified
The Cairn Deal
crore in 2001 and Hindustan Zinc for portfolio that can generate enough cash
over Rs 750 crore in 2002. It transformed to fund complex and large projects in
the loss-making PSUs into cash rich cyclical businesses. The strategy consists Last month, Vedanta Resources Plc
companies. Hindustan Zinc (HZL), saw a of making use of existing assets to announced its plans to acquire a majority
400 per cent jump in capacity in seven become a low cost producer, investing the stake in Cairn India Limited, a unit of
years under Agarwal’s leadership to cash flows obtained in greenfield and Cairn Energy plc. The Vedanta Group
emerge as the largest zinc maker in the large scale brownfield expansions and will pick up 51% stake in Cairn India
country with the highest margins. The taking advantage of any external blue sky from Cairn Energy at Rs405/share. This
group spread its roots to the African opportunities which may arise (refer
exhibit for explanation of terms). includes Rs50/share (i.e., $1bn) as non-
continent by acquiring majority stake in
Konkola Copper Mines in 2004. Later, it compete fee (Cairn Energy will not
bought Copper Mines of Tasmania to compete in India, Bhutan, Sri Lanka and
further augment its position in the copper This approach is based on the 2x2 matrix Pakistan or poach senior management for
industry. approach developed by the Boston three years). The transaction, which
Consulting Group, which divides the would be a reverse takeover, is expected
The group entered the iron ore business Strategic Business Units in a company’s
in 2007 when it acquired Sesa Goa from to close by the first quarter of 2011.
portfolio into four broad areas:
Japan's Mitsui for about USD 1 billion. Cairn India currently produces about
The move had surprised shareholders, Stars - Stars are high growth businesses 125,000 barrels of crude oil per day.
investors and analysts as they dubbed it a or products competing in markets where According to Vedanta, there is the
random buyout by a base metal company. they are relatively strong compared with
the competition. They require heavy potential to more than double this level to
They felt that by entering into the ferrous
metals industry, the group was moving investment to sustain growth, which will around 240,000 barrels per day,
away from its core non-ferrous business of eventually slow down. representing about 25% of India's
production. Industry experts have
expressed surprise at Anil Agrawal’s acquisition is also in consonance with
decision to invest in the Indian oil Agarwal’s Four Box strategy – he is
exploration sector when most global channelizing funds to the tune of USD 3
majors or domestic players are either billion from the cash cow Sesa Goa to
scaling down their Indian operations or finance the Cairn deal.
going overseas.
The deal has been criticized for being
However, the jour ney from bulk solely an exercise in empire building -
commodities to energy (coal, power and good for the dominant shareholder but Please send in your suggestions and
now oil) is a natural progression. The not necessarily for minority shareholders;
group is already involved in commercial which in this case are the Sesa comments to
power generation, so picking up stakes in shareholders. teamconsult@iimahd.ernet.in
gas blocks could be backward integration
to fuel its power projects. Furthermore,
having stakes in metals and oil could pay
off as the cyclical nature of the two
industries is complementary. The Cairn
Team Consult
Amber Maheshwari
Agam Khurana
Bharati Agarwal
Chaithanya Rao
Girish Gupta
Gurveen Bedi
Hemant Chhabra
Kommu Nageen
Mohit Garg
Murali Nair
Neeraj Huddar
Nilesh Kumar Gupta
Richa Gupta
Simit Batra
Utsav Kheria
Vamsi Krishna
Vivek Iyer
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