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Tuesday, September 19, 2006
Trent
Trent should declare an Eps of Rs 30 for Fy 07 and Rs 45 for Fy 08. Available at a trailing PE of 36 times and growing at 50% each year Trent is an excellent pick for a risk averse investor who wants to play the Great Indian consumer story. Also a company with a market cap of Rs 1000 crores raising money to create
a war chest of Rs 400 crores menas that they have something up their sleeve?
Thanks Akash
Download here
Gitanjali Gems
Gitanjali trades at a current year PE of less then 10 compared to Titan's (Tanishq). PE of 32.The RoE is how – ever very low but that could be because the IPO
proceeds are yet to be deployed. There is a scope for a PE re-rating and the stock could handsomely reward shareholders. The stock also trades at a
market cap to sales ratio of less then 0.5 for the current year. It could therefore be categorized as a growth cum value play which coulkd be a
significant multibagger in the making.
Thanks Akash
Download here
Monday, September 18, 2006
Movers & Shakers
* Bharat Earth Movers rose on entering into a deal with CCC for starting a joint venture company in Brazil.
* Southern Ispat hit the upper circuit breaker of 5% on its proposed plans to set up an integrated steel plant at Kannur in Kerala at a cost of Rs500 crore.
* Suzlon Energy moved up on bagging an export order from John Deere Wind Energy.
* Financial Technologies advanced after the MCX and the ZCE signed a MoU for working together that could mutually benefit both the exchanges.
* Wockhardt inched up on reports that it has signed a MoU with MIDC for setting up an SEZ at Aurangabad.
* Venus Remedies dropped despite announcing the launch of a new formulation, Fejet-od.
* Satyam Computer Services slipped despite signing a deal with the University of Melbourne for undertaking joint research projects.
* PBM Polytex inched lower despite announcing plans to set up a windmill power project.
Sharekhan Stock Idea - BASF
BASF India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs300
Current market price: R220
Piggybacking on consumption boom
Key points
- We expect BASF India (BASF) to benefit from the changing demographics and the resulting consumption boom in India.
- BASF's products are used in industries like white goods, textiles, home furnishing, paper, construction and automobiles all of which have been growing at a fast pace in contemporary times.
- To capitalise on the resulting opportunity, BASF is expanding the capacity of its two key products, expandable polystyrene and polymer dispersion, which are used in the white goods industry and paper industry respectively.
- We expect BASF's revenues to grow at a compounded annual growth rate (CAGR) of 31% and its earnings to grow at CAGR of 32.8% over FY2006-08E.
- It has seen consistent return ratios in the past five years. It has RoCE of 24.8% and RoNW of 17.1% for FY2006; the same are expected to improve to 33.8% and 23.8% respectively by FY2008E.
- BASF has a dividend yield of 3.3% and a high dividend pay-out of 40% which provide a margin of safety to the investment.
- At the current market price of Rs220, the stock is quoting at 7.6x its FY2008E earnings per share (EPS) and 4.3x its FY2008E EV/EBIDTA.
- We believe that the stock is trading at attractive valuations given that:
- the outlook for the company's business is very bright over next two years;
- the return ratios, RoCE and RoNW, are likely to show sharp improvement; and
- the dependence on agrinutrients business is likely to reduce substantially. - We recommend a Buy on BASF with a price target of Rs300.
Trading Call
Buy Reliance Industries above Rs 1143 for target of Rs 1159, support at Rs 1136.
Trade at your own risk
The story from 12K to 12K...
and what is driving the rally this time
Four months after it fell off the mark and five months after it firsttouched it, the Sensex is back at 12,000. Time to rejoice that all'swell with the world? Not really, if you take a close look at theunderpinnings of the rally that has taken the index back tostratospheric levels. The present rally appears to be selective interms of the participating stocks, and the market has turneddiscriminating in the mid- and small-cap spaces. There has been avirtual shake-out among the mid-caps that were in the vanguard of thelast rally till May. Ditto for the small-cap stocks, where, again, theparticipation has been minimal in this rally
Read here
Textile: Is it different this time?
Indian textile companies, across product categories (apparels, denim, home textiles) are today seeking to build scale, extend their footprint and access global markets. While their attempts are not without several hiccups, there is certainly a sort of rejuvenation in the sector, which was once written off as an old economy debt-ridden sector. This was primarily so when most companies in the sector sought refuge in the BIFR in the late 90s. With the textile majors today once again talking of expanded capacities and inorganic growth, we analyse whether the scenario is different this time.
The pros...
Yet to reap the fruits of capex: Most companies in the sector timed their expansion plans FY04 onwards, so as to avail themselves of the funding under TUF (Technology Upgradation Fund, offering loans at 6% subsidy) - due to expire in March 2007. This led to the capex-spending phase in the textile sector peaking in the last two fiscals. Against this backdrop, we believe most of the capex in the sector has already been incurred or is in the last leg of completion. We believe that the benefits of these expansions should start filtering in from FY08 onwards, once the new capacities stabilise and the utilisation levels get normalised.
Overseas alliances to help move up the chain: Several Indian textile companies have formed alliances with their global counterparts, particularly those with strong front-end capabilities, in a bid to access global markets, tap technological know-how, design skills and branding and retailing ability. The alliances have been struck in most cases by way of JVs or stake acquisition. The strategic rationale for the alliances could be as outlined below.
Branding and retailing capabilities: While Indian textile companies have the advantage of a cost competitive manufacturing base, they lack global branding and retailing capabilities. Tying up with overseas companies will help them move up the value chain and focus on the more lucrative branding and retailing business (Welspun India's stake acquisition in Christy).
Market access: Overseas alliances give Indian companies direct access to the US and European markets where their overseas partners have a distribution channel in place (Raymond's JVs with overseas partners).
Technology transfer: Transfer of technology and know-how for manufacturing the premium end products will become a possibility. Raymond through its JV with Gruppo Zambaiti has entered into a new line of business - high-value cotton shirting fabric. While Raymond will provide the low-cost manufacturing base in India, while its overseas JV partner will supply the technological know-how.
Designing capability: Overseas alliances will help Indian companies acquire international design capabilities and product development skills. This is true for all the three JVs entered into by Raymond in the recent past.
And the cons...
Home textiles-Over-supply concerns: Although home textile companies have recently been aggressive on the capacity expansion front, realisations have remained stable. But as new capacities come on-stream and utilisation levels pick up, this is unlikely to continue. This is because although India continues to feature amongst the lowest cost producers for the US and EU markets, competitors like Pakistan and Turkey are cannibalising its market share. Moreover, with the possibility of slowdown in the western economies looming large, a slowdown in demand cannot be ruled out.
Apparel-Rigid labor laws: India's inflexible labor laws have been a hindrance to investments in this segment. Unlike in home textiles, garment capacities are highly fragmented and leading Indian textile companies have been slow to ramp up their apparel capacities, despite strong order flows from overseas buyers who are trying to diversify out of China.
Denim-Excess capacity: Total denim capacity in India has nearly doubled over the past 12 to 15 months, resulting in a prolonged slump in the domestic market. Most new entrants (largely catering to the unorganised market) are incapable of producing export-quality denim and have resorted to dumping their produce in the domestic market resulting in nearly 15% drop in prices within a few months.
Firming cotton prices: As per the data for cotton production shown by the textile ministry of respective countries, cotton production is expected to rise by 2% globally. However, the new capacities in the textile industry seem to have to be falling short of sufficient raw material. While India continues to remain in surplus, the demand for cotton from across the globe is expected to keep cotton prices firm for the rest of the fiscal, thus impacting the operating margins of textile companies.
The scenario is......no different this time! Excess capacity, pressure on realisations and raw material costs are as much of a concern today as it was half a decade back. In fact, dependence on exports for vending a large part of turnover has cost the companies foreign exchange losses (in their hedging account) with the rupee depreciation. Nonetheless, what needs to be acknowledged is that several companies in the sector have been pro-active in taking advantage of the regulatory and market opportunities (TUF, retail outlets, overseas JVs), which we believe will stand them in good stead in times to come.
Construction: The infrastructure push!
The Indian economy, with an expected growth rate of around 7.5% to 8% in FY07, is amongst the fastest growing in the world. In order to sustain this kind of growth rate, the country needs, among other things, robust and world-class infrastructure. It needs no repeating that the infrastructure in the country can, at best, be described as sub-standard, and at worst, pathetic. The country's financial capital, Mumbai, has, in some places, the kind of roads that you would not even find in a third-class village! Thus, it goes without saying that if the country is to consistently grow at a good pace and attract investments, both domestic as well as foreign, then it will have to get its act together and consciously strive to improve its infrastructure - be it roads, power, ports, airports, irrigation, sanitation or telecommunications. In this regard, we briefly examine here, the kind of growth potential and investments that are there in the infrastructure segment of the construction sector
Roads - Laying the route to prosperity!
The roads sector is one that is expected to see the maximum action in the infrastructure segment. Overall, infrastructure investments are expected to rise from Rs 1,700 bn in FY05 to Rs 2,200 bn by FY08. Of this, the roads sector is expected to contribute as much as 34%, or Rs 757 bn. A major part of this activity will be centred on the National Highway Development Programme (NHDP). This is the government's flagship project in its grand plan to give a facelift to the entire country's road network over the next decade. The project entails the building, upgrade and maintenance of 51,411 kms of roads at a cost of nearly Rs 1,900 bn.
Public-Private partnerships - Partnering for growth
With the pressing need to develop the country's infrastructure, the government has clearly realised that it cannot do it all on its own. It will have to involve the private sector, and the fact that a significant number of projects are being planned predominantly on a build-operate-transfer (BOT)^ basis is a strong indication of the government's intention to invite greater private sector participation in infrastructure creation.
Irrigation and water supply and sanitation (WSS)
Irrigation projects and urban infrastructure are expected to be other major areas contributing to the growth of the infrastructure segment. These 2 segments comprise 39% of the total outlay expected till FY08 at Rs 869 bn. Dam projects, water reservoirs, water treatment plants, desalination plants and sewage treatment plants are some of the project types that are expected to be awarded by state governments over the next few years. The state of Andhra Pradesh alone has envisaged investments of Rs 400 bn in irrigation projects over the next 5 years.
Power - Empowering India!
In India, the power infrastructure is in fairly poor shape. Power theft is rampant, and the quality of power supplied often leaves a lot to be desired. Thus, the need to accelerate power reforms cannot be understated. The government's capacity addition plans in the Tenth Five-Year Plan (2002-07) amount to 41,110 MW, while for the Eleventh Five-Year Plan (2007-12), the addition envisaged is to the tune of 60,896 MW. However, it should be noted that, given the past track record, it is unlikely that a great percentage of this addition will actually come on-stream during the plan periods. Nonetheless, construction investments are expected to amount to Rs 450 bn by FY10, giving significant scope for players operating in this sector.
| Sales | EBITDA margins | Net profit | RoE | Market price* | P/E ratio** | |
| (FY06) | (Rs m) | (%) | (Rs m) | (%) | (Rs) | (x) |
| Gammon# | 14,851 | 13.0% | 1,043 | 20.6% | 374 | 34.9 |
| Hindustan Construction | 19,870 | 9.2% | 1,248 | 20.1% | 109 | 21.9 |
| IVRCL | 14,957 | 9.0% | 930 | 24.8% | 253 | 27.8 |
| L&T@ | 147,631 | 7.2% | 9,424 | 23.7% | 2,522 | 35.3 |
| Nagarjuna Construction | 18,404 | 8.9% | 1,039 | 16.4% | 312 | 26.7 |
As can be seen, all these players trade at reasonably high P/E multiples on a trailing 12-month basis, reflecting the high expectations that the market has from them. To their credit, so far, they have performed admirably, justifying the premium valuations that they enjoy on the bourses. However, we would say that while studying a construction stock as an investment, do not go by the order book size alone.
Factors like the duration of the order book, raw material costs, escalation clauses and the ability to protect margins are factors that, in our view, are more important than simply the order book-to-sales. Execution risks and, of course, finding adequate and qualified people to execute the projects, in our opinion, are the biggest risk factors.
^ In the BOT model, the vendor builds a highway or bridge, operates it for a period of time and later hands it over to the government. Here, it is important to note that this model rests on specialists who bring in the best knowledge and skill-sets for setting up such projects. The model works on outsourcing the early stages of project execution to specialist private players and once the project starts running smoothly, it is taken over and run by someone else like the government in this case.
Sunday, September 17, 2006
IDBI-United Western Bank merger
The amalgamation of United Western Bank (UWB) with IndustrialDevelopment Bank of India is likely to change the rules of the game inthe banking space on the issue of valuation of shares.
The merger is markedly different from takeover of GlobalTrust Bank and Nedungadi Bank by healthier rivals. In both the cases,shareholders went away without any consideration for the sharessurrendered.
Apart from synergies to the participating banks, the IDBI-UWB merger is likely to be a positive for old private sector banks.
As the wave of consolidation is likely to gather momentum overthe next year or so, old private sector banks may see their valuationsimprove.
Investment in the IDBI stock can be considered with a long-term perspective.
The stock is available at a price-to-book multiple of 0.8 and aprice-to-earnings multiple of about eight times its trailing 12 monthsearnings.
Accepting the offer at Rs 28 per share appears an appropriate strategy for the UWB shareholders.
A good fit for IDBI
The amalgamation of UWB with IDBI is likely to add value to thelatter over the long term. The merger is likely to help IDBI expand itsretail presence, though its size may not increase substantially.
Of the several benefits the deal brings, we believe access tothe branch network is most significant. IDBI, with a balance-sheet sizeof Rs 81,700 crore, has a network of 181 branches now. It scores poorlyon this parameter compared to like-size peers. The merger would giveIDBI immediate access to the 230-branch network of UWB, therebywidening its deposit franchise.
For IDBI, growing at 25 per cent over the past two years, additionof branches would help sustain the momentum. Deposits may expand byover 20 per cent and the asset base by about 10 per cent. The ReserveBank of India's (RBI) strict licensing norms that restrains opening newbranches has placed a scarcity value on branches. The merger would,therefore, give IDBI access to a ready physical infrastructure,enabling it to mobilise low-cost funds.
Second, the merger with UWB is likely to help IDBI diversifyits credit profile. Dominant in industrial financing, IDBI should getexposure to agriculture credit through UWB;nearly half the number ofUWB its branches is in semi-urban and rural areas, and shouldcomplement IDBI's loan book.
The third aspect relates to the benefit of an improved depositmix for IDBI. As it manages its transformation from a financialinstitution to a commercial bank, it finds about 60 per cent of theliabilities in the form of long-term borrowings. Low-cost deposits arejust about 9 per cent of the total. This perhaps explains IDBI's lownet interest margins (0.5 per cent versus industry average of three)and the high cost of funds (6.5 per cent versus the industry average offive). In this backdrop, the access to UWB's low-cost deposit baseshould prove advantageous for IDBI in the long run.
Inexpensive acquisition?
IDBI has offered to pay Rs 28 per share to the UWBshareholders. The purchase consideration, at this price, works out toabout Rs 150 crore. The price-to-book multiple for the acquisitionworks out to about 1.9. Although this appears slightly high, we believethe price factors in the takeover premium attached to UWB's business.Further, UWB has a positive net worth (about Rs 115 crore). Its capitaladequacy ratio had turned negative mainly because of technicalprovisions such as for depreciation in the value of investments.
Even with a mere 10 per cent recovery rate and no furtherslippage in the asset quality, the acquisition would be a valueproposition for IDBI. Being a big bank with a high capital adequacy(14.8 per cent), it is likely to see larger volumes per branch.
Key challenges
On the face of it, an outflow of Rs 150 crore may appearinexpensive. But if one were to consider the hidden costs in the formof bad loans and the likely slippages in the quality of existingassets, the effective cost is likely to go up by another Rs 100 crore.
Considering IDBI's size, this may still be a small sum.Post-merger, its level of net non-performing assets is likely toincrease to 1.4 per cent from about one per cent now. As such, managingand containing the level of bad loans remain a challenge for IDBI.
In the short term, the IDBI stock is unlikely to deliversignificant value. Its management has said that UWB would be kept as astrategic business unit in the near term.
While this may make the balance-sheet look attractive in theshort term, the impact of the synergies that will flow from the mergerwill be visible only over the long term.
Integration of UWB with itself is likely to be a key challengefor IDBI. UWB has an employee base of over 3,200, which is about 70 percent of IDBI's.
Going by the draft amalgamation scheme, IDBI is required toabsorb the entire workforce, a move that is likely to push up its wagecost and make integration a tricky exercise.
The boards of the two banks have been given time tillSeptember 27 by the RBI to discuss the amalgamation scheme and placetheir objections/suggestions before the central bank.
As such, the possibility of another bank/institutionpresenting a better offer to take over UWB cannot be ruled out, thoughthe chances appear slim at the moment.
Despite the concerns, the downside risks associated with themerger appear minimum, making the IDBI stock attractive as a long termproposition.
Attractive bailout for UWB
The UWB shareholders can accept the offer, priced at Rs 28 pershare. That the shareholders of the transferor bank are beingcompensated is in itself a big improvement over the previous suchcases.
Poor asset quality and deteriorating financials had cast agloomy picture of UWB's future. IDBI, with enough capital at itsdisposal to absorb the business of UWB, is confident enough to lendsuccour to the ailing bank.
Saturday, September 16, 2006
Banks, cement-construction cos lead fortnightly rally
The market rallied last fortnight breaching the 12,000 mark for the first time since 18 May on consistent FII inflows and falling crude oil prices, which dipped to a five-month low.
The Sensex rose 231.57 points (or 1.96%), to end at 12,009.59 in the fortnight ended 15 September 2006 from a closing of 11,778.02 on 1 September 2006. However, the BSE Sensex plunged 368 points on Monday (11 September), due to heavy selling by FIIs in the derivatives segment.
For the period between 1 September and 15 September 2006, banks, cement and construction companies were the biggest gainers in the A group on expectations that interest rates may not rise in the near term and that the cement prices will go up due to an increase in construction activity post monsoon.
The BSE's banking sector index, the BSE Bankex, rose 251.57 points, (4.67%), to close at 5,635.43 on 15 September from 5,383.86 on 1 September. The major gainers among the banks in the A group were Oriental Bank of Commerce (up 16.69% to Rs 226.5), Canara Bank (up 14.35% to Rs 260.05), Corporation Bank (spurted 14.12% to Rs 358.25), Indian Overseas Bank (soared 10.24% to Rs 105.5), Vijaya Bank (advanced 9.95% to Rs 51.90), and Union Bank of India (rose 9.57% to Rs 127.65).
Among banks in the A group that lost during the last fortnight, include Jammu and Kashmir Bank (less 7.76% to Rs 405.15), Kotak Mahindra Bank (dipped 2.25% to Rs 304.10), and ING Vysya Bank (lost 1.99% to Rs 95.50).
The other major sector to post gains in the fortnight was cement and construction. Birla Corporation spurted 17.75% to Rs 333.95, Jaiprakash Associates gained 10.64% to Rs 472.55, and Grasim Industries added 10.34% to Rs 2,486.05. Hope that cement prices will be hiked due to an increase in construction activity post monsoon aided the rally.
Watch maker HMT topped the list of gainers with a 33.72% jump to Rs 85.85, followed by Escorts at Rs 108.75, which sprung 26.23%. Other major gainers in the A group were battery maker Exide Industries, which spurted 26.18% to Rs 44.05, Jet Airways (India), climbed 25.19% to Rs 673.8, TVS Motor Company that surged 19.35% to Rs 114.70, Chennai Petroleum Corporation spurted 16.38% to Rs 231.20, Asahi India Glass increased 15.90% to Rs 102, and EIH, which was boosted 13.79%, to Rs 111.25.
Meanwhile, the top losers in the A group was IT company HCL Infosystems, falling 11.73% to Rs 151.60, followed by Godrej Consumer Products that dropped 8.29% to Rs 162.05. The other major losers in the A group were Nicholas Piramal India (dropped 6.98% to Rs 213.80), Tata Tea (slipped 6.74% to Rs 764.05), VisualSoft Technologies (lost 6.36% to Rs 86.05), GAIL (India) (decreased 6.11% to Rs 254.70), and Bharat Earth Movers (lost 6.11% to Rs 904.15).
Are Indians the Model Immigrants?
They have funny accents, occasionally dress in strange outfits, and some wear turbans and grow beards, yet Indians have been able to overcome stereotypes to become the U.S.'s most successful immigrant group. Not only are they leaving their mark in the field of technology, but also in real estate, journalism, literature, and entertainment. They run some of the most successful small businesses and lead a few of the largest corporations. Valuable lessons can be learned from their various successes.
According to the 2000 Census, the median household income of Indians was $70,708—far above the national median of $50,046. An Asian-American hospitality industry advocacy group says that Indians own 50% of all economy lodging and 37% of all hotels in the U.S. AnnaLee Saxenian, a dean and professor at University of California, Berkeley, estimates that in the late 1990s, close to 10% of technology startups in Silicon Valley were headed by Indians.
You'll find Indian physicians working in almost every hospital as well as running small-town practices. Indian journalists hold senior positions at major publications, and Indian faculty have gained senior appointments at most universities. Last month, Indra Nooyi, an Indian woman, was named CEO of PepsiCo (PEP)
A MODEST EXPLANATION. Census data show that 81.8% of Indian immigrants arrived in the U.S. after 1980. They received no special treatment or support and faced the same discrimination and hardship that any immigrant group does. Yet, they learned to thrive in American society. Why are Indians such a model immigrant group?
In the absence of scientific research, I'll present my own reasons for why this group has achieved so much. As an Indian immigrant myself, I have had the chance to live the American dream. I started two successful technology companies and served on the boards of several others. To give back, I co-founded the Carolinas chapter of a networking group called The Indus Entrepreneurs and mentored dozens of entrepreneurs.
Last year, I joined Duke University as an executive-in-residence to share my business experience with students (see BusinessWeek.com, 9/14/05, "Degrees of Achievement") and research how the U.S. can maintain its global competitive advantage
1. Education. The Census Bureau says that 63.9% of Indians over 25 hold at least a bachelor's degree, compared with the national average of 24.4%. Media reports routinely profile graduates from one Indian college—the Indian Institute of Technology (IIT). This is a great school, but most successful Indians I know aren't IIT graduates. Neither are the doctors, journalists, motel owners, or the majority of technology executives. Their education comes from a broad range of colleges in India and the U.S. They believe that education is the best way to rise above poverty and hardship.
2. Upbringing. For my generation, what was most socially acceptable was to become a doctor, engineer, or businessperson. Therefore, the emphasis was on either learning science or math or becoming an entrepreneur.
3. Hard work. With India's competitive and rote-based education system, children are forced to spend the majority of their time on their schooling. For better or for worse, it's work, work, and more work for anyone with access to education.
4. Determination to overcome obstacles. In a land of over a billion people with a corrupt government, weak infrastructure, and limited opportunities, it takes a lot to simply survive, let alone get ahead. Indians learn to be resilient, battle endless obstacles, and make the most of what they have. In India, you're on your own and learn to work around the problems that the state and society create for you.
5. Entrepreneurial spirit. As corporate strategist C.K. Prahalad notes in his interview with BusinessWeek's Pete Engardio (see BusinessWeek.com, 1/23/06, "Business Prophet"), amidst the poverty, hustle, and bustle of overcrowded India is a "beehive of entrepreneurialism and creativity." After observing street markets, Prahalad says that "every individual is engaged in a business of some kind—whether it is selling single cloves of garlic, squeezing sugar cane juice for pennies a glass, or hauling TVs." This entrepreneurial sprit is something that most Indians grow up with.
6. Recognizing diversity. Indians hold many ethnic, racial, gender, and caste biases. But to succeed, they learn to overlook or adapt these biases when necessary. There are six major religions in India, and the Indian constitution recognizes 22 regional languages. Every region in the country has its own customs and character.
7. Humility. Talk to almost any immigrant, regardless of origin, and he will share stories about leaving social status behind in his home country and working his way up from the bottom of the ladder in his adopted land. It's a humbling process, but humility is an asset in entrepreneurship. You learn many valuable lessons when you start from scratch and work your way to success.
8. Family support/values. In the absence of a social safety net, the family takes on a very important role in Indian culture. Family members provide all kinds of support and guidance to those in need.
9. Financial management. Indians generally pride themselves on being fiscally conservative. Their businesses usually watch every penny and spend within their means.
10. Forming and leveraging networks. Indians immigrants found that one of the secrets to success was to learn from those who had paved the trails (see BusinessWeek.com, 6/6/05, "Ask for Help and Offer It").
Some examples: Successful Indian technologists in Silicon Valley formed an organization called The Indus Entrepreneurs to mentor other entrepreneurs and provide a forum for networking. TiE is reputed to have helped launch hundreds of startups, some of which achieved billions in market capitalization. This was a group I turned to when I needed help.
Top Indian journalists and academics created the South Asian Journalists Association (SAJA) to provide networking and assistance to newcomers. SAJA runs journalism conferences and workshops, and provides scholarships to aspiring South-Asian student journalists.
In the entertainment industry, fledgling filmmakers formed the South Asian American Films and Arts Association (SAAFA). Their mission is the promotion of South Asian cinematic and artistic endeavors, and mentoring newcomers.
11. Giving back. The most successful entrepreneurs I know believe in giving back to the community and society that has given them so much opportunity. TiE founders invested great effort to ensure that their organization was open, inclusive, and integrated with mainstream American society. Their No. 1 rule was that their charter members would give without taking. SAJA officers work for top publications and universities, yet they volunteer their evenings and weekends to run an organization to assist newcomers.
12. Integration and acceptance. The Pew Global Attitudes Project, which conducts worldwide public opinion surveys, has shown that Indians predominantly hold favorable opinions of the U.S. When Indians immigrate to the U.S, they usually come to share the American dream and work hard to integrate.
Indians have achieved more overall business success in less time in the U.S. than any other recent immigrant group. They have shown what can be achieved by integrating themselves into U.S. society and taking advantage of all the opportunities the country offers.
Let's Offshore The Lawyers
DuPont is farming out legal services to Asia—and saving a bundle
Mention offshore outsourcing, and Americans fume. But who would cry if we outsourced the work of lawyers, with their fat fees and endless strategies for adding years to litigation? Sounds like a great idea, but many might say it can't be done anyway. Legal work is too sensitive and technical to risk farming out to Asia.
Try telling that to DuPont, the giant chemical company. On the seventh floor of an old office building on the outskirts of Manila, 30 Filipino attorneys, including three who have passed U.S. bar exams, are seated elbow-to-elbow with 50 other staff at long tables crammed with PCs. Working in three shifts seven days a week, they read, analyze, and annotate digital images of memos, payroll and medical records, old engineering specs, and other documents that might be used as evidence in DuPont legal cases.
The operation is part of a tieup between DuPont and offshoring shop OfficeTiger that is testing the limits of how far legal services outsourcing can go. Attorneys and others in OfficeTiger's Philippines and India offices are helping out on more than a dozen projects, from monitoring old contracts and licensing agreements to managing documentary evidence for product-liability cases. "We want to be the center of excellence for this whole area of offshore document management," says DuPont assistant general counsel Thomas L. Sager.
The most important project is processing 2 million pages of documents vital to a DuPont case against 10 insurers. DuPont aims to recover more than $100 million in payouts to thousands of former pipefitters, insulators, mechanics, and other workers who claimed their illnesses came from exposure to asbestos in DuPont facilities. Much of the work is tedious: digitizing and indexing decades-old paperwork. But some requires judgment normally provided by U.S. lawyers, such as determining whether documents are relevant to a case or violate confidentiality.
COST-CUTTING PIONEERS
By going offshore, DuPont aims to save 40% to 60% on document work and cut up to $6 million from its annual $200 million-plus in legal spending. It also hopes to shave months off the discovery process in court cases. But the move is risky. In industries from software to customer support, corporations have run into myriad logistical and quality problems with offshore outsourcing. If OfficeTiger stumbles and doesn't have the evidence ready by December, when the asbestos case could go to trial, it could cost DuPont millions.
But if OfficeTiger delivers, it could mean big changes for the $225 billion U.S. legal services industry. DuPont's legal department has been a pioneer in cost-cutting since the early 1990s, saving more than $100 million over that time through automation, outsourcing, and reducing the number of outside law firms it uses. Offshoring is the logical next step. While firms in India, the Philippines, and elsewhere have been processing legal documents for years on a small scale, the size and complexity of DuPont's deal with OfficeTiger pushes it to a higher level. "If DuPont does well with this, you will find other companies taking a good look," says Bradford W. Hildebrandt, chairman of the legal consulting firm Hildebrandt International Inc., which estimates U.S. firms can save 25% to 35% by farming legal work to Asia. "Ultimately, there may be little limit to what can go offshore."
That doesn't mean U.S. lawyers will be getting pink slips, or even lowering their hourly fees. They're still needed for developing arguments, writing briefs, and other trial work. But DuPont figures 70% of the labor in a typical insurance or liability case can be outsourced. U.S. law firms often bill around $150 an hour for document-processing by paralegals. "Law firms historically have made much of their revenue on administrative and paralegal work you don't really need a lawyer to do," says OfficeTiger Co-CEO Joseph Sigelman. Offshore providers such as OfficeTiger, bought in April by R. R. Donnelley & Sons Co., charge around $30 an hour. That's possible because an attorney with five years of experience can be hired for around $30,000, including benefits, in the Philippines, whose legal system is similar to America's. That's half what a veteran U.S. corporate paralegal earns, and one-fifth what a first-year attorney can fetch in New York.
Few industries seem more ripe for radical restructuring than legal services. For starters, they remain remarkably mired in paper. At its Wilmington (Del.) warehouse alone, DuPont has more than 200,000 boxes, each typically stuffed with 2,500 pieces of paper. Analyzing those documents involves photocopying the pages and shipping them to lawyers, who then pore over them.
Now, OfficeTiger staffers take portable scanners to sites where documents are stashed and zap images of scanned pages to a secure database. In minutes, Filipino attorneys can retrieve the material on their PCs. One of them is Eric Himan, a thirtysomething former corporate lawyer and Manila law school grad. "I want to work on really big, meaningful cases so that my market value can go up, rather than litigate some minor local dispute," Himan says as he reads through old e-mails relating to an asbestos case. He enjoys conference calls with top U.S. lawyers, who often ask his opinion on evidence and strategy. "Our input is valued," he says. "Not many lawyers in the Philippines get to do what we do."
VAST TIME SAVINGS
By the time the documents get back to Wilmington, they are attached to electronic files about each asbestos litigant, along with data on how damages paid by DuPont were calculated. DuPont lawyers then review the work. By delivering neatly organized and reliable digital evidence to opposing attorneys, DuPont hopes it can slash the discovery process in insurance cases to three months from an average of 18 months. So far, the work has been accurate and on schedule, says DuPont's Sager. He says the move might also send the message that DuPont can afford to fight cases more aggressively, rather than settle due to the expense. "Corporations are looking for alternative ways to buy legal services so that cost does not become an issue in deciding whether or not to defend a case," says Sager.
For OfficeTiger, success could mean a surge in business. By the end of 2007, Sigelman predicts his Asian legal team could reach 1,000 with several hundred lawyers. He also believes U.S. clients will become more willing to hand over sensitive work such as research for briefs. Is the U.S. legal industry ready for such a leap? "The proof will be in the pudding," says DuPont counsel Silvio J. DeCarli, who manages the asbestos litigation. "If this case implodes because of what OfficeTiger did or did not do, whether we save money won't be important."
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