Whitener Gains
THE COMPASS
Ciba Specialty has made a significant investment by acquiring a stake in Diamond Dye-chem for Rs 25 crore. The company has picked up a 51 per cent stake in Diamond which makes it a subsidiary company. This will strengthen Ciba's position in the whiteners market not only in India but in the exports market too. Whiteners are used in detergents and paper industries and form part of Ciba's consumer care division in India.
The move vaults Ciba up into a position of power in the whiteners arena. It has a 4 per cent share in the market while Diamond has 55 per cent, thus giving it a lion's share now. The advantage lies in the exports market for whiteners where Ciba Speciality Chemicals AG is the global leader.
Ciba has also been focusing on the exports market and in 1998-99, had seen its exports increased to Rs 10.5 crore from Rs 1.7 crore. It had also an order for 200 tonne of Tinopal CBS-X to be executed in the current year.
Now, Ciba through its subsidiary Diamond will supply to the entire Asia-Pacific region. The benefits for the venture are its proximity to these markets which will lower costs and improve flexibility. The move is a shareholder friendly move as the acquisition is being conducted under the umbrella of the listed company. Though it will not get directly reflected in its performance, being a subsidiary company, it will definitely improve valuations.
Ciba will be raising some portion of the funds from internal accruals but will also have to raise some amount of debt for the purpose. As of March 1999, its gearing was comfortable with a debt to equity ratio of 0.2:1. Given the improvement in its performance in the current year, up to December 1999, its position will continue to be comfortable.
Thomas Cook
Thomas Cook is brewing a strategy for the new millennium that is bound to change the way this company has been looking. A large portion of Thomas Cook's business comes from foreign exchange with about 70 per cent of revenues coming from that side. This is natural given that the company is the largest forex dealer in the country. With about $2 billion dollars of foreign exchange transactions, the commissions earned are quite considerable.
However, one can liken this business to a commodity one where there is only so much value addition that can be done, and competition is quite significant.
It comes down to being a volume game and a low margin one at that. Hence, there is a need to grow in size and diversify the services being offered.
Thomas Cook has been doing just that with its corporate travel and leisure travel businesses and offering a host of services and products built around its three businesses. These include travellers cheques and the more recently introduced cards and global emergency services.
One element of its strategy is to increase size for which it is expanding its locations both in the domestic market and abroad. It will be offering its services in Mauritius and will also be acquiring the Sri Lankan business of the parent.
Eventually,the company will be handling the Saarc region and Mauritius, Seychelles and Burma.
The revenues of this region will thus accrue to the company. It also plans to acquire one or two domestic majors in the travel related services industry to consolidate size.
It also plans to introduce new products and has launched quite a few last year. It has plans to have a presence in the insurance arena, either by offering insurance itself through a joint venture by a strategic alliance or in the form of a broker of non-life insurance products.
The company wants to increase the share of leisure travel considerably as this has the higher margins among its other businesses. It has managed to increase share of this business to 11 per cent in 1999 from 7 per cent in 1997.
It plans to complete its acquisitions by the year end, and once this is completed, it will be in a position to consolidate growth in this segment.
A big threat for traditional travel related service companies is the Net. The company has been preparing its net strategy and is planning a full scale launch in October 2000. It has a headstart in terms of customer acquisitions with an existing base of about half a million and with a wide range of fulfilment options. The backbone for these initiatives is the infrastructure that it has put up at a cost of Rs 26 crore over the past few years.
After moving its internal operations on to an enterprise resource planning (ERP) system, it can now provide its services through the normal channels, telephone or the Internet.
It has a number of initiatives lined up in this segment which include setting up its own vertical portal to offer its services to travellers, set up a joint venture that will offer a range of e-services.
Though revenue and profitability growth will come in the near to medium term from its consolidation initiatives, if tourism and travel related business on the Internet picks up in a big way in India, Thomas Cook will be positioned well to capitalise on it in the long term.