IIPM News Broadcast: February 2013

Saturday, February 09, 2013

2008=#20 2010=#3 2012=#_?

Two years back, Micromax was a name heard by few and seen by fewer. Exhibiting a rare example of brilliant innovation combined with common sense, today it rules the world of advertising and has climbed to the number 3 spot in the domestic handset market. What next? by Surbhi Chawla

Of late, the Indian handset market has been flooded with a plethora of indigenous handset brands, which bear the stamp of companies that would have dumbfounded most acclaimed au faits as recently as a year ago. But these so criticised infantile firms have taught the masters of the mobile handset game (read: Nokia, Samsung, Motorola) how to ride the stalking-horse in the face of hell-raising competition. They have been successful in bringing to life the dormant aspirational values of many in the country, offering them “value for money” look-alikes of the best of handsets that the Indian Daddy Warbucks could afford. Their secret — they understand the psyche of the Indian consumer and deliver by “keeping it real fake”.

But as it occurs in many a fairy tale, there are the suitors, but there is just one real prince who walks away with all the glory and honour... and most importantly, wins the hand of the princess! In this race too, there appears to be one real prince for the moment – Micromax. And it is loud about not being a follower of the "keeping it real fake" cult. At present, Micromax offers 34 handsets in the Indian market. According to reports by tech-watchers at IDC, it is the third-largest handset vendor behind Nokia and Samsung. Some rise for a brand in the ghastly cluttered Indian handset market. So far so good. But will this north-bound express train gather greater momentum in the times to come? Some would debate, but considering the pace at which the industry has progressed in the recent past, Micromax may well be on its way to finding its name amongst the top two vendors in the country. According to IDC India, the number of handsets sold in the country touched 100.9 million units during the 12-month period ended June 30, 2009, registering a yoy growth of 6.7%. As the per capita income rises by the day, and as educational reforms make the common Indian more privileged, aspiration levels will rise, thus it will rise the demand for more handsets. In short – Micromax is in for a great ride along with other newbies.

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2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)

DLF: TURNAROUND

Slowdown had a sobering effect on DLF’s meteoric rise in the early years of this decade. With a new look and renewed vigour, the company attempts to claw its way back to its glory days. by Virat Bahri

The primary prerogative was to get rid of excess baggage – businesses as well as lands where development was not anticipated in the next 5-7 years. Out of a divestment target of Rs.55 billion for FY 2009-10, the company unlocked value of Rs.18 billion, and targets a further Rs.28 billion in the current fiscal. Hotel venture Aman Resorts is immediately on the block. Reports say that Malaysian Sovereign Wealth Fund Khazanah is expected to take it up for around $300-350 million. DT Cinemas was sold to PVR last year with a further commitment that DLF would have PVR as its exclusive multiplex anchor tenant for all its future malls. They attempted to divest the wind power business (valued at Rs.10 billion) as well, but decided to retain it, as they were unable to get the right suitor. The company also pulled back on four of its SEZ projects in West Bengal, Gujarat, Haryana & Orissa on account of the dip in commercial space demand. DLF is now planning to revive the one in West Bengal, but the other three are still denotified. But according to G. P. Savlani, Resident Director, CREDAI, “Real estate players will not talk about SEZ much after implementation of the Direct Tax Code (which would cut all income tax benefits).” DLF has also restructured its business into two business units last December. The development company is further demarcated geographically into Gurgaon, Super Metros and rest of India and the annuity company is divided into offices, malls and facilities management & utilities to better streamline businesses and ensure aggregation of returns and stable cash flows from these businesses.

As far as the devil of debt is concerned, the gross debt has increased to Rs.216.77 billion by the close of March this year as compared to a gross opening debt of Rs.163.2 billion on April 1, 2009 (due in part to the purchase of SC Asia’s stake in Caraf) and a D/E ration of around 0.75x. Interest rate has been brought down to 10.5% from 11.98% in December 2008 and period has increased from under one year to 3-9 years. Besides, the focus is on faster execution of existing projects.

The most critical aspect for DLF’s revival will be the pick up in demand. The Lower Parel project gives indications that the exuberance is back. But Savlani says that it is unique to the Mumbai market only, where Lodha Developers won the contract for the 101-storey tower project recently for Rs.40.5 billion. But residential is definitely on the revival mode in different parts of the country as consumer sentiment improves with booming economy, lower interest rates and more economically priced projects. Param Desai, Analyst – Real Estate, Angel Broking, quotes, “FY 2011 (for DLF) will be largely driven by residential sales, both middle income and luxury.” Ministry of Housing & Urban Poverty Alleviation projects a shortfall of 26.53 million dwelling units in urban areas by 2012. Absorption rate of residential units has increased to 21% in Q1 2010 from 15% in the previous quarter, according to a report by Jones Lang LaSalle Meghraj (JLLM). DLF anticipates bookings of 1-1.5 msf for FY 2010-11 in the luxury segment (Mumbai & Delhi), 2-3 msf in city centres/high end (Gurgaon, Chennai & Cochin) & 12-14 msf in the mid-income/value housing segment.

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Friday, February 08, 2013

EURO: IMPACT OF SOVEREIGN DEBT CRISIS

The ongoing sovereign debt crisis has revealed major cracks in the foundation of the euro. Though EU has suggested an amicable solution, it’s definitely not going to work. B&E gets questions answered by the European Central Bank and other experts by Manish K Pandey

It’s not as if the EU, or Jean-Claude Trichet don’t realise this. In fact, with regards to fiscal policies, ECB has already called for decisive actions by governments to achieve a lasting and credible consolidation of public finances. Jean-Claude Trichet, President, ECB, mentions, “Of course, it also calls for responsible attitudes as regards the three major areas, namely fiscal policies, which are a national responsibility, structural reforms, which are also very largely a national responsibility, and, although this is an oversimplification, the appropriate monitoring of unit labour costs.”

When Economic and Monetary Union (EMU) of EU adopted euro as its sole legal tender on January 1, 1999 the major mistake that it made was that although it integrated currencies of several Euro Zone members, it left their fiscal policies completely uncoordinated. No doubt, there was that convergence criteria which specified that a country could become a member only if its fiscal deficit was less than 3% of its GDP and its public debt was less than 60% of GDP. Seems all fine, but once you entered the EU, it seemed you could throw caution and these rules blithely to the wind – Spain, Portugal and Greece being keynote examples.

In fact, this exact issue was one major reason that forced UK to stay away from the euro. The country had even warned the EU off a colossal mess in the future, were the EU to continue not enforcing the debt/deficit requirement post membership of the nations.

Today, the situation has worsened such that the European Commission is now even proposing to centrally reinforce economic governance in the EU, which means that the member states will have to submit their national budgets to the EU for approval. No doubt, this, to some level can fix the problem. But the fact is that this quite simplistic diktat doesn’t even stand a chance – given the deep egotistic behaviour that member states, led by stalwart France, have shown very evidently in the past, which proves that they would never be ready to surrender their so called national sovereignty. It’s not only the fact that the moment a nation loses control over fiscal decision making, it ceases being a standalone nation, but also about the fact that even if national heads agree to this ‘solution’ (they won’t, but still, if), the taxpayers would throw it out to the dogs.

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Wednesday, February 06, 2013

SMALL BUSINESSES: EQUITY ACCESS

The lack of capital is a serious blot on India’s entrepreneurial growth story. Small and medium enterprises have a very faint idea about organised sources of finance, leave banks. It’s time for the establishment to look into this in an extremely urgent manner

The primary reason is the fear of getting exposed to currency fluctuation issues and accounting issues related to overseas transactions. Most small companies would prefer looking to institutions set up by the government (like SIDBI) than an outside source. Many analysts like C. G. Srividya, Partner, Special Advisory Services, Grant Thornton, support such a hypothesis in their discussions with B&E.

One figure that supports this theory is that the credit offtake by the government to SMEs has increased phenomenally from Rs.860 billion in 2004 to Rs.2.46 trillion in 2008. But it has hardly been adequate, as at least 95% of SMEs still don’t have access to any institutional credit mechanism. In the US around 60% of priority sector lending goes to small businesses; so there is a strong case for increasing the proportion in India. One man in the midst of this issue is Rajeev Karwal, Founder Director and CEO, Milagrow, who argues that at least 20% of priority sector lending should be diverted to SMEs, just like agriculture. Another line of thought portends that as the lending rate uses the PLR as a benchmark, that should be changed – as in, lowered for the benefit of the SMEs. One does accept that the government and the RBI have created a special window of Rs.70 billion for augmenting credit flow to SMEs. But two key issues that still need to be addressed is the promotion of these schemes (as many small business owners aren’t even aware) and procedural delays, which can discourage most companies. Private banks, in turn, have been particularly conservative about lending. Paritosh Kashyap, Executive VP-Equity, Kotak Mahindra Bank, commented to B&E, “As far as capital raising is concerend one needs to understand that capital raising is an issue of risk. The credit quality of the borrower is of utmost importance while lending; which one needs to verify.”

A strong case can ergo be made for raising the equity component and making it available for more and more SMEs in particular. If you consider the domestic equity trend in 2009, 17 IPOs were brought up in 2009. In dollar terms, $3.34 billion was raised compared to $4.51 billion in 2008, led by NHPC’s IPO of $1.34 billion. And 66% of that money was raised via power and energy. Jagannadham Thunuguntla, Equity Head, SMC Capital Ltd, tells B&E, “The interesting trend is that the subscription levels at the time of IPOs are heavily skewed towards QIBs (Qualified Institutional Buyers).

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Monday, February 04, 2013

“It is a milestone for us to be able to turn cash flow positive...”

Sunil Bharti Mittal is exuberant as the company announces its first dividend since it started the business

Sunil Bharti Mittal, Chairman, Bharti Group discusses the company’s future plans in an exclusive interaction with Surbhi Chawla of B&E:

B&E: On the occasion of Bharti achieving a 100 million subscriber base, we would like to ask you – what are the offerings in store for the shareholders of the company?
SM: We are currently in the 15th year of operations and celebrating 100 million subscribers. Airtel has managed to be profitable but we are still to be cash flow positive. Only a few weeks back, we announced the maiden dividend of this company after 15 years. People were actually looking at waiting for one more year that is when we would have turned cash flow positive, before we could give the dividend to our stakeholders. However, on the basis of the demerger of our private company, we had the headroom this year and hence were able to give some dividend. The fact is that Airtel has invested Rs.70,000 crore in setting up hard infrastructure. There are a very few industries wherein companies have to invest such huge sum of money. Even the maintenance cost of the infrastructure sums up to about Rs.20,000 crore per year. So, it is a milestone for us to be able to become cash flow positive. One should remember that this is a tough industry and one need to keep on investing; so the profitability should be measured along with the investments that are required.

B&E: When you started operations in 1995, at that time there were spectrum wars and this still continues to be an important issue. In the times to come, how do you see the spectrum being allocated? Will it be subscriber lead as was the norm or are you in favour of auctioning of the spectrum?
SM: I must say that spectrum is an issue that concerns all mobile operators in the country. It is the lifeline and the oxygen on which we breathe and live. All of us in the telecom industry want a single regime under which the spectrum is allocated to those who need it and we are absolutely aligned to the government process, in the form of auctioning of the license. We have no difficulty in whatever the process be. But at the end of the day, we want a stable regime and it should be only one process that is being followed. Earlier, the department felt that we needed to have spectrum on the basis of number of subscribers and this practice is not followed anywhere else in the world, but it was fine then and now there are talks about auctioning, we are ok with that too as long as it is a stable regime that is universally applicable to all the players.

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Friday, February 01, 2013

Following some basic principles can help

Recession tests companies to the hilt, but following some basic principles can help

It was just a few months ago that I met the hallowed Ram Charan (Fortune considers him one of their favourite management gurus), over lunch. And it was only two months ago that he wrote the classic ‘Investor’s Special for the Recession Economy’ in Fortune, where he gives four simple and broad principles for CEOs to crack the recession conundrum, which are: (1) Keep Building: “Do not consider product development, innovation, and brand building optional. Sacrificing your future for a slightly more comfortable present is not worth it.” (2) Communicate Intensively: “It’s counter-intuitive but true that when the economy slows down, the pace of decision-making has to speed up. The companies that are readiest to act on solid information are primed to shoot ahead of the business cycle.” (3) Evaluate Your Customers: “In good times, companies manage the P&L; in bad times, cash and receivables matter more. Therefore, you need to identify your higher-risk, cash-poor customers. You could decide to simply not supply them anymore.” (4) Just Say No To Across-The-Board Cuts: “By all means, cut costs if it makes sense to do so, but make sure there is purpose in how you do it.”

Jay Leno, the king of stand up acts, gave a classic perspective of the US economy in one of his shows: “Some good news for the economy. President Bush went on a month-long vacation.” Companies, like I mentioned before, wouldn’t necessarily find the blame game as easy as Jay wishes it to be. Harvard Business School, in its most recent April 2008 posting, gives a tempered, but well researched, response with its paper, ‘4 Steps to Growth During a Recession’. First, “Invest heavily in research and development” – Your competitors may in general cut R&D investments; ergo, your investment increase would yield a “strong product advantage” in the future. Steve Jobs quoted a few days back, “In the last recession, we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over… And it worked! That’s exactly what we’ll do this time!” Second, “Spend some time learning about the customers of your weakest competitors” – Instead of focusing on bagging your strongest competitors’ largest clients, choose these times to add attractive customers of your weakest competitors, who would not have the wherewithal to withstand your attack. Third, “Identify your most critical suppliers and distributors” – Find out ways you could help them. HBS quotes, “Even the smallest gesture can sometimes build an enduring loyalty that will pay off for years to come.”

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)