IIPM News Broadcast: April 2013

Saturday, April 27, 2013

B&E Indicators

Agriculture needs serious consideration

Considering the falling contribution of agriculture sector to the country’s GDP, the government initiated measures to push formal lending to marginal and small farmers (who would have otherwise depended on microfinance), starting 2008. While these measures did cause agricultural lending to rise in the initial three years, in 2011 it fell. Over the past three years it is the private sector that has shown higher growth in lending as compared to public sector banks.

Risk factor plays a crucial role in agri-lending

During the past three years, asset quality under agriculture lending has deteriorated at a faster pace than overall asset quality. Apart from various other factors, agriculture credit waiver schemes have contributed in a big way to the rise of NPAs. Experts believe that the waivers are motivating farmers not to clear their debt. Hence, a need to develop a robust credit culture in the sector is felt strongly.

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Source : IIPM Editorial, 2013.
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

Friday, April 26, 2013

National

AB Group: New Buys

K. M. Birla is shopping

The Aditya Birla Group is showing a strong acquisition drive. The group has acquired over 26 companies in the past 15 years but the last two years have been specially frenetic. The group has, during this period, snapped over six big buys across the business spectrum. The most recent ones have been the acquisition of a controlling stake in Kishore Biyani’s Pantaloon and a 27% stake buy in Arun Poorie’s Living Media, which owns the popular magazines India Today and Business Today. Earlier, it had spent $340 million to acquire Domsjö Fabriker, a leading Swedish speciality pulp and bio-refinery company. Aditya Birla Chemicals had recently acquired the chloro-chemicals division of Kanoria Chemicals & Industries as well, for Rs.8.3 billion. Today, the Aditya Birla Group is a $30 billion corporation, and is in the league of Fortune 500 companies.

PC Market: Tough Competition

Lenovo overtakes Dell, HP, in India

There’s a new leader in the Indian desktop market, and it’s Chinese. Personal computer maker Lenovo has cornered the largest share in the overall Indian PC market, overtaking Dell and Hewlett-Packard (HP), as per the latest data released by market researcher IDC. Lenovo had a market share of 15.8% in the three months to March 31, compared to 10% in the previous quarter. Dell, at number two spot, saw its market share shrink by 2.6 %, while HP followed with a market share of 14.9% in the March quarter. Clearly, these top 3 PC makers have a tough fight on their hands in their bid to emerge as clear leaders. Considering the still low levels of PC penetration in the country, it will be interesting to see who garners the maximum share in the coming times. The big surge for Lenovo came due to a large order from the Tamil Nadu government to supply free laptops to graduating school children – a promise made during last year’s state assembly elections. A few months ago, Tamil Nadu announced the procurement of 900,000 laptops at around Rs.14,000 a piece.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Wednesday, April 24, 2013

“Returns from innovation take a very long time”

Dr. Abhijit Barve, President – R&D, Biocon Ltd. shares how collaborations within the ecosystem can be leveraged to deliver better results

B&E: Could you cite some innovation ecosystem challenges which Biocon particularly faced during various drug discovery processes?
Dr. Abhijit Barve (AB): Biocon has a state of the art R&D centre, but yet we have faced challenges of not having every sophisticated instrument available that may be required for certain research experiments. In such cases, we have drawn from the external ecosystem and gone ahead with our quest for innovation & were able to tap into resources that were available in the Bangalore area. We have some world-class institutions in the city and we leveraged their services or partnered with them. For Indian companies like us, leveraging what is available in the country and developing competencies internally would be best. And Kiran has been very serious about forging partnerships with a variety of scientific leaders and institutions in the biotech field to place India on the global biotech map.

B&E: How can the stakeholders work towards building an ecosystem for biotech in India?
AB: It’s important to understand that the returns from innovation take a very long time. Even for biosimilars or novel molecules, the gestation period from the time you actually conceive an idea to commercial introduction is a long development cycle. It is a high risk and reward proposition requiring the right mindset supported by large investments. So, unless you have a huge risk appetite, you wouldn’t want to play in this area.

In the Indian biopharma and pharma industry, VCs and PEs don’t want to invest much because of many reasons. First, they perhaps don’t understand the field too well. Second, because they prefer investing in industries that offer secured returns with relatively low risks. Thirdly, there are limited investment opportunities in these sectors, so their basket of investments cannot be diversified and derisked across multiple technologies. Some VCs have invested in our domain. When there are a couple of success stories in terms of ROI, others will follow.

Read more.....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Decoding India’s innovation DNA

Companies hail the importance of the Indian market, and there is a pleasing buzz around the concept of reverse innovation from the country. But unless the ecosystem as a whole becomes more enabling for innovation, the country will continue to seriously undermine its potential

The most unique aspect of the UIDAI (Unique Identification Authority of India) project is its scale. It’s all about innovatively applying existing technologies to a grand social goal whose value for its intended audience can hardly be questioned. With a target of over 600 million people by 2014, this is slated to be the largest biometric database of individuals on earth. The total estimated cost is pegged at around Rs.180 billion, but is linked to some Rs.3 trillion in welfare payments in India, at least half of which are estimated to be lost due to leakages and graft.

However, the project has faced considerable challenges, & a major proportion of them have little to do with the technology itself. They include lack of machines at centres, inadequate and unskilled staff, awareness issues, data collection issues, difficulty in finding competent vendors and lack of sufficient cooperation at the state level. Off late, the problems have become more complicated, as the home ministry led by P. Chidambaram feels that the UID is a security risk as it really does not demarcate citizens and residents, and that the National Popular Register (NPR) scheme is much better. On the other hand, the Standing Committee on Finance led by Yashwant Sinha has rejected the National Identification Authority of India 2010 bill in its present form citing a number of issues including the question on whether the bill itself was introduced with any clarity of purpose, since it was supposedly destined for BPL families and has now been extended to all residents of India. The Left, on the other hand, is joined by a number of activists in calling it a breach of individual privacy.

Now let us discuss one landmark innovation that came from the Indian automotive sector and was hailed as a symbol of what Indian innovation could promise the world – the Tata Nano – a unique and valuable proposition for the middle class in theory, but a terrible road to market in practice. It all began when they ran afoul of farmers who owned the land where the Singur plant was set up. They assumed that the support of the West Bengal government would be enough to ensure that all was well. Once it spiraled into a political issue, the company was compelled to pull out of its $292 million factory and relocate to Sanand, Gujarat. This created serious supply issues besides enormous relocation costs, as some suppliers reportedly complained of inadequate compensation. Moreover, the promise of the Rs.1 lakh car became unsustainable very soon as input prices started rising; and the car was eventually caught in a devastating positioning trap, with the perception of a cheap car conflicting with the new price points. The burning Nano incidents made it worse and brought quality issues with suppliers to the fore. Rightfully so, Ratan Tata called it a “wasted opportunity” recently, and the company is looking at removing the ‘poor man’s car’ tag.

What these two isolated examples highlight in particular is that when organisations are looking at innovation, especially path-breaking innovation, and even if they are convinced about the potential of that particular innovation in the market, their due diligence is far from over. They have to look at the entire innovation chain from their suppliers to all the partners and to even a wider gamut of stakeholders who may or may not have a direct stake in the value proposition of the innovation in question.

Read more......

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Saturday, April 20, 2013

Awaiting the sunrise

Moser Baer’s bet on solar power gaining traction in the long term is not exactly off the mark. But the company has to tackle environmental challenges as well as its weak financial position

It can never be an easy decision to invest Rs.8 billion in a business, which you have to start from scratch. Seven years back in October, that decision was taken by the board of Moser Baer led by Chairman Deepak Puri. And their bet, which was on the business of solar energy, got off the ground largely due to the conviction of Ratul Puri, son of Deepak Puri & Executive Director, Moser Baer.

Actually, being on the edge with business diversifications has been more of a norm for Moser Baer. The company started with floppy discs and had to rejig is portfolio every few years as storage technology continued to advance at a menacing pace While Moser Baer did script an excellent ‘blue ocean’ story with its CDs and DVDs (where it brought down price points drastically, sold volumes on an FMCG model & also acquired a huge portfolio of titles), the company was sorely missing that one long term growth business. Ratul is extremely buoyant about the prospects of the solar energy space and the synergy between solar panel and CD/DVD manufacturing.

However, Moser Baer is still a long way off from the fruits of its labour and enterprise. Look at its net losses in the current financial year – Rs.959.1 million for the quarter ending December 2011, Rs.620.6 million for the quarter ending September 2011 and Rs.922.1 million for the quarter ending June 2011. The December quarter is the seventh consecutive quarter where the company has posted losses. The problems are rampant across storage media, which contributes 60.66% of its revenue and photovoltaic cells, which accounts for 32.6% of its revenues (external revenues for FY 2010-11). Global demand for solar energy hasn’t been according to the company’s expectations, and rising input costs over the recent quarters have only made matters worse. When you look at the nine months ended December 2011, the company still faces a huge interest burden of Rs.1.85 billion, which is actually a growth of 27.84% yoy.

However, all this short term risk will be remembered as astute business strategy if the company’s solar bet pays off. Serious questions were raised on the viability of solar panels and solar energy when a large part of the manufacturing done around the last 7-8 years ended up as excess capacity in the midst of the global economic downturn (something similar happened with Suzlon Energy, which suffered post the expensive acquisition of REpower). But the sector also got a boost in sentiment last year when the Fukushima nuclear power plant disaster led to a rise in sentiment in favour of solar.

However, the question that is relevant to Moser Baer’s fortunes is that beyond these short term volatile cycles, what is the future of solar energy in India and globally? The most critical hurdle that solar has to cross is to achieve grid parity with other conventional means of electricity generation. Different calculations are being made in different countries regarding the time line for the same. It depends on an array of factors, right from electricity rates in markets, potential of solar energy in particular areas and also the competence of players. In India, the government is projecting a grid parity by 2017 and targets generation of 20,000 MW by 2022. At present, given the high prices and low efficiency rates of conversion for solar cells (10-20%), their introduction into the grid raises electricity prices by 5-6 times. Under the reverse auctioning done by the National Solar Mission, price discovery for levelized tariff was Rs.10.49-12.24 /kWh for solar-thermal and Rs.10.95-12.76/kWh for solar PV projects (KPMG report). This compares unfavourably to Rs.4/kWh for conventional energy sources on a levelised tariff basis after accounting for inter-regional transmission charges and losses. KPMG predicts grid parity in India by 2017-18 in the aggressive case and 2019-20 in the base case.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Tuesday, April 16, 2013

Rational revolutions: Understanding tech stock bubbles

The widespread adoption of new technologies – from the automobile to the Internet – tends to be accompanied by stock market booms and busts. Why do the stock prices of innovative firms tend to exhibit apparent “bubbles” during technological revolutions?

During technological revolutions, stock prices of innovative firms tend to exhibit bubble-like patterns. After an initial surge, stock prices usually fall in the presence of high volatility, as they did during the “biotech revolution” of the early 1980s and the Internet craze of the late 1990s.

While the bubble-like stock price behaviour is commonly attributed to the irrationality of overenthusiastic investors, why would investors make the same mistake over and over again? In our recent study titled “Technological Revolutions and Stock Prices,” we propose the first rational explanation for why stock prices should be expected to exhibit a bubble during a technological revolution – a period concluded by a large-scale adoption of a new technology. Our explanation for the bubbles is that the nature of risk associated with new technologies changes over time.

Uncertainty about productivity gains is a natural feature of innovative technologies. At first this uncertainty, or risk, is mostly “idiosyncratic,” because the new technology is initially developed on a small scale and the probability of large-scale adoption is low. For new technologies that become widely adopted, the uncertainty gradually changes from idiosyncratic to “systematic.” When systematic risk increases, prices decline. These increases in systematic risk can be expected in hindsight, by researchers who look back knowing that the revolutions took place, but they are unexpected by real-time investors who do not know whether the new technology will eventually be adopted on a large scale or not.

The “bubbles” should be most pronounced in revolutions characterised by high uncertainty about, and fast adoption of, the technology – such as the recent Internet revolution.

We developed an economic model to provide a rational explanation for stock price movement during technological revolutions. To test our model, we examined stock prices in 1830–61 and 1992–2005, the respective periods when railroad and Internet technologies spread in the United States. Bubbles are not merely possible in a rational world, but should be expected during technological revolutions.

the changing nature of risk

In order to explain how stock prices should behave during technological revolutions, we developed what economists call a “general equilibrium model.” In the model, investors study the productivity of a new technology, and must decide whether adopting this new technology on a large scale would be worthwhile. Large-scale adoption would constitute a technological revolution. We determine the optimal time for adopting the new technology and show that when the technology is optimally adopted, there should be bubbles in stock prices.

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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

Friday, April 12, 2013

B&E Indicators

PE deal momentum continues in 2011
Although Indian PE activity got off to a slow start in 2011 (with only $800 million in recorded deals in the first two months of 2011), it picked up in March. In fact, the first quarter of 2011 ended with more than $1.5 billion in deal value. There were 95 PE deals in Q1 2011 against 64 deals in Q4 2010, representing a 53% growth in deal volume. Even on a y-o-y basis, the deal volume in Q1 2011 was about 50% higher than that in Q1 2010.

Small is beautiful
Fewer large deals (with deal value greater than $50 million) were recorded in the first quarter of 2011 compared to the previous quarters. In fact, only five large deals were announced during the first quarter of 2011 against an average of around eight deals recorded in the previous five quarters. Further, the share of such deals in the total deal volume dropped significantly from 10% in Q4 2010 to nearly 5% in Q1 2011.

Read more....

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

Thursday, April 04, 2013

“The Murocel Recall Involved only one lot of Products.”

Bausch + Lomb has managed to inspire transformational changes in the eye-care industry worldwide. Rodney W. Unsworth, President – APAC, Bausch + Lomb, talks to B&E’s anirudh raheja on why he is so upbeat on the emerging markets, the recent voluntary recall of Murocel Lubricant Ophthalmic Solution and some other growth and branding initiatives undertaken by his company.

B&E: A recent survey says that 96% of parents are satisfied with “The Daily Score” soft lenses for kids. But how do you plan to promote the usage of soft lens in markets like the Asia-Pacific?
Rodney W. Unsworth (RWU): “The Daily Score” has been a successful promotion in the United States to help drive trial and usage of SofLens Daily Disposables. Understanding that daily disposable lenses represent the fastest growing segment of the contact lens market, we will continue to evaluate the various markets throughout the world to determine promotion opportunities. Bausch + Lomb proactively promotes the usage of soft contact lenses across the Asia-Pacific via direct-to-consumer advertising, trial and promotional programmes and an extensive range of Eyecare Professional education and support activities.

B&E: It has been 40 years since Bausch + Lomb introduced contact lens. How has the journey been so far in the US market?
RWU: Forty years ago, Bausch + Lomb was the first company to bring soft contact lenses to market. This was a major breakthrough for consumers, as it meant another option for contact lens wearers. The lenses made glasses-free vision a reality for many more people. Since then, Bausch + Lomb has remained committed to offering patients around the world innovative contact lenses.

B&E: Many contact lens users complain about dryness of their lenses. You have introduced “Biotrue” solution to address such problems. But how does B+L promote the usage of lenses to address two other problems that lens users face today – glare and halo?
RWU: Contact lens wearers continue to report dryness as one of the primary problems associated with contact lens wear. Biotrue is a lens-care solution that has helped patients to wear contact lenses for longer periods of time comfortably; in fact, recent research has shown that Biotrue’s breakthrough technology enables safe and comfortable lens wear for up to 20 hours and is easier on the eyes than other contact solutions. We continue to use our research to identify and solve other problems experienced by vision-corrected people. Other problems commonly experienced by contact lens wearers are halo and glare. The product that provides a solution to this problem is PureVision2 lenses with High Definition Optics. These lenses were especially designed to reduce halo and glare and deliver clear, crisp vision. Seventy-five percent of existing contact lens wearers said that PureVision2 with High Definition Optics delivers superior vision and 77% said that they reduce halo and glare in low light.

Read more....

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

Tuesday, April 02, 2013

“There’s Need for a Trust Based Taxation Regime”

Nishith Desai, International Tax & Corporate Lawyer

‘Trust’ seems to have become a rare commodity today. While the developments surrounding the Lok Pal Bill and corruption have created quite a stir nationwide, the Direct Taxes Code (DTC) Bill also provokes one to contemplate on the declining standards of trust in the world’s largest democracy. The DTC, proposed to be implemented from April 1, 2012, is currently being scrutinised by the Parliamentary Standing Committee chaired by Yashwant Sinha. Once enacted by Parliament, it would completely replace India’s existing direct taxes framework.

Before delving into some of the provisions of the proposed DTC, it is necessary to first understand the relevance and importance of trust. Trust is a valuable social asset and forms the basis of democracy. The theory of trusteeship espoused by Mahatma Gandhi has application in all facets of governance, whether in corporate management or the tax administration system. Trust demands respect for the inherent value and rights of a human being. Policy framers and decision makers are regarded as trustees of the power vested upon them by the people and are bound by the strictest norms of transparency and accountability in the exercise of such powers. Such accountability emanates from India’s constitutional fabric which imposes numerous checks and balances on the functioning of the three organs of governance – executive, legislature and the judiciary.

A number of proposals in the DTC are antithetical to a trust based regime. Of these, the proposed General Anti-Avoidance Rules (GAAR) are likely to have the most critical impact on not only the sophisticated taxpayer, but the common man as well. GAAR provides wide discretionary powers to the Commissioner of Income Tax to tax impermissible avoidance arrangements lacking commercial substance. While some developed countries have introduced some form of a GAAR to curb tax evasion, the GAAR framework proposed in the DTC is vague and does not have sufficient checks to check abuse of power. Unfettered discretion may result in harassment of the average taxpayer. In fact, the proposed GAAR regime marks a shift from the long standing principle that taxpayers are allowed to legitimately minimise taxes within the four corners of law.

Contrary to principles of natural justice, the taxpayer is required to bear the primary burden of proving that he has not undertaken an impermissible avoidance arrangement. There seems to be an unfair presumption that a taxpayer is guilty of tax avoidance, which has been equated to evasion. The DTC also does not impose any time limit within which the tax authorities may invoke their sweeping powers under GAAR. The GAAR provisions also override India’s tax treaties, which is against the Government’s constitutional commitments and is not in sync with principles of international law. The application of GAAR is thus bound to give rise to unnecessary litigation and would create high uncertainty and hardship for taxpayers.

The lack of trust is also reflected in the proposed regime for imposition of penalties. Today, a taxpayer may be subject to penalties if he has concealed or filed inaccurate particulars his income. It is an established position that penalties are attracted only if the taxpayer has made a conscious attempt at evading tax. However, in circumstances where the actions of the taxpayer are bonafide or where there was reasonable cause, penalties cannot be imposed. However, the language in the proposed DTC suggests that penalties may be imposed automatically as long as the income assessed by the tax authorities is higher than what is disclosed by the taxpayer. It seems that factors such as the taxpayer’s true intention and bonafides may only have limited relevance.

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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

Monday, April 01, 2013

Is Chamber’s India bet going to Pay Out?

Even as Low Cost Competitors begin Gnawing at its heels, Cisco is Already taking its Business to Multiple new Directions. But is it going too far, too fast?

Over four years ago, Cisco’s Chairman & CEO John Chambers sent Wim Elfrienk, Chief Globalisation Officer and also Executive VP for Cisco Services to Bangalore. Wim had a very specific agenda in terms of taking Cisco’s India relationship much further.

Normally, there are a limited number of oft cited and clichéd ways in which MNCs attempt to do that nowadays, but Wim’s assignment was indeed special. He was to built a second headquarters for Cisco at Bangalore. This centre was supposed to mirror every function of the main corporate office at San Jose including, marketing, HR, R&D, services, finance, et al, and be the platform for its expansion into emerging markets. One particular rationale for choosing Bangalore is interesting. Cisco believes that most of its growth in the future will come from markets in Eastern Europe, far east, South East Asia, India, China and Middle East. And Cisco’s current and potential customers are courteously welcomed to the centre (which is within a 6 hour flight away from all these locations) to witness the newest technology applications that Cisco is bringing in as it strives to leverage its ‘network as a platform’ concept to build solutions with a strong push towards collaboration, data centre virtualisation and video. These are immensely transformative changes for a company that was traditionally just a networking leader, and seeks a new future. To understand the rationale, fine print and likely outcome of these changes, we need to do a brief review of Cisco’s performance.

Miles away in San Jose, Chambers, who took the lead in moving Cisco from being the plumber of the Internet to the platform, has reasons to cheer, as the company is back on the growth path after the recessionary blip. After a fall in revenues by 8.6% yoy to $36.12 billion in the financial year ending July 2009, the company saw a growth of 10.8% yoy in the last fiscal to close with revenues of $40.04 billion. For the quarter ending January 29, 2011, net sales amounted to $10.4 billion, a growth of 6% yoy. On the other hand, there was some disappointment on the margin front, as Cisco reported a fall of 17.9% yoy in non-GAAP income, which was reported at $1.5 billion for the quarter. The consumer business posted a decline of 15% yoy. Besides, it was notable to see a fall of 7% yoy in switch revenue. Although this was said to be related to new product launches taking time to gain traction, backlogs, et al, the company’s performance has been a matter of concern. Post the acquisition of 3Com, HP is giving some trouble to Cisco in this segment when it comes to margins.

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