Tuesday, July 31, 2012

India’s best traded stocks is always the ultimate incentive to be in the Sensex

Getting classified as India’s best traded stocks is always the ultimate incentive to be in the Sensex. Concurrently, when a stock drops out of the Sensex, very few have the wherewithal to make it back. B&E commentates on those few which did claw their way back..

While Bajaj Auto made a clear-cut strategic mistake, the case of Mahindra & Mahindra (M&M) was slightly different. The company’s stock had to pay the price of transformation of a functional organisation into a multibusiness group of companies. In 1991, when India opened up to the world, the company limited its focus on few verticals and moved out of the others. It reengineered business processes, brought in new people, invested in information technology, and reduced head count. Despite doing all that, M&M’s stock price underperformed the stock market index. While the Sensex had tripled in 10 years, from 1,193.61 on April 1, 1991 to 3,401.80 January 7, 2002, M&M’s stock had risen just 37.23% from Rs.68.75 on April 1, 1991 to Rs.94.35 on January 7, 2002. Investors no longer believed that they were a blue chip company. Finally, on January 7, 2002, BSE dropped it from the list of bellwether stocks that constitute the Sensex. The management went back to the drawing board and reworked on strategies. Financial goals were set for each business. If a business didn’t meet the target in 12 months, it would have to fold. Result: In just a year’s time, there was a near-total turnaround, with almost every business’s profits and cash flow shooting up. That marked a turning point, and M&M hasn’t looked back since then. Even M&M’s new SUV, the Scorpio, took the market by storm in 2003 and finished the unfinished business. The SUV gamble could have cost Anand Mahindra (who took over as M&M’s deputy CEO in 1991) his reputation as M&M had spent a whopping $120 million on the project; instead, he earned kudos for turning the staid engineering company he inherited into a globally competitive group. In fact, by 2005, the company was so confident that it announced that it would double its revenues and triple its profits by 2008 - and it succeeded in achieving such an audacious target. All this helped M&M regain its seat back in the Sensex on July 9, 2007.

Tata Power is yet another company that was forced to move out of the Sensex on June 12, 2006. But some quick acquisitions (for instance, stake acquisition in Indonesia coalmines) and tie-ups (including Tata Power-Siemens tie up) not only helped the company increase its revenues, but also secure its place back in the Sensex on July 28, 2008. Even the engineering giant Larsen & Toubro (L&T) had once moved out of the Sensex on May 19, 2004, but it was a case of negative investor sentiment toward its stock. Thanks to its management’s prompt response, the company, within four months of its dismissal (on September 27, 2004), made it back to the list of 30 stocks that constitute Sensex.

No doubt, all make mistakes, but some learn from them, and so did these four firms that today stand tall smiling at those who didn’t bother to change with time.



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Monday, July 30, 2012

Stratagem-TELECOMS: HIKE IN TARIFFS

The recent tariff hike is a bold attempt on the part of leading telecom operators to nudge the industry to a more mature phase and shift the focus to revenue and profitability instead of merely adding subscriber numbers 

With such compressed margins, incumbents have no option left except to go for an increase in tariffs in order to arrest and limit the decline in profits. And as subscription to services has been increasing sequentially for all companies even as spectrum licences remain capped, the only choice left has been to play the tariff card. Wireless subscriber base increased from 840.28 million in May 2011 to 851.70 million at the end of June 2011, registering a growth of 1.36%. However, subscribers’ growth in June and in the preceding three months has been among the lowest in the past many years and confirms industry’s suspicions that the relentless fall in tariffs kickstarted by new operators since 2009 in order to acquire new subscribers has finally bottomed out. “India is no longer just a new market for telecom where subscriber acquisition is the key. Tariffs have already reached a stage when there is no elasticity left, so no matter how much lower they go, you aren’t going to see an incremental rise in customer volumes,” says a telecom analyst.

Till recently, the key performance indicator for telecom firms was to bring in new subscribers, both to be competitive and get additional spectrum (given the government’s earlier subscriber-linked formula for spectrum). But with changes in spectrum policy, that is not so crucial. The likely auction of spectrum in future, as proposed by the new telecom policy, and likely to be announced within the next three months, will remove the perverse incentive to add customers at any cost. Already, new subscribers rarely add to firms’ revenues. This is because over 90% of India’s subscribers are in the pre-paid segment, which mostly has low-volume, low-revenue users. The ARPU in this segment is abysmally low at around Rs 125 a month, according to industry estimates.

Will operators scale up their tariff hikes to a pan India level, including many other circles in the near future? Not at least for the next two to three months, say industry experts. “Only after seeing the results in certain circles where some operators have done the hike, I am sure they would measure the response for a couple of months and only then move on to either reduce it or effect similar hikes in other circles,” says the head honcho of a leading telecom firm, which has not raised its tariff so far. Most experts opine that the Indian telecom market is not quite there yet where operators have such pricing power as to be able to raise tariffs without losing customers. A large number of operators still have underutilised assets and they would rather use their assets at whatever pricing they can get rather than let it be idle without generating any revenue whatsoever. New players are in the process of acquiring a critical mass of subscribers and cannot risk losing them by increasing tariffs. Officials from new telecom firms are admitting that they view these tariff hikes as phenomenal opportunities to grab customers. To cash in, new companies like MTS and Uninor have already gone aggressive with their advertising campaigns of late.



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Saturday, July 28, 2012

For Salman Khurshid, it is a Big Challenge ahead; and I Personally look forward to a Revolutionary a couple of years ahead!

As a media house, from the very beginning, we have been extremely vocal about the Indian judiciary – and that’s why we have also started our bimonthly supplement of Governance Watch with a special focus on the judiciary. We strongly believe that a poor justice delivery mechanism has been the root cause of most of our problems. It goes without saying that India has a weak, or rather a limping justice delivery system, which makes sure that justice is denied in most cases; and even if delivered, it does not hold any value, thanks to the time (read lifetime) it takes to be delivered. By the Centre’s own admission, there is a staggering number of nearly 300 million court cases pending at several stages in different courts of India. This situation is a deliberate creation of our successive governments. If criminals were to be punished, how would they rule? Thus, to make the rule of criminals easy, the governments in India over the years have deliberately kept the judicial system in our country dysfunctional. It serves the purpose of the legal fraternity as well. Thanks to the years or decades that it takes to execute a case and to take it to its culmination, the legal fraternity invariably ends up making windfall profits. And thanks to the absence of a time-bound justice delivery mechanism, making moolah is not at all a challenge for our legal fraternity, as they are quite adept at purposefully making cases hang on for years. The only thing that we nowadays talk about is corruption. And the one and only solution for solving this issue of corruption is a functional judicial system. Corruption and greed are globally prevalent; yet these touch far less lives in USA than in India simply because the American judicial system is functional while ours is dysfunctional. In America, they have ten times more judges per million people than in India; so there is a fear of immediate punishment – while in India, there is no such fear of punishment.

Thus, there are two key things that the government must do to make our judicial system functional. The first is to take the number of our judges to about ten times the current figures. If we are to try and achieve such standards, we need to have about 100,000 or so more judges. It sounds huge, but is surely achievable; and in a span of five years too. Therefore, to have 20,000 additional judges per year, we have to budget for approximately Rs.60 billion per year additionally, assuming that the expenses around a judge and his office assistants put together would be (and is actually definitely) not more than Rs.3,000,000 per year. Given our massive annual budget and given that at least we at the IIPM Think Tank have been lobbying for the same through our alternate budgets for more than 11 years now, it’s a shame to see budgets being passed year after year with no focus on the judicial machinery and with no substantive budgets being allocated for improving the said system – that too after the government bravely declared that by 2012, all the backlog of our 3 crore pending cases will be cleared. It’s just a year more to go and nothing concrete has happened in that direction. The second thing the government must do is pass a statutory law in the Parliament that would guarantee and typically force the delivery of justice in a timely manner. In developed countries like US, for petty cases, people filing cases in the morning get justice literally by the evening. Even if India doesn’t end up being so fast, still the concept of having a law that enforces that a case be adjudged within a stipulated time would be good enough.

Of late, to me personally, our law ministry was doing relatively good and so was our judiciary. The honourable Supreme Court of India has been displaying a proactive behaviour with respect to burning social and political issues (of course, it indicates the failure of the other two pillars of the nation viz. legislature and the executive at large). The decisions taken by the Supreme Court since the last couple of months are in the areas that largely come under the ambit of the executive and not the court per se – almost akin to “ethical hacking”. The judiciary for that matter was designed to oversee the law breaching incidents and not spearhead the law implementation operandi. Traditionally and fundamentally, functioning of the courts were restricted to provide justice to aggrieved parties on the basis of evidences collected by the executive and by following the laws drafted by the legislature. However, and although it could be construed as trespassing beyond their decision areas, the court’s efforts have been laudable. Take for example the appointment by the Supreme Court of the Special Investigation Team (SIT) to probe money laundering cases and to go deeper into the black money issue; or even the action taken by the Supreme Court against New Delhi police officials after Baba Ramdev’s protest against black money and corruption – both of which should have been initiated by the executive or the legislature or the state machinery. In both these cases, the Supreme Court went a step ahead to protect the very essence of democracy, and this is highly commendable. Similarly, the order to distribute food grains – which is otherwise rotting in granaries – to poor people was given by the court again. Under all circumstances, such orders are meant to be announced by the executive, as food storage and distribution are responsibilities of the state administration. But by going beyond its defined role, the Supreme Court has come to the rescue of millions. Moreover, this apex institution with its near-clean record has kept its head high and continued the legacy of protecting the nation – unlike within the other two pillars of democracy, there have been literally very few cases of corruption in this institution.

Under our former Minister of Law and Justice, Mr. Veerappa Moily, the entire judicial machinery was being overhauled. By facilitating the release of 750,000 petty offenders languishing in prison for years – their only crime being that they were poor – Moily at least did what no other law minister before him had done. His heart looked to be at the right place. His vision to take care of pending court cases was yet to be realised – and then he was shifted out of the ministry. Rather than going into the reasons behind the decision, I would rather say that our newly appointed law minister, Mr. Salman Khurshid, is hugely capable and comes with a great reputation and background.


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Friday, July 27, 2012

Ban Surrogate Advertising now

Liquor Product Advertising has been Banned; but Surrogate Advertising, often with The Use of Popular Celebrities, defeats The Purpose

In India, just about every law comes with its own set of loopholes. The case of the ban on advertisements of liquor and tobacco products is no different. Surrogate advertising, the loophole in this case, is a welcome crutch for these brands, as they are not otherwise allowed to advertise their products directly.

Indian cricket team captain M. S. Dhoni promotes McDowell’s Soda, Ajay Devgan endorses Bagpiper Soda, Saif Ali Khan endorses Royal Stag Mega Music and the list goes on. Seagram (Royal Stag Mega Music & Mega Cricket), McDowells (soda), Kingfisher (soda & water), Hayward’s 5000 (soda & packaged drinking water), White Mischief (holiday packages), Imperial Blue (cassettes & music CDs), Royal Challenge (music CDs), Bacardi (cassettes & CDs), SmirnOff (cassettes & CDs) are some primes examples of surrogate products.

Godfrey Philips – manufacturers of Red & White – gives “Red & White Bravery awards” for social initiative. Wills Lifestyle does a great surrogate job for Wills in a sense and Gold Flake has ‘Gold Flake Expressions’ greeting cards.

Evidently, it is ridiculous to simply ban the product advertisements and leave go of surrogates to do whatever they wish. The government should immediately ban advertisements of products and services that purport to sell brands that are like-named as tobacco or liquor brands. Does that mean that Kingfisher Airlines should not be allowed to advertise? Of course, yes. Or else, they should change the name of their airlines brand.


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Thursday, July 26, 2012

Shubhranshu Patnaik, Senior Director, Deloitte Touche Tohmatsu India Private Ltd.

With over 4 GW of solar thermal plants likely to be operational globally by 2013, the technical requirements for selecting Phase II solar thermal developers ought to be made more stringent. While tariff-based bidding worked well in development of conventional thermal plants in India, it should not be applied blindly to emerging solar thermal technologies and the process must provide for demonstrating technical qualifications, which go beyond mere letters of support from technology providers. If required, the central government should get the technology proposed be evaluated by a panel of experts or the National Centre of Excellence. A better approach would also be to have specific solar thermal projects developed like Case-2 projects, with substantive preparatory activities undertaken upfront by the government and solar resource data provided to bidders.

The government and MFIs have a significant role to play in building capacity amongst the commercial banks in assessing and financing solar projects. The role of the World Bank and ADB in utilizing their global solar experience in supporting local and foreign commercial banks in India is critical to the success of the program. Three other aspects of JNNSM need to be advanced significantly over the next two quarters. First, demonstration projects under Phase I of JNNSM have to be conceived and awarded quickly, as these are meant to further research and local adaptation of newer technologies and to provide operational data for commercial deployment to happen. Involving Indian PSUs, e.g., NTPC and BHEL and identified technology centres like IIT, Rajasthan and the Solar Energy Centre of MNRE in such pilots is essential to further research, enable dissemination of operational data and to provide for localisation of manufacturing along the value chain.

Second, field measurement of irradiation and mapping of solar resources across the country needs to have been done for at least one full year before Phase II planning commences. Third, the government has to aggressively further the localisation of manufacturing, particularly along the solar thermal value chain. This is intricately linked to the pilot projects, which will determine the preferred technology choices in India for commercialisation and will require greater coordination amongst the ministry of industries and commerce and the user industries of MNRE and MoP to realise the dreams of low cost solar development in the country.


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Wednesday, July 25, 2012

Policy-BRICS: REAL NAME, VIRTUAL OPTIMISM

For Many Years Now, The BRICs have been known as a Consortium that was Predicted to Overtake The Economic might of The Developed Nations. But there are Issues which Put Doubts on The Very Viability, The Workability and The Long-Term Effectiveness of this Ambitious Bloc. 

India can learn too. Slowdown can hit it faster than expected. With many sectors in the economy already overheating, with scams and corruption plaguing the conduction of clean business, and with lack of proper infrastructure and human development facilities, the country may suddenly find itself struggling to run half as fast as it is now. It can also lose favour in the eyes of the global investors, signs of which are already showing – as per the Ministry of Commerce and Industry, the country has received only $18.35 billion in FDI in the first 11 months leading to February 2011, indicating a y-o-y fall of 25.5%. The current figure also represents the lowest ever, since FDI inflow first crossed the $15 billion mark for the first 11 months of the fiscal year in FY2006-07. So, the state of affairs in India definitely calls for immediate need of improving governance, a robust infrastructure and better provisions of human development (education, health et al). Even the long impending border issues with China need to be sorted out.

No doubt, the economic uprising of the BRICs could (and will) have unexpected negative consequences for the global environment. So, apart from boosting per capita income, the challenge for the emerging economies will be to improve social security and environment – in order to achieve a living standard comparable to that in advanced countries – as well as increase domestic consumer demand and spending in order to balance the fall in global consumption.

The idea here is not to raise doubts over the growth of the BRIC economies. However, the fact remains that the growth is more likely to occur on an individual level and not as a bloc, as the hype created around these economies suggest. The reason lies in the fact that there are no attempts to address key differences within this bloc that are likely to hamper the growth that is expected of these countries as a unit. The factor here is the absence of a strategic alliance or, for that matter, even an attempt to discuss differences between them. There is no denying that a strategic partnership between these strategically located nations, given their socio-political relevance in their regions, will be highly beneficial for the BRIC bloc. However, the absence of a willingness on the part of any of these nations to discuss and resolve aspects of security, territory et al, leaves the consortium looking like a statue which cares little about strong bilateral ties.

The BRIC economies, though on the right track, are truly far from posing any competition, leave apart being a threat to the alliance of the West. Dr. Suvrokamal Dutta, Economic and foreign policy expert comments that as for the viability of the BRIC alternative to the existing unipolar world order controlled and dominated by US, three power blocs could pose a real challenge to the existing world order, both in terms of political hegemony and economic supremacy – BRIC, IBSA (both of these are official now) and the troika consisting of India-China-Russia. “There were several secret meetings held between the foreign ministers of these three nations during the Vajpayee regime and these meetings had created ripples in Washington, which then used the Tibet issue to vitiate ties between India and China,” he says, adding that a major drawback of the forum is the lack of discussion on bilateral issues and issues of strategic, security and military concerns. It is known to all-and-one that at present, members of the bloc, discuss only economic, social and cultural issues; to have real teeth, business, strategic and military ties should be developed and discussed. While the troika proposition will take long to materialise, the need of the hour is to stop addressing BRIC as a competition or threat to the West, and address our internal and external differences as members of the bloc. The downturn has already shown the entire world what our strengths are. It is time now to work on our weaknesses and capitalise on the growth which is here to stay.

It is apparent that a strategic alliance between the member nations of the BRIC, which goes beyond commerce and trade and enters uncharted horizons, including defence – on the lines of say NATO – will not only tilt the balance of power in its favour, it will, in real terms, help them emerge an economic might. The contours of such futuristic thought-process would envisage a bipolar world, wherein the Troika and Brazil have a greater say in strategic issues pertaining to the landmass bordering Arctic Ocean, Atlantic Ocean and the Indian Ocean.

Not only this, the bloc will also benefit from India’s good economic and diplomatic ties with the Middle East nations. If Troika, or for that matter, BRIC is to see itself emerge as a mighty force at par with the present Western Alliance, it has to wake up to reality. How long can you live in a fool’s paradise?

Read more....

Source : IIPM Editorial, 2012.

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

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IIPM: Indian Institute of Planning and Management

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Tuesday, July 24, 2012

They’ve finally got The Equation Right

With Sales of Nano once Again on The Rebound, current Tata Motors’ CEO Carl-Peter Forster seems to have Understood The Direct connect between Advertising and Sales in The Indian Market. But Perhaps, this is also a Great time to Re-‘Reposition’ The Car. B&E does a Case Summary

When Ratan Tata, Chairman, Tata Motors, shared his vision of making a Rs.1 lakh car at the Geneva Motor Show, in 2003, there was cynicism and doubt from all quarters. Tata’s ambition was deemed unrealistic and critics wondered how it would be possible to make a car at almost half the price of the cheapest car (Maruti 800) available in the market. At a time when the automotive industry was still in thrall of “bigger is better” way of thinking, industry executives scoffed at the idea of an ultra low-cost bare bones car. But for Tata and his core team of five engineers led by Ravi Kant (the then MD, Tata Motors), the Nano car project was borne out of deep conviction, and not by any flashy ambition to stun the market and rivals. The team had prepared its ground well, going over all the details of the project with meticulous care and finesse. As such, for them, there was never a shadow of doubt about the viability and feasibility of the project.

So, when Tata unveiled the Nano at a jam-packed Tata Motors pavilion at the 9th Auto Expo in New Delhi on 10th of January 2008, there were wild cheers and rave reviews for the world’s cheapest car. Everyone, including Tata Motors, assumed that a product with such a low price would be a runaway success. And true to the euphoria and buzz generated by Nano’s launch, the diminutive car racked up more than 200,000 advance orders when it went on sale in April 2009. But the heady feeling did not last long. The Singur controversy over acquisition of farm land for building the Nano plant in West Bengal, along with the subsequent increase in the car price, poor distribution and instances of Nano cars catching fire proved to be a wet blanket for all those expecting the car to be a game changer for the auto industry.

By November 2010, sales of Nano had plummeted to 509 units, a sharp drop from recorded sales of 9,000 units in July 2010. That came as a shocker to not only market analysts but to Tata Motors as well. The dismal November sales was a rude awakening call for Tata Motors, which was counting on its small wonder to attract an annual demand of not less than one million. Yes, there were issues with respect to the sales outlets causing late deliveries and growing concerns amongst people about the quality at such a low price (Rs.137,555 for the lower end model).

But the most critical issues perhaps have been only two – the first one has relates to positioning. With over 11 million two-wheelers sold in India last year (according to SIAM), the company initially only targeted the two-wheeler owners to switch over to the Nano. In all his credible efforts to position the car as the alternative for the family which used a two-wheeler to travel around, Ratan Tata perhaps inadvertently positioned the innovative product as the poor man’s car. In other words, while the intent was brilliant societally, for any consumer buying the Nano, there was the inherent danger of being viewed by his social group as poor. Not even a poor man wishes to be identified as a poor man – and the Nano, to some extent, was doing just that. In summary, there was a great disconnect in the kind of people the company was reaching out to and the kind of people it wanted to sell to.

The second mistake was both in the quality and quantity of advertising. Quality of advertising relates to the both the medium of advertisements used and the kind of advertisement used. For example, while Nano was intended by the company for the lower-end belt, instead of reaching out to the intended segment and understanding their purchase behavior, Tata Motors relied heavily on non-conventional methods: They created a special Nano website where one could design their own Nano and play games; used social networking sites such as Facebook and Orkut; leveraged blogs; and purchased online advertising. The online medium was hardly the right way to sell to their target segment and the strategy failed to create buzz around the car. Why did Tata Motors do this? One, because they perhaps thought that the word of mouth recall would be enough to exponentially increase the sales of Nano. Automobile experts are as guilty for this as some even commented that Indian roads will become jam packed within a few quarters of Nano sales. The company did release print ads; but that too as a statement of social action rather than as a sales strategy. Worse, the company refused to straddle the typical sales promotion strategies of having promotional offers, discounts et al being advertised regularly. In fact, the company did not even advertise otherwise regularly. Those were perhaps the banks giving auto-loans that were advertising.

As a result, the company ended up selling 75% of Nano cars in five major cities in India rather than the expected all India demand. And here comes the biggest repositioning learning for current CEO Carl-Peter Forster. For 50% of the people who bought the Nano, it has been their second car. If Carl understands this correlation, then perhaps this is the best time to rejig the ad positioning of Nano to beseech the prospective consumer with the punchline, “Tata Nano: Your first, second car,” than continuing the low-end positioning.

But CEO Carl has done something more – and intelligently. He has ensured that starting September 2010, Nano ads have started appearing in the electronic media channels, and now with increasing frequency. The plain and simple statistical connection between number of ads and sales has been forgotten in the past by many practitioners; luckily, it seems Carl has regained the connection.

In recent months, Tata Motors has also reviewed the issues related to production, quality standards and supply chain management of Nano cars. The company is additionally chalking out plans to enter new growth markets and export to countries like Thailand, Malaysia and the Philippines. To push sales, the company has already announced open sales of Nano cars for the entire country. For a long time Nano was not available off the shelf in many states. “It was only after the inauguration of the Sanand plant that we could plan for open sales of Tata Nano. We decided that we would do this in a phased manner in tandem with fine-tuning our marketing & sales infrastructure along with the finance support” said a Tata Motors spokesperson to B&E. By January 2011, the company had extended open sales to the rest of the country instead of the earlier system of having to book and wait for delivery.

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