Friday, August 31, 2012

INDIA’S 100 MOST PROFITABLE COMPANIES

Global Investment Guru Jim Rogers, who Co-Founded the Quantum Fund along with George Soros (The Fund Returned 4,200% in ten years, as compared to the S&P 500’s 47% in the same duration), believes that commodities are a strong investment avenue for indian firms, and that the govt. should cooperate to make india inc. more profitable

Then again, Indian tourism also has a bright future, as even the Chinese can come to India easily now for the first time in 300 years and tourism can be of great potential especially when there is peace between India and China now. The natural resources in India especially mineral wealth ensure a great future and with reforms coming up in infrastructure and the promises made by the government on infrastructure, therein lies a huge potential. If India finds competent companies to look on and manage these sectors, all of them have a very bright future.

But, India is failing to attract investors because no one wants their money to be blocked, as investors will never want to move their money out of US or Australia to a country like India where their money is almost trapped. Bonds are one of the best investment options and I really want to look up to the bond market in India, but it is not open. India has a huge population and many people can invest in bonds but the problem lies in the fact that the currency is not convertible and rigid barriers to entry of foreign investors does not allow the Indian bond market to open up properly. It is one of the best times to open up the bond market, making India a hot investment destination and Indian companies the biggest profit making corporations in the world.

For that to happen, India must open up to capital account convertibility, which is of great significance to corporates around the world. India should actually develop an offshore bond market as most of the Indian citizens don’t have money offshore, and it’s really strange that India still has a non-convertible currency. Indians are investing all around the world but there has to be some money that should even come to India. And investors will always take it as a great opportunity, if they allow reforms. The politicians in India should actually realise the benefits of currency convertibility in a globalised economy. And with the sovereign debt crisis going on in the Europe, investors are sure to move to countries which are not in trouble, and India is certainly a big destination for these investors, as they will prefer their money to be safe in a developing economy than a debt-shadowed economies like in EU.

There is a strict need of reforms in the Indian system to make it a hot destination for the investors. India has a debt to GDP ratio of almost 90%, which is actually alarming and studies show when you reach that level, you do not grow significantly and you have trouble attracting anyone. In India’s case, debt is going to rise continuously. Even if you look at the government’s budget projections, debt is going to rise for the years to come. Without some tap on debt and the non-convertible currency, its surely a big problem for Indian companies to dream about a windfall of profits, as there would be no investments. So while China will continue receiving all the FDIs, India will have to be satisfied with just FIIs. India as a whole and Indian companies should look at various smart strategies to build upon their bottomlines. But they need government cooperation too. The first thing is to look at core strong sectors and encourage the foreign companies to invest in the country. Believe in core sectors, reforms, equity and bonds, and profits will automatically follow.




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Thursday, August 30, 2012

HYUNDAI AGONY & ECSTACY

AFTER BEING THE CLEAR #2 IN THE INDIAN PASSENGER VEHICLE SEGMENT FOR OVER 11 YEARS, THE TIDE SEEMS TO BE TURNING IN FAVOUR OF ITS CLOSEST COMPETITORS. CAN H. W. PARK, THE CAPTAIN OF THE SOUTH KOREAN SHIP, STEER IT CLEAR OF THE MANY ICEBERGS ON THE WAY? BY PAWAN CHABRA

Fifteen years ago, H. W. Park wasn’t a known name in the Indian automobile circle. Even Hyundai Motor Company wasn’t. The Indian auto-lovers then, were busy test-driving vehicles that bore tags of Honda, Ford, GM, Daewoo, Maruti Suzuki, Hindustan Motors and Premier Automobiles. A South Korean car-maker didn’t bother the car buyers in India. In September 1998, Hyundai rolled-out the first Santro in the country, and six months later, the company (under the leadership of B. V. R. Subbu, the-then President of Hyundai India), surprised all by climbing to the #2 spot in the Indian passenger vehicle market. Park wasn’t talked about even then. He was busy handling costs, auditing and managing Hyundai Motor’s finances, back in South Korea.

He was finally transferred to India in 2003, and was handed over responsibilities as the CFO of Hyundai’s India operations. Six years later, this MBA from the University of Dankook (Seoul), convinced the Hyundai Headquarters to make him the CEO & MD of Hyundai India with his leadership skills and successful management of the company’s resources. They obliged. That was last November.

Nine months into the job, Park finds himself in a tight spot, a spot he might not have wanted to be stuck in at this time, so soon into his leadership. In the Indian passenger vehicles segment (the only playing field for Park), Hyundai had belligerently defended its 2nd rank for 11 years consecutively. No Ford, GM, Fiat or the likes could beat them. The lead was secure, sacrosanct and Hyundai protected the position religiously. Now, for the first time after 11 years, Hyundai saw itself being displaced from the #2 spot by the Ratan Tata army. During Q1, FY2010-11 (April-June quarter), Hyundai sold 83,018 units, while Tata Motors outperformed it with a sales figure of 83,739 units. [For the month of June alone, the figures for Hyundai and Tata Motors stood at 27,366 and 32,479 units respectively]. If one thought this was a quarterly hiccup, in July 2010, while the South Korean automaker managed a sales figure of 28,811 units, Tata Motors yet again sold 32,731 units. Even though the Tata Motors’ lead may be marginal, and may not even last long, what this has done is something iconic yet ironic – it has proved that Hyundai can be beaten. And if Hyundai can be, then so can be Maruti, the leader since years (read the interview with Shinzo Nakanishi, MD, Maruti India, later in this cover story).

Absolute figures apart, Park will get the drift of the argument if he takes a look at the manner in which Tata Motors has grown from being just a minnow in the passenger vehicles segment to a threat to every player around it. The magic wand being the Nano. With negative growth plaguing its performance in the first half of 2009, Tata Motors breathed a sigh of relief with the Nano’s mass roll-out in July 2009, post which, the company has scripted y-o-y growth (in monthly sales) in excess of 19% till date. This followed on the heels of a negative 3.12% growth in the quarter that preceded the deliveries of the Nano (quarter ending June 30, 2009). Continuing its upward trajectory, December 2009 saw the company touch a sales growth of 61.37%. The show continues till date, with a y-o-y growth of 50.13% recorded in July 2010. Hyundai on the other hand, has been a slow runner, its monthly sales growth falling from 53.94% in July 2009 to 24.22% in July 2010 (coupled with a Q1, 2010 y-o-y growth of 21.61% as compared to Tata Motors’ 49.59%).

But Park hasn’t given up yet, and the fight to capture the coveted #2 spot is still on between the South Korean and the Indian. There is however a small problem for him. The Nano production process is gaining momentum by the day. Translation: Hyundai is in for tougher days ahead in the domestic circuit. Once Tata’s Sanand Nano plant assumes full production capacity of 500,000 units per year (from the current 250,000 units per year, which the company plans by the end of FY2010-11), the South Korean giants will be forced to reconsider their priorities and set their targets higher. Park tells B&E, “We will be looking at close to 340,000 units in the Indian market during FY2010-11. Last year, we did close to 290,000 units.” But will this be enough? While Hyundai has set this target, sales of Tata Motors is forecasted to exceed 500,000 units (including 250,000 units of Nano as forecasted by P. M. Telang, Head of India Operations, Tata Motors). Even if we conservatively assume the non-Nano days growth of Tata Motors to repeat this financial year’s growth (growth of 23.88% during FY2009-10), the sales figure for FY2010-11 will touch 566,508 units – 66.62% more than Hyundai’s! [This represents a y-o-y annual sales growth of 98.2% for Tata Motors – the highest ever since it gained substantial volumes in the passenger vehicles market.] For the records, the A1 segment-ruling and price-conscious buyer-pleasing Nano has already sold 23,779 units of Nano so far in 2010 (as on July 31, 2010), as compared to 30,350 units sold in 2009.

There is no denying that Hyundai has been a force to reckon with in the Indian auto market for long, and the strongest competitor to Maruti (the market leader for over two-and-a-half decades). There is no denying either that Hyundai will continue to be as powerful a force. But the pace at which competition is rising in the small-car (A2) segment (where its flagships – Santro and i10 – have reigned for long), is literally pushing it closer to the furnace. Giving Hyundai much displeasure, products like the Maruti A-Star & the Alto, the Chevrolet Spark & Beat, the Ford Figo, the Volkswagen Polo, the Fiat Grande Punto, the Nissan Micra and many more, have already made their mark in the Indian hatchback car market.

But is Hyundai really worried about the silver hat? Arvind Saxena, Director – Sales & Marketing, Hyundai Motors India refuses the proposition, “The second position is incidental. No one works for it. We are here to create a bigger brand. We will be happy to have a large satisfied customer base.” As for Park, he seems to be showing no dearth of realisation about the importance of the Indian auto market. He has already taken guard. As sources from the company confirm, he is increasingly focusing more on the domestic market. Saxena adds, “The domestic market has always been a priority for us. But when we realised that the demand here was insufficient, we exercised the option of making the most out of exports. This year, the domestic market will account for about 56% of out total unit sales. In five years, this percentage could grow to 65-70%.” In short – Park is determined to run till the last mile is over.

Hyundai is not the only one spending disquieted moments. Maruti Suzuki also faced a disturbing situation as recently as in June 2010, when its market fell below the 50% mark for the first time since it began operations in India. Currently (April 2010-July 2010 period), the market share of Maruti Suzuki in the passenger vehicle segment stands at 44.0%, with Tata Motors and Hyundai as followers with market shares of 15.4% and 14.8% respectively. Notably, even Hyundai has registered a fall in market share from the 20%-plus levels. But Maruti seems more perturbed about numbers at the moment, as Shinzo Nakanishi, MD & CEO, Maruti Suzuki India, tells B&E, “It is our aim that by the end of this fiscal, we will have over 50% of the passenger vehicle market in India...”



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Wednesday, August 29, 2012

Learning from the best

After an unexpected turn of events with Kites, Kangana is now hoping to do better with Once upon a time in Mumbai. The surprise of this film is that this time she’s finally playing a ‘normal’ girl and not a maniac or mentally disturbed character! A character inspired by Madhu Bala, Parveen Babi and Zeenat Aman, Kangana was required to pick up nuances of style, grandeur and sex appeal from the consummate work of these veterans. Awed by Madhu Bala, this 23-year-old now dreams of playing Anarkali someday.


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Friday, August 24, 2012

AFGHANISTAN: THE $1 TRILLION LOTTERY

The US has announced the discovery of minerals apparently worth $1 trillion in Afghanistan – the IIPM Think Tank believes much of this made up value is balderdash and pure hogwash forwarded by the US

There’re three reasons for the June 2010 re-branding of old news. First: when it comes to fragile governance, the Afghan government is already a top contender. It is today standing on legs largely because of foreign aid, which is over 70% of its budget. Undoubtedly, the announcement of this discovery will give Karzai – who has recently mended fences on his own terms with Obama – a new lifeline in his fragile political career, as he would be able to wishfully promise the mineral rich regions to tribal chiefs and Taliban representatives. Second: the announcement will give an excuse to the US to postpone their decision of withdrawing troops out of the country. Third: the US has been trying hard to figure out ways to attract foreign investment into the region. The announcement will jump start the proceedings. One can easily visualise deals being signed under pure promises and conjectures than on realistic data – leading to future litigation.

There is a huge downside for Afghanistan due to this announcement. Mineral and oil discovery announcements have led to social unrest in various countries; and Afghanistan is a country that is still struggling to come out of a war like condition. African nations like Ghana, Sierra Leone, Uganda, Nigeria and Sudan saw a decade long violence and civil unrest after similar discoveries. An analysis of the top oil rich countries would show that around 10-12 nations in the top 50 list are unstable. For Afghanistan, the announcement would exacerbate the ongoing power politics. If on one hand the local clans, Taliban, Al-Qaeda and the likes will fight a bloodying conflict to tap these supposed resources to fund their anti-social missions, then on the other, China, which last year grabbed the Aynak copper mine in Logar, would leave no stone unturned to expand its influence over the region and country in particular.

All this is not to say that there are no reserves – of course, there are. But in all probability, only around 1/5th of what has been announced – which anyway would be exploited by US firms. It’ll take decades for other investing companies to realise they’ve been had. By then, Obama will be out of power, and Afghanistan will no more be a priority.




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Wednesday, August 22, 2012

Cooking-up new rules for the game!

The introduction of the word ‘career’ in the lives of women is swiftly redefining the virtues of a good relationship for today’s new-age couples…

“Shalabh was asked by his mom if the girl he had chosen for marriage would let go of her pursuit of happiness through lifework (read career) whenever needed, and he immediately replied in the affirmative to avoid further discussion,” recollects 30-year-old Priya Madaan when talking about the over-rated virtue or vice (depending on which school of thought one subscribes to) of women’s decisions regarding their work-life that gives them a high in life. Today’s women are caught between the traditional people, who are utterly disdainful of women who choose their careers over becoming the 24/7 homemaker and support system for the family even when there are no financial constraints, and the other more modern people, who are instead frowning upon the ladies giving up their work-life for the simple pleasures of life such as one’s marriage, motherhood or for simply managing the household.

25-year-old Shruti Bhatia, a recipient of the excellent performer award, quit her job at the mere confirmation of her eight-months-later wedding date. Unusual in the professionals’ world, the simple reasons, tells Shruti “of wishing to make a home, socialise more with old and new families and figure out a comfortable way of pursuing a career” invited surprise and criticism from those who for a decade or two have only epitomised the ‘perfectly juggling’ avatar of women.

But what Shruti did is somewhat closer to what 41-year-old Jennifer Wilkov and 42-year-old Kimberly Mylls, authors of a recent book, Boys Before Business: The Single Girl’s Guide to Having It All, suggest. Advising the wives (as well as the husbands) to ‘put themselves first, their relationship second, and their career last’ for having a lasting relationship, the authors feel that this way the women would actually perform better because of the love and comfort back home. So, according to the authors, staying late at work and cancelling a scheduled date with the spouse to stay behind the desk for longer are actions that must be avoided! Also, the advice usually given to men apply equally to career women – do not bring workplace problems back home with you!

While one may crib about the title of the book that anticipates how most often women are required to put the men first and not vice versa, there are a lot of privileges that women enjoy and men don’t complain about. For instance, several organisations in our country allow women comfortable work hours. “Lesser number of working hours for women is not a part of our mainstream Human Resource policies, but my team manager with the help of HR has revised my working hours to suit my responsibilities and priorities at home. This hasn’t affected my performance at all. In fact, I am more focused and grateful to my organisation because of this concession at work,” says 33-year-old Shweta Pandey (name changed) working in the sales division of a Telecom company.


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Tuesday, August 21, 2012

SMOKING: BANNING PRODUCTION

Smoking regulation has achieved some success; but it is pathetic that governments don’t have the honesty and sincerity to completely ban cigarette production globally – it’s clear how well money and lobbying works

The true return of this booming business is evident in the fact that in every eight seconds, tobacco use claims a victim in some part of the world. That means around 5 million deaths annually. Moreover, trillions of filters, filled with toxic chemicals from tobacco smoke, pollute the environment as discarded waste every year. Realizing the importance of controlling this menace, many countries have laws in place to ban advertising and any kind of promotional activities related to smoking. Despite this, a 1998 survey found that tobacco companies were among the top 10 advertisers in 18 out of 66 countries surveyed.

Thus anti-smoking policies have worked to reduce tobacco consumption; but it is still a serious issue that needs to be brought under control. In such a situation, it is often debated whether banning the tobacco production itself as a policy decision would deliver the desired results. There are complications on this front. Chinese counterfeit cigarette production reached an unprecedented 400 billion cigarettes a year, enough to supply every US smoker with 460 packs a year in just one decade since 1997; making Yunxiao the “illegal cigarette manufacturing capital of the world.” Also, there is a case of a conflict of interest, since the tobacco industry funds government treasuries massively every year.

To ban cigarette production will not only need strong political will, but as the 2005 movie Thank You For Smoking clearly showed, will need a lot of honesty – with the Tobacco Master Settlement Agreement between four largest US tobacco companies and 46 US states, which freed the companies of liability due to harm caused by tobacco use – being a shocking example.


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Monday, August 20, 2012

FINACLE: INFOSYS’ BEST FOOT FORWARD?

Quite a few global IT giants have proved that it takes just one big killer product or application to enter the Fortune 500 league. Finacle was supposed to be that for Infosys! Today, it contributes just about 4% to Infosys’ revenues. What went wrong? by Virat Bahri

Apparently, one of the major reasons why Finacle has not been into the big bucks has been the fact that the US market, which is otherwise the highest contributor to Infosys’ revenues, has actually been very inimical for core banking solutions; as banks sitting on legacy systems for 2-3 decades were unwilling to change. As late as 2006, a report by Aite group revealed that around 12% of US banks and top 500 credit unions had reached a critical point for core system replacement, but only 4% were actually expected to do so. And the major culprits of complacency were the large banks, as the mid-sized banks have been more proactive. In 2008, an Oracle report reiterated, “Despite the costs and challenges associated with running antiquated solutions, most US financial institutions continue to proceed with caution and postpone their inevitable replacement of these crucial systems.”

The financial downturn seems to have ruffled feathers quite a bit, and underscored the need to get rid of legacy systems, which presents a great opportunity for core banking solution providers like Finacle. A global survey of 1500 banks by Accenture and SAP done recently reveals that around 20% of North American banks are planning core banking replacements within the next five years; compared to 30% for Europe and over 35% for Asia Pacific. Over 70% said the main problem they faced was flexibility. David Cartwright, ANZ Group MD, Operations, Technology and Shared Services (where Finacle was deployd recently), said: “Technology is key to ANZ’s aspiration to become a super regional bank. Implementation of a new core banking platform is crucial to our plans to grow our business and provide leading products and services to our customers in Asia.”

Infosys also did a study last year with BAI of 116 banking executives from 100 banks in the US. Around 88% admitted that innovation was the ticket to driving future efficiencies. Around 59% said IT was among the top two drivers to innovation in customer service and around 50% rated it as among the top two drivers to enable innovation in products and delivery. It is a time when the mid-sized banks are looking to gain customers of larger banks and the larger banks are, in turn, looking to defend their customer base and also develop a new platform to ensure faster future growth and market expansion. Consulting firm Celent has predicted that IT spending by US and Canadian banks will reach around $50.9 billion by 2010, driven largely by rehiring, post-merger integrations and new investments in wholesale banking “In 2010, bankers need to take a hard look at their business model and find new ways to generate revenues,” says Gwenn Bézard, Research Director, Aite Group.

Ostensibly helped in part by these changing paradigms, Finacle was able to take 31 projects live last year. Their customer spread shows that their presence in North America is still very low and is largely spread into Europe, Middle East, Africa and Asia Pacific. The company also launched Finacle 10 in 2008 to enable banks to be able to manage multinational operations on a standard platform. The software now has a set of over 5000 parameters and an enhanced scripting studio and also caters to Islamic banking, wealth management and mobile banking.


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Tuesday, August 14, 2012

A B&E EXCLUSIVE

With exclusive interviews and incisive insights, B&E brings the electrifying annual listing of India’s top’ wealth creators during the financial year 2009-2010; companies that gave the largest rise in market capitalisation for their shareholders! By Deepak Ranjan Patra

Did Globalisation Matter?

The 2006 study titled Globalization and the Impact on Shareholder Value and Revenues proved that companies which globalize “create more value for shareholders than companies that don’t globalize!” The 2006 Accenture report Expanding Markets: Innovation and Globalization added that “the best performers were 83% globalized, while the average performers were only 18% globalized!”

While the world is shrinking with every passing day, when it’s about a market place and business opportunities, companies that have globalised in emerging markets and large income geographies have more or less been the ones that have come out of the economic slowdown much stronger. For that matter, as analysts believe, RIL’s thrust on its global ventures could certainly have gone a long way in creating some true value for the company. Its latest joint-venture with Atlas Energy in the US, to buy 40% stake for $1.7 billion in a shale gas project in Pennsylvania has acted as a sure shot booster for the company as the undeveloped 300,000 acres area has a potential of 13.3 tcf [trillion cubic feet].

Citigroup is an obvious inclusion in this commentary. The bank has just returned from the brink of oblivion. If Goldman Sachs’ profitability came from hedging exposures and shorting losses (that is, pure financial investments) the brilliant turnaround time for Citi has been possible mostly because of the group’s strong global presence (on-site presence in 100 countries and operations in over 140 countries). As per Citi’s books for the financial year ended on December 31, 2009, 77% of the $14.8 billion profit earned by Citicorp came from regions like Asia, Latin America and EMEA (Europe, Middle-East and Africa). Not that the group jumped into profits for the last financial year. But because of this contribution from Citicorp, the group managed to restrict its losses to just $1.6 billion as compared to a mammoth loss of $27.7 billion in 2008. This certainly should be a lesson for Indian banks like SBI and ICICI Bank, who, although being amongst the country’s biggest wealth creators and profit makers, are still living with a very negligible global presence.

When it’s about creating a true value for a company’s shareholders by foreign ventures, it certainly is an area of expertise for the Indian IT brigade- TCS, Infosys and Wipro. This has been their key growth area for years now with over 90% of their revenue coming from the overseas markets. Moreover, with the conditions in the international market – especially in the US – improving, these companies are all charged up to swing back to their best in those markets. A company like Infosys (read more about it in the last story in this cover package) has beaten Microsoft comprehensively if one were to consider the three year average growth rates for profits and revenues (see chart on left page) and even the past FY’s earning per share. It’s the same case when one sees our #6 company ICICI Bank in comparison with Citigroup. Does this mean that ICICI Bank is better than Citigroup; or that Infosys is better than Microsoft? Actually, that’s quite possible.

Though Microsoft apparently comes in fourth on this year’s US list of top m-cap gainers in absolute value, the Steve Ballmer led fireball has actually devastated shareholder value since the start of this decade. Microsoft has plummeted from close to $580 billion dollars in market capitalisation in April 2000 to around $270 billion dollars in April 2010. That is what we’d call murderous! Compare this to Apple’s m-cap increase: from $20 billion or so in April 2000 to $240 billion in April 2010. That’s godly!

Coming back to India, TCS, which has been growing consistently in the North American market even during the recession, has ensured that the North American contribution to its growth trajectory moves up to 52.8% during FY’2009-10 from 51.5% in the previous fiscal. And N. Chandrasekaran, CEO and MD, TCS, confirms that, “Our ability to react to growth opportunities and execute efficiently has helped TCS deliver a superior performance. Our sales and execution machine is primed and we have laid a solid platform for growth. There is significant traction for our strategy of full services, which together with our global engagement model positions us well for accelerated growth.”

One noteworthy aspect of the top five Indian market capitalisation stalwarts is that with respect to simply their stock price growth (and not absolute m-cap rise) through the previous financial year, all of them outbeat the BSE Sensex and the NYSE Index (see chart on previous page). And in the flow of things, if one were to rate listed firms purely based on m-cap percentage growth (rather than m-cap absolute growth; see chart below) for the past financial year, none of our original BSE top ten absolute wealth creators figure on the new list, which has names like Kwality Dairy (1,342% stock price growth), IVRCL Assets (989%), JP Power Venture (894%) and the likes. But truly, pure stock price growth can be misleading given how a smaller base of stock price in one year is enough to give a top ranking in the next year.

Did R&D Matter?

The joint HBS and Southwestern University 2006 ‘Industry R&D Survey’ proved how, in the US, the total number of R&D spenders has almost regularly gone down year after year since 1993. The Stock Market Valuation of R&D Expenditures by Chan, Lakonishok & Sougiannis of The University of Illinois summarises that “the average historical stock returns of firms doing R&D matches the returns of firms without R&D...” The concept is double proved by simply reviewing the two IT icons. While Microsoft spent nearly 15% of sales as its R&D expense, Apple spent about 3% only! And down south, TCS spent only 0.28%! Case proved!

In Conclusion

While CEOs in contemporary times do realise that they have to modulate all strategies and tactical moves with the shareholders’ wealth in mind, the paradox still remains on the viciousness of the expectations of shareholders – who more or less demand immediate short term stock price increases disregarding long term vision. Would not focusing purely on short-term shareholders’ wealth destroy the company completely? Jim Collins gave the right answer two years back in his brilliant analysis in the Fortune 500 issue, “Of the 500 companies that appeared on the first Fortune 500 list in 1955, only 71 have a place on the list today. Nearly 2,000 companies have appeared on the list since its inception, and most are long gone from it.” In conclusion, maximise shareholders’ wealth, even if it means destroying the company!


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