IIPM B School: February 2013

Saturday, February 9, 2013

Dealing with Delisting: MNCs’ New Dilemma

A large number of MNCs might choose the delisting mode as they do not like to interfere their decision-making process. But there is myriad of scope and enough incentives lie ahead for MNCs in the country, says B&E

It reminds us of 1973, when finance minister Pranab Mukherjee proposed, in his budget speech for FY 2010-11 — to make it mandatory for all companies listed on Indian bourses to have a minimum of 25% public shareholding. For those who know it, it was like revisiting the days of 1973, when government had made it mandatory for all foreign companies operating in India to have local listing. And the result was that many big MNCs, including Coca-Cola and IBM, preferred to pack their bags and move out. And now as the Centre has revised the guidelines and set the mandatory requirement, taking a cue from history, the question that is haunting the Indian market is that: How will the MNCs react to the situation? Will they prefer to delist themselves rather diluting the parent company’s stock, or go the other way?

A report released by SMC Capital, states: “There are 22 MNC firms listed in India, whose public shareholding is less than 25%. Considering the nature of the MNCs, their foreign parent companies may not be willing to offload their stakes.” In such a case, they may choose delisting route and we might see mass exodus of MNCs from the Indian capital markets. However, it’s not SMC Capital, rather most of the players in the market have a strong feeling for the same. And this ‘faith’ is currently being reflected on the share prices of MNCs, which have a bigger promoters’ holding (as the chances are high that these companies would opt for de-listing). For example, on June 7, 2010, (the announcement came on June 4, 2010) while the BSE Sensex tanked nearly 2% on global clues, the stock price of Ineos ABS (with public holding of 17%) rallied over 14% to close at Rs. 338 a share. The scrip of Fairfield Atlas (public holding is about 16%) rallied 14% to close at Rs 55. As per trading data for 20 MNC stocks available on the BSE, 18 rallied on the particular day owing to delisting speculations.

Another theory that supports the fact that a large number of MNCs would prefer to delist themselves, as MNCs in general, do not like to have an interference in their decision-making process. Maybe it’s one of the reasons of their exodus. Since 2003, more MNCs (Hewlett Packard, Electrolux, Deutsche Home, Yokogawa India, Rayban Sun Optic, GE Cap, Bosch Chassis are few of the big names who fall in the category) are either delisting themselves from Indian bourses or increasing parent company’s stake to unparallel heights. Pharmaceutical major Novartis can be a major example for the same. In March 2009, the Switzerland-based parent company of Novartis India announced its plans to raise its stake in the Indian subsidiary from 50.9% to 89.9% by acquiring shares from the public shareholders. The comapny even offered a very lucrative price of Rs. 351 per share, which was at a 27% premium. And the reason, as disclosed by the company, was that the parent company wanted to consolidate its holding for higher “flexibility to organise its commercial and financial activities” in the country. However, Hatim Broachwala, Equity Analyst, Khandawala Securities, says, the new 25% minimum public holding condition “will lay foundation for good corporate governance and help in curbing of stock price manipulation, which means these companies would face a certain difficulty in their so-called ‘flexibility in activities.” And this may motivate them to delist rather than dilute.

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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)

Friday, February 8, 2013

3G for dummies...

The illogically costly 3G auction, evidently, has strategic implications for both Bharti and Reliance Communications. B&E does a snapshot 'dummies guide' competitive analysis primer on the two by Virat Bahri

When you speak of rivalry in the Indian telecommunication space, it is hard to imagine a discussion not commencing with a reference to two names – Bharti Airtel and Reliance Communications. The former was the player that pioneered the market, and the latter is credited with being the one that changed the entire dynamics of pricing and brought the mobile connection to the common man. Ever since then, their game of one-upmanship in the market place as well as in the lobbying arena has hogged the headlines for years. And it has flared up on a number of occasions - the GSM vs CDMA debate, lobbying w.r.t. spectrum prices being provided to each other, bidding for MTN poaching of top executives, et al.

So far, the game changer in the telecom industry has been price, a tool that RCom first used in the market with success and became almost like an industry norm. After all, the first decade of this century has been one of fast-paced growth, and price is the sure route to market share gains in a market like India. Players have gained inch by inch using this ploy through a variety of schemes. But the way ARPUs have been on constant decline, this strategy is now getting limited in its impact; particularly with the entry of newer players, which are taking the price barrier down further. 3G was a game changer that the incumbents were waiting for.

After a long and tedious wait, the 3G auction has been completed and the winners announced. And RCom, Bharti and Aircel (unexpected third winner) have led the rest in terms of circles, winning 13 circles each. Clearly, the playing field in the Indian telecom space has been divided again, and it’s time for Bharti and RCom to take their rivalry to a new dimension. The question that obviously springs up is – what should their strategies be and who would take the advantage in the post-3G scenario?

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Wednesday, February 6, 2013

So what do we do about cancer?

Cancer has become a major concern worldwide. Billions of dollars have gone down the research river, but the results are only visible in developed countries. B&E’s Amir Moin argues that developing nations are the place where the battle has to be won

Cancer has been haunting human civilization for centuries. To begin with, the world’s oldest documented cancer case was recorded in Egypt and dates back to 1500 B.C. Cancer not only leads to loss of lives, but also results in major economic losses. The US basedNational Business Group on Health, representing 185 of the Fortune 500 firms and providing cover to more than 40 million workers estimated in a recent study that productivity loss for US firms resulting from smoking related diseases cost them $157 billion, even larger than the GDP of New Zealand. In fact, Purdue University’s Health Care Special Report takes the same even higher at $234 billion. This dirge is just the tip. The US Office of Technology & Assessment made an emphatic conclusion post a recent study that smokers, on an average, took 300% more sick leaves than non-smokers. Another research highlights strong evidence thatthe probability of smokers to become disabled exceeds their non-smoking counterparts by 600%! But the real eye-popper is the research report by Cappelli, Pauly & Lemaire of Wharton, which states that obese individuals have 30-50% more chronic medical problems than those who smoke or drink heavily! Researchers with the American Institute for Cancer Research looked at seven cancers with known links to obesity and calculated actual case counts that were likely to have been caused by obesity. The result- more than 100,000 cases of cancer each year are caused by excess body fat!

The world is coming together to stand up to cancer. But, according to a report released by the World Health Organization’s cancer research agency, 27 million new cancer cases are expected by 2030 growing at a rate of 1% every year. Emerging economies such as India, China and Russia would be the worst hit. According to the report, around 1.3 billion people smoke globally, making tobacco the major avoidable cause of death and disease worldwide. Experts say that tobacco has killed 100 million people in the last century and will kill a billion in the 21st century. Harvard Medical School told B&E, “Lung cancer is the leading cause of cancer-related deaths in both men and women. Although prostate cancer and breast cancer occur more commonly than lung cancer, lung cancer is a more fatal disease.”

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Tuesday, February 5, 2013

Voyages to lands of milk & honey

Steering the expansion drive by way of inorganic growth opportunities seems to be the latest obsession amongst home-grown FMCG companies. But is it a viable strategy? Savreen Gadhoke finds out

“And the sea will grant each man new hope . . . his sleep brings dreams of home,” said the master of exploration, Christopher Columbus about the joys of going beyond borders in search of new pastures.

After years of exploring products and markets (including rural) within home territoy, Indian FMCG players seemed to have inculcated a ‘Columbus’ spirit of late. They are now expanding their reach to overseas markets through inorganic expansion. And this acquisition drive has gained momentum in the last one year.

Consider this: In July 2009, Godrej Consumer Products Ltd. (GCPL) acquired a 49% stake in Godrej Sara Lee for Rs.2.14 billion. Marico recently acquired Malaysia’s third largest hair-styling brand, Colgate-Palmolive’s Code 10 for Rs.250 million and Wipro Consumer Care & Lighting (FMCG arm of Wipro) acquired the Yardley business from UK-based Lornamead Group for Rs.2.14 billion. Even other domestic FMCG players like Dabur, Emami, et al, are vying for overseas acquisitions. For instance, Dabur India has set aside a sum of $250-500 million for its foreign buy-outs, and Emami Ltd. is planning to spend Rs.8 billion for an acquisition in US. GCPL, too, has announced plans to raise a whopping Rs.30 billion (both through debt and equity) to acquire large & small firms in both local & international markets.

The valuations of international FMCG companies have gone down in the last two years, thanks to the financial tsunami, making them vulnerable to take-over attempts. Overseas buyouts do lead to faster and positive growth, drive shareholder’s value, establish presence in foreign markets, increase size of the customer base and enhance the product portfolio. But at the same time, these acquisitions may also put a strain on the balance sheets of domestic FMCG companies, as ROIs may not give desired results. So is an aggressive approach to such acquisitions apt?

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Monday, February 4, 2013

The Chuckling Chaebol cheats!

They ignored the potential of ‘Clean capitalism’ ; they were wrong...

Capitalists often wonder why South Korea was nicknamed the ‘Land of the Morning Calm’; there’ve been wars, invasions & power conflicts over decades… So what exactly defines ‘calm’? Alright, for being the capitalists that we are, let us overwrite the follies of the South Korean nicknamers, and move ahead… calling South Korea, the ‘Land of Chaebols’. Yes, we’re talking about those capitalist armies, represented by names like Samsung, Hyundai, LG, Daewoo, SK Corp et al, which are neck-deep into making money, but totally submerged when it comes to attaining power. Now that admixture often leads to one final potion – corruption! And that’s what this tale is all about; about their ride down the path of ‘crony capitalism’... Over the past five decades, as the South Korean economy grew like wildfire, the Chaebols too expanded, gaining great control over almost all the sectors in world economy and today, are proud about being names that control codes to many treasure boxes [or Pandora’s boxes?]. Of course, diversification was most definitely the ‘magic’ key for the Chaebols, with all the big names enjoying multiple feathers in their caps: Samsung, has 63 companies under its umbrella; LG has 51; SK Group has 62 and Hyundai Group has 9. So how did these conglomerates dare to launch a full-fledged attack on Global Inc.? The answer is simple – under the garb of ‘crony capitalism’.

This confluence of capitalism and policies became the breeding ground for ‘dark secrets and financial manipulations’ by the Chaebols. Dr. Van Jackson of the University of Maryland, who is also the global authority on East Asian History explains how Chaebols should rather be blamed for holding back the South Korean economy, and eroding away fairplay by posing two grave dangers – unstable concentration of capital & corruption. “Both these dangers scare-off risk-averse international investors, which naturally limits FDI. In this sense, it is reasonable to blame the Chaebols for ‘holding back’ the Korean economy,” he asserts.

And so were the thieves caught, one after another. In 2000, the much discussed multi-billion Chaebol-cheat Daewoo, collapsed! Getting cheap credits from banks was never an issue, and Daewoo used this to snap up companies… [It’s not very known that founder & former CEO of Daewoo, Kim Woo-choong’s father had been dictator Park Chung Hee’s teacher.] The company cut several secret deals with the government to bail out his shipbuilding unit and it is also believed that during 1997-98, Kim masterminded Asia’s biggest accounting fraud that inflated Daewoo’s stock by $32 billion! Ultimately, post-Daewoo, he fled...

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Friday, February 1, 2013

Arrghentina!

Imagine one of the ten richest countries in the world working hard to collapse financially

Juan Bautista Alberdi, the father of Argentine constitution, could not have been more apt. He had very appositely asserted that all the crises that Argentina went through resembled each other in the fact that all were driven by irresponsible fiscal policies, which in turn were caused by weak or lacking institutions. It is more of an irony that by 1913, a country, which had been growing at 5% and was amongst the ten richest countries ahead of Germany and France, ended up as the very ocean of crises. All thanks to the fiscal imbalances, a crisis summary of Argentina reveals that the country has the propensity of a crisis every 3.7 years.

Post World War I, though Argentina had current account surpluses with European nations, its deficit with the new economic power US affected it in 1920-21when the British pound lost 25% of its value against the US dollar. Once again, the significant and persistent budget deficits caused much of the misery. “The Argentine economy suffered because the British supply of financial services proved to be unreliable at a time when international capital markets had dried up,” agree G. D. Paolera and A. M. Taylor, National Bureau of Economic Research.

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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)