IIPM B School: March 2013

Thursday, March 28, 2013

Niranjan Hiranandani

In This Exclusive Interaction with Virat Bahri and Mona Mehta, Niranjan Hiranandani, Founder & MD, Hiranandani Constructions Private Ltd. Speaks on The Company’s Expansion Plans and The General Scenario in The Real Estate Market

B&E: Hiranandani Constructions has created a strong foothold in Mumbai, and your Powai township created new benchmarks before the township concept gained ground. What has been your distinct philosophy towards realty development?
Niranjan Hiranandani (NH): Concepts are very simple actually. In realty, what you really provide is a great quality of life, and our approach has been to benchmark our concepts not with what’s constructed in India, but with what’s constructed elsewhere in the world. We build buildings before Powai also, but we were never satisfied because we couldn’t build the environment; for instance, with the Beach Classic building in Versova. We developed 11 buildings there in Lokhandwala complex, but couldn’t develop the environment. Moreover, I was a small builder at that time and did not have that much say as I would have liked to have. Powai was one of the ideas to create a canvas, which was large. At that time, it was cheap and far away from the madding crowd. We created the first mixed use township in India of its size here – residential, commercial, IT and retail integrated into one from day one.

B&E: As a market, real estate in India looks very regional in nature so far. What are your plans with respect to going national?
NH: The regional nature is a world wide phenomenon. Even in the US, you have people working in the West Coast who are not working in the East Coast, and so on. It’s about land, local cultures, connectivity with the government, approval systems, et al. In our case, we are already in Chennai, Bangalore & Hyderabad, and we are going to be in Ahmedabad, Pune Nasik, et al. In Dubai, we have built the tallest residential tower in the world, which will soon be the second tallest. When we select a market, there are two angles. The first is who you are and where you come from. We are obviously biased towards West and South, since we occupy this space and understand it since birth. We look at other opportunities also, but we look at them one step at a time. Secondly, it is about what appeals to you at a particular point in time.

B&E: Expansion options in Mumbai are a little constrained. What role can the government play?
NH: Issues of land are always a constraint. And in Mumbai, there is a more serious constraint, since it is hedged by the sea on three sides. Infrastructure is a very big concern. We are looking forward to the government helping in producing better infrastructure for projects. We do see some good beginnings. But they are too little, too far apart. There is a lot of competition for the few opportunities available, so obviously the pricing has been a source of concern in terms of land. Also, costs of cement, steel, materials and labour are all rising. It is becoming almost unaffordable to produce affordable houses. Moreover, around 36% of the price of the house is in the form of taxes. I think the government has to first give quick permissions, do a higher FAR (Floor Area Ratio) or FSI (Floor Space Index) and actually focus on infrastructure.

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

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Tuesday, March 26, 2013

“Maintaining Last Year’s Growth is A Challenge”

Vinnie Mehta, Executive Director, ACMA

India’s automotive industry clocked heady growth of 30% in 2010, surprising both car makers and component manufacturers. Vinnie Mehta, Executive Director, Automotive Component Manufacturers Association of India, shares his views on the outlook and prospects for the auto component industry with Pawan Chabra.

B&E: The automobile industry grew by leaps and bounds in 2010 despite component manufacturers facing capacity constraints in the initial months. Do you expect automakers to ride out the problem this year?
Vinnie Mehta (VM): The growth of the auto components industry is directly linked to the unit sales of automobiles in India. Sales of automobiles have so far been great and the good showing is sure to rub off on the auto components industry as well. If vehicle sales keep growing, the auto components industry’s dream run is sure to continue as well. On the issue of shortages, substantial investments have already been made over the past 12 months and a large chunk of the money has gone into ramping up the production cycle, which has taken care of most of the problems. However, certain issues (cost structure, order size et al) between component makers and original equipment manufacturers (OEMs) need to be ironed out. Though these largely concern individual relationships, they remain mostly beyond our control. While some customers have been able to manage the problems well, others have not been as capable. But by and large, we have been able to manage the whole thing pretty well. Last year was a year of unprecedented growth, so the challenge this year is to be able to maintain that growth trajectory and keep moving ahead.

B&E: For India, Chinese component makers offer both competition and counterfeits. What is your take on the challenges that the industry is facing from China?
VM: Though I have not studied the Chinese market extensively, it is for sure that the intellectual property (IP) regime in China is not as strong as it is in India. The Indian market has very strong copyright laws in place. Given the fact that the Indian consumer is very price conscious, but hardly aware of the perils of counterfeits and its related issues of safety and efficiency, it is our responsibility to work closely with the government and make the consumer more aware. This needs to be done both at the business and consumer levels.

B&E: Now that the excise duty has been left untouched in the Budget, do you think it will help provide support for maintaining the growth momentum?
VM: It will help the sector to continue on the growth path. In fact, in all the past discussions that we have had with the government, there were hardly any signs of making changes to the excise and customs duty structure. Moreover, as there is now a definitive deadline for the implementation of the goods and services tax (GST), it will help in solving various taxation issues as well. Our major recommendation to the government was implementation of GST. Now that it is happening, it is a good sign for the industry.

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Monday, March 18, 2013

Sun Shining Brighter on The Sunteck Empire

Sunteck Realty has become a Giant in the Mumbai Real Estate Market and is Gearing up to take on National Giants Mona Mehta Analyses

The oft repeated adage “Slow and steady wins the race” may not be applicable for Sunteck Realty, a BSE listed premium real estate developer and Mumbai’s second largest in its category. Sunteck has moved at a rabbit’s pace in the Rs.6 trillion Indian real estate market and created such a strong foothold that the strength of its structures is only surpassed by its topline growth of 40% in FY10.

Post the slowdown in the sector due to the global financial meltdown, the real estate sector has bounced back especially in Metros, with surging demand for premium residential space and Sunteck has been at the forefront in cashing in on the same. Sunteck’s business model is mainly based on joint ventures (JVs)/joint development associations (JDAs) with landowners and currently holds 77% of its saleable area through JVs/JDAs. The balance is through slum rehabilitation schemes (SRA), redevelopment projects and land buyouts. According to a recent report by Religare Securities, the JV/JDA model helps the company build a capital-efficient business by stripping away investment on land purchase and allowing a greater focus on value addition. It also supports efficient capacity utilisation and higher IRR (50-55%). For Sunteck, the cost of land via JDA/JVs has been Rs.48/Rs.130 per sq. ft, significantly lower than that for outright land buyouts.

It is developing a range of landmark residential projects with apartments ranging from Rs.10 million to Rs.40 million which offer unique designs and superior quality. Kamal Khetan, CMD, Sunteck, told B&E, “Total saleable area is of more than 30 million sq ft in Mumbai’s city centric locations and not in peripheral areas of Mumbai, with 27 projects in development pipeline. We are also actively pursuing commercial projects spread across Mumbai, Nagpour, Jaipur ad Goa.” Also, its rental asset portfolio helps it to generate steady income to take care of its operational expenditures, Khetan adds.

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Tuesday, March 12, 2013

A Royal Wedding in 2011

After an eight-year-long courtship Prince William and Kate Middleton are finally set to walk down the aisle in spring/summer 2011. William proposed to Kate and gave her his late mother’s oval blue sapphire and diamond ring during a vacation in Kenya last month. William shared that he thought it would be nice to give her his mother’s ring, as she wasn’t here to share the excitement and fun of their wedding. Touching, indeed.

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Thursday, March 7, 2013

Festival of Noise?

When Several AK-47 and Vulcanos Erupt at 145 Decibel...

Often labelled as the most ‘important’ festival in the Hindu calendar, Diwali (contracted from Deepavali) is celebrated with unparalleled vigour, not just in India but other neighbouring and not-so neighbouring countries too. Trinidad & Tobago, for instance, observes an official holiday on the day of Diwali. The literal translation of ‘Deepavali’ is ‘lighting the row of lamps’, but steadily through the years, the festival has also earned a reputation of being synonymous to noise and air pollution.

The Supreme Court had stipulated a noise cap of 125 decibel (dB), which the firecracker manufacturers have to comply with. However, Awaaz Foundation recently reported that up to 10 commonly available brands failed to adhere to the noise limit. Notorious sounding brands like AK-47 and Vulcano even touched 145 dB, the equivalent of sound produced by an average shot-gun blast. Worse, all ‘serial’ and ‘rassi’ bombs, when randomly tested, were found to be exceeding permissible noise standards. There doesn’t seem to be any improvement from 2003, when various bombs earned a dubious reputation for disregarding the noise limit.

“Though I do it for money, I’m concerned for the small boys who buy big bombs,” laments Tushaar Kumar, a seasonal firecracker vendor stationed in Malviya Nagar, South Delhi. Shrugging the momentary surge of moral dilemma, he adds with a smile, “This year, the customers are favouring rockets and anars”.

While the usual suspects and celebrities like Sachin Tendulkar and Nana Patekar continued to persuade schoolchildren to enjoy a quiet Diwali, many district administrations proclaimed the respective Municipalities don’t have the necessary equipment needed to measure noise emissions. The Supreme Court had also drawn a Lakshman Rekha for burning of firecrackers, but the enforcement of such a deadline remained hypothetical. Over the past few years, the highest noise levels were detected close to the 11th hour mark, which is one full hour overtime.

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Wednesday, March 6, 2013

Six year old bank has grown commendably

Managing Director and CEO, Yes Bank, speaks to Avneesh Singh about how the six year old bank has grown commendably over the years and looks forward to making it even bigger given the opportunities in India

B&E: What kind of growth targets are you looking for in the next five years ?

RK: We are looking forward to building 750 branches by 2015. So there will be significant investment in areas of branch banking infrastructure and human resources. Regarding the manpower, we started with 3000 plus by the end of fiscal March 2010, we are going to have around 4500 by March 2011 and our aspiration is to be at least 6000 by March 2012 and then to double that by March 2015. The most significant investment is actually into people; and the branches are going to be more or less commensurate to that. Out of the total investment, 75% is into people and 25% is into branch expansion.

B&E: What kind of impact do you foresee will the opening up of new branches have on your financials? And when do you expect them to break-even?

RK: Most of the hub branches are already together and I do not expect significant impact of the branch depreciation in totality, but we will break-even in a period of 3 to 4 months in people resources. This has the potential of tremendous incrementality on the bank’s revenues .

B&E: The NPAs are rising because the loans that were restructured in 2008 have not been paid off, especially in the textile segment and SME segment. You are more focussed on the SME segment. What will be your future strategy then?

RK: Our strategy is to go for SMEs because SMEs have been able to demonstrate (without being specific to textiles) outright resilience. SME sector, which is somewhere between 38% to 40% of the economy, was able to demonstrate resilience before, during and after the recession. The defaults were primarily in the corporate sectors. In my opinion, the much-neglected SME sector in our country needs deep commitment. It is necessary to be a versatile banker that is totally committed to the vagaries of their businesses because India is known to go through economic cycles in every 4 or 5 years . We should remember that SMEs are predicated on other businesses; so when they go down a little, one still has to be a banker to them. Amazingly, in a young bank like ours we have had negligible defaults from our clients.

B&E: You have big plans for credit growth? Will you be raising capital for the same?

RK: We had raised capital two quarters ago; so that area is relatively comfortable. There might be a need to raise capital only after a longer more time because we are simultaneously earning as well. We have earned a considerable lot and presently possess the capacity to raise all forms of capital – hybrid tier 1, upper tier 1 and upper tier 2. So technically speaking, our bank does not need to raise capital for a long time to come. We presently need hybrid forms of capital. But by March 2011, we have taken the target to raise `1500 crore from the tier 2 capital. It will be raised in tranches and this will happen in every quarter.

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Monday, March 4, 2013

DELL INDIA: CHANGING FORTUNES

As a report indicates, Dell has moved from being just about an also ran to a leading position in the Indian PC space; and an internecine tussle with HP for the top slot is now in order. B&E analyses the current and future dynamics of this competition. by Virat Bahri

A key iconic moment was IBM giving in their papers. Biswapriya Bhattacharjee, Group Business Director, IMRB International (eTech) points out to B&E, “In the corporate segment, when IBM sold off its PC division to Lenovo, a lot of IBM’s corporate customers defected. Dell was able to garner a larger share of these customers.” Lenovo was Chinese. Dell was American. In the Indian corporate segment, Dell’s model suddenly appeared to have undiminished value.

And then, things took a double jump when Dell decided to tweak its distribution model and finally went on to the multi-channel front. The company launched its channel programme in February 2008, when it had a market share of just around 5%. In just two months, Dell thundered up to 8% in the consumer notebook space; in the consumer desktop category, the jump was from 2% to 4%. While the jumps may seem small, one has to realize that for Dell, the evident shift was ground breaking.

HP at the same time refused to play the price war in India – it could well afford to, being the global leader with its differentiated offerings. Dell didn’t stop in the on-ground sales model; it adopted a Partner Direct model, where it appointed Master Sales Affiliates, who brought in more Sales Affiliates. These Sales Affiliates, took orders from customers, which were serviced by Dell directly, hence minimising inventory risks for the resellers.

Dell topped this with an extremely aggressive pricing strategy to compete with the likes of Acer and even intensified focus on above the line promotions. Experts mention to B&E that Dell’s advertising budget in the past two years has in fact been matching or exceeding the budgets of other top brands combined. Would all that and playing on price be enough to beat HP, which has a formidable brand recall? Apparently yes! Pankaj Arora, MD, Protiviti Consulting says to B&E, “According to IDC, over the last few years, notebook prices in India have been dropping by about 10% a year, primarily because of technological advancements, changes in the customs duty structure & growing volumes.” Significantly, nearly 40% of household sales for notebooks in India came from SEC B & C, sections which are the most price elastic.

And the growth in this sector is well established. In H2-2009-10 (Sep 09-March 10), netbooks grew by 66% and crossed the 1-lakh mark for the first time, and 3/4th of sales came from households (MAIT). Small form factor products like all-in-one PCs are expected to be a significant market by 2013, contributing around 38% of desktop sales. Wireless broadband & 3G roll outs are also key factors that will drive growth.

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