IIPM B School: April 2013

Saturday, April 27, 2013

The diesel republic of India? not yet.

High fuel prices and widening price differential between petrol and diesel is driving the trend for more diesel cars. What does this shift in consumer preference bode for the automobile industry?

For India, fuel means diesel du jour. A study by the Diesel Technology Forum proves this. In China, of every 32 vehicles sold, 22 are diesel-powered. Ratio of sales of diesel to petrol variants is 2.2:1. In Europe, it is a lower 2:1. India however is where automobile buyers (and makers) are on a dieselisation spree. A recent Gallup study revealed as far as levels of well-being was concerned, 88% of Indians either considered themselves to be either r“Struggling” or “Suffering”. With diesel having served as the “more affordable” alternative to petrol, and with Indians moving about looking for newer ways to save money, the storm of dieselisation is expected to gather force in near future. Last year, in India, diesel-engine cars outsold their petrol counterparts 4:1!

In recent years, the trend has become more defined with price gap between petrol and diesel rising steadily. Even against the backdrop of an increase in global crude prices, diesel prices in India have not been raised since July 2011. In contrast, petrol prices have been hiked on four occasions during the same period, the most recent being on May 23 this year, when an increase of Rs.7.54/litre was brought into effect – the highest ever single increase in absolute terms!

Though it was anticipated that diesel prices too would be increased by moderate proportions, the government has decided to put on hold any hike in diesel prices in the near term. As of date (May 28, 2012), the difference between the price of petrol and diesel in Delhi, has widened to Rs.32.27 (petrol priced at Rs.73.18/litre and diesel Rs.40.91/litre) from Rs.11.76 in July 2009.

Already the yawning gap in fuel prices has had a visible impact on car sales with the share of diesel cars in popular segments (Rs.400,000 to Rs.1,000,000) increasing from about 48% in FY2010-11 to 55% in FY2011-12. Even before the recent hike, diesel was 37.67% cheaper than petrol. The fact that you get an opportunity to kill a portion of your operating cost is an incentive for Indian car buyers to choose diesel over petrol. The results are there for all to see. In FY2011-12, diesel car sales in India grew by over 25% y-o-y, while petrol car sales fell 11%. In FY2011-12, 2.02 million units of passenger cars were sold, a growth of 2.19% y-o-y. Not a jump to be proud of, but experts claim that during the ongoing period of recovery, even this meagre growth was largely fuelled by the rise in sales of diesel cars.

As per estimates by Crisil, diesel cars now account for about 30% of total passenger cars in use in India. Experts opine that the big draw for diesel engines is that they produce more torque and are 20-30% more fuel-efficient than petrol variants. And it is this factor of fuel efficiency that gets one to believe why diesel cars will sell even more (absolute count) during FY2012-13. The March 2012 auto sector report by Kotak Institutional Equities states that, “Petrol car volumes are expected to remain flat while sales of diesel cars are expected to increase by 40% y-o-y in FY2012-13, which is likely to result in a 12% y-o-y volume growth for the domestic car industry.” Clearly, the Indian automobile market is making a big and bold move towards dieselisation and it is a safe bet to assume that more and more diesel cars will be running on Indian roads in times to come. But the bigger question is: What is the impact of this shift on the Indian automobile market and how is it reacting to the change?

Read more....

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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

Wednesday, April 24, 2013

Who are they defending?

Pakistan relentlessly pursues its nuclear agenda as millions suffer from malnutrition in the country

High level of poverty, malnutrition, widespread corruption and massive internal upheaval, all have a very strong connection. Taken together, they quite aptly describe the current socio-economic situation of Pakistan.

As per the National Nutrition Survey 2011, in Pakistan, among the children up to the age of five, 43.6% are stunted, 15.1% are wasted and 31.5% are underweight – this is worse than even the sub-Saharan African countries. The figure is also more than WHO’s 15% emergency threshold. These, by any standard, are atrociously shocking figures. The problem has been further exacerbated by the spate of floods in 2010 and 2011 that battered the Sindh province. As per a national survey, 58% of Pakistani households are ‘food-insecure’ and close to 30% suffer from hunger. As per United Nations Standing Committee on Nutrition, just three types of malnutrition directly strike off 3-4% of GDP in Pakistan in any given year.

In this light, the outrageously high spending on the military budget, a hefty proportion of which is spend on developing nuclear weapons, raises eyebrows. Pakistan has kept the amount spent on nuclear weapons under wraps, but a US-based non-profit body Reaching Critical Will estimates it to be close to $2.5 billion.

Read more....

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Saturday, April 20, 2013

“Though we cater to all, our focus is only youth”

Dhruv Kaul, Marketing Director, KFC India

Dhruv Kaul, Marketing Director, KFC India talks about what lies at the core of KFC’s recent exploits in the India QSR industry, and what all it’s doing to stay ahead of competition like McDonald’s:

B&E: You have recently launched a slew of new products like the grilled chicken, and the affordable Streetwise range. What your product offering strategy?
Dhruv Kaul (DK): The core idea of KFC is that everything revolves around the ‘Taste’ and ‘variety’. We started with chicken, and then built on that. Now we have vegetarian, we have beverages, and different kind of burgers, wraps, and desserts too. A lot of our products are introduced after in-depth research, like we launched our grilled-chicken offering, based on the fact that Indian palette likes a lot of spice and heat. We first tested this product for a long time, tweaking it, fixing it, seeing consumer reaction to it, and finally bringing it to market. With our product line, we want to give people different reasons to come to KFC, you want to have just a burger you can come, and you want to have a beverage or a breakfast, you can come as well.

B&E: KFC offers a lot of indulgence food. Is that your USP, or with your new offerings you are slowly trying to move towards healthier offerings?
DK: With our grilled chicken, you can say that. But on an overall perspective we want to offer a wide range of choice to people, we have everything, they can choose, and mix and match. We let people choose as per their mood. Fried food too is very much part of how a lot of food is consumed in India. So we will continue to have products on both the platforms, a little healthier grilled/oven as well as the fried offerings.

B&E: Which are KFC’s most popular products in the market?
DK: The most popular product people come to have is the Zinger burger, and the KFC-Style chicken, both are more or less equivalent. The other thing people come to KFC for, is the Krushers. So our idea is to broaden our range to give different reasons to different consumers. If we are successful, our task is done.

B&E: How has been the fiscal year 2011 for you?
DK: We have crossed the 150 stores, and we are now present in 35 cities. We are growing at 70% per year, and we aim to achieve 500 stores by 2015, and we are well on track with this momentum. This year has been stellar for us; we have brought in variety, with value launch, bringing in snacks (popcorn chicken) and more beverages to the table. Overall, we have been on a great drive for the last couple of years.

Read more.....

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Tuesday, April 16, 2013

“Infrastructure needs more attention than FDI”

B&E: For long now there has been a debate on whether foreign carriers should be allowed to invest in the ailing Indian aviation space or not. We actually stand at a juncture where this might become a possibility. As an industry insider, how do you view this development?

Pritam Bhavnani (PB): I think it is good news for all airlines in the domestic circuit. Besides the fact that the money that will be invested will come at a lower rate of interest, of course, for the foreign airlines as the rate of borrowing in India for the airlines is very high, the bigger advantage will be in terms of Indian carriers gaining on operational ground. Their operations will become disciplined and their efficiencies will improve if foreign carriers buy strategic stakes in domestic carriers. Also, if a foreign airline gets management control, you could be looking at crew exchange programmes, which could serve both the foreign airline and the associated Indian airline as well. So during a peak festival, high-travel season in India, crew and pilots of the foreign carrier can be transferred to the Indian carrier. The same is true the other way.

B&E: But the government had allowed investments in Indian carriers by non-airline foreign investors, including VCs, long back. At an FDI limit of 49%, we did not see much interest generated amongst these non-airline investors. So how do you expect the outcome to be different if airline companies are allowed to invest?

PB: In the case of allowing foreign airlines, you are talking about giving an investment opportunity to companies that are already in the business and understand what they are getting into. With VCs, it is not really a strategic or an operational investment, it’s just a financial investment which is rather short term. With a carrier buying into an Indian airline, the Indian carrier can derive operational synergies out of the arrangement, in addition to other benefits. The same is true for the foreign airline. It will view this as a long term investment and draw various benefits out of the arrangement. Therefore, given an opportunity to foreign carriers, I think we should see a better response if the FDI norms are relaxed on that front.

B&E: But why would a foreign carrier want to invest in a sector, where the top three carriers carry a debt of more than Rs.600 billion and a domestic traffic just in excess of 50 million passengers a year is primarily an outcome of the fare-wars that is on in the domestic circuit? In terms of profitability, Indian carriers are not very attractive propositions don’t you think?

PB: They do appear worthy. Yes, there are certain FSCs which are losing money at the moment. But there are others too, the LCCs, which are certainly making money even at those low fares. It is less about whether you are buying into an already profitable airline in India, than it is about how efficient you can make this particular Indian carrier and how you can take advantage of the assets the target has. As for the loss-making domestic carriers, if they can improve their efficiencies with the help of the strategic foreign carrier, they will make profits. We have two choice – either start with a notion that nothing good can happen in this sector, or look at the possibility of positive outcomes.

Read more.....

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Monday, April 15, 2013

An “Idea” for Tatas’ Telecom Biz

Tata Teleservices has been losing subscribers in recent months. Now, to stem the recent tide of reverses, the company has gone in for brand integration, hoping that the move will help revive its flagging CDMA business. Will that help to get its mojo back?

By all accounts, it hasn’t been good going for Tata Teleservices so far this year. First, its name got dragged in the 2G scam, forcing the normally reticent Ratan Tata to respond to growing media queries. Second, things have slowed down on the business front too. Tata Teleservices core CDMA business (which forms 40-50% of its telecom clientele) is faring poorly. The company lost its number four ranking in the telecom pecking order to the Idea Cellular brand. Tata Teleservices, which owns the Tata DoCoMo brand, saw its wireless subscriber base fall from 91 million at the end of June to 88.3 million at the end of July, data from industry body Association of Unified Telecom Service Providers of India show. According to the Telecom Regulatory Authority of India, only about 48% of Tata Tele’s subscribers were active at the end of June. The sharp contraction comes on the back of a relatively weak subscriber addition of 2.1 lakh in June. On the other hand, rivals Bharti Airtel and Vodafone added 1.5 million subscribers each in July, while Idea Cellular added a million.

For Tata Teleservices, the past six months reveal a story of constant loss of market share, and the brand’s inability to attract new customers. As per Telecom Regulatory Authority of India (TRAI), in March this year, Tata Teleservices had a market share of 10.98%, while Idea Cellular had a market share of 11.03%. But from here on it’s market share has been steadily going downhill: April (10.93%), May (10.80%), June 10.68 and 10.23% in August. On the other hand, Idea has taken its market share to 11.37% in the intervening period. Compared to the likes of Idea, Airtel and Vodafone, which have been adding about two million customers a month, Tata Tele has struggled to add new subscribers and in fact it has lost more of its existing subscribers. From a high of 8% of new customer additions in April, the company has been averaging 2-3% in the months of May, June, July and August. Though the company attributes the diminution in its subscriber base to its ongoing re-alignment exercise, and purging of numbers not in use for more than six months, the fact remains that today Tata Tele is languishing behind the likes of Sistema (MTS), Aircel, Uninor and even BSNL, in new customer acquisitions. In March it had roughly 89 million subscribers, which at the end of August stood at 88.5 million.

Even otherwise, the businesss has been bleeding. The Tata Group has so far invested roughly Rs.400 billion in the telecom business. It had to write-off nearly Rs.70 billion in losses between its two companies, Tata Teleservices (TTSL) and the listed Tata Teleservices (Maharashtra) (TTML). In 2009- 10, it declared fresh losses of over Rs. 20 billion. Tata Communications, the third telecom company in the group, which took over the assets of government-owned VSNL, too has made losses.

Read more.....

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

88888

Friday, April 12, 2013

Is SEC Setting us up?

Out of 26 Odd People Under Trial in The Galleon case, Gupta is in The Few Facing Civil Instead of Criminal Proceedings. Is The SEC setting The Stage for an Escape Route?

The verdict is finally out, loud & clear. Good guys have won yet another round (apparently)! The nailing of Galleon Group hedge fund (managing over $7 billion before closing in October 2009) tycoon Raj Rajaratnam has been brandished around by SEC in an attempt to project the view that the US legal setup is still not a set-up in US when it comes to chasten influential financial-world figures. One has to accept to SEC’s credit, the Galleon case is the biggest blow against insider trading in a generation as the trial involved some of the most high-profile executives on the Wall Street. But hold on to your beer barrels, we just might have been had by the SEC.

First the empirical evidence. No doubt, there have been cases in the past where people have been caught for their crimes, but almost all of them (except a few; see chart) surprisingly escaped unscathed. Even the government has tried to curb cases and incidences of insider trading by putting in place laws like SOX (the Sarbanes-Oxley Act of 2002), but much in vain. According to data compiled by Bloomberg, while there were just 70 hedge funds managing $39 billion in 1990, the number had grown to a whopping 2,600 (managing $1.7 trillion) by the end of 2010. And so, one may presume, the cases of insider trading.

However, this time, thanks to the diligent prosecutors and FBI agents involved in the case that Rajaratnam, a Sri Lanka born US citizen, was finally found guilty of conspiracy and securities fraud on all 14 counts, and now awaits sentencing on July 29, 2011, which is most likely to put him behind bars for the next decade or so (or even more!). Rajaratnam is said to have made over $60 million by illegally trading on secret tips from bankers, consultants, traders, directors, and former employees of some big companies, including Goldman Sachs (GS) and McKinsey. Apart from Rajaratnam, there are more than 40 people who are now facing insider trading charges stemming from a nationwide investigation that has roots going back to 1998.

But now that Rajratnam is down, what awaits Rajat Gupta?
As one would know, the United States Securities and Exchange Commission (SEC), on March 1, 2011, accused Gupta of illegally tipping Rajaratnam with insider information about Goldman Sachs and Procter & Gamble while serving on the boards of both companies. For instance, in October 2008, Gupta apparently attended a Board meeting of Goldman Sachs where it was revealed that Berkshire Hathway, owned by the legendary investor Warren Buffett, would invest $5 billion in the company to bail it out of trouble. SEC has evidence that Gupta passed on this information to Rajaratnam, who in turn made a killing. In fact, wiretaps of phone conversations between Gupta and Rajaratnam released by prosecutors during Rajaratnam’s trial clearly show that Gupta discussed the details of Goldman Sachs board meetings with Rajaratnam, including the company’s plan to buy some other financial firms like Wachovia and AIG.

Read more.....

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Monday, April 1, 2013

Much Ado About Nothing?

The IA-AI merger does not seem to be Working. And Strikes at Air India are Making Matters Worse. Worse – no party seems to be Getting much out of The Strikes. What’s there to Gain from all The Melodrama?

As if accumulated losses of over $3 billion was not enough for India’s ailing nationalised carrier, the Air India (AI) management found itself on a sticky wicket yet again, after over 800 pilots (who belonged to the erstwhile Indian Airlines) went on strike from midnight April 27, 2011. Neither is this the first time in 12 months that such a situation has come to cause discomfort to Air India passengers (it was last May when about 25,000 employees went on a flash strike), nor is this the first time that the management of the airline has faced questions over wage inequalities. Only this time, it just got bigger and worse. The strike lasted 10 days, and towards the end of the strike period, on May 6, 2011, flight cancellations had risen to about 90%. And how much of a loss did the airline incur? Between Rs.1.5 billion to Rs.2 billion. But everybody knows. This scenario which has “again” occurred due to mismanagement by those at the helm of affairs at AI, is not a new sight. One more strike, one more submission by the government, and perhaps thousands of customers lost forever. Only, this fact is not official.

The merger of the erstwhile Indian Airlines with AI was undertaken on May 1, 2007, with the view to make the airline more profitable and efficient. It was felt during that time that combining the two state-run firms into a single entity would provide an opportunity to leverage combined assets to build a stronger, more sustainable business to fight the ever-rising competition and price wars in the sector. Four years since the merger (and two years after the integration has been completed), contrary to expectations, the Air India flight has failed to take off. Historically, mergers in the aviation sector have failed because the management could not or did not put in place a people integration strategy before the single operational licence date (which happens 18 months after the merger is signed). The AI case is a reflection of the failed US Airways and AmericaWest merger, in whose case, today, even 6 years later, the carriers are today operated uniquely by two different pilot groups. One merger, two ideologies? Doesn’t work. Also, you cannot have labour issues if you want a successful merger.

Air India topped the list of biggest State-owned loss-making firms for FY2009-10, according to a February 2011 survey titled, Public Enterprises Survey, conducted by a Government of India agency. And such strikes will not help alter such findings. It will also damage its market share, which is already getting slimmer with budget and private carriers enjoying greater patronage from the fliers. Surely, for the month of April and May 2011, the strike will impact the carrier’s share. [The airline currently has a 17% domestic market share, compared to Jet’s 26% & Kingfisher’s 18%.] As per DGCA, AI, which operates 320 flights daily to domestic & international destinations, cancelled a total of 1,470 flights during the strike days. Cancelled flights mean doubly-lost opportunity, because not only are you letting go of customers, you are actually sending them to competitors!

In a rather unusual response to the situation, Arvind Jadhav, CMD of Air India, decided to put the blame on his predecessors and the political leadership. Yes, he does not deserve all the blame for the situation in which AI finds itself today. But he is also no new guest to the party. The day the strike was called off, he had completed 2 years & 2 days as the top guy for the job to turn around AI. Are we to understand that all this while, for the past two years, he could not hear a single voice of request from the end of the Indian Commercial Pilots Association (ICPA; a body that represents the pilots of the erstwhile IA)?

Read more.......

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist). For More IIPM Info, Visit below mentioned IIPM articles