IIPM B School

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

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

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

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.

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

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.

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, 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.

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