IIPM MBA Institute: April 2013

Tuesday, April 30, 2013

“70-80% of the investment will be from private players”

Rajiv Agarwal, MD & CEO, Essar Ports, on how ports can be run profitably and the growing private participation in the sector

B&E: Essar Ports has plans to be the second-largest port in the country in terms of capacity by FY2013. How do you plan to achieve that?
Rajiv Agarwal (RA): The development of Essar Ports is based on the cargo demand from our anchor customers. We have been lucky that most of our anchor customers are from our own group’s other businesses. They need a dedicated, world-class port facility. So we provide that service, and based on that we build an asset and then the facility is made available for use by everyone. That is how we are moving on our expansion. We are building this 160 million tonnes of capacity port, out of which we expect that at least 100 MT shall be used by the group and some companies with which we have signed the contract, while the balance will be available for third party users.

B&E: While your in-house intra-group business will ensure demand to a large extent, how will you ensure efficiency for your port?
RA: It’s the way we have designed the port that will make a huge difference towards the port’s profitability. What determines profitability is the kind of draught a port has, the extent of its mechanization and the evacuation capabilities that really brings down the cost of transportation for the customer. Ports can operate efficiently without having a pre-berthing time, which is possible if you have a traffic optimisation of 65-70%. The moment you go above that level or touch 90% there’s a huge waiting time involved, which affects efficiency. Our aim is to ensure that we operate at a level that maximises efficiency and profitability.

B&E: Why do you say that greater efficiency at lesser traffic is better than higher traffic at the cost of efficiency?
RA: That’s because greater efficiency directly impacts your margins in port fees. The customer always looks at the all-in-cost. So the ideal way to go forward for any port operator is to reduce the customer’s cost in areas like shipping company fees or other payouts like stevedore charges etc. At the same time pulling a larger chunk of the customer’s overall cost can help the port operator to increase his own business. If you allow others to take more of your own business, then you will of course get a lesser share of the pie. If, as a port operator you cannot ensure quick turnaround of ships then it’s the shipping lines that get to earn more.

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

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Saturday, April 27, 2013

At the cusp of a great execution opportunity

The real estate sector in India has come off its peak two years ago and is currently being dragged down by a host of issues. For the sector to get back on the growth track, there’s much riding on how leading players such as DLF get their act together again.

For the last two years, the real estate sector in India – whose market size is expected to reach $90 billion by 2015 – has been witnessing slowing demand and inventory pile-up. The unsold inventory in residential real estate so far this year has been the highest in Delhi-NCR at 102,758 units, followed by the Mumbai metropolitan region at 90,512. Bangalore comes next with 46,596 units, and Pune follows with 40,734 units (PropEquity statistics). At the same time home loan interest rates have refused to come down and this has dampened sales even further. Growth in home-loans dropped to 12.1% for the year ended March 2012 from 16% in the last fiscal year.

Even the prospects of commercial property have dimmed severely. The drift is likely to continue for the next few quarters, with absorption of office space expected to drop by 10-15 % for 2012 due to lower demand from the IT/ITES sector. Demand from IT/ITES sector has dropped from 68% in 2005 to 35% at present due to increasing cost pressures faced by IT firms.

To make matters worse for the industry, most of its leading players are reeling under high debt. The cost of debt for most real estate companies is in the range of 12-15%, on the basis of which the combined interest burden itself on them is between Rs.40 billion and Rs. 50 billion. With home sales at abysmal lows, real estate companies are finding it difficult to deliver their projects or repay their growing debt on time.

Apparently, nearly half of the 930,000 under-construction residential units in the country, scheduled for delivery by 2013, are likely to be delayed by up to 18 months. Analysts say many of these delayed projects might be up for sale as developers will not be able to revive them due to shortage of funds and cost of debt servicing.

According to industry estimates, the combined debt of the country’s top 11 listed real estate companies stands at around Rs.350 billion. While many small and mid-sized Indian property developers face the risk of default, the big ones are trying to overcome the situation by delaying projects, discounting properties and even selling assets. Leading real estate player Unitech is selling land parcels to pare its debt, which stood at Rs.51.9 billion as of December 2011. It had a land bank of 605.4 million sq. ft. in

March 2008, but by December 2011, it had declined to about 304 million sq. ft. Another leading real estate firm, HDIL, which had a debt of Rs.41 billion as on December 31, 2011, recently sold a two-acre plot in Andheri, Mumbai, to the real estate arm of Adani Enterprises for Rs.9 billion.

Even the country’s largest real-estate company – DLF – which ranks #73 on this year’s B&E list of Most Profitable Companies, has been finding it extremely difficult to raise funds and reduce its mountainous debt of Rs.227.58 billion as of end of December 2011. Its debt burden rose to around Rs.200 billion on the back of a tenfold rise in its interest costs since 2008. The interest outgo in the fourth quarter of FY2012 increased to Rs.6.03 billion from Rs.4.55 billion in the year-ago period. The company, as a result of its huge costs, has not been able to post an increase in quarterly profits over the last two years, and its sales growth has also fallen over the last four quarters. For the quarter ended March 2012, DLF posted a 39% drop in consolidated net profit at Rs.2.11 billion. Similarly, consolidated total income dipped 4% to Rs.27.47 billion as against Rs.28.70 billion in January-March 2011. To ease the pressure on its books the company has set a target of raising Rs.60 billion to Rs.70 billion from divesting non-core assets such as hotels and IT parks by the end of financial year 2012-13.

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

Wednesday, April 24, 2013

“Rajiv Gandhi was young, but a very dynamic person...”

Former Union Minister Mohan Dharia, who resigned from Indira Gandhi’s government in protest against her policies, speaks to B&E about Rajiv Gandhi

B&E: You were once a close confidante of Mrs. Indira Gandhi. You knew Rajiv well too. How do you judge him as a Prime Minister?
Mohan Dharia (MD): Rajiv Gandhi became the PM at a time when the when the country was passing through a gloomy period. People had sympathy for Rajiv who became the Prime Minister at a young age. His knowledge was limited. He was not aware of the problems of the people at the grassroots level. However he was a very dynamic person.

B&E: So would you say that Rajiv was a visionary leader who had imagined a modern India? Or is that description an overrating?
MD: He seriously wanted to modernise India. When US denied to give India the technology of supercomputing, it was he who encouraged the creation of the indigenous Param Supercomputer. That not only proved his vision but also his honest intent.

B&E: If you were to compare Rajiv with his mother Indira and grandfather Pandit Jawaharlal Nehru, what would you say?
MD: All of them had totally different personalities. Nehru was the architect of our foreign policy even before independence. He always honoured our democracy. Indira Gandhi was a person with a strong determination and courage. She nationalised the commercial banks and also abolished the privileges of former rulers. Then, even A. B. Vajpayee had described her as Durga Mata. But somewhere down the line, she forgot the assurances given to her countrymen. On the other hand, though Rajiv was very young and ambitious, he was more humane than his mother.

B&E: Rajiv did ask you to become the Deputy Chairman of the Planning Commission. You refused. What did you tell him?
MD: When he asked me to become the Deputy Chairman of the Planning Commission, I expressed my inability to do so, as there were basic differences in our approach. In my two hour-long meeting with Rajiv, he fairly conceded his ignorance and assured me to amend his approach on many issues like removal of illiteracy, training and skill development to increase the employability of individuals, development of vast wastelands through micro watershed management, water conservation and more. He however had an open mind and we became close friends in the Congress camp.

B&E: You had a view on Rajiv naming many schemes, buildings and institutions after his family members...
MD: It was wrong on the part of Rajiv to name programmes or big contributions after his family members. The reason being that if tomorrow an opposition party grows to power, it would not show interest in running schemes that are named after leaders of the opposition party/parties.

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

Is the Corus diet finally showing on Tata Steel’s health?

The Indian steel giant Tata Steel reported an unexpected quarterly loss, its first in more than two years. While some blame it Corus, the Anglo-Dutch steelmaker, and mention that the real price of the acquisition that Tata Steel made in January 2007 is coming to fore, the real reason could simply be rising input costs and dwindling demand in Europe...

Indeed, Ratan Tata is not given to hyperbole or grandstanding, notwithstanding his “you put a gun to my head and pull the trigger or take the gun away, I won’t move my head” comments. Thus, when he had described the Corus deal (Tata Steel acquired the Anglo-Dutch steel maker Corus for $12.04 billion or 680 pence a share in January 2007) as being a “bold visionary move”, many had praised the move as being the harbinger of India’s rise on the global top ranks.

Of course, that part has surely been true, but what hasn’t and cannot be ignored is that he also seems to have invited discomfiting analogies and criticism on the Corus deal from significant quarters. The sounding board of these critics has become more cacophonous with the current situation of Tata Steel – the company is struggling with weak demand and higher material costs and reported a consolidated net loss of Rs.6.03 billion for the third quarter ending December 31, 2011, against a net profit of Rs.10.03 billion during the same period a year earlier.

Critics forward the proposition that had Tata Steel not acquired the Anglo-Dutch giant, it could have been more resilient in the current economic scenario. While that may well be putting it too plainly, the fact is that the acquisition of Corus brought with itself a debt burden of $6.17 billion on Tata Steel’s balance sheet. The company’s total debt liability has only moved upwards since then and today stands at a whopping $9.52 billion (as on December 31, 2011), up from $8.79 billion at the end of March 2011. While the company maintains that the Q3 losses have surfaced due to the exercise of writing down the value of inventories of raw materials and finished goods at some of its subsidiaries, particularly at Tata Steel Europe, to recognise the fall in market price of these products (the write-down for Q3 FY2012 amounts to Rs.7.41 billion or around $143 million), there is more. Steel prices in Europe have risen by approximately 7% during 2012, while prices of coking coal have declined by over 20% in the past three quarters. Imagine what would have happened had the conditions been the other way round. In fact, Tata steel is not the only company which has suffered due to a wounded Europe.

The world’s largest steel producer, Luxemburg based ArcelorMittal, has also reported a fourth-quarter net loss of $1 billion against a loss of $780 million during the same quarter last year. With European Union’s projection for the economy to contract at a rate of 0.3% for calender year 2012, the chances for steel demand to pick up in the region remains bleak, at least in the near future. To add to the woes, the World Steel Association has projected Europe’s steel demand growth for the year 2012 to be a meagre 5.4% compared to 15.1% growth in the year 2010.

Apart from operational issues, Tata Steel Europe is also facing regulatory challenges. It has got the mandate to lower its carbon emissions by 2013 to meet standards set by the European Commission.

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

Friday, April 19, 2013

National

Airlines in Trouble

The New Year started on a bad note for Air India whose bank accounts were once again frozen by the service tax department for non-payment of dues. This is the second time in two months that the Central Board of Excise and Customs (CBEC) has frozen the account of the national carrier. Earlier, the tax department had frozen 11 accounts of Air India and 10 accounts of Kingfisher Airlines in the month of December for defaulting on service tax payments. The service tax arrears of AI now amount to Rs.3 billion. In all, Kingfisher Airlines and Air India owe the government a total of over Rs.3.6 billion towards service tax. While AI has failed to pay its arrears for the month of December last, Kingfisher also defaulted to pay its service tax dues for December, which could lead to freezing of its bank accounts once again, besides attachment of its properties and imposition of additional penalties. The freezing of accounts is not the only issue that has the aviation industry in a state of turmoil. The aviation regulator DGCA is also reviewing airlines on the measures of safety. The regulator’s audit had suggested withdrawal of Kingfisher’s flying permit and slashing of operations of AI Express, even as it criticized other carriers like IndiGo, SpiceJet, Jet Airways, GoAir, Alliance Air and JetLite on issues like non-reporting of incidents, lack of pilots, proper and regular training, absence of qualified safety officials and non-compliance of safety audits.

100% FDI

The New Year kick-started with good news on the economic policy front. The dream of 100% FDI in single brand retail becomes a reality after the Department of Industrial Policy and Promotion notified it on January 10, 2012. According to the DIPP’s press note, “Foreign Direct Investment (FDI), up to 100%, under the government approval route, would be permitted in single brand product retail trading.” However, there are some caveats to the removal of the investment cap. In respect of proposals involving FDI beyond 51%, the mandatory sourcing of at least 30% would have to be done from the domestic small and cottage industries, which have a maximum investment in plant and machinery of $1 million. Though 51% FDI in single brand was allowed in February 2006, not much investment has come in the sector. During the past three and half years, FDI worth only Rs. 1.96 billion was received in the sector. The new policy will help global fashion brands, especially from Italy and France, and other international brands to strengthen their interest in the growing Indian market. Global chains like Gucci and Louis Vuitton can now have full ownership of their Indian operations. Many of these chains have already set up operations in India by partnering with domestic firms, but this policy will allow them to buy out the domestic partners.

Websites in legal jam

Search engine giant Google, social networking site Facebook and other online content providers are facing charges in an Indian trial court for allowing posting of obscene online content on their sites. A trial court in Delhi issued summons to 21 Internet companies for objectionable content posted on their websites. The Indian government has sanctioned the prosecution of executives from companies like Google and Facebook along with other 21 Internet companies. The companies can be charged for “promoting enmity between groups” or for carrying “deliberate malicious acts intended to outrage.” Since some of the charges are non-bailable, the government had to indicate whether it agreed with the need for the websites to stand trial. The case, which has stoked worries about freedom of speech in the world’s largest democracy, was brought by a private petitioner seeking to remove images considered offensive to Hindus, Muslims and Christians from websites.

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

Training its guns overseas for growth

The lack of high-octane brands and intense competition is perhaps holding back Marico’s growth potential on the home turf, but opportunities in international markets beckon.

For a narrow-based FMCG player, Marico does not mind being a “boringly consistent” company. Over the years it has managed to keep a singular focus on its limited brands, which are profitable and sustainable in the long run, rather than try to expand its portfolio, enter new segments and thereby risk itself spreading too thin. Even though Marico’s corporate motto is “Be more, every day”, its limited mass brand appeal has often proved a hindrance to future growth. Its two master brands – Parachute and Saffola – despite registering a strong 22% CAGR in revenue in the last five years, haven’t been able to make much headway into new product categories. The company’s strategy of keeping a sharpened focus on its limited brands may have served it well so far, but times are a-changin’ and Marico could do better by pulling a few aces up its sleeve.

After all, the opportunity and the market is well in its sights. Already, FMCGs constitute the fourth-largest sector of the Indian economy. The category is estimated to grow to $100 billion by 2025 from the current roughly $13 billion, according to market research firm Nielsen’s report, Consumer 360. And rural India, with over 70% population and accounting for over 55% of consumption, will be the key driver of this growth, as more rural Indians embrace consumption of newer, more contemporary food categories. FMCG players, both homegrown as well as the MNCs, are bracing up to tap this new emerging opportunity. But therein lies the rub for Marico; it doesn’t have the products specifically targeted at this segment.

To give the company its due, Marico has entered new categories of late. Saffola, the premium edible oil brand, has been extended to breakfast cereals and packaged rice. And within a year, Saffola Oats has achieved the third rank in the space with a 16% market share. Even Saffola Arise, the rice brand, is doing well. Both are expected to rack up roughly Rs.400 million in annual sales for the company.

Currently, the oil category, in which Saffola is the market leader with over 55% share, contributes almost 90% of the revenue, while Saffola’s food business brings in the remainder 10%. The company wants it to grow to 75% and 25%, respectively. The Rs.31.3-billion turnover FMCG firm recently posted a 9.4% year-on-year increase in its net profit to Rs.782.9 million for the September quarter. Its net sales increased by 25.6% to Rs.9.75 billion from Rs.7.76. billion year on year.

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

Inflation & growth: Can the twain meet?

Persistent Hikes in key policy rates have failed to slay the monster of inflation. Instead, it has inflicted collateral damage: slowdown in India’s manufacturing growth. B&E was the first to identify that India was slipping into a definite slowdown (cover story; August 4, 2011). What can policymakers do to bring down prices without hurting growth?

It is the season of bad news. News of scams and scandals, protests and labour strikes, a wobbling Sensex, soaring food prices and policy paralysis in the government have been hitting the headlines with metronomic frequency. The depressing state of affairs in the global economy and the spreading debt crisis in Europe are an added aggravation. In the past, India weathered the global financial crisis with aplomb thanks to the timely intervention from the Centre, which understood the gravity of the situation and promptly reacted by releasing three stimulus packages in quick succession amounting to Rs.1.86 trillion during 2008-09. But after a brief sunshine, the storm clouds are back on the horizon.

The worst piece of news to have hit the Indian economy in recent days is that the country’s factory output has slowed to its lowest pace in the past 30 months. According to figures released in September this year, the manufacturing PMI, or Purchasing Managers’ Index, for India, slid more than two points to 50.4. This a shade above the 50 mark, which separates contraction of manufacturing activity from expansion.The September survey finding – based on data from more than 500 manufacturing firms – was the lowest since March 2009, when the Index had slipped below 50 owing to the global slowdown.

That India was inching towards economic slowdown was first indicated by numbers thrown by the Index of Industrial Production in July. The IIP figures showed factory output growth dipping to a 21-month low at 3.3% in July 2011 as compared to 9.9% in the corresponding period a year ago. To add to the cup of misery, the Wholesale Price Index based inflation stood at 9.22% in July, much above the 5.5% mark, which the RBI thinks to be the comfort zone. Such persistently high inflation above 9% has not been witnessed anywhere else in South Asia/South East Asia or even Latin America in recent times.

Both the PMI Survey and IIP raise certain questions and fears about the future course and direction of the Indian economy. As a result, fresh doubts are being voiced about the ability of the economy to sustain its present growth momentum. HSBC chief economist for India & Asean Leif Eskesen thinks that Indian manufacturing growth is clearly slowing in response to the tighter monetary policy, uncertainty created by high inflation and weak global economic environment. Economists of different hues concur that as the effects of a dozen interest rate hikes by the RBI over the past 18 months continue to reverberate across the economy and so long as global economic conditions don’t improve, growth in India’s manufacturing sector will remain subdued in the foreseeable future.

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

Saturday, April 13, 2013

B&E Indicators

Matching increasing demand

By 2035, global demand for energy is expected to be about 33% higher than it is today. In fact, the International Energy Agency projects that satisfying the world’s energy needs for the next 20 years will require $1 trillion in annual investments. However, even given strong growth in renewables, about 75% of the increased demand is likely to be filled by fossil-fuels, thus making it clear that oil & gas demand will continue to grow in the future.

Demand will vary by sector and region

Further, the issue will not be simply about matching increasing demand, but also about matching that demand where and when it happens, which is certainly no easy task from the current starting point. For instance, downstream markets are experiencing stronger demand as the recession recedes, but meeting that demand is challenging. Reason: The industry has seen little addition to greenfield refining capacity.

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

Friday, April 12, 2013

Direct Tax Code: A boon for IT Sleuths!

A Closer Look into The Provisions of The Proposed Direct Tax Code reveals India’s Digression from a Trust-Based system of Taxation to one which is Based more on The Element of distrust.

The existing Income Tax Act, which came into legislation in 1961, has often been criticised for being economically inefficient and incompatible with the current requirements and inequitable to all tax payers. Thus, to avoid this criticism and to replace archaic rules, the Ministry of Finance finally came out with the draft of Direct Tax Code (DTC) Bill in August 2009. But, the draft Bill, after being introduced in public domain, received a lot of criticisms on certain amendments in relation to removal of existing tax subsidies, and modifications in the tax rate structure that it sought to introduce. So, in June 2010, the ministry again issued a new revised DTC Bill and presented the draft to the Union Cabinet.

In what the government has claimed to be an attempt towards bringing path breaking changes to the existing tax regime in India, the DTC Bill, which is proposed to be implemented from April 1, 2012, will replace the five decade old legislation. In fact, in the foreword to the Tax Code, Union Finance Minister Pranab Mukherjee said that “the aim is to eliminate distortions in the tax structure, introduce moderate levels of taxation, expand the tax base, improve tax compliance, simplify the language and lower tax litigations.” Meanwhile, the Bill is being scrutinised by the Yashwant Sinha-led Parliamentary Standing Committee on Finance.

Personal income tax, as almost all salaried persons will agree, in our country is one of the highest in the world. More open and honest an employer is in terms of disclosing remunerations, worse it is for the employees because taxable income goes up. There is no denying that the present system is outdated and rewards dishonesty and non-disclosure of income by way of lower tax. The rationale for introducing DTC, government says, is to increase the efficiency and equity of the tax system by eliminating the plethora of tax exemptions or subsidies that create distortions. Its major policies include replacement of profit-linked exemptions with investment linked incentives, particularly for export units, and reduction in the tax rates to bring more people and companies under the tax net. Even the government wants a modern tax code in step with the needs of an economy, which is now amongst the largest in Asia. “In India, tax reforms have lagged behind growth. It is a big challenge for politicians and policymakers to keep the pace of reforms with growth,” Jeffrey Owens, Director of the OECD Centre for Tax Policy and Administration, said during a recent visit to New Delhi, adding, “Indian economy has transformed in the last two decades. Along with high growth, it has increasingly become the importer and exporter of capital. But tax regulations have largely remained the same. You have to change with the changing environment.” While the rationale behind the government’s proposals with respect to the DTC has been largely accepted as a right step in the right direction, a closer look into the provisions of the proposed tax code reveals India’s digression from a trust-based system of taxation to one which is based more on the element of distrust.

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 8, 2013

Rich alien versus seasoned predators?

Once it was Mercedes-Benz on top. In came BMW and stole the crown. Now, Audi wants a taste of the victory lap on the Indian circuit. Who will win this new round of the war of the luxury cars?

They seem more frequent than the tornadoes that threatened the American and Australian east coasts earlier this month. Only, they are more predictable. Companies, making claims at the slightest hint of an extra booking that helps them edge past their competitor during any given season, is a common sight in the fast growing Indian auto market. Recall the sight of the former BMW India boss Peter Kronschnabl leaping onto the dais at an hour past mid-day, and making a warm claim on a cold winter January afternoon of 2010 on the first day of the 10th Auto-expo in the capital city that his company had become the number one in the luxury car segment in India. [In his case, the excitement was justified to a great extent though.]

The hourglass looks different since that event. Twenty months is some time. And the balance of the game seems to be changing. BMW still leads. True. But its dominance is being questioned, with events waiting to unfold in the Indian luxury car segment.

BMW’s advancement in the Indian luxury market has now for long been tagged a quick kill. It was. BMW was serious about ruling the Indian roads from day one (it entered India in 2006). With such an intent, it caught the-then sleepy giant Mercedes-Benz (and a first mover with a headstart of 13 years) by surprise. Three years is all it took to race past Mercedes-Benz in the Indian luxury car market. In 2009 therefore, Mercedes-Benz India sold only 3,247 units –10.3% less than what BMW India managed that year. In 2010, BMW’s road rage continued. That year, Mercedes-Benz sold 5,819 cars – 6.8% less than BMW did. Even when understood in the light of the fact that the Indian luxury car market is just 10% (in volume) as compared to China’s, the past two years have been a dream run for the Munich-based luxury carmaker. But as we mentioned before, the situation in 2009 was much different than it is today. Then, BMW was selling faster (as compared to Mercedes) across the world too (in 2009, BMW sold 20% more units that Mercedes’ 1 million), and winning the race in India was only an exercise gone right. Today, it has become a habit, and winning on Indian potholed roads has become to say the least – necessary. Why? Fast forward to July 2011, when global figures presented a disturbing sight for BMW. Its sales showed the maximum y-o-y fall in the month – 57% as compared to a much lower 17% for Mercedes (the absolute figures being 130,432 and 125,501 units for BMW and Mercedes respectively). The Indian market is important therefore for BMW for two reasons. First, despite the global setback, India still means a happy hunting ground for the company. In July 2011, the company registered a y-o-y sales unit growth of 57.01% in the Indian auto market, as compared to a negative 16.58% recorded by Mercedes. Second, the India luxury auto market, despite many debates, has proven to be resilient. Numbers are proof. The market grew more than 50% in the first four months of 2011 – as compared to a much lower 5% rise globally. BMW is at it to save all honour and pride. It has a new CEO in the name of Andreas Schaaf and the company has expanded its product portfolio with launches like X1, X3 and the 6-Series convertible since December 2010. But it won’t be easy.

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, April 2, 2013

They call it The Kangaroo Trick

Despite The Recent Devastating Floods, Australia’s Expansion is forecasted to Strengthen over The Next two years. In fact, The Country hasn’t seen a Recession since 1990. So, what makes Australia a Recession-free zone?

Only a dozen economies are bigger than Australia (in 2010 its GDP stood at $1.235 trillion; IMF data), and only six nations are richer than it in the world (it has a per capita GDP of $55,590, higher than that of countries like UK, Germany, Japan, US, et al). The country was ranked 2nd in the United Nations 2010 Human Development Index and 4th in Legatum’s 2010 Prosperity Index. And above all, while most of its counterparts have faced the fury of a financial tornado in the recent past, it’s the one that has avoided a recession since 1991. Well, that’s Australia for you today!

But then, the situation wasn’t always the same “Down Under”. Just 25 years ago the Australian economy was grappling with issues like high interest rates (during the ‘80s the minimum lending rate had reached 17%), negative growth (-1.6% in 1983), big budget deficits, et al, coupled with highly regulated financial system (read: protectionism). In fact, in 1985, Paul John Keating, the then Australian Treasurer (he was also the 24th Prime Minister of Australia, serving from 1991 to 1996) had declared if the country failed to reform it would become a banana republic. No doubt, barely five years later, the economy faced a nasty recession, but then, it was the last for this OECD nation. Since then Australia has grown at an average annual rate of 3.6%, well above the OECD average of 2.5%. What’s more? Despite the recent devastating floods, which has forced the Australian economy to contract 1.2% in Q1 2011 (it’s the sharpest fall in real GDP since the recession in 1991) Australia’s expansion is forecast to strengthen over the next two years. In fact, Moody’s Analytics maintains its full-year 2011 GDP growth forecast at 3.4% for Australia.

Many attribute Australia’s success to its opulence in minerals, which thriving Asian nations are hungry for. But then, the economy was standing tall and smiling wide when a financial crisis struck Asia in July 1997. Further, commodity exports have not always been in vogue. It was only in 2003 when minerals begin to garner big bucks for Australia (see chart), but by then the economy had escaped both the Asian crisis as well as the financial cyclone that hit America in 2001. In 2007 came the global financial crisis, but that too failed to drag down the Australian economy. So, what is it that makes Australia a recession-free zone?

No doubt, to some extent, the country has been benefiting from a resources bonanza that brings it big money for doing nothing but extracting minerals and shipping them to Asia (and will continue to do so for a while as Asia’s appetite for minerals shows no signs of slowing), but then that’s surely not the thing that can be credited for the country’s economic success. Rather, it’s the series of well-thought reforms carried over a period of 20 years (between 1983 and 2003) that has made Australia one of the most prosperous and resilient economies in the world today.

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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

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BUSINESS, ECONOMY & FINANCE$10Bn bid for Foster’s

Despite slow growth and maturing markets in beer producing countries, Australia’s largest brewer - Foster’s Group - has been offered $10 billion by the world’s second-largest brewer - SABMiller - for a takeover of the Australian favourite. SABMiller offered $4.90 per share to Foster’s for the buyout, which was 8.2% higher than the latter’s closing stock price on Monday. The deal would have been the biggest in the brewing industry since InBev bought Anheuser-Busch for $52 billion in 2008, but it was rejected by Foster’s on the grounds of being too low. Showing a strong investor confidence in the decision of Foster’s, the share prices shot up to a 9-month high of 14% on the news. Foster’s has been the subject of takeover ever since it announced its plans to spin off its struggling wine operations - Treasury Wine Estates that got listed in Australia, just last month. SABMiller that makes Peroni, Grolsch and Miller Lite, has been a favourite among the potential bidders. Despite a downturn in the beer market, Foster’s is supposed to be a good option to acquire due to its dominant position in Australia and high margins of about 37% that is almost double of its global peers. It is expected that SABMiller will increase the offer price in the second round of negotiations and the offer price can see a hike of 10-12% to A$5.40-A$5.50 per share.

Cheap us stocks
The shares of companies that make up the S&P 500 index - one of the most used benchmarks for the U.S. stock market - will earn 18% more this year on the back of cheap valuations of shares, the cheapest level in 26 years. Since April, share prices have been on a decline, pushing the price of the S&P 500 to 14.5 times the past year’s earnings, compared with the average of 20.5 since June 1991. As a result the index is valued at 8.7 times cash flow, cheaper than it has been 81% of the time since 1998. But if S&P 500 companies are expected to earn more in 2011 than in 2010, why, then, have prices been falling? That’s because investors are apprehensive of future gains on account of concerns such as the Greek crisis coupled with China’s rising interest rates & the Federal Reserve’s $600 billion stimulus programme.

Greek Crisis Eases
Despite a severe debt crisis hovering over Greece since April 2010, the double blow that it was scheduled to face due to the re-scheduling of the Greek government bonds as insisted by the German government is now slowly easing off. In fact, the German government has also indicated a voluntary rollover of Greek government debt. The debt rating (by Standard & Poor Ratings) for the Greek government bonds has been falling constantly and currently has a “CCC” grade, the lowest rating for bonds in the entire world. But with some luck, Greece may be able to stablise its situation in the short term.

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Monday, April 1, 2013

Caught in The Wrong Job?

Merck Today stands at a Juncture where it Requires a Major Overhaul in its Strategic Outlook. Does Kenneth C. Frazier (its current CEO) have what it takes to Guide a Pharma Giant in times of Patent Expiry?

What if you happen to be the recently appointed CEO of a pharma giant in an era of patent expiry & dwindling healthcare policies? And what if, the blockbusters, which generate a quarter of your company’s revenues, are unfortunately poised to go off patent in the next two years? That’s exactly what Kenneth C. Frazier has been struggling since he took over as President & CEO of Merck & Co. from Richard T. Clark on January 1, 2011.

Although facing increased competition, patent losses, and a pipeline of late-stage drugs with poor chances of approval over the last few years, Merck had greatly improved its long-term outlook by acquiring Schering-Plough (for $49 billion in March 2009), but then the challenges remain for Frazier. Raison d’être: Still reeling from the patent loss on its hypertension drugs Cozaar & Hyzaar in early 2010, Merck faces the loss of its next top drug Singulair (for respiratory ailments) in terms of revenue generation in 2012. Considering Singulair represents over 10% of the combined sales of Merck & Schering, the blow will certainly make a big dent on the drugmaker’s topline. Further, Merck faces some remaining legal risk with Vioxx (its popular painkiller). While the majority of plaintiffs participated in the $4.85 billion settlement (in 2008), a few holdouts could ring up additional settlements and significantly hurt Merck’s net profit, which has already witnessed a significant fall, from $12.89 billion in 2009 to $861 million in 2010 (a pathetic 93% drop).

No doubt, indicating a shift in strategy, Frazier, on February 3, 2011, had announced an investment of $8.5 billion in R&D for 2011, but considering that Merck’s efforts to develop a reliable late-stage pipeline have yielded questionable results during the last couple of years, is it really a good bet? “Not really,” feel several critics. By doing so, Frazier has not only compromised the company’s EPS forecast for 2013, but has also offended the Wall Street, which responded back by cutting Merck’s stock price by 2-5% (from the date of announcement). Interestingly, around the same time, Merck’s competitor Pfizer had slashed its R&D budget to $6.5-7 billion from the earlier $8-8.5 billion. And investors awarded the move as the drug giant’s stock price increased by 5-7%.

Such market reaction can perhaps be decoded by expounding upon how this business is evolving. In 2010, the top 10 pharma outfits shelled out a total of $67.41 billion on R&D. In fact, according to statistics compiled by the Tufts Centre for the Study of Drug Development, spending to develop new drugs has been constantly growing over the years. But, what the data also reveals is that after the mid 1990s, new drug approvals have been falling steadily (only 16% win regulatory approval) and research pending has almost doubled in the last one year. This certainly explains the reason for the fall in Merk’s stock price.

If the issue still isn’t clear, then a little flashback might settle the remaining dust. In January 2011, Merck shutdown a study on Vorapaxar and took a $1.7 billion write-down on the drug (a blood thinner which was expected to bring in sales of upto $5 billion). Later in March, it shelved another blood thinner because competitors were way ahead of the development cycle. Further, the 8,000 patient trial of a Staph vaccine was also suspended soon after. All this clearly indicates that Frazier should now be rethinking his strategy. Even if he plans to invest heavily in R&D, it should be focused on a few drugs & executed in a better manner – if not it will continue to fail.

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