IIPM History: February 2013

Saturday, February 9, 2013

Will the lion roar again?

Slowdown had a sobering effect on DLF’s meteoric rise in the early years of this decade. With a new look and renewed vigour, the company attempts to claw its way back to its glory days. by Virat Bahri

Five odd years is a terribly long wait. But it would be worth it for this 17.5 acre plot of land in Lower Parel, Mumbai, which would soon be home to 90-floor super luxury tower. Bought by DLF in 2005 from National Textile Corporation for over Rs.7 billion, the land hasn’t witnessed realty action since then; with the downturn being the obvious spanner in the works. DLF planned a mall initially, but has now decided in favour of residential accommodation with the 2000-odd flats in the tower to cost Rs.50-100 million each with targeted revenue of Rs.150 billion for the company.

2006 was a different era. At that time, an unlisted DLF was hitting all the high gears with surging fortunes in residential, commercial and retail. Then came investments into new businesses – hotels, SEZs, infrastructure, IT parks, next generation malls, asset management… there just seemed to be no end, more certainly so when news of the IPO came up, fuelling speculations that K. P. Singh would be the world’s richest man. The $2.2 billion IPO was launched in 2007, and K. P. Singh was ranked 62 on the Forbes’ list of global richest that year.

India’s realty sector was seeing rising valuations, but it wasn’t really the American bubble. The fact that realty was a lagging indicator for the booming economy had a lot to do with it. But with the slowdown, sentiments went turn turtle across – consumers, banks, corporates, retail. Realtors who had assumed huge debts in the bull run were sitting on land that would provide cash flows way ahead into the future and got further stuck when takers for their existing products dwindled. DLF’s revenues on a standalone basis in FY 2008-09 were Rs.28.28 billion, a dizzying drop of around 49% yoy and profits fell by around 40% to Rs.15.47 billion.

A company like DLF only understands too well that market speculation and sentiment are fickle by nature and are not the true parameters on which a company can judge its merits, or demerits for that matter. But then, understanding how they are playing out at any given point of time is crucial to cushion oneself against the shocks of a viciously cyclical business like real estate. As the company came face to face with a calamitous situation in 2008, it had two prerogatives – the first one was to steer the ship out of the immediate storm and the second one was to take cognizance of its priorities and redefine its business model for the future.

DLF isn’t out of the storm yet. It saw revenues drop by a further 15% to Rs.24 billion and profits falling by 50% to Rs.7.7 billion yoy for FY 2009-10. They missed the target by 16%, and achieved 12.6 million sq. ft. (msf) with an average realisation of Rs.5700 per sq. ft. But as per DLF Limited Vice Chairman Rajiv Singh the bottom is already behind them. He commented on the results, “The overall economic growth, improved liquidity coupled with buyers’ sentiments turning positive, led to a buoyant demand for our projects across segments...” Q4 has been a visible sign of hope with consolidated revenues at Rs.21.46 billion up by 59% yoy. DLF Group Executive Director Rajeev Talwar points out in an exclusive interaction with B&E (featured after this story), “Construction in the last 1 year, which had dropped down from peak levels of 65-70 msf to 40-41 msf has now picked up again to around 56 msf; an increase of around 40%.” And buoyed by the general sense of revival in the Indian economy, DLF expects to rid itself of the devils of downturn for good. B&E analyses how the market leader has evolved in the midst of slowdown and details the prospects for the company in the coming 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.
4

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)

Friday, February 8, 2013

BHARTI VS RCOM: POST 3G

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

First we come to the bidding outcomes, which have left only the government smiling, really. And spectrum is the kind of product where price elasticity of demand is just about non-existent. The all India license ended up costing Rs.167.5 billion, which was 379% above the original base price of Rs.35 billion, and this is being cited as a crazy valuation by many, even considering the credentials of the Indian market. No wonder that even Bharti and Reliance backed off from a pan-India license. Bharti led in terms of payout at Rs,122.95 billion, whereas RCom’s payout was Rs.86 billion. Ravinder Taneja, former VP, Enterprise Business, Tata Teleservices and currently Senior VP, Sales & Operations, Head-end-In-The-Sky (HITS), WWIL, tells B&E that the prices were high, but adds, “If the government has taken 3 long years to announce 3G spectrum auctions, it is an opportunity for companies to invest in it for the long term basis. Spectrum is a scarce resource, so when it comes up players don’t have any choice.” That’s especially true for incumbents, who have a lot to lose. The strategy has been to mostly take up 3G spectrum in their key circles, which would be a ploy to protect their high ARPU subscribers and improve their revenue yield from them as well. According to Kedar Sohoni, President, Informate Mobile Intelligence, “The ‘low hanging fruit’ is going to be the operator’s own postpaid set of users and enterprise users. They have the highest ARPU and the highest capacity to pay.”

In that sense, Bharti, despite paying the most, looks like the one that would be most disappointed. A Macquarie report points out that “Bharti has not got 3G spectrum in nine circles which cumulatively contribute 31.6% to its overall wireless revenue.” RCom has taken up a mix of Metro and C circles, and its total revenue coverage (GSM +CDMA) in the circles it has won is estimated at 41% of its total (Angel Broking). But Bharti has reasons to be optimistic. Airtel and Idea are likely to have highest ROI followed by Vodafone, Tata & Reliance. Going by the data, metros will struggle on ROI, but the key markets that will determine future ROI are UP, Maharashtra, AP, Gujarat, Tamil Nadu and Karnataka. Apart from eastern UP, Maharashtra and Gujarat, Bharti has got all these key circles, but RCom hasn’t won any of them. However, in the 9 circles that Bharti didn't win, it is among the top three operators, and Goldman Sachs predicts in a report that it could face significant customer churn to 3G operators in those circles. RCom, meanwhile, has taken up circles like Punjab, Madhya Pradesh, Kerala, Orissa, West Bengal, et al; which are aligned particularly to its GSM circles.

Read more......

Wednesday, February 6, 2013

Needs to understand its hidden potential and use it

The Indian economy needs to understand its hidden potential and use it for getting Islamic Funds says Vikas Kumar

Venture Capitalist and IT and Education adviser to the UN, Samir Q Fakhrao said to B&E, on the sidelines of the Indo-Arab Economic Cooperation Forum, “Islamic Finance tries to set up a new ethical benchmark.”

What then is the basis of this kind ogf financing? No two experts share the same views. But the basic requirements are that the loans should not be given to businesses which deal with tobacco, alcohol, pigs or related items, vulgar content and artillery. Besides, charging interest rate is strictly prohibited. The funds are not allowed to invest in firms where the promoters are looking for profit as the ultimate objective.

As of now it doesn’t seem that the Indian government is every enthusiastic about bring home investments from such funds. One of the reasons is that the current systems in India does not fully support Islamic Banking, which are a major part of Islamic Fundings. Take for example the fact that Indian banks are not allowed to invest in real estate. But the Islamic Banks have to invest in properties so that they don’t have to charge interest from the debtors.

Besides to attract Islamic Funds, India needs to substantially change its tax structure in order to be able to benefit from the funds. Then there are the religious issues as well, which can turn out to be a major roadblock. Since these funds are branded as Islamic Funds, people related to other religions may not like to use such loans from Islamic Banks.

However, experts believe that since these banks are interest-free, they can attract a bigger mass. And if done in a proper manner, insurance sector can be a major beneficiary since the majority of Muslim population is outside the gambit of insurance coverage.

Also there are many mutual funds like the agri-funds and power sector-based funds, which follow Sharia laws, can get a net inflow of funding. But in reality, the asset management companies (AMC) have not been able to tap this potential.

Read more.....

Monday, February 4, 2013

Caught in the ‘lasso’, us too :-(

Fall in demand in the US is driving the Japanese economy to contract faster than the US economy itself

Neither do they have a housing bubble, nor is their banking system saddled with that garbage called sub-prime. Yet, they are feeling the heat more than anyone else in the world. The extravagant adventures of the western cowboys have managed to thwart the languid Sumo economy once again, resulting into its fastest contraction since World War II, when the US ‘Small Boy’ and ‘Fat Man’ brought Japan to its knees. The Japanese economy has shrunk for the fourth consecutive quarter. To crown it all, with every quarter, the curve is going deeper and deeper into an abyss. The latest figures suggest an increased contraction of a mind-boggling 4% (15.2% anualised) in the first quarter as compared to 3.8% fall in the last quarter of the previous year. And it has all happened due to the recession in the US. Definitely, this makes for a great case study for global financial copulation where the woes of West have touched the Far East.

The reason is quite obvious – fall in exports. Over the years, Japan has transformed itself into an export-dependent economy and in such a case when exports register a mammoth 26% fall, then definitely there is no way it can dodge an economic slump. And that’s what is happening. As global trade is inching towards its biggest drop of 9% (10% for developed countries – WTO figures) since World War II owing to lack of demand and supporting credit lines, Japanese companies are forced to cut their production rampantly. This clearly gets reflected in fresh data released by the Ministry of Economy, Trade and Industry, Japan (for March 2009), which indicates a 34.2% (year-on-year) fall in industrial production and 32.4% in shipments. So much so that Japanese trade balance has now receded into the negative. Not only that, it has also resulted in withdrawal of expansion plans (capital expenditure has fallen by 10.4%), increased lay-offs and 1.1% fall in the household spending, one of the key indicators of a healthy economy.

Read more....

Friday, February 1, 2013

A regula(to)r kind of guy

US banks lived without a regulator for 77 years

Can you imagine the global financial epicentre, US, without a central bank for over 3 quarters of a century at a stretch? You can call it the mother of all weird financial policies. From 1836, when President Andrew Jackson allowed the charter of the Second Bank of the United States to expire, to 1913, when the Federal Reserve Act came into force, the US banking system had no regulators for 77 years. Thinkers like banker Jacob Schiff of Kuhn, Loeb & Co. did warn about the situation stating, “Unless we have a central bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history.”

But surprisingly, no one ever bothered till the market lost it all under the famed ‘Panic of 1907’. In the absence of any regulator, banks (mis)used money at their (ill)will. As a result, in a notable case, many banks and financial trusts, where a particular businessman F. Augustus Heinze was on the board, funded Heinze and notorious Wall Street banker Charles W. Morse’s plans to corner the United Copper Company (UCC). But when the scheme failed and share prices of UCC crashed, not only did Augustus’ brother Otto Heinze’s brokerage house go bankrupt, but many of his bankers too filed for insolvency throwing the market into chaos. Bankers, all of a sudden, stopped lending to brokers; and lack of funds very soon wiped off almost 50% of the Dow Jones Industrial Average. It was only after a brave attempt by New York City’s dominant banker J. P. Morgan (by putting his own money) to restore bankers’ faith that Wall Street finally showed signs of stabilisation. However, this panic certainly made top guns in the US create a regulatory system for US banks.

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
IIPM – FLP (Flexi Learning Program)

Watch where those scissors are going!

Cutting marketing investments can often turn a short-term problem into a long-term issue

Over the last few years, there have been growing concerns about marketing’s inability to communicate its impact on performance. Marketers have been accused of overspending without evaluating and communicating the consequences of such expenditures. Worryingly, marketing budgets are often the first to be cut in times of crisis, because it’s a quick and sure way to save money without experiencing any immediate negative effects on sales or having to let people go. The current economic downturn has exacerbated the tribulations of marketers, who now face even further threats to their budgets.

However, senior managers considering slashing their marketing spending must consider carefully the implications of such cuts. In most cases, unmitigated cuts and short-term orientations can have dangerous outcomes. There are at least five considerations and opportunities that management should keep in mind in a recession:

Marketing investment can be used as an offensive strategy. Maintaining marketing spending at current levels, or even increasing it, can represent an opportunity to steal market share from more cautious competitors. After all, business performance is affected by factors that are internal and external to the organisation.

Understand how your customers’ needs are changing. Customers’ needs and priorities may change in recessionary times. Some customers may continue to buy their preferred brands at premium prices, but others may seek low cost alternatives or postpone certain purchases indefinitely. The key question is: to which category do your customers belong? Recessionary times call for even more market research, to ascertain if, and how, your key target market is responding to the recession and to adapt your strategies accordingly.

Read more.....