Author
<p>Neeraj Thakur Biography</p>
Pankaj Munjal, the new chairman of the Hero Motors Group has inherited a lion in the world of cycles. The company entered the Guinness book of world records by becoming world's largest cycle manufacturer in 1986s and remains the largest in India till date with 35 per cent market share. Even the profits have been growing for the company due to increased focus on premium cycles that cost more than a lakh per unit. The company already has in place a strategy for growth in mature markets of Europe and the Hero Motors group plans his expanding in Europe through fresh investment as well as acquisition. The company has an ambitious target of increasing its turnover from Rs 3,000 crore to Rs 8,000 crore by 2018. Hero Motors group had recently announced Hero Cycles' entry in European market with special focus on UK and Germany and setting up of an assembly plant for high-end cycles in Poland. However, all is not rosy for the group which has only one successful business under its kitty. Pankaj Munjal’s biggest challenge comes in the form of lack of cycling culture within the country. With increased transportation in the rural India and better per capita income of the Indian population, people are discarding cycling as a poor man’s vehicle. Moreover, Chinese companies are presenting a range of cycles in the premium as well as standard low price category which is eating into the market share of Hero Cycles. Pankaj Munjal along with his father Om Munjal have tried to capture the power of the e-commerce sector by tying up with sports365.in. The company which sells above 50 lakh cycles per year targets to sell 1 lakh units on this platform within one year. But other than the cycle business, the group has failed to make much progress in other ventures that OM Munjal laid his hands on. The Hero Motors Group also include auto parts manufacturing companies-Hero Motors Ltd, ZF Hero Chassis Systems Pvt. Ltd, and Munjal Kiriu Industries Pvt. Ltd, hospitality arm Munjal Hospitality and luxury home decor products company OM Livings. With the new Munjal at the helm of affairs, it is expected that he will come up with a strategy to diversify the company. The Hero Motors group was a part of the Hero group that was split between the Munjal Brothers in 2010. While the OM Munjal and his sons took Hero Cycles business, the Brij Mohan Munjal and sons took the hero motorcycles business as a part of the settlement. The two groups do not have a non-compete agreement in their businesses and this open the window of opportunity for Pankaj Munjal. In 1996, Hero Motors partnered with BMW to manufacture motorcycles in India, but the deal fell through as the Hero Group had a non-compete agreement with Honda. Not bound by any obligation today, Pankaj Munjal has a challenge to venture out to newer areas and look for adding strength and value to the lion of a cycling company that he has inherited from his father.
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Call drops have become a part of life for Indians just like having mobile phones became a part of their lives a decade ago. However, the situation is deteriorating by the day and it is becoming impossible to have a seamless conversation over the phone in most parts of the cities during peak hours (Between 9am -11am in the morning and 5 pm -10 pm in the evening).The situation is so bad that despite changing telecom service providers through mobile number portability option, there is no respite for the consumers. The government is threatening telecom operators with penalties if the services are not improved but the companies are blaming the government for providing insufficient spectrum. Who Is Right?The telecom minister, Ravi Shankar Prasad has categorically said that the government has provided enough spectrum to the companies and they need to invest in the infrastructure to improve customer satisfaction. In the recent round of auction, the government sold 470 MHz of airwaves.Shankar has also discussed the idea of penalizing companies if they do not improve services.According to some media reports, the telecom regulatory authority of India (Trai) is working on a mechanism to penalise the telecom operators for every call drop.What Do The Telecom Operators Say?According to Rajan Mathews, Director General, The Cellular Operators Association of India (COAI): "There is not enough spectrum with the Indian telecom operators. “In India, the average amount of spectrum per operator is between 12-15 MHz, whereas internationally it is 45-50 Mhz. How can you have better services with more subscribers and less spectrum?” asks Mathews.Apart from this, in the past few years telecom companies have faced resistance from activists in installing mobile towers in residential areas. Many PILs have been filed in different High courts of the country against installation of mobile towers so far. Department of telecommunication (DOT) and World Health organisation have so far denied any relation between cancer or other types of health hazards and mobile tower radiations.Despite this, the companies have found it difficult to install their towers in residential areas in the past three years. Gopal Vittal, MD and CEO of India’s largest telecom company by revenue and market share, recently said , “We need both spectrum and more sites for mobile towers. In Delhi Lutyens area alone we need 217 sites, but we have only 117 sites. The statement came in the backdrop of telecom minister blaming the telecom companies for not doing enough to improve services.Vittal was ruing the fact that people are averse to having mobile towers in their area.Is this the only reason for not installing more mobile towers?According to some experts, telecom companies are not ready to invest enough to install upgrade their infrastructure.The spectrum auction of 2010 was fiercely fought between the Indian telecos. The telecom sector shelled out around Rs 70,000 crore to the government for getting buying the spectrum, in the hope that the 3G services will help them recover the cost. In 2010, Bharti, won 3G spectrum in 13 circles, bidding Rs12,300 crore. This resulted in a debt pile up of Rs 10,233.10 crore on the company’s balance sheet in March 2011, an increase of 103 per cent from a debt of Rs 5,038 crore in March 2010. A part of this, debt was also taken to buy business in the Africa continent. But clearly the company has been paying a higher interest outgo since then.The spectrum auctions in 2014 and 2015 have further dented the financials of the telecom companies restraining their ability to create new infrastructure. In 2014-15 The telecom operators shelled out over Rs one lakh crore to retain their spectrum that was up for renewable.Global credit ratings agency, Moody’s says: “These payments will cause debt levels to rise significantly for most operators, including Bharti Airtel Ltd. (Baa3 stable) and Reliance Communications Limited (RCom, Ba3 stable), and will limit their ability to make additional investments over the next 12-24 months, possibly slowing the rollout of 3G/4G networks in India”.Will The Telecom Companies Not Improve At All?If the government gets tough, the companies will have to improve their services, even if it means more debt on the balance sheet for investments.Some operators have already decided to recognize the issue. Anil Ambani's Reliance Communications doesn't charge a customer for the outgoing mobile pulse where the call gets disconnected due to network problems. Similarly, Uninor gives a minute of free talk time within 24 hours for disconnections during a call.If the government comes out with stringent laws to penalise poor service quality by telecom operators, chances are that every telecom company will start compensating the consumers in some way or other.However, everything comes at a cost. Given the leveraged balance sheets of the companies, the only way out to improve services will be to increase the voice tariffs. But, is the customer ready to pay higher cost for a glitch free call?
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So far, the score of the Common Admission Test, also known as CAT, was valid for just one year. But IIM-Ahmadabad is considering turning the validity of the score for up to five years in line with the GMAT pattern. The IIM-Ahmadabad committee will take a decision on this. The step is being considered to ensure that the students who come to IIMs have some work experience before joining the institute. "We get brilliant students every year but most of them have zero work experience. People take up the CAT exam just after their graduation and want to be enrolled because their score is not valid for the next year. Nobody is sure if he would crack CAT the next year," said Dr Ashish Nanda, director of the Indian Institute of Management-Ahmadabad. As against a CAT score, which is valid only for one year, the score for the GMAT exam is valid for five years. This is the reason why a lot of talented people choose to go to foreign universities, through GMAT. CAT is considered to be one of the toughest management exams all over the world. While the probability of making it to Harvard Business School is above 5 per cent, for making it to IIMs (top six IIMS) is just 0.25 per cent. CAT 2015 notification is likely to be announced in July-August by IIM-Ahmadabad. Around 1.68 lakh candidates appeared for CAT 2014 out of 196,915 registrations. Apart from this, IIM-A is also considering changing the pattern of the CAT exam, which has very tough data interpretation and logical reasoning questions. "From the level of questions asked in CAT, it feels that we are not looking for leaders but rocket scientists. One must understand that while rocket scientists are good at Math, not all of them have leadership qualities. So why have a question paper which is meant for rocket scientists," Dr Nanda said in an interaction with Businessworld.
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The elusive dreams of connecting the interests of Asian countries through natural gas pipelines have been chased for over 3 decades. Prime Minister Narendra Modi’s visit to Turkmenistan in the second week of July as a part of his tour to 5 central Asian countries will be an attempt to seal the deal for the TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline. If Modi manages to close the deal which was envisaged to solve the geo-political issues between the South Asian neighbours, it would be a milestone in the direction of securing India’s energy needs.But was the TAPI deal hanging fire only because India did not have a statesman like prime minister Narendra Modi to foster the decision making among the other three participating nations? More than the politics, it is the economics that has acted as a hurdle in the implementation of the project.The TAPI gas pipeline was envisaged in 1990s by the US as a means of providing economic stability to Afghanistan that has been under Taliban for many decades. Initially it was a three nation (Turkmenistan, Afghanistan and Pakistan) project and India came into the picture only in 2008. However, the risks attached to the pipeline that is supposed to pass through the most disturbed areas of Afghanistan and Pakistan make the project unviable for any private sector company to show interest. Turkmenistan would export 90 million standard cubic meters per day of gas through TAPI, with Afghanistan getting 14 mmscmd and India and Pakistan 38 mmscmd each.In 2008, the cost of the pipeline was pegged at around $7.5 billion, with the completion date of 2014. However, the construction of the pipeline has not even begun and the project stares at a cost-overrun of about $3-$5 billion. The pipeline is viable only till it supplies natural gas at a rate cheaper than imported LNG. The cost of gas for the three countries would be between $7 per mmbtu to $9 per mmbtu. Any further delay may make the cost of importing natural gas via pipeline unviable for countries like Pakistan and Afghanistan who cannot afford to buy expensive gas due to the small size of their economies.Moreover, the price for LNG in the spot market has reached $8 per mmbtu. However, the pipeline has a long terms horizon in terms of prices which are expected to hover above $10 -$15 per mmbtu.India had agreed to pay around $9 per mmbtu in 2012 under a formula that calculates the price of gas on the international price of crude oil. The final cost of gas after adding the transit fee was around $13 per mmbtu. This saved India around $2 per mmbtu of gas as compared to the spot market price in 2012. However since, then the cost of crude oil as well as natural gas has fallen in the international market and this will have an impact on the logic of purchasing gas through a pipeline with an upfront investment cost of above $10 billion with various risks.The final cost of natural gas from the pipeline must save involved parties between $2-$5 per mmbtu.So, the pipeline dream is running against time to manage its costs to be financially viable.Other than this, a major problem is the national policy of Turkmenistan that does not allow any foreign company to take up participating stake in the country’s national projects. None of the companies in the four nations have the financial power to take up a project that covers the international border of 1700 Km.Interestingly, even if Modi convinces Turkmenistan to change its national law to allow a foreign company be chosen as the consortium leader with participating interests in the project, there would be a pressure from the US to chose only a US based company. However, the ADB has been in favour of French upstream company Total to execute the project. Even though the French oil &gas giant has backed out from the project, it is not necessary that the involved parties, especially Turkmenistan would agree to have a US company for the project.The heads of TAPI countries will have to look for a reason why these natural gas pipelines projects have always remained in the pipeline for decades. Other then TAPI, there are other envisaged projects like IPI (Iran Pakistan India) MBI (Myanmar-Banglades- India) that could never take off due to cost factors that were affected by the Geo-political dangers and pressures from the US. Until the governments of the Asian countries understand that they need to envisage projects purely based on economics and not on political rhetoric and obligations, these projects will remain in the pipeline for ever.
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The revival in monsoon has had its positive impact on the sales of passenger cars in the country. Most of the car makers who have declared their numbers for June 2015 have registered growth in sales. However, Tata Motors, a company which was out of competition till 2014 has continued to post better growth than others in the passenger car segment on the back of Tata Zest and Bolt with a 44 per cent increase (8,516 ) in sales for June 2015. The growth in the Month of May was also impressive at 32 per cent for passenger cars segment for Tata Motors. The double digit growth for Tata Motors has continued since August last year. While Maruti Suzuki’s growth remained flat at 0.5 per cent (86,630), Honda posted a growth of 13 per cent in June 2015. Hyundai Motors declared a growth of 8.3 per cent (36,300) on the back of successful elite I20. The growth posted by Tata Motors has come on the back of sharp planning with the launch of Tata Zest, Bolt and Gen X Nano. The company is offering the AMT (automated manual transmission) technology in its Zest model which has a competitive price of Rs 4.64 lakh (ex showroom Delhi) for its base petrol model. Not just the technology and the pricing, Tata Motors is also aware of the role that dealership plays in the success of a car. The company has been ramping up its network in smaller towns, besides working on mobile workshops to offer customers vehicle service at the doorstep. Tata motors plans to open one outlet every day from July this year to add 200 showrooms in 2015. Back in 2014, everything was the opposite from what it is today for Tata Motors. Company’s domestic car sales fell 39 per cent year-on-year in the year that ended on March 2014 and its market share also dropped to 4.2 percent at end-June 2014 from 10.2 percent two years ago. Tata Zest, was launched in August 2014, as its first offering in four years in the passenger car segment. Is Tata future ready? The company knows it very well that only innovation will help the company survives the competition from the foreign car makers. For a large part of the past decade, Tata Motors was a mute spectator in the market as foreign companies came up with new features loaded with technology in their cars.However, with the AMT technology, Tata Motors has tried to compete with the market leader Maruti which offers the same technology in its Celerio and Alto K10 models. The company has been increasing its R&D spend in domestic operations over the past few years. The company increased its R&D from 3.3% of total sales, to 6.3 per cent of its total sales in FY-14 The average annual capital expenditure over the past three years around Rs 25,000 crore. The company expects to raise it to Rs 40,000 crore in the coming years. In the coming months, the sales of domestic car makers. Including Tata Motors may come down if the monsoon rains dwindle in quantity, affecting the purchasing power of consumers. But given the long terms strategy that Tata is working on, it looks that the company can only go up as it has already hit the bottom.
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Cleaning up Ganga has been a key election manifesto promise made in 2014 by Bharatiya Janata Party (BJP). Though the Narendra Modi-led government completed more than an year in office, it is still struggling to come up with a concrete plan to clean up the river that swallows millions of tons of industrial waste every day. According to Economic Times, the government is working on a voluntary self rating scheme for the industry, gram panchayats and ashramas discharging wastes in the river. According to the report, the scheme will link the release of funds from municipality on the basis of the ratings that different bodies have. The blue print of the scheme has excited the waste management companies. However, experts remain indifferent to the government’s efforts due to the voluntary nature of the proposed scheme, which according to the newspaper, is in the making, under the title Nirmal Ganga ratings. Priyavrat Bhati, head of Centre for Science and Environment’s Industry Programme says,”Only those who are not polluting would go for a voluntary pollution rating. Unless and until you impose a low on everyone, why would someone abide by it?” According to a 2012 Central Pollution Control Board report, successive governments have spent over Rs 20,000 crore on various clean-up projects. The first Ganga clean-up project was announced in 1986 by with an expenditure of over Rs 800 crore in the first phase. The second phase of the project cost the government around Rs 500 crore. However, after three decades since the first Ganga clean- up plan the river is more polluted than ever before. The NDA government in its first budget had allocated a little over Rs 2,000 crore to the Ganga cleanup plan under the title Manama Ganged. Apart from this, the government plans to spend Rs 20,000 crore over the next five years. Sameer Rege, CEO of Mailhem Ikos Environment Pvt. Ltd, a waste management company, is excited about the opportunities the proposed voluntary scheme will throw for his company. “Companies that are serious about having ratings will go for waste management. So far most of the waste management projects came through the municipalities. However, now even the private sector companies would be interested in starting their own projects” Ganga has largest river basin in India in terms of catchment area, which constitutes 26 per cent of the country’s land mass and supports about 43 per cent of its population.
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If you play in the share market and have the capacity to invest Rs 10 lakh in an IPO, very soon you might be buying the shares of an India start-up. But be cautious, as the relaxing of norms for the start-ups by the Securities and Exchange Board of India may make a lot of investors lose their money. “Start-ups by their very nature are risky investments. Thus Sebi has done well to keep the retail investors out of the start-up market. The retail investors, given their limited access to research and data, are ill-placed to take exposures in companies with fewer disclosures. However, institutional investors should also remain wary since rules such as these doing away with standard valuation parameters such as P/E,EPS (which of course may not be relevant for start-ups) may have a tendency to create a bubble in the start-up market which may bust later on,” said Deep N Mukherjee, Senior Director, Corporate Ratings, India Ratings & Research. The decision has been taken despite historical data indicating that a majority of IPOs start trading below their listing price within one year of their launch. According to data provided by Prime Database, in 2008, 81 per cent of the listed IPOs were giving negative returns within one year of their listing. In 2009 and 2010, the percentage was 50 per cent and and 82 per cent respectively. The situation was a little better in 2014 because of the stricter disclosure norms that Sebi had brought in for traditional companies. However, the relaxation for start-up in the disclosure norms is likely to spurt the percentage of negative returns once again. Mukherjee further adds “if there are not enough disclosure by such companies, investors may lose money because start-ups often have unique business models or products which may only give an illusion of easy understandability." According to the Sebi statement, the standard valuation parameters such as price to earnings, earnings per share and so on may not be relevant in case of many such (Start-ups) companies and the basis of issue price may include other disclosures, except projections, as deemed fit by the issuers. By doing away with disclosures like price to earnings, earning per share of the company, Sebi is allowing the companies to not disclose the profitability of the businesses. Instead of these norms, the companies will be disclosing information like ‘traffic on the website, conversion of visit into customers etc. “A lot of tech companies have not made money in many years. There would be many such companies which will look attractive as per revenue but take decades ,if ever to generate free cash flows,” adds Mukherjee. For example, Jabong, an online fashion retailer, incurred a loss of Rs 293 crore on revenues of Rs 438 crore in 2013-14. This means the company loses Rs 33 on revenue of Rs 100. Even Flipkart, the largest online retailer by revenue, has not made profit yet. The company is valued at $11 billion but investors like Rakesh Jhunjhunwala have questioned the business models of the company openly. While Sebi is under pressure to stop the flight of Indian start-ups to the foreign markets to raise money, but it also needs to ensure that the Indian investors do not lose money by investing in these companies. Sebi is treading a risky path by allowing start-ups to list without letting investors understand their business models. A question from Jhunjunwala in a TV interview explains the risk of investing in start-ups, “the real companies who have given returns to investors had been built by the cash flows of those businesses, not by investors”. We know that most of the Indian start-ups have been burning investors’ money to show revenues on their books. Should one invest in such start-ups without knowing enough about their profitability?
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A leading financial daily reported that the US headquartered Pepsico is planning to reduce the sugar and salt content in its products in India. It will do so by launching a new drink with less sugar content. The move comes in the backdrop of countrywide ban on Maggi and the fall in the brand value of Nestle’s products after the Food Safety & Standards Authority of India (FSSAI) found that the two minute noodle product of the company had high lead content. Is Pepsico really serious about the health of the people in the country that they have decided to listen to the voice of health critics, who have been criticising Coca Cola and Pepsico for using high level of sugar and salt in their products? The answer is no. The brand of a beverage company is built over the years by getting people used to a particular taste. These tastes were developed over a century ago (Both Pepsi and Coca Cola are over 100-years-old brands) with beverage companies launching new products over all these years. Over the years, Pepsico and Coca Cola, both companies have faced various charges from the food safety standard bodies of different countries for selling unhealthy levels of sugar to people through their drinks. If the Cola companies are so serious about the health of their consumers, they should either discontinue with their flagship products or reduce the sugar content in them. In the past, Pepsi and Coca-cola both have tried their hands at low calorie products with less sugar content. However their products did not do well in comparison to their regular carbonated drinks. Neeraj ThakurIn India, the debate is not just about Sugar and salt levels but also about high levels of Pesticides by these two beverage giants who are known for having different standards for different country (Read Pesticides in soft drinks) . But in the absence of uniform safety standards for soft drinks in India, these companies have continued to serve people what may not be possible in the US and Europe. In this backdrop, it is the duty of FSSAI to come with strong guidelines for all beverage makers in the country to define the level of various ingredients in their products. In deciding those standards, we must follow the international norms prescribed by the World Health Organization. The World Health Organization recommends "sugar should make up less than 10 per cent of total energy intake per day". The West is also struggling to set uniform standards for the carbonated drinks industry. India on the other is struggling with deadly content like lead in its food products. However, it is time that the Indian food authority raises its standards and put a benchmark on lesser evils like sugar, which may not be as harmful as lead but is dangerous nonetheless.
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After the Hero group, Bharti Enterprises' decision to enter the renewable energy business, a completely new field for the company, is surprising but not shocking. Founded in 1976, the Bharti group has ventured into various fields including Telecom, Retail, Insurance and Wealth management. But is it so easy for a company to enter the renewable sector in India with amateur group in renewable sector like Softbank? The Japanese technology giant has a very small portfolio in the Solar energy and Foxconn which claims to have some expertise in manufacturing solar panels is known for making Apple Iphones. One must note that the Bharti group entered the retail business with an international player like Walmart and the insurance business with AXA. However, the move to invest as much as $20 billion over the next 10 years into a relatively new area for Softbank and completely unknown sectors for India’s Bharti and Taiwan’s Foxconn shows the easily available funding for the sector in the international market. According to Salil Garg an analyst at Fitch India Ratings, "Renewable energy offers huge opportunities for companies to enter the business. The government supports it with preferential tariff, renewable power obligation etc. Moreover, there is plenty of funding available for the sector. So due to tariff and tax benefits and the less time taken to set up a solar power plant, the return on equity is also very good." Moreover, a solar power plant takes around one year to reach the production cycle after funding and clearances as against a gestation period of 5-8 years for a thermal power plant. Moreover, due to rapid changes in technology, the developers have befitted and it is hoped that within next two years the solar energy would be cheaper than the thermal energy. This would not make the Return on Equity higher for the developers in the coming years. However, a major concern in the short term remains with the capability of state discoms to buy expensive solar power under the renewable purchase obligation. At present, the cost of solar power is above Rs 5 per unit, which makes it almost double the rate of average cost of thermal power under the power Purchase Agreements. Another problem that the sector faces is that of acquiring land for the projects. Given the failure of the NDA government in getting consensus on the Land Acquisition Bill it looks unlikely that this problem will be resolved anytime soon. How the company manages to sail through these challenges will decide whether Bharti will be using its own solar power panels to run its mobile towers.
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India has moved down to 61st place in terms of foreigners' money in Swiss banks and it now accounts for a meagre 0.123 per cent of the total global wealth worth $1.6 trillion in Switzerland's banking system. While not every penny lying in the Swiss Banks is black, a substantial amount of it is unaccounted for and falls in the category of black money. Does the latest ranking in Swiss money provide a reason to cheer? On the face of it, anybody would like to pat the NDA government for launching an attack on the black money. The government has used a threatening language for people involved in the generation of black money and has brought the black money law to walk its talk on the issue. But one must be cautious before giving any credit to the government. Rather, by the end of the story this story you would want to question the intent of the government in controlling the generation and spread of black money in the Indian economy. Data collected by Global Financial Integrity between 2006 and 2014 suggests that Switzerland has ceased to be the favourite destination for Indians to save their black money. Between 2006 and 2014, the amount of money parked in Swiss accounts has consistently come down, except for 2011. The figures in the chart suggests that the rich Indians have got wary of investing in Swiss banks because the of the constant pressures from governments all over the world over Swiss authorities to curtail the parking of black money in its banking system. So where is the money going? In 2014, as much as three-fifths of India's total gold imports came from Switzerland, reflecting a significant jump in just a couple of years. India imported 471.9 tonnes of gold from Switzerland in 2014, hinting that the Indians have been over invoicing their gold imports from Switzerland to bring back the black money as white money in the country. In India, most of the jewellery transactions are in cash and tax is levied only on cash purchases of 500,000 rupees or more. This means most of these transactions remain unreported. Bringing Back MoneyA recent report by a real estate consultancy, CBRE revealed that in India as many as 1.2 crore newly constructed houses are lying vacant. Where is the money coming from to invest in these never to be sold properties? Of course it is the black money. Other than gold and real estate, the traditional way of bringing back the money into the white economy is by way of foreign direct investment (FDI). A look at the FDI inflows to India reveals that most of the companies investing in India rout their money from Mauritius to avoid tax through paper companies. Between 2000 and 2015, Mauritius accounted for 35% of FDI inflows to India followed by Singapore at 12%. All other countries account for less than 10% in making foreign direct investment in India. Mauritius is a tax heaven with no taxes for offshore companies and offshore bank accounts; the jurisdiction provides confidentiality and privacy for both individuals and corporations and has laws which allow flexibility. So a large part of the FDI investment that has been coming to India, including the 40% growth registered in 2014-15 at Rs 1.76 lakh crore could be the black money. Any government that wants to curtail the black money will have to deal with the challenge of attracting FDI in the Indian economy through fair channels. Till then governments can only bring in white papers and amnesty schemes to live up to the hype that they create around the issue of black money during elections.
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