IIPM- News Articles

Wednesday, March 06, 2013

Throws light on Czech’s post-USSR relations with Russia

In an exclusive conversation with Akram Hoque and sayan ghosh, H.E. Miloslav Stasek, the Czech Republican Ambassador to India, shares his views on EU, NATO and US and throws light on Czech’s post-USSR relations with Russia.

B&E: How are your relations with post-USSR Russia?
MS: We accept each other. We understand Russia is a superpower. It is a very important source of energy because most of the oil and gas coming to Czech Republic is sourced from Russia. In this perspective, Russia is our strategic partner. However, Russia must accept that we are an independent country now. The political dynamics of central Europe have completely changed. We are a member of Western Europe now. The issue of establishing American defence systems is being addressed and we are having regular discussion with Russia on this front. With the new American administration in place, Barack Obama is now thinking of a new system which could handle this issue.

B&E: There are strong rumours that Czech Republic wants the loans ($10 million) back that it gave to Communist countries like North Korea under your Communist regime. Your comments?
MS: We want all our money back (laughs)! After the collapse of the communist regime, we would like to settle all our debts unofficially with all the countries. The money loaned out was invested in some projects that were initiated through the government. We are now talking to international institutions like IMF to find a solution for this issue. North Korea is not the only country where our money is. There are countries like Sudan ($11 million) and Bolivia where these issues need to be settled.

B&E: There has been negligible criticism over hate-crimes against minority groups like Gypsies. Is the Government bothered about this?
MS: The government is bothered and we have assigned one of our ministries the charge of this entire issue. The ministry is focussing on how livelihood of Gypsies can be improved. They have all the rights like any other citizens. The problem is the integration of Gypsies in the national society because they live in cross communities. They don’t send their children to school even for basic education. So the challenge is to change their mentality. That is also a problem with US and Canada.

B&E: As an Ambassador, what are your plans for fortifying relations between India and Czech Republic?
MS: I will do all I can to enhance the extended relations we have with India. I will try to enhance people-to-people, economic, cultural, security and military cooperation. There is a huge potential and we would like to benefit from the economic development of India.

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Monday, March 04, 2013

FORD INDIA: VANTAGE POINT

From a company that was normally counted as an interesting niche player in India, Ford has suddenly become the flavour of the season with the Figo. Our editorial team member walks through Ford one fine lazy afternoon and gives ‘the scoop’ by Sanchit Verma

He proved to be right on the money, as the Figo has changed the entire status quo for the company in just about three months. Thanks to Figo, Ford now stands about neck-to-neck with GM (19,964 units) in the compact car segment with sales of 18,495 units in the April-June period (compared to just 221 units last year). The first ever compact car by Ford India sold more than 17,000 Figos and over 24,000 purchase orders in place already and that's within its first 16 weeks in the market. In fact, advance bookings are touching the 6,000 figure, which creates a different set of problems for the company. Figo's fuel efficiency and highly competitive price have given Ford the momentum it needs to potentially disrupt the market dynamics in the automotive sector. Great start. But as the Honda tagline goes (changed to my choice): Why so late? It must be my imagination, but I can almost feel a bubbly new-found energy on this visit to the Ford plant. A senior worker tells me that the plant is based on the One Ford strategy initiated by Mulally, which is aimed at better use of common Ford design platforms globally and greater integration of production & purchase teams. I nod away; I’ve read it somewhere already.

"The engine plant was created with a 'best of the best' approach," says Michael Boneham, President & MD, Ford India, when he meets me. He seems a picture of exuberance and optimism – competitors tell me that that’s been the case since the success of the Figo (but again, read his interview to me in the latter section of this story). As I walk through the stamping, body and paint shop, I get a better view of the all new revamping being done to transform a manual assembly hub into a globally standardised and technologically advanced manufacturing hub, which will have over 4,000 employees working in-and-out. Along with them, a team of 92 robots (imported from Korea) also work round the clock to achieve production efficiency and quality paint jobs with high degrees of accuracy and quality, applying the new three-step wet solid paint and giving the glossy finish. The plant is poised for big volumes as it has doubled its capacity since renovation. As I move on, I come across the flexible assembly line, which assembles both of the 1.4 litre diesel and 1.2 litre petrol engines. I reach the TCF part where the interiors, chassis, engines and wheels are fitted, before it passes onto quality testing. Here it passes environment tests as per emissions norms – I look and marvel at the car as it is rolled out, giving out an impression of being an advanced engineering graduate; I’m not, but what the heck.

I’m told Ford has finally gone the way of localisation to reduce total cost of ownership. Add to this the investment, led by Ford Motor Company, in Figo – and the combination is apparently winning. It has led Ford India to take a new route and has given it capital leverage to rapidly build up a dealership network. Ford has a current network of 166 dealers, which it plans to expand to 200 by the end of this year. On a competitive basis, Indian consumers are known to be very particular about ease of serviceability – at least my dad is – and this gives brands like Hyundai and Maruti an exceptional advantage. If Ford manages the same, it would potentially be a good push for their up-market portfolio too.

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Saturday, February 09, 2013

BP (ERSTWHILE BRITISH PETROLEUM): GULF OF MEXICO OIL SPILL DISASTER

B&E’s Steven Philip Warner talks to various global oil & climate experts from the likes of Goldman Sachs, Credit Suisse, Standard & Poor’s, Argus Research, JBC Energy & Varda Group to find out what awaits BP’s fate? Will BP, which as recently as two months back was the second most valued oil major in the world, disappear?

He still does. And the main one comes in the name of the bill on the clean-up and litigation, which bears the potential to dent huge holes in BP’s pocket. After setting-up a relief fund of $20 billion, in cooperation with the Fed, many experts are forecasting future outflows that could create suicidal pressures on BP’s bottomlines. London-based Kim Fustier, Global Oil & Gas Analyst, Credit Suisse tells B&E, “These total to $28 billion, $35 billion and $49 billion post-tax respectively. We have cut the FY2010-11 EPS outlook for BP by 13% on average to reflect higher clean-up costs and a higher cost of debt. We have cut two quarters of dividends in the second and the third quarter.” BP also has total committed acquisitions amounting to $8.9 billion (as of mid-April 2010), which will further reduce heavily its surplus cash balances, which stood at $5.3 billion, as at the end of March 2010. There is some relief in the form of committed undrawn credit lines amounting to $5.25 billion, however, most of this will fructify only in late 2011 and 2013.

Till date, BP has spent $1.70 billion in the clean-up act; the liabilities are scheduled to touch $6.44 billion for 2010 and $7.08 billion for 2011 (estimates by Credit Suisse). At current oil price levels and debt-equity ratio of the company ($77 per barrel and 30.8% respectively, as on June 22, 2010), the company can afford to pay up anywhere between $6–$7 billion, without disturbing its balance sheet. In defense of BP’s financial competence, Michele della Vigna, Energy Analyst of Goldman Sachs tells B&E, “BP’s cash balances, operating cash flow generation, and bank lines should collectively be sufficient to meet liquidity needs. BP’s near-term financing needs are covered by committed bank lines of more than $10 billion, which would likely obviate the need for BP to turn to the capital markets at a time of stress.” Sounds like the BP ship is prepared for the next iceberg.

But clear and present hope for Hayward’s big oil ship is like spotting a Rolls Royce in Charlotte’s poor suburbs in Northern Carolina. If oil prices fall even slightly below the $70 billion mark, and if BP maintains its current debt-equity ratio, then it can pay up nothing more than $5 billion per year, without raising more capital. In that case, it will either have to opt for higher debt or equity dilution, and in the worst case – sale of assets.

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Friday, February 08, 2013

We take a quantitative stock analysis!

While many international restaurant brands are already in India, a host of others are lining up to commence operations. But almost every CEO B&E met for this story lamented the over-policing by the government... We take a quantitative stock analysis! by Vareen Gadhoke Ray & Swati Sharma

The Economics of Food
Notwithstanding its increased prominence in recent years, the restaurant industry has a history of being fragmented & unorganised, and often suffers the consequence of being compared to the small sweet shops & roadside snack outlets spread across the country. In a market dominated by the unorganised players, the organised segment is estimated to be Rs.70-85 billion [as per "Indian Restaurant Industry 2010", a White Paper prepared by National Restaurant Association of India (NRAI) in association with Technopak Mindscape]. The organised segment of the restaurant industry forms 16-20% of the total restaurant market of Rs.430 billion.

In spite of the slowdown, the restaurant industry in India is still expected to be one of the fastest growing, with a growth of 5% plus until 2011. The organised segment is in fact expected to grow faster than the overall restaurant industry, at 20-25% per annum. And given the faster growth of the organised segment, its share of the pie is expected to increase to 45% (to a size of Rs.280 billion). The reasons for this growth are two fold. First, the growth of current and new organised players, and second some of the unorganised operators becoming organised.

As per a Technopak report, by 2015, the restaurant industry will become Rs.625 billion plus. While this is a fast paced growth, had the Indian restaurant industry occupied a similar share of GDP as the restaurant industry of the US occupies of the US GDP, its value would be Rs.1,800 billion, so the untapped potential is immense. Among the various formats, QSRs & cafes have had the maximum growth over the last few years. While most other countries in the Asia region witnessed single-digit growth, QSRs are expected to grow at 15-20% over the next five years.

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Wednesday, February 06, 2013

A stitch before time?

After having failed to acquire Africa’s MTN, Sunil Mittal has now set his eyes on Zain to enter Africa. But his best bets could be much closer home than he thinks.

Africa? A book one thumbs: listlessly, till slumber comes...”: Countee Cullen

Businesses today couldn’t help but disagree with Countee Cullen’s poetic rendition of the Dark Continent. Companies across the globe have been increasingly laying out plans to acquire invaluable assets in the continent where the fruits of global economic growth have been the slowest in the coming. Understandably, it’s a key to Bharti’s ambitions towards becoming a powerful emerging market telecom giant; ambitions that seem to be growing by the day, undeterred by rounds and rounds of MTN disillusionment.

Bharti Airtel kickstarted 2010 with the announcement to acquire a 70% stake in Bangladesh’s Warid Telecom International (a wholly owned subsidiary of UAE’s Dhabi Group) for about $300 million. This was a landmark deal for Bharti Airtel, as it was the company’s first acquisition in the international market. Though the company also has operations in Sri Lanka, it was not through inorganic route. But given that it is only the fourth largest operator in the entire country and has a current subscriber base of 2.9 million subscribers, the company has made it clear that they might be looking at further acquisition in the Bangladeshi markets. Further, on the heels of this acquisition came out hushed rumours that the company was looking at strategic stakes as well as other options to enter Bhutan.

Add to it the fact that starting from February 15, 2010, Bharti Airtel has entered into exclusive talks with Kuwaiti telecom major Zain to acquire its assets in Africa (except for its operations in Morocco and Sudan). This exclusive talk period would last till March 25, and the deal is expected to be worked out till May. It is noteworthy that this is Bharti’s third attempt to enter the African market as it has tried to woo another MTN to enter into an alliance twice in the past and failed in both the attempts.

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Tuesday, February 05, 2013

Reserve or reverse, it’s his choice; really!

low growth or inflation; it was a tough choice to be made by the RBI Governor. The problem is, despite a quarterly review of the Monetary Policy, he’s still to make the choice, says Manish K. Pandey

It was quite a spectacle on the morning of January 29, 2010, at the RBI headquarters in Mumbai, when a seemingly nervous Duvvuri Subbarao, Governor, Reserve Bank of India (RBI), read out the third quarter review of Monetary Policy 2009-10 in a rather ‘ill-at-ease’ fashion. And why wouldn’t he be? After all, he had a daunting task at hand – to tame price instability without jeopardizing the country’s economic growth. So how did he go about playing with the numbers? While he hiked the cash reserve ratio (CRR) of banks to 5.75% from 5% (this was higher than market expectations of a 50 bps hike on the CRR), he left the repo, reverse repo and bank rates unchanged at 4.75%, 3.25% and 6% respectively. So were these changes enough to guarantee an accomplishment of some sorts?

If one looks at the overnight money market rates, they have remained close to the lower band (3.25%) of the liquidity adjustment facility (LAF) for months now, thereby reflecting the huge liquidity bulge. In fact, the banking system has been depositing over Rs.1 trillion on a daily basis under the LAF window during the current fiscal. Considering this, the two-phased hike in CRR (a 50 bps increase on February 13 & the remaining 25 bps increase on February 27), which is expected to squeeze out Rs.360 billion of liquidity from the system, is certainly not going to make much of a difference to the ongoing supply-demand imbalance. Further on, an immediate hike in interest rates is also an unlikely phenomenon (most bankers have already pointed this out). So the moot question is whether Subbarao has given the right twist to the numbers or not.

Explaining his choice of adjusting the CRR than the interest rates, Subbarao says, “If we had used interest rates, it would mean that the amount of liquidity we would have absorbed would have been more unpredictable.” True, but, was there really a need to tamper with any of them? More dangerously, by increasing CRR, hasn’t RBI made both inflation and growth more unpredictable? In fact, RBI has raised both its growth and inflation forecasts. While on one hand, it raised its end-March WPI inflation target to 8.5% from 6.5% earlier, the GDP growth forecast for FY2010 has been raised to 7.5% from 6%!

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Monday, February 04, 2013

Atleast, we spared their pants!

Two biggest M&As. Who lost? The shareholders. Who won? Mmmm...

When it comes to research, experts from KPMG to Booz Allen have already testified that a blood-freezing 66.67% to 78% do not work to create value or are outright failures. When it comes to examples too, the same holds true; the only difference being that in this case, we even know who the victims are! Let’s begin with the biggest M&A trophy, ever – the much discussed hostile takeover of Germany’s Mannesman AG by UK’s Vodafone Plc in February 2000, for a mammoth $183 billion. A year after the deal, the cultural differences had made living hard for the two families, and Vodafone had put Mannesman’s art collection up for sale (true!). Numerically speaking, today, the value of the duo, which once stood at $365 billion (on day #1, post-merger), stands stripped down to a pathetic $64.46 billion (as of April 27, 2009) – a fall of 83%! So why did the soup go sour? First, the deal was at ‘a wrong price with a wrong rationale…’ Ignoring issues of culture, even their business models differed. Vodafone’s concentration of wireless telephony was in stark contrast to Mannesmann’s focus on fixed-line services. Moreover, the logic behind Sir Christopher Gent (the-then CEO of Vodafone) paying a 55% premium for one Mannesmann share remains a mystery...

Then comes the next biggest from the M&A record book – the $167.4 billion merger between AOL & Time Warner in 2001, making the combine worth a gargantuan $260 billion in terms of Mcap, and the largest media & entertainment company in the world. As per the agreement, AOL shareholders held 55% of the merged entity, while the rest belonged to Time Warner shareholders. (Translation: the tuna had gobbled up the whale!) Getting straight down to statistics, today, the combine’s Mcap has fallen to a lamentable $26.7 billion – an appalling fall of 90% since the merger happened! So what really went wrong? Well, the biggest mistake with the merger was its very ‘timing’. It came just months before the Internet bubble burst in mid-2000, post which there was a huge decline in subscriber growth for AOL. First, it’s ad-revenues water-hole dried-up faster than water from a bottle cap in Sahara, and consequently, it underwent a massive goodwill write-off, due to which the company reported net losses of $99 billion for 2002 alone!

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