Friday, August 31, 2012

Mittal Champions Trust and Swordfish Investments

As the world emerges from global recession, businesses should focus on restoring their profitability. But only short-sighted businesses do so at the expense of the pursuit of a broader purpose, writes Amit Bhatia, scion of the l. N. Mittal group, founder of Mittal Champions Trust and Swordfish Investments

One example in which I am personally involved is the Mittal Champions Trust, set up in November 2005 to encourage the next generation of great Indian athletes. It aims to provide the training, coaching expertise, equipment and nutrition advice to those who otherwise might not fulfil their potential. We have already had some notable successes, not least Abhinav Bindra bringing home India’s first Olympic gold medal at the Beijing Games in 2008.

Success at international sporting events not only brings considerable pride to a nation; it also encourages children to pay more attention to health and fitness and teaches them valuable lessons about teamwork and focus. I am extremely proud of the work of the Mittal Champions Trust and hope that we can bring home more medals at the Commonwealth Games later this year.

Since becoming an owner of Queens Park Rangers and subsequently Chairman for its charitable organisation, QPR Community Trust, I have taken great pride in the endeavours to utilise the QPR brand to enhance the lives of those in the local community and further afield. While success on the field and the club’s business infrastructure must always be of greatest importance, the Trust also uses its resources and influences to support over 100,000 young adults each year.

The well-known business writer Jim Collins has always argued that it is those businesses with a strong purpose beyond profit-making that will be most successful in the long-term. Certainly ArcelorMittal, the company founded and run by my father-in-law Lakshmi Mittal, follows this approach strictly.

ArcelorMittal’s employees are engaged around the common purpose of helping to facilitate the infrastructure of the modern world. It does this predominantly through the product it makes, but also through the work of the ArcelorMittal Foundation in addressing various social issues. ArcelorMittal’s investment in community projects throughout Brazil is one of the reasons why the company was recently acknowledged as the best company to work for in the country. Given Brazil’s importance to ArcelorMittal globally, this really is an example of doing well by doing good.

A successful business is a socially aware business and one recognises that with investment and growth comes a greater purpose: responsibility to individuals and society. This requires a real commitment – not just money, but time, resources and strategic priority. This is why many businesses in the developing world focus on projects that, after initial investment, become self-sustainable.

It is only by paying more attention to the quality of life, in the broadest sense, of the communities in which they work, that businesses can hope to achieve lasting growth and prosperity. This requires a purpose beyond the simple pursuit of profit and organisations with a desire to succeed over the longer term would do well to continue to remember it.


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Thursday, August 30, 2012

India’s new lifeline

Mending legal loopholes can make India the pioneer of surrogacy tourism

In a town called Anand, Hansa and her husband worked round the clock to provide themselves with four square meals a day. Hansa works in Kaival Hospital, which has been home to several surrogate mothers. Unable to meet their own and their three-month baby’s needs, Hansa made the decision to lend her womb in return for money. There are many women like Hansa who choose to become surrogate mothers only to earn that pot of gold. In fact, after it was legalised in 2002, the country too has been benefitting from the cash inflow. Being a financially feasible destination for foreigners, India is becoming a hub of surrogacy tourism. Until now, this little-known money-minting industry operated almost like the prostitution industry – with no rules and marred by social stigma. Now, attempts are being made to introduce legislations to this growing practice.

One of the proposed rules suggests that the child would gain automatic citizenship of his/her home country. In 2009, a Japanese father was caught in a legal tussle when he was refused custody of his child born through surrogacy, after undergoing a divorce, because Indian law does not allow the father to take custody of the child. An automatic citizenship would at least stop similar legal battles over the child. According to another regulation, clinics will be disallowed to perform procedures like sourcing, supplying and nursing surrogate mothers. The head of Akanksha clinic in Anand, Dr. Patel has carried the responsibility of surrogacy successfully since years. It makes little sense to establish a law that prohibits a hospital to carry out the process from beginning to end. Keeping the clinics away from prospective “malpractices and corruption” is the justification, but the rule still remains questionable.


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Wednesday, August 29, 2012

YAHOO! INC.: QUESTIONING ITS PRESENT AND FUTURE

From misjudged partnerships to acquisitions of misfits, Yahoo! has done all to curdle its business model & jeopardise its future. Time is less & dollars are precious. Can Carol Bartz fight inevitability? by Steven P. Warner
 
Where Bartz lacks most is where Yahoo! continues to lose out to Google: online-advertising. Its revenues from search-based ads for Q2, 2010, was $331 million – a y-o-y fall of 8%. Credit Suisse estimates the revenue from this stream to dry-up further – a 9% y-o-y fall for FY2010. As Jason Helfstein of Oppenheimer tells B&E, “Yahoo! search continues to suffer from search monetisation issues. Yahoo! is the leader is display ads and is the #2 search player, but it has lost share in both businesses...” Translation: advertisers have started doubting Yahoo!’s competence as an effective web engine, thanks to its confusing mix of product pedigrees. And for this, Bartz (along with her predecessors) can take as much blame. Since 2007, the company has spent $2.81 billion in acquisitions, higher than its aggregate income of $2.70 billion – most of the targets proving wrong chords for its yodel. And the prized catches? Rivals.com, BlueLithium, BuzzTracker, Zimbra, FoxyTunes, Maven Networks, Inquisitor, Xoopit, Maktoob.com, citizensports.com, Associated content and Koprol. Yahoo! could have bought a stake in Facebook for $2.70 billion instead!

Bartz has to understand that Yahoo’!s search and mail platforms are its flagship revenue earners, and that she has to improve them through partnerships, the right partnerships. Its 10-year alliance with Microsoft Bing, which seems to be bringing little to Bartz’s table, is a lesson. Yahoo! expected annual earnings of $500 million from this arrangement. Four quarters later, benefits have totalled $164 million. As per Goldman Sachs, the reimbursements over the next four years will fall $630 million short of expectations. Since the deal, Bing’s US search engine market has grown by 4.30% to 12.70%, while that of Yahoo! declined by 0.70% to 18.90%.

We see a similar mistake in the making in Japan today, where Yahoo is #1 in search (57% market share). On July 30, 2010, it entered into a partnership with Google (the #2; 37% share). As per the deal, Yahoo! Japan will switch to Google’s search engine starting Q4, 2010, and will use Google’s online ad system. Yahoo! will also pass on online shopping and live ad-related auction data to Google. Market experts claim that the deal will give Google a literal 94% control over all ads in the world’s #3 search ads market. Google’s top brass is pleased. Yahoo!’s investors are not. Another year, another wrong partnership for Bartz.

Bartz has other obstacles to leap over, including an execution risk of turnaround efforts, pricing pressure on its network business, potential loss of network partners and increased opex due to competition. She can’t also try to simulate the diversification efforts of Google, Microsoft or Apple. These companies have the dollars and time. Yahoo! doesn’t. Experts around the world have started expecting less from Yahoo!, as James Mitchell of Goldman Sachs tells B&E, “We cut our future revenue estimates by about 5% on 2Q, 2010 performance, reducing our income estimates by 10-20%. Our new 2010E/ 2011E/ 2012E EPS are $0.92/ $1.12/ $1.30, down 3%/9%/5%.”

Bartz has to learn from both Google & Bing and scout for “profitable” revenue-sharing agreements with localised search engines like Baidu (China, with a 77% market share), Yandex (Russia, 94%), Seznam (Czech republic, 62.5%), Naver (South Korea, 61%) et al. Any other strategy, except a sell-out, would be fatal. [As we go to print, Bartz is planning to acquire Fwix, a local news feeds network.]


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Tuesday, August 28, 2012

The next Helsinki debacle!

In a span of four years since Kallasvuo took over as CEO of Nokia, the company remains the overall mobile phone dominant market leader. But of late, the leading handset manufacturer finds its position growingly threatened by competitive trends. Clearly, a major transformation is in order, and the sooner the better. by Virat Bahri

Olli-Pekka Kallasvuo declared in a recent shareholder meeting that 2010 was a key year for all of us. Incidentally, the statement now holds special relevance for Kallasvuo himself, amidst rumours that the Nokia board is on the look out for a successor. Shareholders have been pressing for a change for long, so Kallasvuo is headed for the history books alright. His most daunting challenge is to ensure that it is for the right reasons.

When Kallasvuo took the reins as CEO in 2006, it was a different world, where Nokia was undisputedly the number one mobile handset manufacturer — a brand that was as clean, unblemished and formidable as could be; with an array of products that were unparalleled. In fact, players like Motorola and Samsung had their moments of success, but the leader was largely successful in keeping competition at bay and staying in the good books of investors. Kallasvuo soon initiated a landmark transformation at Nokia through the much-touted diversification into internet-based services.

For the record, Nokia remains number one in the handsets business, with a market share of 35% for the first quarter of 2010 (), albeit a decline of 1.2% over the previous year. Yet, there is a marked dampening of market sentiment in just a span of four years. Nokia’s shares closed at $22.06 on June 1, when Kallasvuo became the CEO and they were last trading at just $8.82 on July 19. Market capitalisation at $32.54 billion on this date is apalling for a company that saw m-cap levels hovering at $250 billion levels around a decade ago.

The devil is in the fine print, as they say. To put it more specifically, Nokia should have to make every buck work much harder to retain its leadership position today compared to 2006. The leading handset manufacturer has suffered a significant squeeze on its financials in 2009, with net sales at €41 billion (down by 19.2% yoy) and operating profit at €1.2 billion (down by 75.9% yoy). The first quarter of 2010 was better, due to the base effect of 2009, with net sales at €9.5 billion (growth of 2.6% yoy and operating profit at €488 million (up by 787% yoy).


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NIPUN KAUSHAL, HEAD – MARKETING, ICICI PRUDENTIAL AMC

Nipun Kaushal, Head – Marketing, ICICI Prudential AMC talks about the need to educate investors

Any media vehicle you will be using extensively in the future?
The advertising campaign objective determines the media plan. We look at a multi-media approach to reach our investors effectively. For instance, we look at TV and print to emphasize on product specifics, reach out to smaller cities and get maximum eyeballs. Outdoor is utilised to leverage exposure and presence. Going forward, digital as a medium (though not fully utilised yet) will form an important & integral part of our strategy, given its increasing reach & relevance.

How are you planning to educate people on financial planning?
We believe that category awareness and facilitating financial literacy is crucial to increase MF penetration while benefiting investors. We constantly interact with investors directly through various forums like investor camps, financial literacy drives, et al. For instance, on the tax side we organised roadshows wherein canters with messages about tax awareness were stationed near distributor offices. The objective was visibility and lead generation with due involvement from distributors. The activity helped create a lot of buzz along with increasing awareness amongst investors. This apart, communication through the media by information articles have been regularly initiated. In near future, we plan to do Adverts, custom contact point programmes and distributor meets and also carry out some awareness programmes online.


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Monday, August 27, 2012

You did what?!!

The govt deregulates oil prices – and takes the most dangerous step in our economic history to become a disaster prone ‘oil-shock’ economy

Since when did deregulating oil prices become a sensible step towards boosting economic growth? Did we miss some lectures during graduation or were we altogether in the wrong Sheldonian Theatre course? Don’t get us pseudo Galbraithians wrong – we’re not against any oil price hike; in fact, we rabidly support it. But to undertake a flabbergasting decision to blindly deregulate oil prices – in order to allow it to fluctuate according to global oil movement vagaries – is the most dangerous step ever in India’s economic history. The act by India’s Empowered Group of Ministers (eGoM) of the United Progressive Alliance (UPA) to initiate the deregulation process of petroleum products a month back, fails to recognise that all global recessions in recent history have had a common cause for occurrence: energy price rice. Or are the memories of the 2007-08 economic recession already forgotten unbelievably?

Post the eGoM moves, petrol prices have already gone up by Rs.3.50 per litre. Though diesel price deregulation is on hold for now, prices have still been raised by Rs.2 per litre. Similarly, the price of the domestic Liquefied Petroleum Gas (LPG) has also been further hiked by Rs.35 for every 14.2 kg cylinder. Kerosene has got dearer by Rs.3 per litre to cut the government’s fuel subsidy, which stands at around $25.6 billion.

One does honestly appreciate the fact that India’s Finance Minister Pranab Mukherjee is quite serious at reducing the fiscal deficit burden – something he had mentioned in his budget speech with sincerity. To that effect, a calibrated price hike is completely logical, but a sudden deregulation is frighteningly irrational and a spectacularly risky affair. James D. Hamilton, Professor of Economics, University of California presented a benchmark paper drawing a correlation between oil price hikes and subsequent recessions. The recession that America witnessed during 1973-74 was preceded by the 1973 oil crisis when the members of Organisation of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members and Egypt, Syria and Tunisia) called for an oil embargo against US decision to re-supply weapons to the “Israeli military” during the Yom Kippur war. OAPEC decided to increase oil price by 70% to $5.11. Moreover, due to unforeseeable threat with regard to oil import, oil price went up from a mere $3 to a whopping $12 per barrel. The second oil crisis US went through in 1978 was due to the Iranian revolution which disrupted the oil production and supply from Iran. During this period, oil price soared from $15.85 per barrel to the historic high of $39.50 per barrel. This was followed by the Iraq-Iran war that had a huge impact on the severe recession during the 1980s. The relevance of the irrational price rise to the tune of $147 per barrel prior to the recent downturn cannot be given up either. Even the Dubai crash last year was due to the sudden oil price fluctuations. Rises in oil prices fuelled the real estate bubble and the subsequent fall almost brought the economy on its knees.


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Saturday, August 25, 2012

THEORY ‘I’ OF M&AS

This study was undertaken purely to analyse the changes in market capitalization, revenues and net profits of Indian companies acquiring other Indian companies/foreign companies. The results went against all known research till date and were more eye opening than we could ever imagine... or you could!

And not just globally, this hypothesis seemed to hold true on the Indian terrain as well. Notably, the February 2008 paper by Sumon Kumar Bhaumik and Ekta Selarka (William Davidson Institute), titled Impact of M&As on firm performance in India: Implications for concentration of ownership and insider entrenchment, proved that “during the 1995-2002 period, M&As in India led to a deterioration in the firm’s performance.” They also found that neither the investors in the equity market nor the debt holders “can be relied upon to discipline the errant management.” K. Ramakrishnan, in his report M&As in India: The long term post-merger performance of firms and the strategic factors leading to M&A success, after studying 87 pairs of merged firms between 1996 till 2002, concluded that “as far as wealth gains on merger announcement are concerned, only the shareholders of the acquired firms appear to be enjoying significant positive share price returns of 11.6%. The shareholders of the acquiring firms and the combined firms do not seem to be witnessing any significant change in returns.” Clearly, despite their positive intentions, India focused researchers had no idea that mergers have to be analysed separately from acquisitions; which is what we did.

Historically, it has been believed that acquisitions for the most part have destroyed shareholder wealth for the acquirers and have created wealth for the acquired target companies. Most notably, Robert F. Bruner, Dean, Darden School of Business, after studying evidence from 130 studies during the period 1971 to 2001 summarised that “target shareholders earn sizable positive market returns, but bidders (with interesting exceptions) earn zero adjusted returns, and that bidders and targets combined earn positive adjusted returns.” The research has held through the past years and Nobel Prizes have been won proving the same – that acquiring companies destroy their shareholders’ wealth and their performance, while acquired companies gain significantly in all performance parameters.

However, almost electrifyingly, our research found quite the opposite – and that is, in India for all recorded acquisitions (that could be validated and authenticated with respect to deal values through third party archiving sources) during the years 2000-06, acquirers have in general not only gained market capitalization for their shareholders, but also gained fantastically in revenues as well as net profits. Of course there were exceptions – no wonder Malcolm Gladwell made his money making the term ‘outliers’ famous – but they remained just that, exceptions! All in all, Indian acquisitions have gone splendiferously against what global researches for years have proved. And that is what makes this research extremely important – as it provides Indian CEOs with the first and most contemporary ready-reckoner guide of what to expect while going on the dangerous path of acquisitions.


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Thursday, August 23, 2012

THE FIRING THAT BACKFIRED!

JET AIRWAYS FIRED AND RE-HIRED THOUSANDS OF EMPLOYEES AFTER MUCH DRAMA IN LATE 2008. SO WAS THE INCIDENT A WAKE-UP CALL FOR THOSE WHO DISBELIEVED IN THE POWER OF EMPLOYEE ACTIVISM?

Many would take it as a minor hiccup today, but Oman Airways’ Neha Jalan is still trying to bury her hag-ridden experience on the night of October 13, 2008. Then an air hostess with Jet Airways (for over a year), she has lived the experience of what one can call “retrenchment mismanagement”; luckily, she only just about lived it. Late that Monday night, at about 10pm, she received a message on her phone. It was from a friend, Kunal. The message read: “I’ve been derostered”. Kunal had been with the airlines for the past five months. Neha then called up the Area Manager Vipul Jalan who was in the rostering department at Jet’s New Delhi office. On inquiring whether a similar fate was in store for her, he replied: “Don’t disturb us right now. There are too many calls. And don’t worry, you’re in the safe zone.” That was some relief; but only just.

Neha had to report for an outbound domestic flight at the New Delhi domestic airport at 4 am. Usually her cab arrived an hour before the reporting time. But that morning, even at five past three, the cab hadn’t arrived. “I called up the rostering office and they informed me that it was just a logistics hitch,” recalls Neha. The cab arrived soon after. She met a fellow crew member, who received a call during their 40-minute long drive to the airport. After the call ended, he said, “My friend’s cab didn’t arrive. He’s been told that he has been derostered!”

There is a typical smile on her face today, as she recalls those moments, but one would lay no wager on the fact that she was at all comfort then. Says Priyanka Dubey, who was then an air hostess with IndiGo, “Jet’s crews were being sacked, without any logical reason. The authorities just told them that they lacked skills and the airline is unable to take them on board! We all were frightened. Thankfully, nothing of this sort happened at IndiGo.”

But it wasn’t the first time that Jet Airways had taken a mass layoff decision. After its merger with Sahara, it had quietly doled out pink slips to 1,200 of its employees. Even its low-cost arm JetLite had given out a “separation plan” to another 700 in July 2009. Twice it had done much to lighten its boat, twice without much media frenzy. It tried a third time with 1,000 more. This time, the bear trap got its foot!


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Wednesday, August 22, 2012

Bipasha in the buff

In 1999 when Bipasha Basu was cutting a career for herself as a model in USA, she featured au naturel in an ad for a New York lottery. The ad showed her as a Rajasthani bride getting ready for her marriage, and its tag line had read ‘All you need is a dollar and a dream.’ Now, the ad has been unearthed and put up on YouTube and Bipasha is aghast but also defiant of the ad, and says that it is beautiful and she’s proud of how she looks in it. As bold as ever, that’s Bips for you!


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“Manufacturing is our Biggest Bet!”

Orissa’s Finance Minister talks to B&E’s Subrat Swain about how private investments will help orissa grow

 B&E: Which sectors according to you are the biggest contributors to Orissa’s GDP? Do you think that these very sectors will ensure sustainable growth for the State over the next few years?
PG: Agriculture and allied activities as well as mining and quarrying are the highest contributors to GSDP. They are followed by finance & services, manufacturing, and transport & communications. With large scale investments coming up in the manufacturing sector, naturally, its relative share is expected to rise dramatically in the coming years. The agricultural and mining sectors will also grow. We also have great hope for the services sector. But modern age manufacturing prowess remains our biggest bet.

B&E: Service industry contributes to nearly one fourth of the state’s GDP and is growing at a high 23.13%. So if we are to understand it right, despite the promises from the service industry, you have higher expectations from the manufacturing industry?
PG: Naturally, we do expect much more from the manufacturing industry due to the huge amount of investments being made in this sector. The next goal is to make Orissa a powerful manufacturing hub. However the good news we have at present is of a ‘balanced’ contribution from both these industries. And with the availability of skilled manpower, both manufacturing and service are poised for a high growth.

B&E: Which are the new sunrise industries in the State?
PG: The State will soon become a hub of mineral based industries and power plants. These will have a manifold impact upon the productivity of other industries as well, besides providing employment to a large population in the State.

 B&E: How much will education play a role in ensuring the high and sustainable growth of Orissa?
PG: National level institutions and other specialised institutions are coming up in and around Bhubaneswar. The State has also become a hub of education with about 100 engineering and technical colleges.The educational institutes being set up through private initiatives are also of a very high standard. The State government is also contemplating to revamp the higher education system. An additional Secretary to Govt. Task Force has been set up for expansion of higher education in the State. All these factors would ensure availability of quality manpower.

Read more.....

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