Sunday, September 9, 2012

REAL ESTATE: PRICE APPRECIATION

B&E’s argues why real estate developers in India can go the full hog with their price hikes, at least for now; and we add a cheesy realty review to go along with it one last time this year... 

A report by Jones Lang LaSalle Meghraj (JLLM) validates this inference by B&E. As per the report, while residential markets in India have already witnessed a rapid bounce towards higher values, commercial markets too are expected to recover to their previous glory in 4-6 quarters. Even the market value of investment grade real estate in India under construction has increased from $69.4 billion at the end of 2006 to $101.3 billion at the end of Q2, 2010, which equates to about 8.2% of India’s nominal GDP for 2009. No doubt, many markets have demonstrated higher than expected enthusiasm, particularly in the case of Mumbai, Gurgaon, Noida and Delhi. A lot of investors have plugged in considerable amounts of capital in these regions, and the values have, on an average, now gone 30% higher than the last peak.

But then, there is a concern too. The kind of volumes that these markets witnessed in the first half of 2010 are apparently coming down dramatically in the second half. So, does that mean are we looking at the formation of a bubble in the Indian real estate? “It’s possible, but only in the cities where prices have actually skyrocketed beyond affordability. The fact is that local people are still buying homes on an as-needed basis in most tier II and III cities. Nor is the supply in most of those cities either overly constrained or curtailed,” says Sanjay Dutt, CEO, Business, JLLM. Anuj Puri, Chairman & Country Head, JLLM adds to this, “Absorption rates might stabilise if prices continue to display the northward trend we have begun witnessing. Also, a hardening of mortgage rates might lead to decreased affordability, with fairly obvious consequences.”

Of course, there are builders such as the Lodha Group, Tata Housing, et al, who are focusing at the affordable housing segment under the Rs.40 lakh price bracket. However, even affordable housing is now witnessing a price appreciation. For instance, Lodha Group had launched a project called Casa Bela Gold at Dombivali in Mumbai at Rs.1,950 per sq. ft. in March 2010, but now per flat prices are being quoted at Rs.2,700 per sq. ft. Similar is the case with Tata Housing’s project in Boisar in Mumbai. From Rs.1,750 per sq. ft. in 2009 the prices here have reached Rs.2,650 per sq. ft. In fact, this is the case with almost all the so-called affordable housing projects in India. And with circle rates in high value areas like Delhi about to increase by 100% due to government notifications, there is no gainsaying the fact that land costs will necessarily go up further.

Should realty players then think about curtailing prices? Absolutely not! With the current supply gap, it would be both economically illogical and strategically disadvantageous to not cash in on the surplus money currently floating in the market. A few months down the line when the money supply dries up (both due to RBI measures and the demand-supply gap reducing) and interest rates go up further, wouldn’t there be huge loan defaults? Of course yes. But that’s not our problem; that’s the government’s. And we’ll cross that bridge when we come to it. Today, soak in the sun while the hay shines – or whatever that saying was supposed to be!


Source : IIPM Editorial, 2012.
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“We are open to Inorganic growth options”

For Catholic Syrian Bank, the biggest challenge comes from NBFCs and their specialised financing arms. To deal with the increasing competition, the Bank has now implemented several key initiatives to reduce its turn around time for sanctioning loans. V. P. Iswardas, MD and CEO, CSB, talks to Mona Mehta on various challenges and the growing importance of corporate and retail banking in Rural and Semi-Urban Areas.

B&E: Did the global meltdown have an impact on the financials of CSB?
VPI: The bank’s performance has been very satisfactory during the last financial year. While our deposits and advances grew by 10% and 21% respectively, the credit deposit ratio improved to 64.01%. In terms of asset quality also, we have done well to reduce net NPAs to 1.58% from 2.39%. Moreover, in the last year itself, our provision coverage ratio crossed the required 70% benchmark, well before the RBI deadline of September 30, 2010. Also, our capital to risk assets ratio (CRAR) stood at 10.82% as against the regulatory requirement of 9%.

B&E: A break up of CSB’s total revenue indicates that retail banking is the most important business for CSB.
VPI: More than 80% of our branches are in rural and semi-urban areas. Thus, retail banking carries great significance for us. While retail deposits contribute to more than 75% of our business, 70% of our advances are also to the retail sector. Our total revenue from retail business during last fiscal was Rs.3.06 billion, up from Rs.2.97 billion in the previous year.

B&E: But that’s just 3% growth.
VPI: Retail banking always brings in a lot of challenges. Today, the biggest challenge for us in the retail space comes from NBFCs and their specialised financing arms. Matching up to their fast turn around time (TAT) for loan disposals is the biggest challenge for us. Nevertheless, for being competitive, we have not only reduced our personal loan rates, but have also started centralised processing of loan requests. This will help us in bringing down our average TAT and there by generating higher business in the long run.

B&E: Your asset quality is much better than many of the bigger banks in the country. How did you manage that?
VPI: During the last financial year, CSB’s net NPA came down to 1.58% from 2.39% at the end of the previous fiscal. Taking it forward, in the current financial year we are targeting another 25% reduction in the same. The recovery in NPA together with increase in advances will bring down our net NPA to nearly 0.70% by March 31, 2011.

B&E: What about new marketing initiatives?
VPI: At present, we are in the process of converting the bank into a financial supermarket. So apart from making all kinds of banking facilities available at our branches, we have also started offering various wealth management services. For example, we now act as Corporate Agent of Birla Sun Life Insurance Company Ltd. for life insurance and New India Assurance Company Ltd. and Export Credit Guarantee Corporation of India Ltd. (ECGC) for providing general insurance. To bring in students and senior citizens aboard, CSB has launched innovative and unique savings schemes like ‘CSB Students Support Savings Scheme’ and Acharya Deposits. We also have a range of personalised loan schemes like Profession Plus for professionals, CSB Women Support for working women, Farmer support for farmers, Senior Citizen Support for senior citizens et al. Thus, as of now, we have products covering the entire life cycle of our customers.

B&E: You say you are planning to target HNIs soon. But all banks are doing that even now. How do you plan to differentiate yourself?
VPI: Considering the increasing number of high net worth individuals (HNIs), we will be shortly launching privilege banking facility. It will be a lot different from others in terms of the gamut of services that we will offer to our customers. As per the scheme, a customer who maintains the stipulated minimum balance in the account can avail many critical banking and non banking services like ambulance/doctor on call, utility bill payments on a phone call et al.

Read more....

Source : IIPM Editorial, 2012.
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Saturday, September 8, 2012

“I have no intention of losing the Numero uno spot”

Dr. Andreas Schaaf, President, BMW India talks exclusively to B&E on what drives luxury car markers in India and what will be BMW’s next move to stay ahead in this race

Dr. Andreas Schaaf, President, BMW India, who replaced Peter Kronschnabl in May this year, in an exclusive conversation with B&E discusses BMW’s growth strategy for India, its proposed investments and how the company plans to cross the 4,000 mark in sales and sustain the growth momentum in the long run. Excerpts:.

B&E: You recently took over from Peter Kronschnabl as BMW’s India head. How do you plan to take the things forward from here for the company?
Dr. Andreas Schaaf (AS): 2010 onwards we have decided to focus at the leadership position in the Indian market, not only in terms of sales but in everything we do. Further, we have decided to stand our ground in a fiercely competitive environment with new ideas and the strength to promote new products. Given the huge untapped growth potential that Indian market offers, BMW is confident of increasing its sales in the domestic market. With 3,301 cars delivered to customers till August 31, 2010, the sales numbers have already grown significantly by over 40% over the last year. In fact, BMW has now embarked on the second wave of its growth strategy for India. Considering this, we have already started our strategic realignment and are now charting the right course for the future. Moreover, we have put into action several projects that will pay off in the long run.

B&E: Luxury car market in India is still at a nascent stage. What kind of growth do you actually see here?
AS: We are very bullish on the Indian market. In fact, the luxury car market in India has already grown by over 60% this year, which is phenomenal. I cannot predict the future, but I don’t see any reason why the future growth in the segment shouldn’t be in double digits. This is precisely the reason as to why we have set up our India strategy.

B&E: In light of burgeoning market opportunity how do you see the competition shaping up in the luxury car segment in India?
AS: Since its inception in 2007, BMW India holds a position of strength. The company has achieved market leadership in the luxury car segment in India. Though the period between 2007 and 2009 was demanding for BMW India, at the same time it can be termed as the most successful market entry for BMW. In fact, initiatives taken up during this period have provided BMW a solid foundation in India – a necessary ingredient for success in any country.

B&E: Do you emphasize more on market expansion or is it the profitability that drives you?
AS: Both are important in a growing market where customers are increasingly having the resources which grant them access to premium products. In such a scenario one should focus on volume expansion as it is a measure of profitability and goes hand in hand with expansion. So, I don’t think that there is a contradiction between the two.

B&E: This year, not only have you done exceptionally well in the executive segment but your performance has also been good in the premium and luxury segment. What do you plan to achieve by the end of this year? And what are your plans with respect to dealerships and service network?

AS: We gained segment leadership last year only to realise that BMW did a tremendous job in setting up the company across all premium verticals. We are already No.1 in India and I have no intention of losing the numero uno spot. As of today, we have 18 BMW dealer facilities across the country. Now, as we embark on the next phase of our Dealer Network Strategy, BMW India will expand operations to a total of 22 outlets by the end of 2011.


Source : IIPM Editorial, 2012.
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Friday, September 7, 2012

EXCLUSIVE INTERVIEWS WITH:CEOS AND TOP MANAGEMENT OF INDIA’S LUXURY AUTO GIANTS

He’s the man who has been steering the Indian arm of Mercedes-Benz for the past five years. In an Exclusive with B&E, Dr. Wilfried Aulbur, CEO & MD, Mercedes-Benz shares where the company is heading

They entered India in 1994. After some restructuring globally and getting accustomed to the Indian landscape, we today know them as Mercedes-Benz India. It wasn’t a smooth ride, but today the luxury automobile giant rules the roost.

B&E: Mercedes-Benz has been in India for over a decade and a half now. What challenges have you faced since you stepped in as its CEO in 2006 and how has been the journey so far?
Dr. Wilfried Aulbur (WA): In these five years we have faced several challenges. The first one would definitely be the transition from operating in a monopolistic environment to the one filled with intense competition where we not only have the German players, but also the Jaguars and others. Further, we are operating in a market that is growing dramatically, which is an opportunity we need to leverage upon. In fact, we will end up selling 5,000 units more this year. Our CAGR over the past five years roughly boils down to about 30% and things have turned up pretty well for us so far. Another major challenge is to streamline factory operations with sale and after sales services. Then comes the challenge of preparing available human resources in the entire value chain for the upcoming explosion in demand. Apart from these unique challenges, there were those which any company operating in an economy booming with opportunities would face. These included construction of a new facility, ramping up production, expanding R&D activities, so on and so forth.

B&E: How different is it to cater to the luxury segment in India as compared to Germany?
WA: The difference is the segment itself. The market in India is relatively nascent. As the market grows, we too will continue to grow rapidly and see about 40,000-50,000 Mercedes-Benz cars being sold in India in the next 10 years. In India, we have the privilege of interacting with an elite group of people who form our customer base, but in Germany the customer base is much more broader. In Germany we have a market share of 8%-10%. That means, every tenth new car being sold in the luxury segment is a Mercedes-Benz and we are the clear leader in that market space.

B&E: What is the logic behind “Proven Exclusivity” programme?
WA: “Proven Exclusivity” is a globally benchmarked pre-owned car programme. This programme utilises specific global benchmarks for vehicle evaluation, quality and warranty to offer Mercedes-Benz certified pre-owned cars to customers. In fact, it’s a very good opportunity for people who wanted to be a part of the Mercedes family, but couldn’t join it because of some sort of financial limitations. This is for the people who want the comfort, quality and safety of a Mercedes-Benz but do not really want to spend as much money. In fact, we aim to garner 15-20% of our overall sales volume through “Proven Exclusivity” programme in the near future.

B&E: But, will a prospective Mercedes buyer go for a second hand car? Luxury was never about anything ‘used’.
WA: You see, the basic product promise remains exactly the same. You get the same safety, same quality, same comfort and the benchmark performance that is the hallmark of a Mercedes-Benz. The only difference is that we are able to serve a more broader customer base.

B&E: Mercedes-Benz is looking at entering tier I and tier II cities. How do you plan to go ahead with it?
WA: I don’t want to comment on investments. But as far as implementation is concerned, we basically have different formats for different cities. We typically start in a city with authorised service center which primarily is a place where customers can get the basic maintenance done. Then comes the ‘Auto House’ which houses vehicles anywhere between 100 and 1,000, depending on the location. Investments are made based on sales forecast for a particular region. For instance, we are building a brand center at Mathura road in Delhi where we will showcase 26 cars and which will have an ‘AMG Experience Vehicle Area’, a structure that will not only make a statement in that region but in India as a whole.


Source : IIPM Editorial, 2012.
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Wednesday, September 5, 2012

US : EXPIRING TAX CUTS

All the Bush-Era tax cuts are set to expire at the end of this year, meaning Obama needs to act, and act fast if he wants to avoid raising taxes across the board. Or is there something else in his mind? B&E catches up with the US Congressional Budget Office, Moody’s and others for an intensive analysis.

Another alternative is to limit the extension to individuals making less than $200,000 and married couples earning less than $250,000 (which makes 97% of the US population). In fact, this is what President Obama wants. But here the numbers backfire. Top tax rates in US are already at around 40% and an increase above that would prove counterproductive. Even if it happens, the revenue generated will not be enough to repay the $13.8 trillion debt. Further “the option would cost $2.3 trillion in the next decade and without any offsets this proposal could inflate the national debt to 78% of GDP by 2020,” says a report from PEW, an economic policy group based in US. Finally, there is the option of allowing the cuts to expire as scheduled. But that too comes with a huge price tag. If the tax cuts are allowed to expire at the end of 2010, chances are that the US economy might slip back into recession. Further, considering that the US recovery has already lost momentum (GDP is growing at a paltry 1.5% annualised rate, down from 3% pace a year ago) and the job growth is weak (after ticking 9.6% in August, the unemployment rate is likely to drift back into double digits in the coming months) this should be the last resort.

Even Douglas W. Elmendorf, Director, CBO in a presentation made on September 16, 2010 agrees to the fact that “If taxes were cut permanently or spendings were increased permanently, that would worsen the fiscal outlook.” According to him, even if changes were temporary, the additional debt would weigh on the budget and the economy in the future. US Congressional Budget Office told B&E through a communiqué, “If the 2001 and 2003 tax cuts were extended, the individual alternative minimum tax was indexed for inflation, and future annual appropriations remained the share of GDP that they are this year, the deficit in 2020 would equal about 8% of GDP, and debt held by the public would reach nearly 100% of GDP.” So, is there a way out for US policymakers?

One move that perhaps can solve the problem is the implementation of a nationwide value-added tax (VAT). As VAT has a broad base, it could generate enough revenue to deflate the ballooning deficit while simplifying the tax code. In fact, a Congressional Research Service report suggests that each 1% of VAT has the potential to generate $50 billion. Thus, even if it’s started at a low level, say 5-10%, it can generate big money. But, thanks to political enthusiasm and mid term elections due in November, it doesn’t seem to be happening anytime soon.

Another way out could be a combination, where tax cuts are extended for short term (say two years) and spending is cut. Though this would widen the deficit now, it will definitely reduce it relative to current baseline projections after a few years. However, developing such a combination would not be easy. Mark Zandi, the US based Chief Economist of Moody’s Economy.com tells B&E, “A misstep by the Fed could put a high hurdle in the recovery’s path. Yet the need for more monetary easing is increasingly evident given the high and rising unemployment rate, very low inflation, and weakening inflation expectations.”

But then, the US policymakers don’t have any other option. The clock has almost finished ticking and it’s time that they decide, and decide soon. After all, US can’t afford a laid-back attitude at the moment!


Source : IIPM Editorial, 2012.
 
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Tuesday, September 4, 2012

Thanks Ma’am, for not telling us

If US can, Why cannot India Force the Swiss Government to Disclose Names of Indians with Swiss Bank Accounts?

Apparently, a shocking figure of $1.5 trillion in black money – deposited by Indians – is lying with various Swiss banks (which Swiss Bankers’ Association denies vapidly). This money is equivalent to 13 times more than India’s total debt obligation! Just for the sake of inane calculations, if this excess amount were to be invested as a fixed deposit in India, the interest earned would be more than the Central Government’s annual budget!

But the protagonist of our story is actually the Swiss government. Despite various requests by the Indian government for details of those Indians who maintain Swiss bank accounts, the Swiss government has refused to disclose the same. The Swiss government’s (or rather, the Swiss banks’) record of maintaining secrecy is famous – even the Double Taxation Avoidance Agreement (DTAA) that they’ve signed up with India is evidently not sufficient for them to provide the details. This is surprising, as the Swiss establishment had in April 2009 decided to budge and cooperate in allowing a scrutiny of the details of undisclosed account holders after a tougher stand was made by G-20 nations in the London Summit.


Source : IIPM Editorial, 2012.
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Monday, September 3, 2012

INFORMATION PORTAL: US PROPAGANDA

Secretary of State Hillary Clinton’s State Department considers Pranab Mukherjee to be India’s foreign minister! More similar gaffes inside...

First, the comical. In South Korea, three years ago, a series of protests against the CIA finally forced the agency to correct the information about South Korea’s origins (CIA had earlier amusingly stated that “South Korea has been a nation for a millennium;” South Korea, apparently a stickler for dates, protested en masse as this nation has been in existence only since the last 4000 years). This was apart from the CIA correcting the misrepresentation of the number of deputy prime ministers that South Korea had had. However, the country is still trying to convince the agency to rectify names of two locations on CIA’s map of South Korea.

On the same lines, Northern Cyprus is still being shown as a part of Republic of Cyprus, despite the region having gained independence in the year 1983, 27 years earlier. On another line, while the whole of Kashmir is shown as being “disputed”, Taiwan is peacefully included on the map of China. This has to be seen along with the fact that Taiwan is shown as a separate country on the US Department of State site with the names of its President and Prime Minister. And when it comes to Myanmar, both the CIA and US State Department list the country under its old name Burma. In 1989, Burma changed its name officially to Myanmar; a rename that was endorsed by the UN. Apparently, not by the CIA/State Department.

While some of the mistakes – including India’s foreign minister’s name – are evident typographical mistakes (and show the lack of intent within the government to keep critical diplomatic facts updated), some of the mistakes, like Kashmir or Taiwan, seem deliberate and evidently committed with political intent. This can be considered even propaganda if one were to assume the worst, as many institutions globally (including schools) refer to these websites for authentic information. There’s a thin line between a diplomatic error and a strategically planted insult. Imagine if were considering Bush still to be the US president.



 
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Sunday, September 2, 2012

NICK LAMBERT, MD – GLOBAL MARKETS CABLE&WIRELESS WORLDWIDE

Cable and Wireless (C&W) set up the first ever telegraph line between india and london in 1870. C&W worldwide’s nick lambert, managing director, global markets, reveals to B&E’s Swati Sharma why being a “Mission Critical Integrator” is extremely critical to him 

B&E: How important is the EIG system for you?
NL: The Europe India Gateway (EIG) cable system is our latest investment into building greater capacity and is designed to meet the current and future business needs of companies across the globe. The EIG, when complete, will span more than 9,000 miles and is set to be in full operation by the first quarter of 2011. We’ve also joined a consortium of leading global telecoms to provide a high-speed fibre optic network that will link Southern and Western Africa to Europe with faster and more cost effective connectivity.

B&E: In emerging economies like Asia Pacific & Africa, what opportunities are you looking for expansion?
NL: We are very excited about our Ethernet services. Ethernet Wireline (EWL) is one of our key next generation products, ready to provide bandwidth and flexibility that fast-moving enterprises demand today. EWL lets you receive multiple products and services over the same access connection, helping reduce TCO and accelerating your journey towards an integrated communications and IT infrastructure.

B&E: How are you planning to cater to the Indian market, with so much competition in the telecom sector?
NL: India is today the fastest growing telecom market in the world. And that spells opportunity for us as well as industry players alike. In India, C&W Worldwide provides enterprise and carrier solutions with global connectivity including dedicated services, high quality managed security services, hosting services, hosted contact centre solutions and remote network management services. With the advent of 3G in India, the telecom industry in India will witness a paradigm shift. Demand for interactive services will go up, unit costs of bandwidth will eventually come down with greater adoption of these services and there will be a lot more focus on building better infrastructure. So we see India as an extremely important growth driver for us. India is already the most important market after the UK in terms of our colleague population and our capabilities in the country. Today, we serve close to 4,200 global customers out of our India Network Operating Centres and work with 10 out of the top 15 outsourcing companies in India. One of the key identified pillars of growth for us is going to come through two new focus segments. Firstly, through global MNCs’ ‘Connect to India’ plan where they enter/expand their presence in the market by extending our cutting edge Core Director Platform. Secondly, enabling our top/emerging Indian MNCs to ‘Go Global & Connect India to the World’ and be their partner of choice for their international telecom solutions. As per PwC, India will produce above of 2000 new multinationals between 2010 to 2024; we are perfectly placed to extend our in-depth local market knowledge combined with global presence & processes. These two segments will help us diversify our segment portfolio to include banking and financial services, media, manufacturing/retail, pharmaceuticals, and oil & gas sectors and ensure steady business growth even in unforeseen economic conditions.

B&E: What type of leadership model do you follow, especially in India?
NL: I believe in empowerment. If you hire smart leaders, nurture their skills, empower them to make decisions, and help remove obstacles that hinder them – your role as a manager is achieved. In India, we have a young, new and talented leadership team. They bring in a lot of new ideas on how to grow our business in India. Our business has grown from strength to strength in the last three years and I am confident that with their dynamic vision for the company, we’ll only grow to achieve significant presence in the country.


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