Showing posts with label IIPM Best B School. Show all posts
Showing posts with label IIPM Best B School. Show all posts

Monday, October 08, 2012

M & A The Perfect Corporate Crime

CEOs have ripped apart shareholders’ wealth globally under the guise of M&As; Indian firms more so! B&E’s Manish K. Pandey, Deepak R. Patra and Karan Mehrishi undertake the most radical analysis of the recent past and destroy age-old perceptions!

The pity is, Indians never learn! You’ll get the drift by the time you end the introduction. First, the dirt! The year 2000 was the eve of the glorious new century, and a boon for the Big-6 M&A consulting firms. And why not! For these global consulting proponents, an example like the year 2000 Vodafone-Mannesmann merger was god’s gift multiplied many times over. It was proclaimed to be the single largest deal in history. Sir Christopher Gent, then CEO, Vodafone paid a smashing $190 billion for Germany’s Mannesmann AG, making Vodafone the biggest operator in Europe. The combined entity was valued at $365 billion, making it the world’s fourth largest company overnight. What better a gift could the M&A brayers ask for? Wasn’t this M&A deal enough proof that M&As were/are the only dynamic and rapid solution forward to mammoth growth and that all those who had criticised M&As for the past so many years were nothing but dimwits?

If Gent’s strategy cup ran full of suicidal moves, Arun Sarin – who was on the Vodafone board since June 1999 (and was equally, if not more, to blame) and who took over from Gent in April 2000 – redefined the standard of how much shareholder value could ever be destroyed from a company. Eight years since the deal, the value of Vodafone in terms of market capitalisation stands at $161.4 billion (as on July 24, 2008), down by a sickening $203.6 billion, a fall of 53%! Arun Sarin ensured that in the last eight years since the merger, Vodafone has become the biggest loss making company ever in the history of mankind! The loss: $86 billion! Both Arun Sarin (who exited in June 2008) and Christopher Gent, apart from the other top management, retired multi-millionaires, a far cry from thousands of Vodafone pauper shareholders.

If that sounded absurd, Gary Foresee took on the infamy mantle with ease. Gary joined Sprint as CEO in the year 2003. Signing bonus amount: $6 odd million! Subsequent years’ pay: Between $1.5-6 million! Gary’s claim to (in)fame was ensuring Sprint’s spectacular merger with Nextel in 2004-05. He sold the deal on the fact that the combined telecom giant would have a subscriber base of 53.8 million in the US! What he sweetly left out was the disaster the deal could be. At the time of the deal, the Sprint Nextel common stock was trading at $26.9; it’s at a sickening $8.30 today! While many shareholders got wiped out Mr. Gary Foresee was kicked out at the end of 2007. His severance package? $40 million!

Charles Prince is an equal, if not better peer for these heroes. He, as the Chief Administrative Officer, engineered the utterly disastrous $140 billion merger of Citibank with Travelers Group ten years back. Then he ensured the company jumped into the mortgage black hole. Till date, Citigroup has been forced to write off almost $41 billion because of Prince’s royal exigencies! He was “eased out” in November 2007! Apart from his wholly owned $94 million vested stock holdings in Citi, he got $28 million further stock options, (not forgetting the $53 million during his last four years as Group CEO), plus a pension of $1.74 million; and this apart from a $10.4 million “bonus” that shareholders were made to pay him. [Citi has now recruited Vikram Pandit as the CEO, paying him a cannon ball destroying never before seen signing bonus of $241 million! Since he has arrived, Citi stock prices have tumbled by 25%!].

December 31, 2007, saw Richard Parsons resigning as the greatest CEO of Time-Warner. Greatest, because he joined the board in 1991 [became President in 1995] and oversaw the supernova of a merger between Time and AOL. The companies had a combined value of $247 billion during the deal. Today, the combined entity is worth a mind numbingly low $58 billion. Parsons earned on an average $10.64 million per year. By the way, he’s now the Chairman of the group!

With $37 billion involved, Dieter Zetsche, then on the Daimler Benz board, squeezed through the merger with Chrysler. In 2007, CEO Zetsche made Daimler Chrysler part ways with a deal worth only 21.5% ($7.4 billion) of the total acquisition value! Millionaire Patricia Russo, CEO Alcatel-Lucent, has a history of destroying shareholder wealth. At the time of the merger of Alcatel and Lucent, the entity had a share price of $15.4 (March 31, 2006). July 24, 2008, the price is $6.09 (62% fall). CEO Meg Whitman, who ensured eBay bought off Skype, also ensured eBay’s price fell from close to $40 (September 9, 2005), to $25 (July 24, 2008). Shareholders be damned; she donated $30 million of her personal wealth to Princeton in 2007 to start the Whitman College!

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Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Friday, October 05, 2012

B-School Survey Panel Meet , 2010

August 12, 2010, saw Planman Media and Business & Economy magazine play host to eminent corporate personalities of India, in a Panel Meet discussion, for Business & Economy magazine’s highly coveted annual issue – India’s Best B-Schools Special Issue 2010. The most unique element about the B&E B-school ranking is that in this particular ranking, the B-schools are ranked by renowned industry leaders (please refer to ‘List of 20 Panel Members’ section for the names of panelists). Considering the importance of the meet, four distinguished industry leaders – Dr. Wilfried Aulbur (CEO, Mercedes-Benz India), Mr. Michael Boneham (MD, Ford Motor Co. India), Mr. Naresh Gupta (MD, Adobe India) and Mr. Brian Tempest (Former CEO, Ranbaxy and presently, Independent Director, Religare Hichens Harrison) – sent their comments and discussions through the audio/visual format. The round-table discussion revolved about the parameters on which B-schools are judged today, and means by which such ranking can be made more transparent and just. Professor Arindam Chaudhuri, Editor-In-Chief of Planman Media expressed his views on how “faculty and course contents” are the two most important elements to deliver overall knowledge in B-schools. He also stressed upon a need for a constant focus on personality development and communication skills. Mr. Girish Vaidya. Former Director, Infosys Leadership Institute spoke about why B-Schools should be ranked on the basis of “curriculum, global exposure and cultural stability, along with the extent to which entrepreneurial programs” are encouraged. Mr. Dhiraj Mathur, Exec. Director, PwC gave a strong argument on why “a strong orientation towards ethics” is important for a B-school. While K. M. Nanaiah, MD, Pitney Bowes India, also highlighted the need for a “globalised curriculum and industry interface”, Mr. Sumeet Nair, Chairperson of Fashion Foundation of India justified the need for “encouraging an entrepreneurial zeal” amongst the B-school students. The event was a huge success and all the participants concluded that much more needs to be done to arrive at the ideal B-school of tomorrow.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
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Monday, September 10, 2012

M. R. Rao, CEO, SKS Microfinance Ltd.

Launched in 1998, SKS Microfinance is one of the fastest growing Micro Financial Institutions (MFIs) in the world, which has served more than 5 million women members in poor regions of India till date. Of course, the company has been in the news for the wrong reasons following the unceremonious exit of its ex-CEO Suresh Gurumani. Current CEO M. R. Rao talks about the company’s business model and challenges it faces: 

B&E: What is the maximum amount of loan that can be availed and repayment options available?
MR: All members (clients) are eligible to borrow Rs.12,000 depending upon the activity which the member undertakes in the first year of joining SKS Group. From the second year onward, the loan size is increased by Rs.4,000. Loan repayments follow a weekly repayment schedule. All repayments and fresh disbursements happen during the centre meeting, which is held every week at every center. Our loans are given for a period of 50 weeks.

B&E: What kind of problems do you face while repayment of loans?
MR: SKS enjoys a very strong repayment record and our NPAs are negligible. If a member is unable to repay an instalment, the other members in the group/center share the responsibility for the repayment. The few cases of defaults are usually due to migration or due to some natural calamity.

B&E: What are the rates of interest charged by SKS?
MR: SKS works in 19 states. In Andhra Pradesh, Karnataka and Orissa, we charge a flat rate of interest at 12.5% and in rest of the states, the flat rate is set at 15% currently. In the newer states where we have started, our rates are a little higher at 15% flat and 26% diminishing. We also charge a loan cover fee of 1% that helps us offer insurance for the loan period.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
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Tuesday, September 04, 2012

HERO & HONDA?: BREAK UP PLANS

Speculations abound on the probability of the Hero Honda JV heading for a sudden break up. B&E’s Pawan Chabra does a speed-check on the repercussions of such an event for both players

To both Honda and Hero’s credit, spokespersons from both groups have denied any such development repeatedly in the recent past. But industry analysts comment that’s not quite the case. It has been reported that the Hero Group has set up an SPV for buying Honda’s share and has also contacted a handful of PE players to pick up a stake in the company. However, there have been concerns on the valuations of the share of the company as it is expected that the share price of the company will fall once Honda moves out of the picture and the home-grown Hero group is facing difficulties in clutching a deal. At the current share price of `1,700, the valuation of Honda’s 26% stake comes close to `90 billion.

So what would Honda have to lose? The answer is quite straightforward – the maddeningly huge and extensive distribution, sales and service network that is one of the key differentiating factors for Hero Honda products. One has to note here that Honda has been separately operating in India with its 100% owned subsidiary Honda Motorcycles & Scooters India Limited (HMSI) since 2001. The company has gained ground in the scooter segment in no time with products like Activa, Eterno and Aviator and is also moving very aggressively into the motorcycle space.

“Honda is looking at the bigger picture here (by breaking up the JV, if that happens) and is eying the huge potential of the Indian two-wheeler industry,” said Vaishali Jajoo, auto analyst, Angel Broking. Not only will Honda have to compete with the market leader, the Hero group, but it will also not bank any share of profits from the JV, apart from foregoing royalty payments (in case Hero decides to have its own R&D). For the record, the Japanese auto major rakes in close to 2.5% of sales as royalty fees every year. It is to be mentioned here that the amount of royalty payment to Honda from the Hero Honda JV stood at `4.2 billion in fiscal 2010. In fact, it is expected to rise to around `5 billion in 2011. A report by IDFC Securities comments that after moving out of the JV, it would take at least 3-4 years for HMSI (Honda Motorcycle and Scooter India Ltd) to scale up to a level to challenge the two domestic market leaders. Our analysis is that given the huge odds among the minor evens, it appears impracticable for the duo to separate, at least for the short run. Differences of opinion over royalty payments can easily be sorted out, especially when the synergy between these two has been empirically evidenced and statistically proven. This time, staying married seems the better course...


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Monday, September 03, 2012

RONNIE SCREWVALA, CEO & FOUNDER, UTV GROUP

B&E: Yours is one of the first listed film companies of India. How did that change UTV’s growth radar?
RS: More importantly, we were one of the first ones that attracted private equity in media in India. It was a given that if we brought the private equity at some stage, we would need to list the company. It was just a consequential event; it was not any turning point.

B&E: The conglomerate decided against distributing dividends in the last financial year. Why was that? What is the expectation this time around?
RS: I do not think that media companies have an ordained plan of distributing dividends and dividend is never a high priority. We are not a government company and we are not a company with 70 years in the business. We are a high growth media company that constantly reinvests it’s profitability in other high growth ventures. So our shareholder returns are based on share value and not dividend. Microsoft did not give any dividends for 23 years of its existence...I don’t think they have a bad track record because of that. You need to be in a really placid water or calm water to be a dividend paying company... LIC and GIC give dividends. Companies are not judged on dividends today. Pfizer and other pharma companies with $40 billion or $70 billion revenues, and a stable income with a 3% growth, need to feel that they have to pay dividends because they do not have shareholder growth in value which goes up by 20% or 30% each year. It goes up by 2 or 3%.

B&E: Where do you think your competitors have beaten you?
RS: I believe everyone must look at the Media and Entertainment business as anything but competitive. We really do not spend too much time on a competitive landscape; not because we do not believe that there are people doing different things, it is actually because we are busy analysing how we can grow in the market. Right now, a lot of people are doing a lot of different things, which is going to help the industry. So if there is a youth channel and there are three competitive youth channels, the youth genre has to go up; that is more important than figuring out who is comparing with whom. We are doing 12 movies out of 200 movies that are being made, I can’t go around making 200 movies anyway; somebody is going to make the rest of the movies. So that is not competition.

B&E: What are those strategic mistakes you’ve made in the past that were critical?
RS: Tonnes of them. On a learning curve basis, there would be three in a day. If there were less than that means we are not experimenting, we are not being aggressive...we are not pushing the envelope hard....we are not being adventurous. The pace at which you grow and your ability to take risks is measured by the number of mistakes you make.

B&E: There would be some that you would like to tell us...
RS: I think we missed the first cycle of broadcasting of 1992-95 because we were too busy with the content space. I think we got into the home shopping business way before its time. The infrastructure was very low, credit card penetration was slow and people were not in touch with the field products. The third is probably diversifying into South-east Asian markets in Singapore and Malaysia. The markets were so small and so insular that it was not worth our time and effort.



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Saturday, September 01, 2012

The public sector behemoth SBI

Last year’s slowdown was a blessing in disguise for the public sector behemoth SBI, forcing it to become truly competitive. And the bank has only moved ahead since then. Avneesh Singh finds out how

No doubt, the cost to income ratio of SBI has increased to 52.59% as on March 31, 2010 from 46.62% as on March 31, 2009, but then, the majority of it has been due to higher operating expenses incurred on branch and ATM expansion, recruitment of new employees, et al. “It’s true that our employee cost has gone up during the last fiscal, but it was because of the fact that we were hiring when others were firing,” Bhattacharya tells B&E.

Nevertheless, thanks to some well thought out strategies and the sustained bull run, SBI has become one of the highest value creators among PSUs in recent times. The market capitalisation of SBI zoomed from `155.32 billion in Jan. 2005 to `1.76 trillion in Sep. 2010, an astounding increase of 1,035%. This, along with the proposed merger with its subsidiaries (merger with State Bank of Indore has already been approved by the government), has put SBI in a perfect position to challenge the mights of global banking giants.

Further, while evaluating the performance of SBI, one has to factor in the fact that the bank had always worked with his one hand tied behind its back due to political compulsions. Still, it has managed to change its culture and financial performance. And, as the government has said so often, SBI is certainly working for the common man.


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Friday, August 31, 2012

INDIA’S 100 MOST PROFITABLE COMPANIES

Competition today has forced organisations to overlook the importance of values, ethics, credible leadership and corporate governance. they simply hinge their hopes on luck. wrong. Dr. Jamshed Jiji Irani, Director of Tata Sons and Chairman of the Board of Governors, IIM-Lucknow, writes about those elements, which if considered first, would result in fair profits.

Profit is about “Corporate Governance”
Nowadays, “Good Corporate Governance” is very much in the news, and is being demanded from various quarters. There is a drive towards the “Triple-Bottom-Line”. The practice of “Triple-Bottom-Line” – financial, social and environmental – is being taken up by the more enlightened business houses in India and abroad.

The opposite of “Good Corporate Governance” is apathy. Unfortunately, too many of us take the easy alternative under the pretext that, I on my own, cannot make a difference. The truth is exactly the opposite. Even a drop in the ocean can make a difference. Very often, this attitude of apathy is an excuse for not taking a correct stand or for avoiding an initiative to fight corruption.

Another reason which is given for not taking appropriate action, is that we are restricted by the prevailing laws of the land. Once again, nothing can be further from the truth. It can be demonstrated that even under the prevailing laws, which in some cases are definitely restrictive and archaic. It is possible with vision and determination to take actions which can have far reaching impacts.

Profit is about “Leadership with Trust”
The right leader can make a difference. We do not have to go back to the very obvious examples in the political history of great men such as Mahatma Gandhi and Nelson Mandela. Even in a much more restrictive sphere of industry and civic administration, there have been very significant examples in the recent past where one person at the helm, has made a tremendous difference on the performance of an entire organisation. These people gave back to the organisations which gave them respect and made them feel proud to be what they were.

It is well accepted that those organisations and corporations which create ownership and a feeling of belonging in the rank and file, are the best able to stand up to the competitive environments in which businesses find themselves today. The crucial feature is how does one build this culture in a world which is today awash with cynicism and skepticism. Such attitudes do not help any one or any organisation to get ahead and succeed. Therefore, this ‘trust-deficit’ has to be taken head on. The Tata organisation is built on trust, and its motto is “Leadership with Trust”.



          
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Wednesday, August 29, 2012

Picture perfect?

Image is to the mind what perception is to the soul. Have movie-makers ended up distorting both in an attempt to deliver ‘happy’ stories?

You’ve got mail. Every time these words appeared on Kathleen Kelly’s computer screen, she got butterflies in her stomach in anticipation of the words (from her mysterious friend) that lay unread in that mail. But this together with the background song ‘You’re a Dream to me’ often leaves the audience with the same feeling too, especially those who thrive on sweet nothings! Whether it is the perfectly-directed chemistry of love and companionship between Meg Ryan and Tom Hanks in movies like You’ve Got Mail and When Harry met Sally or the extremely optimistic plot performed to perfection by Julia Roberts and Richard Gere in flicks like Pretty Woman and Runaway Bride, romantic Hollywood flicks leave many mesmerised and hopeful (rather adamant) of true (rather perfect) love in their lives too. A recent Australian survey released by Warner Home Video backs this observation. Almost half of the respondents blamed the ‘inevitable happy endings’ of rom-coms to have ‘ruined their view of an ideal relationship.’

Well, with this research, let’s not assume that the Australians are extra-soppy! Hollywood and Bollywood (largely) have immensely influenced Indian minds and hearts too. “The image of a good relationship in the minds of most of the couples I meet stems from Hindi films. The influence is so deep that subconsciously the expectations from each other are from the perfect relationship portrayed in movies like Dilwale Dulhania Le Jayenge (DDLJ). In fact, many girls look for the boyish charm of Shahrukh Khan (of DDLJ) in their partner and I often end up telling them how Shahrukh in reality must not be like that all the time! In the beginning of the relationship, all is hunky-dory but as monotony sets in, (which is absolutely normal) people tend to overreact since the ‘perfect picture’ starts to dissolve,” says Dr. Nisha Khurana, a Delhi based Marriage Counselor.



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Tuesday, August 21, 2012

A mysterious and fascinating set of islands lie in the Bay of Bengal, ready to give your most adventurous imagination wings…

The people of Andaman, or to be more precise the tribes of Andaman, are the most mysterious element of the culture and history of the place. Precisely because little is known about them and their nature and way of life varies from one island to another. There are about 12 such tribal units, among them the major ones being the Jarawas, Shompen, Nicobarese, The Great Andmanis, The Little Andamanis, The Onges and the Sentinelese.

The origins of these tribes have been difficult to establish, although the most accepted theory remains that the Negritos made their way into the islands from the east in Burma. The Jarawas were the tribe that I had a glimpse of while on a bus to Baratang. I was told immediately that it was a matter of extreme fortune that I managed to see a tribal ‘live’ and not in a painting in the museum. Apparently, most of the tribes remain notoriously elusive and cut-off from civilisation. The Jarawas, who inhabit middle Andaman and South Andaman, are of Negroid origin and are mostly hunters and foragers. On the Nicobar Island live the Nicobarese, of mongoloid origin, and as legend would have it, they are descendants of an exiled Burmese prince.

This tribe is the most advanced of the lot in the sense that they use modern agricultural and animal rearing methods unlike the other tribes, where the people are mostly hunters and foragers. Then there are the Onges, who live on the Little Andaman and Rutland Islands. Part of the Nicobarese, the Shompen (about 200 of them remain today) live on the Great Nicobar islands.

The Sentinelese are reportedly the fiercest and most evasive of the lot and inhabit the Sentinel Islands. Most of these tribes have little or no contact with the settlers in the island except for the Nicobarese.

Despite the isolation, the aborigines’ right to their resources and way of life has increasingly been under threat for the past few decades, as the influx of settlers has passed on diseases, increased deforestation, and cut-off access to resources (like the Andaman Trunk Road that runs through the Andaman Island that has limited the Jarawas reach into fresh hunting grounds) and posed a threat to these rare communities.

Ultimately, Andaman is about islands. Whether it be the Barren Island, home to the only active volcano in India or Ross Island, once the seat of British power and now a collection of ruins ravaged by time and serving as a grim reminder of how the mighty can fall, every island tells its own story. That is what the essence of these islands is about – fascinating tales and stories. Some are well documented, some perhaps figments of some creative guy’s imagination. But as you look around and explore, you also get to fill up some of the blanks with your own imagination. 


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Tuesday, August 14, 2012

India’s Biggest Wealth Creators Wealth creation beyond market capitalisation

With exclusive interviews and incisive insights, B&E brings the electrifying annual listing of India’s top’ wealth creators during the financial year 2009-2010; companies that gave the largest rise in market capitalisation for their shareholders! By Deepak Ranjan Patra

Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.
Sun Tzu c. 490 BC, Chinese military strategist

In this post-recession era, Sun Tzu’s strategy holds a lot more value for all the right logic. Gone are the days when some corporate house could make a grandiose announcement, hype over it through scrappily sassy PR and see investors falling hook, line and sinker for the same, raising their bids for the company’s stocks, which ultimately would end up increasing the company’s market cap to unparalleled highs. There is one critical reason this change occurred. While in the 1980s the biggest participants in the stock investor community were government financial institutions (led by star-eyed bureaucrats who couldn’t understand why pound sterlings were represented as GBP), from the mid 1990s into this decade, the massive majority of investors became what came to be known as FIIs – the brazenly cheeky, impudently crusty, Goldmansquely audacious Foreign Institutional Investors! FIIs came armed with supremely qualified analytical tools that looked through ostentatious corporate window dressing and ensured that market dynamics were driven less by company spiel. So did it mean that finally fundamentals started driving market capitalisations? Baloney! It only meant that FIIs used all technical skulduggery allowed in the trade (including high frequency trading) to book profits, while the common ‘long term’ investor would simply keep waiting – almost moronically – for dividend payouts.

But then, if stock markets are still moving nonsensically without correlation with fundamental strengths of the companies, what in heavens is the justification for this besotted and daffy global infatuation with market capitalisation, where CEOs are recruited and thrown out not on the basis of operational parameters (like sales, cash flows, even profits!) but on the basis of how much they’ve added to the stock market price? For this, you’ll have to go back 40 years, to the year 1970, when an eccentric Einsteinish professor of the University of Chicago – who used to write weekly Newsweek columns – raked up a controversy by saying that any organisation should have only one social objective – increasing financial returns for shareholders! His papers on monetary economics made so much sense that he was awarded the Nobel Prize in 1976. The corporate world finally came around to accept en masse the primary position of the shareholders’ wealth maximisation postulate – and has never changed since! The iconic Milton Friedman passed away on November 16, 2006, but left a legacy that will live its full cycle through the capitalist era.

Enough said, and enough proven. Now, the winners in absolute market capitalization increase on Indian bourses for the financial year 2009-2010...

B&E Hall of Fame: Synopsis

The table of those who performed at the bourses during the year is led by none other that Reliance Industries (RIL). Mukesh Ambani’s Mumbai Indians might have lost to India Cements (Deccan Chargers) in the IPL3 final, but his company paid back the compliment exponentially. RIL’s market cap jumped 44% or nearly Rs.1.09 trillion (total-float) to beat its India counterparts in terms of absolute rise in market cap. It was closely followed by Tata Consultancy Services (Rs.1.04 trillion) and the public sector mining giant, MMTC, which added Rs.87.7 billion to its value. Meanwhile, if one were to compare these figures with international representations, the scenario in the US market was worth watching as a number of financial giants, which were written off in 2008, rose from the dust. The list of top 10 US wealth creators included as many as four financial services companies including Citigroup, Wells Fargo and JP Morgan Chase, apart from Bank of America (BoA). BoA added $132 billion to its market valuation, while Apple gained $114 billion.

A Commentary on Domestic Fundamental Growth

By all means, there is no dearth of skills to create wealth in Mukesh Ambani’s camp. And it’s absolutely not surprising that Reliance Industries has once again emerged as B&E’s biggest wealth creator for the financial year 2009-10. Between April 1, 2009 and April 1, 2010, the company’s market cap witnessed a sustained growth from Rs.2.48 trillion to Rs.3.57 trillion. But does this give a true picture? One look at the company’s ‘fundamentals’ and dear Milton would be damned. While we are talking about the company’s growth in terms of market cap, RIL’s profit during last fiscal has grown by a paltry 3.83% to Rs.162.36 billion from Rs.156.37 billion for the previous year. And the year before that had been another dismal performance (2.46% bottom-line growth). The value of the company’s depreciation has more than doubled in the last fiscal to Rs.104 billion from Rs.52 billion a year before. An analyst from Motilal Oswal Securities tells B&E, “Soaring demand and increased activity level in the oil and gas domain have forced a faster depletion in RIL’s reserves; depreciation during the quarter exceeded our estimate, spiking 134.6% year-on-year on account of the additional depreciation of the SEZ refinery and KG-basin gas facility, resulting a drop in its net profit.”

And if you thought market hype was the reason stock prices were going up, one has to mention that despite credible news about new discoveries, the company has provided very little guidance about the exploration/development plans with regard to many of its key blocks like NEC-25. Add to all that the fact that the company’s Gross Refining Margin dropped from $9.9/bbl to $7.5/bbl [bbl: oil barrel] in the last quarter of FY’10, when the same for other Asian refiners it grew very handsomely – and it become quite clear that even the largest wealth creator has no respect for straightforward seat-of-the-pants profit versus m-cap correlations. And RIL’s stock is still marching ahead at the bourses garnering brilliantly high m-cap figures.


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Saturday, August 11, 2012

Budget backlash

The fuel price hike announced by the Finance Minister has galvanised the Opposition to close ranks in a rare show of unity. But will the sound and fury translate into long-term political gains? Pramod Kumar reports

In the final Cabinet meeting prior to the presentation of the Union Budget this year, three important financial decisions were taken. As the meeting drew to a close, the Petroleum Minister made a request for a hike in fuel prices. Finance minister Pranab Mukherjee assured him that some steps had already been taken through the excise duty channel. But agriculture minister Sharad Pawar and railway minister Mamata Banerjee warned that a fuel price hike would fan anger against the government and adversely affect the prospects of the UPA in Assembly Elections scheduled for the coming months.

Mukherjee replied that not hiking fuel prices would adversely affect the pace of pro-people projects. So the allies advocated a ‘wait and watch’ policy: increase the prices of petrol and diesel and then gauge the popular reaction; if things threaten to snowball, get the UPA chairperson Sonia Gandhi to intervene and order a partial rollback. It was also suggested that the time-lag between the hike and the eventual rollback could be utilised to lessen the oil pool deficit. In that scenario, the Congress would have its cake and eat it too, it was pointed out.

But the fuel price hike triggered something that the Congress had not bargained for: new-found unity in the Opposition ranks which had for months been in disarray. In fact, a few parties that support UPA from outside have also thrown their weight behind the hue and cry raised by the Opposition. By protesting both inside and outside the ring, the two Yadav satraps — Lalu and Mulayam — have made it amply clear that they might even withdraw their unilateral support to the UPA on the issue of price rise. Political pundits, however, feel that this will not affect the UPA as it enjoys a comfortable majority.

The problem is that this approach by the allies has found resonance in the Congress itself. Some elements in the ruling party are not convinced with the logic trotted out for raising the petroleum prices through the Budget. Party leader Digvijay Singh has already expressed his reservations on the issue. Similarly, there is unease among the youth brigade too. In fact, the son of petroleum minister Murli Deora, Milind Deora, has openly come out against the decision. And he minced no words. He went as far as to write letters to both Sonia Gandhi and Manmohan Singh seeking their intervention.

Congress strategists believe that such a step was necessary to correct certain financial misadventures of UPA-1. They claim the priority for the current regime is to strengthen the economy. Prior to the Budget, Mukherjee had clearly explained all the tough measures and had assured the Cabinet committee that although these measures would hurt momentarily, they would lead to long-term benefits. They would help put the economy back on track following the recession. He put forth the same explanation in the aforementioned Cabinet meeting too.

While Trinamool Congress and DMK had bought the logic then, they came out openly against the decision once the recommendations were implemented. They were in favour of reduction of service tax and excise duty. The fuel price hike will affect their two core groups, farmers and the middle class. While the former will be affected by the rise in the price of diesel, the increase in transportation costs will hit the latter. Transportation cost escalation might fuel a further rise in the prices of essential commodities.

Talking to B&E, Trinamool leader Dinesh Trivedi said that while the Railway Minister kept diesel transportation out of the ambit of service tax, the Finance Minister failed to do his bit. This, according to Trivedi, was not in accordance with the sentiments of the allies.

The same goes for DMK, whose leader and Tamil Nadu CM M. Karunanidhi shot a letter to the PM merely three hours after the Budget was presented. A. Raja, Union Communications Minister, wasted no time in personally delivering it to the PMO. DMK is peeved as it could find itself on sticky ground in the Assembly elections due next year. However, sources claim that there is another reason behind this response. The PMO is apparently not happy with M.K. Alagiri and the way he runs his ministry. He has been told so in as many words by the PMO, but he has refused to mend his ways. DMK is now using this issue to settle scores and ensure that Alagiri remains a part of the ministry.

This was also the first time in India‘s parliamentary history that the entire Opposition staged a walkout in the middle of the Budget presentation. There were two flanks that were particularly active. The command of the UPA allies was with Mulayam Singh while the united Opposition was spearheaded by leader of the Opposition in the Lok Sabha, Sushma Swaraj. Swaraj had called a joint meeting of the Opposition in the office of the BJP Parliamentary Party prior to the Budget session. All matters related to floor coordination were discussed there. It was decided how, and when, the Opposition would corner the government over the price rise issue. It was also decided that some Opposition parties such as JD(U) would raise the matter of corruption and then the entire Opposition would walk out of the House.




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