Wednesday, December 12, 2012

Missing the Ambani touch?

The venture was flawed from the beginning in more ways than one

The Indian retail sector has grown at a stupendous rate and is touted to touch $450 billion by 2015 (as per McKinsey). At that rate, it is not surprising how major business houses have made inroads into the sector. But the chequered journey of Mukesh Ambani’s Reliance Retail in this sector merits analysis.

It was the winter of 2006 when Ambani announced the arrival of his Rs.250 billion retail gamble – Reliance Fresh convenience stores in India. Reliance Fresh had to face the wrath of all be it middlemen, small retailers or politicians. The company had to shut down shops across the country amidst vehement protests. Gibson Vedamani, ex-CEO, Retailers’ Association of India points, “Reliance Fresh failed because it was too aggressive with its strategies and wanted to capture the entire market without leaving any space for the middlemen and local retailers.” The company planned a number of formats viz. hypermarkets, supermarkets, convenience stores & specialty stores. This attracted unwanted media attention & got them into trouble.

With the looming spectre of economic slowdown, Reliance has had to cut down severely on its expansions. It merged the management of its hypermarkets, supermarkets and convenience stores last year to save on administrative, man-power and operational costs. However, the biggest blow came earlier this year, when Ambani, after deferring the launch of its wholesale market, finally scrapped its cash & carry (C&C) model and showed the door to the entire team of 36 professionals headed by Harsh Bahadur (erstwhile CEO of Metro AG’s C&C business in India).


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 2:32 PM
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Monday, December 10, 2012

Small package...

...but is the Tata Nano actually going to be a good thing for Tata Motors? The answer to that question is littered with ‘ifs’ and ‘buts’

How expensive (oops, cheap) is Tata Nano? Well, it’s as ‘expensive’ as a CD player fitted into the ultra luxurious Lexus. So, for a Lexus-owner, Tata Nano may just appear to be a toy, but for Ratan Tata and millions of Indians, Nano personifies their reveries – Ratan Tata’s dream to manufacture the world’s cheapest car, and the hope of millions of Indians who always aspired to own and drive a four-wheeler. Though the people’s car was launched on March 23, 2009, it is expected that bookings would commence only by the second week of April. If you thought that manufacturing the world’s cheapest car was the most daunting task, then think again, for achieving break-even looks even more daunting.

As if ominously, Tata Motors suffered a net loss of Rs.2.63 billion for the quarter ending December 2008 – a dreadful decline by 152%. The earning per share (EPS), too, went down to a negative Rs.5.51 per share for the quarter from a healthy Rs.12.95 yoy. Its arch rivals Maruti Suzuki and Hyundai Motors posted healthy numbers at a time when Tata Motors saw a fall of 19% in total sales for the month of February. Will Tata Nano indeed be their saving grace?

At the risk of being daring, the answer to the above question, with a short term perspective, is a big NO! Tata Motors has already invested over Rs.20 billion in the Nano project so far. Although the car would be rolled out in June 2009, it won’t be sooner than 2011 that the company can ‘hope’ to start making profits out of this car. Reason: Nano is a low cost, low-margin car and therefore the company will have to rely on huge volumes to pump in profitability. However, since the manufacturing plant in Gujarat is not ready at the moment, it would be difficult to manufacture more than 3,000-4,000 cars per month initially. “We estimate Tata Motors to sell 50,000 units and 1,50,000 units of Nano in FY’10 and FY’11, respectively. Assuming realisation of Rs.1,00,000 per unit, it will add just Rs.5 billion and Rs.150 billion to the company’s sales in FY ’10 (E) and FY ’11(E) respectively, which is not very significant considering the size of Tata Motors,” points out Vaishali Jajoo, Senior Research Analyst, Angel Broking. So despite the hype that Nano is generating, it would end up spilling more red ink on the balance sheet of Tata Motors in the short run. Trade pundits have predicted that Tata Motors will have to sell at least four to five million cars to break even and make profit. Considering Nano’s rate of production, Tata Motors will be able to reach this figure only by the sixth year of operation, i.e. FY’15. Even the Nano Europa, the European version of Nano, will not be launched before 2011.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 12:40 PM
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Saturday, December 8, 2012

Thank you John, for being gone!

John Mulcahy got Suncorp into a mess that’ll take some time to clean...

March 2, 2009, marked the last day in office for the chief architect of the much-discussed ‘failed’ A$7.9 billion Promina acquisition – John Mulcahy, former MD & CEO, Suncorp-Metway. His exit was rather a forced one, voted out of office by the shareholders, soon after the successful completion of capital raising activity worth a huge A$900 million! Bidding adieu to Mulcahy, another John in the story, John Story, Chairman, Suncorp (that’s his name, we’re serious!) asserts, “John has made an outstanding contribution, building a far more diversified and resilient business than existed when he joined six years ago.” Considering the rising bad debts (pegged at A$335 million), declining profits (net profit for H2, 2008, was A$258 million, down by 32.8% YoY), share price fall (which stood at A$4.50 as on March 2, 2009; 38% down from its last traded price), we don’t really agree with that ‘single dry line of praise’!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 10:12 AM
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Friday, December 7, 2012

Does Shoppers Stop have it within them to fight the slowdown?

Can Shoppers Stop do it? Does Shoppers Stop have it within them to fight the slowdown and one day become India’s answer to WalMart? angshuman paul investigates...

Think about it... For decades, the only option for a godforsaken departmental store that Indians ever had was the nightmare of a shopping excuse called Super Bazaar! And if you’re one of the teeming wastrel dozens who had their penny-wise romantic interludes in the generation spanning Kendriya Bhandar, none the better. Come 1991, and Nagesh became the Salvador Dali of shopping, romanticising the art for Indians in a way they felt was alien, yet enslavingly addictive. If the ‘91 inaugural Andheri store started in an upstreet Linking Road in Mumbai smoked the intent, the Ansal’s Plaza outlet in New Delhi went the full figurative blast. From one store in 1991 to 36 in 2009 (and 51 CrossWords, 3 HyperCity Marts), Nagesh, and Shoppers Stop, had arrived! But like I said, till the last year.

The numb’ers

For eighteen straight years, Nagesh has intently focused on growing Shoppers Stop’s geographical reach. And the impact has been frivolously brilliant, especially in terms of revenues. Look at just the last five years. From Rs.3,448 million turnover in FY 03-04, Shoppers Stop jumped 27% to Rs.4,411 million in FY 04-05. The next year was brilliantly more fantastic. A super growth of 42% made revenues shoot up to Rs.6,228 million in FY 05-06. With Rs.8,123 million in FY 06-07 (30%) and Rs.10,799 million in FY 07-08 (32%), Nagesh commandingly was traversing the upper crust. But both MD Nagesh and CEO Govind knew the warning signs were already there. With three quarters of this year giving Rs.9,606.6 million turnover, replicating last year’s growth might not be possible at all; though all indications are that they will surely beat last year’s revenue figures.

It’s quite ironical then that the year in which Shoppers Stop has reached the historical high grandstand of its revenues, is the same year that has perchance been the worst for it during the past decade. Even before the start of the year, the last quarter of the previous year had given them Rs.25.6 million loss (net after taxes). If that looked only trite figurative or bookish, the next quarter made its intentions clear. A mammoth Rs.256 million loss. The third quarter of the year ending September 2008 was the movie 300 in action; a bloodbath of Rs.496.7 million loss. Fourth quarter ending December 2008 gave another loss of Rs.32.6 million.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 1:44 PM
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Thursday, December 6, 2012

STEEL: SECTOR REPORT

As the government relents, steel players must get their house in order

However, in the last quarter, steel prices again fell by almost 20%, as the Government imposed a 5% import duty on steel products. According to Pawan Burde, steel analyst, Angel Broking, “Government is trying to control the falling steel prices by giving various sops to the steel sector.” The Government of India has now allowed all the withdrawn benefits and announced a 4% cut in central excise duty on steel production. Also, exporters will again be entitled to enjoy the tax benefits under the DEPB scheme. Also, the steel industry took certain measures on its own to maintain balance in the inventory. Says an analyst, “Various steel companies reduced their production by 15-20% in the last quarter. This helped in reducing production costs and prevented inventory imbalances.” Reduction in production has helped bridge the demand-supply gap. Where on one hand, the domestic steel market has stabilised; exports have also picked up in the last quarter. Iron ore exports reached 13.5 million tonnes in December 2008 as opposed to 9.8 million tonnes exported last year (an increase of 37.75%).

As the tables have turned in the favour of steel players, the Indian steel sector, in order to further augment their growth, has taken certain measures. For starters, the Indian steel players have announced that they will refrain from further price-cuts as demand in the domestic market has marginally revived. Furthermore, steel companies have also demanded that more liquidity should be injected in the system to enhance demand from key sectors such as automotive and construction. Adds Burde, “Steel players have also demanded that import duty may be increased from current 5% to 15%.”

From Rs.50,000 per tonne in March 2008, steel prices have fallen to Rs.30,000 per tonne at the start of this year. But as things start taking a favourable shape, it is expected that 2009 will bring some respite. While the Government should make sure that the economic slowdown in the country should not impact the automotive and construction sector; steel players on the other hand should balance their inventories, refrain from further price cuts and seek to augment their exports. 


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 11:58 AM
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Tuesday, December 4, 2012

Damn you slumdog billionaires...

Have you ever heard of much wealthy people being called the poorest?

We couldn’t get it. In fact, we haven’t got it for the past few years, having tried to unravel the idiotic paradox. And we bet that though you are well aware of it, you still accept it as a matter in the nature of natural history. Enough said. The issue in question is, of course, Africa! What takes our goat is that though Africa is supposed to be the centre of the world enriched with a bounty of natural resources, yet, most unfortunately, not only has it become the conflict zone of the world, but it also has refused to be advantaged from its humongous resources over the past so many centuries. That is the statistical fallacy that modern day capitalism has not been able to solve.

With abundant oil, natural gas, timber, cocoa, diamond, gold and more, to say Africa is a rich continent is a fool’s statement. Africa produces 46% chromium, 48% diamonds, and 48% platinum of the world. The US EIA data revealed that natural gas production in Africa is estimated to rise from 5.1 trillion cubic feet to 18.5 tcf by 2010. Sub-Sahara has 7% of the world’s oil reserves. It is home to some of biggest global exporters including Nigeria, Angola, Congo, Cameroon, Chad, and Sudan.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 12:21 PM
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Monday, December 3, 2012

Sacrifice your mid-day nap, please!

Policymakers need to wake up to the education system crisis...

Felix E. Schelling once quoted – ‘True education makes for inequality’, and perhaps rightly so. But today, many countries are too busy with their own political and social issues, such that the contemptible state of education and consequently the exacerbating chasm between the rich and the poor in their own country gets no attention!

The developing countries are the worst victims of such illiteracy driven inequality. Vietnam allocates a miserly 16.2% of its budget to University education and ridiculously, as per the Minister of Education, this problem can only be solved with an “increase in tuition fees”, which will evidently prove a blow to the poor community. In Turkey, only a pathetic 2.6% of infants aged three and four attend school, while the same percentage in more than 50% of other OECD countries stands at a tall 70% or more! In Bulgaria, statistics prove that only 30% of the students succeed in pursuing education beyond the age of 5, and also that education in English Medium is a rarity in the country.


Source : IIPM Editorial, 2012.An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 11:44 AM
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Saturday, December 1, 2012

Murder if you love mankind!

Really, that’s what powerful nations have taught us... Kill the innocent!

‘Shock and Awe’ – these are the two words to describe the ravenous manner in which the United States Air Force (USAF) bombed Baghdad’s administrative and government buildings with amazing precision during the summer of 2003. Yes, the American juggernaut was flexing its muscles on a helpless and an economically skinny Iraq, and the world needed no other Hollywood thriller to entertain them on their television sets for the weekend! So what was the scale at which Iraq committed a crime for which it was being granted capital punishment, free of cost and free of request? What justified the fact that Uncle Sam’s educated and well trained fighters knocked life out of thousands of Iraqis with bullets and shells from the skies? The answer: one man – Saddam Hussein.

The allegation against him was that he had enough weapons of mass destruction that could pose a serious threat to peace and security in the world. Well, if you thought that the punishment to millions wasn’t worth the ‘allegation’ against one man, then you’re probably right.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
Posted by IIPM : Global B School in India at 10:35 AM
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