Bob, you have a pendulum there!

Getting classified as India’s best traded stocks is always the ultimate incentive to be in the Sensex. Concurrently, when a stock drops out of the Sensex, very few have the wherewithal to make it back. B&E commentates on those few which did claw their way back..

The growth of the equity market in India has been phenomenal over the past two decades. In fact, right from early 90s, the stock market has witnessed heightened activity in terms of various bull and bear runs. While in the 90s, the Indian market witnessed a huge frenzy in the steel sector, it’s real estate that has caught the fancy of the investors recently. And not just sectors, stocks too have fared on the whims and fancies of the so-called investors. Result: Only a few could survive the test of time, and the rest went into oblivion. Interestingly, there were also those who made a comeback from the grave. Blame it on the strategic outmanoeuvres or the sheer investor sentiment for their dismissal, but one thing is sure – they fought hard to regain their seat among the 30 bellwether stocks that constitute the Sensex.

It was 2006, when Bajaj mysteriously decided to ignore the entry-level motorcycle segment and started focusing on the premium segment to grab higher margins. But the new strategy fell flat on its face. Not only did the move open gates for its arch rival Hero Honda to take a seemingly unassailable and massive lead, it also dampened the investor sentiment. Subsequently, a company which had once narrowed down the difference in monthly unit sales between itself and Hero Honda to a mere 30,000 units (in May 2006), was forced to remain content with just the low-hanging fruits. In fact, as of January 2009 the difference was 244,334 units. In the process, Bajaj had lost (on March 14, 2008) its prestigious tag of being a constituent of Sensex. In the past when we have met Rajiv Bajaj, MD, Bajaj Auto, he had accepted this strategic mistake, “The biggest mistake we made was that we didn’t focus on the 100cc segment. And since most of the volumes come from that segment, we lost market share to Hero Honda.”

2009 thus turned out to be quite an eventful year (and also a remarkable one) for Bajaj Auto. To start with, Bajaj once again surprised itself and the industry by making a comeback into the entry-level segment with the launch of of the 100cc variant of Discover. The company followed this up by announcing its exit from the scooters segment and its decision to drop the parent brand from its product portfolio. The last two decisions once again set tongues wagging in the industry and caught many offguard. But by the end of FY2010-11, Bajaj Auto was standing tall and even the critics were offering its light-spirited, yoga-loving MD grudging admiration. The company reported a revenue of Rs.170 billion last fiscal and its net profit soared to Rs.36 billion at a whopping growth rate of 41%. Even the company’s bike sales crossed 3.3 million units in the last fiscal, showing a stellar growth of 35%. All this at a time when input costs were hardening and inflation picking up. Well, there was yet another reason to cheer about. The company had made a re-entry into the BSE Sensex (on December 6, 2010).

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Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Coal abundant or dependent?

Amidst tight global supplies and price rise, it’s imperative to reassess the management of our coal resources and its impact on our energy security

Amongst the major energy sources, coal is the most rapidly growing fuel by consumption on a global basis. Coal plays an important role in electricity generation and steel and cement manufacturing worldwide. Currently, 39% of global electricity produced depends on coal feedstock. The Indian coal industry is the fourth largest in terms of coal reserves and third largest in terms of coal production in the world. But despite its huge resource base, India has not been able to minimise its coal deficit. The country continues to produce a majority of the coal that it consumes, but coal imports are rising at a fast pace, already contributing to over 10% of our coal consumption. And domestic coal production is unlikely to meet the expected demand growth over the next five years. According to a Credit Suisse report, the coal deficit in India is currently pegged at 142 million tonnes and is likely to increase to 400 million tonnes by FY 2017.

The Geological Survey of India estimates proven reserves of coal in India to be 114 billion tonnes, or 40% of the total reserves. The latest proven reserves represent a 3.6% increase over the previous year’s 110 billion tonnes. At current levels of production of about 550 million tonnes, the coal reserves will last for more than 100 years, Coal Minister Sriprakash Jaiswal recently told the upper house of the parliament (Rajya Sabha) in a written reply. Coal demand is anticipated to grow at a CAGR of over 10% during 2011-12 and 2013-14 with the demand for thermal coal and coking coal by the power and steel sectors expected to show maximum growth in the near future.

According to data available from the Ministry of Power, coal-based power generation capacity (86GW) is 53% of the total installed capacity (162GW) in the country and it contributes 66% of the generation (in kWh). There are 105 thermal-generation plants currently in operation throughout India, and another 59, which are expect ed to come into production over the next three years. The Ministry of Power expects coal imports for the power sector to increase from 16 million tonnes in FY ‘09 to 68 million tonnes in FY ‘12. Similarly, total coal requirement for India’s steel sector work out to 68.5 million tonnes/year by FY ‘12. That translates to incremental demand of 33.5 million tonnes of coal by FY ‘12. The cement sector is another important consumer of coal. As per Plan documents, annual cement production during the 11th Plan period should increase 61%, from 156 million tonnes during FY ‘07 to 251 million tonnes during FY12. This, despite the fact that average specific consumption of coal in cement plants has been decreasing in recent years, driven by substantial technological improvements. Nevertheless, coal requirement for incremental cement production is estimated to be at 11.9 million tonnes by FY ‘ 12.

Clearly, a large part of the coal requirement would have to be met through imports as PSU companies, who account for four-fifths of the country’s coal production, are finding it difficult to accelerate production growth. Coal India Limited (CIL), India’s largest coal producer and also the world’s biggest producer of coal has scaled down its production targets for 2011-12 to 452 million tonnes from 460.5 million tonnes. Last year, against the target of 460.5 million tonnes, it produced 431.32 million tonnes. The coal ministry blamed the shortfall on delays in getting environmental clearances, laws and litigation delays, and seasonal rainfalls that disrupt mining activities. The coal sector has been traditionally dominated by government-owned companies and with limited participation from the private sector. But there is no denying that private sector participation is a must for augmenting coal production.

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Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

When Banks become Robbers

No doubt the High Court of Allahabad – and even the Supreme Court a few weeks ago – has delivered justice for farmers in what is euphemistically called Noida Extension. Very briefly, the government had invoked a law dating back to the colonial era to de facto grab land belonging to farmers at throwaway prices in 'public interest'. Farmers were paid about Rs.800 per square meter for land; in turn, the Greater Noida Industrial Development Authority sold the land acquired for 'industrial units' to real estate developers at a minimum of Rs.10,000 per square meter. In turn, builders sold flats to middle class investors in search of a dream house at prices starting at Rs.25,000 per square meter. So the price paid by a middle-class home buyer was at least 30 times more than what the farmer was given. Clearly, this was bizarre and in defiance of common sense, apart from basic principles of justice. By declaring such land acquisition null and void, the courts have hopefully halted a nationwide trend where governments grabbed land from farmers to enrich builders and industrialists. Hopefully, this series of judgements will set a precedent and governments might be forced to stop indulging in the very worst kind of crony capitalism. This series of verdicts has already triggered another debate about the colonial era policy of land acquisition in India. A Bill to change the Land Acquisition Policy is waiting to be debated in the Parliament and the controversy will attract many comments and columns.

But I want to focus on the plight of the hapless middle-class investors and Shylock-like behaviour of commercial banks. The media is replete with callous statements from heads of banks saying that people who have taken loans to invest in these houses in Noida Extension have no choice but to keep paying the EMIs – even if they have no hope whatsoever of getting their dream houses. Some investors might be lucky to get a refund from builders because the Supreme Court has so directed (Can you imagine builders voluntarily refunding money?). But even they will have to forfeit the huge amounts of interest they have already paid to the banks. Quite simply, the banks are behaving like highway robbers and taking refuge under perverse agreements and fine prints. The fact is: the banks must have been aware that the projects were controversial and that there was litigation involved in the housing schemes. Knowing the risks, they merrily lent money to home buyers at exorbitant rates of interest. And now that the courts have stopped one part of the robbery, the banks continue to persist with their brand of loot.

Anyone saddled with credit card debt knows how banks in India behave as badly as evil moneylenders from old Bollywood movies. Everyone knows how banks send goons and thugs to people's houses and offices if there is a default on consumer loans. Everyone knows how banks behave in the most unethical manner by using glib salesmen to sell dubious financial products and hoodwink investors. All of us know that.

Read more....

Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

One Dollar CEOs!

What is it About a One Dollar an Year Compensation that Attracts some of The Most Powerful CEOs in Corporate America? Unfortunately, The Answer isn’t what it is Perceived to be.

In a mad sprint towards the mirage of creating just about everything out of nothing, the US financial system managed to pull off a crisis, which cost the world more than $2 trillion in loses. The value of these losses keeps changing for the worse every month as more homes come under foreclosures and financial institutions around the world write down their holdings based on subprime assets. But what doesn’t change is the audacious phenomenon of hefty pay cheques that investment bank CEOs continue to take home. According to a research commissioned by The Wall Street Journal, total compensation of publicly listed Wall Street banks grew by 5.7% to hit a record $135 billion in 2010. Unfortunately, regulators and watchdogs are still quite listless.

During an interview, David McCormic, who was the Under Secretary of the Treasury to the Bush Administration went on record stating that he “would not support legal controls over executive pay”. As amusing as it may sound, Scott Talbott, Chief Lobbyist, Financial Services Roundtable, is comfortable with the level of compensation in the financial service industry because he believes that “Wall Street has earned it!” Availability of extensive literature on the subject doesn’t help disguise the disconcerting reality either – executive compensation continues to be one of the most debated and hallowed corporate issues in these contemporary times.

CEOs themselves need to realise the negative fallouts of an unjustifiably huge package on their performance and consequently on their careers ahead – a fact proven by various studies. A research undertaken by Graef Crystal in 2009 (a veteran in executive compensation consulting) shows that “there is no relationship between CEO compensation and shareholder returns”. In December 2009, three professors at the University of Utah and Purdue University commissioned a study titled Performance for pay? The relationship between CEO incentive compensation & stock price performance. The report analysed all NYSE, AMEX and NASDAQ firms listed on the Compustat Execucomp Database and Compustat Annual Industrial files from 1994-2006 and concluded that “industry and size adjusted CEO pay is negatively related to future shareholder wealth changes.” They proved that firms that overpay their CEOs earn negative abnormal returns over a five year period.

Amidst all the hue and cry over why these CEOs need to be paid so much, there are some top honchos who settle down for a mere dollar as their fixed annual compensation and are also referred to as one dollar CEOs. At hindsight, that comes across as the ultimate benchmark on accountability, commitment and sincerity. But on closer examination, matters are not really what they seem to be.

Read more.....

Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Jnnsm : Time to Prepare for Phase II

Shubhranshu Patnaik, Senior Director, Deloitte Touche Tohmatsu India Private Ltd.

The Jawaharlal Nehru National Solar Mission (JNNSM) was launched last year with the objective of achieving 20 GW MW of grid-connected (and 2 GW MW of off-grid) solar capacity in India by 2022 and to provide an environment for innovation, efficiency improvement and scale in the country to accelerate solar energy’s march towards grid-parity by 2022.

Over Phase I of JNNSM, 1 GW of solar power is targeted by 2013. As a significant first step towards achieving this, the Government of India, through a tariff-based reverse auction process, successfully selected 37 developers offering 620 MW (450 MW of solar thermal and 150 MW of solar PV projects) to sign Power Purchase Agreements with NNNV. Further, about 100 MW of projects, were allowed to migrate under the JNNSM at feed-in tariffs specified by the CERC (Rs 17.91/kWh for PV and Rs 15.31/kWh for solar thermal).

The auction settled the debate on the viability of CERC’s feed-in tariffs as qualified bidders bid substantive discounts over CERC tariffs up to Rs.5.75/kWh for solar PV and Rs.4.82/kWh for solar thermal. Despite unavoidable criticisms of the reverse auction process, caps on capacities, etc., investor participation was overwhelming and the government and NVVN deserve credit in having conducted the process in a time-bound manner and conveying the seriousness of the program to the global community. Phase I is at best a proof of concepts, the test of which is not just the successful award or even commissioning of projects but in its scalability, given the 20 GW target set out under the mission by 2022. It is time therefore to ascertain the progress under Phase I and prepare for Phase II of the mission.

Of particular interest is the realisation of the solar thermal potential in India, which is central to achievement of the ambitious targets under JNNSM. Solar thermal technologies are emerging in nature and there are only a few operating plants around the world, although several are in the planning / development stage.

Solar thermal plant designs ideally require accurate local irradiation data and extensive engineering inputs in calibration and design of solar fields. Relying simply on the satellite-derived data can lead to faulty conclusions, as some players are finding out with ground-measuring instruments. The above uncertainties combined with the lack of solar development experience amongst bidders and the fact that very few solar thermal bidders actually aligned with solar technology providers at the bidding stage, has increased the risk-perception amongst lenders and made it extremely hard for these projects to get non-recourse financing. Over three-fourths of all projects under JNNSM face challenges in achieving financial closure. This remains an important area to be addressed by the government and multilateral financial institutions (MFIs).

Read more......

Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

The Real National Shame: Food

In a recent column, the respected agriculture economist M. S. Swaminathan has described the bumper crop of wheat in Punjab and Haryana as a moment of both ecstasy and agony. Ecstasy because the 85 million tons of wheat output reveal how our intrepid farmers battle against all odds do their bit for food security in the country; agony because most of their efforts go down the drain because of a hopelessly incompetent and criminally callous Government, particularly the Food and Agriculture Ministry headed by our cricket Czar Sharad Pawar.

At the moment, India is sitting on about 45 million tonnes of food grains, quaintly known as buffer stocks. As procurement gathers momentum each day, it will not be surprising if the stockpile of food grains crosses the 50 million ton mark very soon. In fact, so acute is the crisis of ‘surplus’ that state and central procurement agencies now claim they simply have no space left to store any more food. There will be the usual tales of corrupt and venal procurement officials harassing poor farmers with demand for bribes. Worse, most of the food procured will simply rot as the government has not managed even the childishly simple task of building adequate and safe storage godowns despite more than 20 years of persistent surpluses. What can you say about the priorities of our system when spanking new stadiums for the recently concluded Cricket World Cup can be built almost overnight under the benign supervision of Mr. Sharad Pawar while we fail to erect simple concrete structures to store food in a dispensation run by the same man?

The most commonsense and obvious solution is to allow Indian farmers to export food so that they can reap the benefits of globalisation, just as our IT, Telecom, Automobile, Petrochemical and Infrastructure tycoons have been doing. But mention the word 'exports' and you will encounter storms of protest from both do-gooders and government types who say allowing exports of food will once again uncork the genie of food inflation. They will say how each kilo of food will now be crucial since the Right to Food is now a constitutional requirement and that the buffer stocks will be needed to distribute free food to the poor. They also talk about how onion exports and one bad harvest led to onion prices going through the roof last year.

Frankly, such arguments are nonsense and reflect the defeatist mindset our policymakers acquired during the dark era of socialist inspired shortages of everything. First, be assured that almost all the ‘free’ food that will be doled out to the poor will be so rotten due to poor storage that it will be virtually unfit for consumption. Second, and more important, such arguments ignore the fact that foodgrain productivity in India is still half that of China. Quite simply, we have the potential and the ability to almost double our foodgrain output to close to 500 million tonnes a year. That one national endeavour will enrich tens of millions of farmer families who can export food even as the poor get enough free food.

Read more.....

Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Stratagem-M&A: NUCLEAR FUEL

The Nuclear Crisis in Japan on March 11, 2011 has in a way Provided enough fodder for The Industry which was Projected to Witness a surge in M&As. As Nuclear Projects Globally are Adopting ‘adjust and Improve’ Strategy Projects, The Inorganic mode will Gradually pick up...

Moreover, with the expiry of the highly enriched uranium deal between US and Russia in 2013, a big chunk of secondary supply of uranium will be out of the market and thus the junior exploration companies are bound to witness a lot of M&A activity.

The cloud over the uranium deals post the Fukushima disaster has been cleared. There is no question that the deals will be derailed. In fact, the inorganic route has in a way begun; Russia’s JSC Atomredmetzoloto (ARMZ) is on an acquisition drive at present and is all set to acquire uranium assets in southern Tanzania from Australia’s Mantra Resources for $944 million. ARMZ has also been given the green light by the United States to a 51% takeover of Uranium One in Canada. Extract Resources Ltd, is also expected to go ahead with a proposed $1.7 billion uranium venture in Namibia, while China’s Guandong Nuclear Power Group has already made a $756 million offer to Kalahari Minerals. Add to this the fact that uranium companies ranging from Australia-based Toro Energy Ltd to Toronto-based Mega Uranium Ltd are so depreciated (e.g. Mega Uranium’s share price has plunged 32% between March 11, 2011 and April 25, 2011) that they have now become prime takeover targets. As a matter of fact, M&A activities involving Canadian uranium exploration companies are likely to pick up in 2011 itself; a view very much shared by analysts at GMP Securities.

Statistics from London-based World Nuclear Association reveal that while there are 442 nuclear power plants, 54 of them are in Japan alone and about 60 reactors are currently under construction or refurbishment in 12 countries. Also, uranium – with a half life varying from 700 million years to 4.47 billion years (depending upon the isotopes) – is in deficit. To meet the energy requirements of the world, it is imperative that the world realises the inevitability of consolidation in the uranium industry. While the current disaster in Japan urges the need for better safeguards to be put in place, the current energy dynamics urges for consolidation albeit by following a calibrated approach.


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Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management