IIPM FACULTY: February 2013

Saturday, February 09, 2013

“Funding is the major roadblock!”

He sold his well set up business in 2007, that made him once the market leader and decided to venture into a sector that was only talked about and not explored. Today with Indosolar, he is the largest manufacturer of solar photovoltaic cells in India, ahead of firms like Moserbaer and Tata BP Solar. Set to hit the market with his maiden public issue, Hulas Rahul Gupta, MD, Indosolar, discusses his future plans to B&E’s Deepak Ranjan Patra

B&E: You were the market leader in the compact fluorescent lamps and halogen lamps category when you decided to make an exit from the particular business. Why did you take such a decision?
HRG: By the end of 2006, there were a lot of activities going on in the PE arena, especially in the automotive segment in the Asia-Pacific region. Most of the offers were for growth capital and we were not in the growth capital space. So, it was all a matter of valuation. We analysed it very professionally and the valuation was really good. The share price was around Rs. 85 and the selling was Rs 200 a share. We also believed that the sharehoders were getting a good amount and it was a win-win situation. So we decided to move out from the sphere.

B&E: Just two years back, you entered the photovoltaic cell-making business and now you are the leader with controlling 40% of the country’s annual cell-making capacity. How has been the journey so far and what was the strategy that worked for you so well?
HRG: After Phoenix, one of the areas where we started looking business opportunities, was global warming and climate change. In thge mean time, we came across solar technology. The more we looked at it more we liked it. It was seriously a capital intensive business. But at the same time, we decided that we must bring in concurrent technology to India, so that it has a higher domestic demand in future. From that point of view, we entered into solar technology. From the beginning itself, we wanted to go for scale. So, at a time when 10 MW unit was considered big, we opted for a plant with 200 MW capacity.

B&E: You are planning to launch a public issue shortly. Does it aim at scaling up your capacity alone?
HRG: After looking at the governments’ incentive policy, which allows a capital subsidy of 25% on capex of Rs. 1,000 crore, we thought we must apply for the same. Thus, we decided to increase our footprint to 360 MW at a total cost of Rs. 1,545 crore. With this IPO, we are planning to accomplish the second phase of our expansion by adding 100 MW capacity.

B&E: Efficiency of the cells is a major factor when it comes to judging quality of the cells. Do you also value efficiency while moving ahead with scale?
HRG: A lot! The efficiency level that we maintain is one of the best. Certainly, the efficiency curve has moved dramatically in the recent times. Before two or three years, it was around 12% to 14%. But in the past 18 months or so, the average efficiency level has moved up to 15-17%. We have bought a line, which was contracted guranteed 15.9%, now we are averaging 16.2% and have a roadmap for 16.5%.

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2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)

Friday, February 08, 2013

UK, Germany lost due to auctions! And India?

3G in India is clearly too expensive on a rational and logical basis

The Indian 3G spectrum auction has finally ended after 34 days, 183 rounds and prices close to US$15 billion. The resulting US$ / MHz / Pop (the standard benchmark) for Mumbai, for example, makes the prices paid in the UK and German 3G auctions look relatively good value. If the prices were adjusted for relative differences in GDP per capita, Indian prices would be off the scale. The prices paid in Germany and the UK in the dying days of the dotcom boom are often said to reflect the “irrational exuberance” of the time but has that same exuberance driven prices in India to irrational levels?

Vodafone in the UK, for example, had been enjoying returns on capital employed (ROCE) of 27% (before tax) in the year preceding the auction. However, after bidding close to GB£6 million for its 3G spectrum the company’s capital employed had to grow from GB£2.7 billion to GB£9.6, an increase of 255% to finance the investment. The result was an overnight fall in the ROCE from an impressive value creating 27% to a below the cost of capital 8%. O2, Orange and T-Mobile all experienced a similar fate with the returns for O2 and Orange falling from 6% to 3% and 19% to 13% respectively. After many false dawns only now, 10 years on, are non-SMS data revenues beginning to have a material impact on the top line but for many operators the contribution is still below 10% of total sales. UK and Germany were clearly cases of irrational exuberance but what about India?

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Wednesday, February 06, 2013

Building new ties with sukuks

The Indian economy needs to understand its hidden potential and use it for getting Islamic Funds says Vikas Kumar

Take a situation where a person, who wants to start a small business, has to take a loan from bank. He agreed to pay an interest of 10%. After a year, he earns a profit of Rs.70,000, which alone is not enough to pay back his loan. The person now has two options in front of him, either to close down his shop or get caught in a vicious circle of interest payment. While the first case would put him into a situation where he has to throw out his people, in the second he would never be able to get rid of his debts.

But, had the person gone for Islamic Banks, he would neither have to close down nor would he ever need to take loans in order to be able to pay back his interest. While the former case is the conventional form of banking, the later is the latest trend in the banking arena called Islamic Finance. The conventional banking adds to the economy by giving loans, earning profits through interest and then infusing the same money back into the economy. In the Islamic Banking System, a person is given loan based on his capability and is not charged with any kind of interest. For a country like India such a form can prove to be a blessing. Because of the current recessionary phase and as the effect of it, the rich Arabs are failing to invest in high paying options across other nations. And now, since the US and the European markets are failing to revive themselves as soon as expected, the Indian markets are proving out to be a better option for them.

Says Assocham President, Swati Piramal, “The government is planning to spend more than $345 billion in the coming years, to build a new and fundamental structure. But it does not have that kind of money with it. So, it is trying to fill the gap with PPP model. In this case, Islamic Funds can change the whole scenario by investing in ports, roads and airports.”

In line with her thoughts and describing the nature of Islamic Financing are the views of Qatar-based Islamic Finance consultant, Monzer Kahf. He says “Islamic Finance is just like any other business. It does not discriminate on the basis of cast, creed or colour. It is not only for the Muslims but is for all.”

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Monday, February 04, 2013

‘SEC’luded from power

Transferring SEC’s power will not solve the problem in the US

T he aftermath of the current financial turmoil in the US can be gauged from the very fact that the institution formed to protect investors’ interests after the Great Depression, the Securities and Exchange Commission (SEC) is now itself searching for protection! A legislation introduced earlier this year now aims at diminishing the power of the SEC by taking away its control of the entire gamut of financial products. As expected, the move, even before it was announced, has already spurred a high-voltage controversy between the various regulators. Mary Schapiro, Chairperson, SEC has announced that SEC would ‘profoundly’ question any move to strip it off its power. But the million dollar question remains, has SEC actually justified the powers bestowed on it?

Well, certainly not. Be it the decade old story of Enron or the latest of the lot, Madoff; SEC has failed to prove its pro-activeness. It was visible in the case of Enron and now one can hear the same for Madoff as well. SEC turned a blind eye to the entire issue of Bernard Madoff’s $65 billion Ponzi scheme despite repeated red signals being given from various agencies. Mary Schapiro asserts, “Different regulators have different perspectives and the best solutions come from the clash of varying viewpoints.” Well, aren’t things bad enough when the regulators are not getting in each other’s way?

Now the second critical question is who’s going to get those powers? Although nothing has been confirmed officially, it’s expected that the ball will land in the US Federal Reserve’s court. But, aren’t the Fed’s administrative abilities already in question ever since they allowed the banking ‘giants’ to jeopardise investor’s money by infusing them in sub-prime mortgage backed securities, which created the entire turmoil in the first place? Also, don’t you think that excessive concentration of power with the Fed may give rise to bigger troubles later, if it fails to handle the situation? So, what’s the solution then?

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Friday, February 01, 2013

How the western recession is the real beginning of great news for India!

Arindam chaudhuri, editor-in-chief, Business & economy

Yes! Indeed the western recession is really the beginning of good news for India! But to understand that, I’ve to take you away from the topic of western recession for a while... to the Japanese recession! For years, I’ve admired the Japanese style of management as a management teacher and given its examples in scores of my workshops. However, over the last one decade or so, I’ve been continuously facing one key question from my workshop participants – mostly CEOs from top corporations of India Incorporated. Their question to me invariably has been, ‘If the Japanese management style is as wonderful as described, then why has Japan been in a recession for the last decade and more?’ This question is what I guess one needs to understand first, if one has to really understand the beauty of the current western recession. My answer to this question has always been very simple. I believe culture plays a very important part in shaping up economies. What succeeds in one culture fails somewhere else. Kenichi Ohmae, a famous strategy guru, wrote in his bestseller, The Mind Of The Strategist, that if you want to sell a new kitchen appliance to a Japanese housewife, you have to first enter a Japanese small-sized kitchen. And then, from the stacked kitchen appliances on the kitchen shelves, you have to tell her which one of them is to be thrown away to make way for the new appliance. Well, they are all excellent in quality. Long lasting. And tough to throw! And that’s why the Japanese economy has been in a recession for a decade now.

Because culturally, these Buddha lovers are basically non-materialistic. And however much rich they become, unlike Americans, they cannot just keep throwing and buying endlessly. And once they have almost everything they need, there is a saturation point. After this point, there are primarily three kinds of demand. Replacement demand, new product demand and FMCG demand. And that can’t keep giving an economy a double digit growth rate! Add to that Japan’s rapidly aging population and negative population growth rate (the Japanese Ministry of Health forecasts that even till 2050, they won’t have a positive population growth rate). That’s exactly what happened with Japan.

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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.

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
IIPM – FLP (Flexi Learning Program)

Turn a short-term problem into a long-term issue

Cutting marketing investments can often turn a short-term problem into a long-term issue

Use a “sniper” approach to cost cutting. Once companies understand exactly how the recession is affecting their core customers, they are in the position to identify with precision the kinds of marketing investment that generate value and should be protected, and those that may be dispensed with. Indiscriminate cuts across the board can destroy value in the long term and should be avoided. To understand what marketing activities may be scaled down and which ones should be strengthened, it may be necessary to focus on the two or three things that truly matter to customers (for instance product features, service, availability, price, et al).

Promotion and low pricing strategies should be employed wisely. Sales promotions and price cuts can be useful in a downturn to stimulate demand. However, they should be used only if they are consistent with the positioning of the brand. Short-terms sales volume and revenue should be balanced wisely against long-term brand strength. In the end, the best strategy for a strong brand might be to continue to reinforce the attributes that make it appealing and unique in the eyes of the consumers. A strong emotional bond between the customer and the brand, for example, can still provide the most effective defence from market forces.

Deal with the short-term challenges, but also manage for the long term. Reducing marketing spending aggressively, or ignoring the role of marketing in building long-term shareholder value is clearly not the way forward. Unfortunately, cutting marketing investments indiscriminately can often turn what may be a short-term problem into a long-term issue. Advertising for brand-building, for example, can take a long time to bear any fruit. The immediate benefits of a cut in marketing spend may hide the more insidious long-term effects if support is withdrawn from the brand. In the end, evidence suggests that the strongest brands are those that receive sustained support over time, even in times of crisis.

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