Friday, June 29, 2012

Consumer goods: Fighting for the next billion shoppers

A TRIP to Paris is not usually a miserable way to celebrate your birthday, but so it was this year for Bob McDonald. On June 20th, as he turned 59, the chief executive of Procter & Gamble (P&G) for the past three years gave a faltering and apologetic speech at a conference there hosted by Deutsche Bank, in which he predicted lower-than-expected profits in the coming quarter for the world’s largest maker of household and personal-care products, and confessed to deep-seated problems at his firm both in innovation and the broader execution of its strategy.
The same day, at the Rio+20 Summit in Brazil, Paul Polman, a former colleague of Mr McDonald’s at P&G and now boss of Unilever, a big European rival, was on a high. With his firm’s share price close to record levels, he was able to enjoy hobnobbing with world leaders as he called on other companies to join Unilever in adopting a range of strategies designed to tackle climate change. How Mr McDonald must have wished he were in Rio de Janeiro, too, not least because he shares Mr Polman’s fondness for talking about his firm’s similar “purpose-driven” goal of creating a better, more sustainable world. Instead, in Paris, as P&G’s share price tumbled, doubts were being raised about the sustainability of Mr McDonald’s hold on his job.
Mr McDonald’s promise to make P&G’s pricing more competitive, and his plan to cut costs by $10 billion, could, if delivered, help to restore P&G’s fortunes in these markets at the expense of Unilever and other consumer-goods firms. But the biggest questions concern how P&G can improve its performance in the developing economies on which both it and Unilever depend for long-term growth.
Hoping to clean up
Both firms started this decade by setting themselves ambitious goals. P&G’s was to add 1 billion new customers by 2015, a 25% increase. Unilever’s was to double its revenues by 2020, at the same time as halving its negative impact on the environment, under its “sustainable living plan”. Both firms made clear that growth in emerging markets would be crucial to achieving those goals. They promised to invest heavily in distributing and marketing their established products in developing countries and in creating new ones tailored to the tastes and pockets of poorer consumers at the “bottom of the pyramid”—where, according to the late C.K. Prahalad, a management guru, a fortune lies.
P&G expects developing markets to contribute 37% of its total revenues this year, up from 34% in 2010 (and 23% in 2005). For Unilever, the share from developing markets is already up to 56% of sales, from 53% in 2010. However, in absolute terms Unilever’s sales in these markets, at $22.9 billion, are just behind P&G’s, at $23.6 billion, since P&G is far bigger in developed markets (see chart).
By 2020 Unilever expects developing markets to account for 70% of total sales, with about two-thirds of that coming from growth in the overall size of those markets and the other third from an increase in Unilever’s share of those expanding markets.
Exactly what share P&G is aiming for in the coming years is now unclear. A year ago it talked of detailed plans to enter, by 2016, up to 950 product markets (counting each product in each distribution channel in each country as a separate market). As Ali Dibadj of Sanford C. Bernstein, an investment bank, puts it, this meant “taking on every competitor in every category in every region of the world at once.” In Paris, however, Mr McDonald described a much narrower strategy of focusing on P&G’s ten biggest development markets as well as, worldwide, its 40 most profitable products and 20 biggest innovations.
Mr Dibadj says the “arrogance” of P&G had caused it to underestimate the competition in emerging markets, not just from traditional rivals like Unilever but from local firms, some of which are fast becoming as professional as any multinational company from a rich country. As a result P&G underestimated the cost of building its presence in these countries, he says. In its efforts to find cash to finance its emerging-market expansion, P&G pushed up its prices in rich countries to levels that consumers were not ready to accept, speculates Mr Dibadj, who prefers P&G’s new strategy of freeing up funds by taking an axe to its bloated cost structure. Overheads are higher as a proportion of revenues than at most of its rivals, and have not fallen as sales have grown, suggesting that management has done a lousy job of achieving economies of scale. Big acquisitions, such as that of Gillette in 2005, have added products and complexity but not, it seems, efficiency.
Cracking China
In the developing world, P&G is strongest in China, now its second-biggest national market with around 6% of the firm’s worldwide sales. Yet this is a country where price competition is especially fierce. (It also has a severe shortage of talent: Unilever had over 30,000 local applicants for 100 places on its management-trainee scheme in mainland China, but thought only 80 of them good enough.) A sophisticated population of internet users makes it easier to promote new brands cheaply through digital marketing. Unilever designed a Lipton Tea-branded new year’s message to send to friends that was used by 130m Chinese, for example.
Unilever is a challenger in China, but is far stronger than P&G in India, where it has long been considered a local company (likewise in Bangladesh, Pakistan and Sri Lanka). It is still known there as Hindustan Unilever, a reference to the decades its local subsidiary spent as an essentially independent company before its fuller integration into the global firm in recent years.
Unilever benefits from India’s continued reliance on small family shops (compared with the supermarkets prevalent in China), with which it has long-established relationships, and from India’s far larger bottom-of-the-pyramid population. Both these factors push up the cost to a new entrant of building a distribution network. Africa, the next frontier for branded consumer goods, poses similar challenges, with both firms starting mostly in similarly weak positions.
With internet penetration relatively low in India, consumers often have to be engaged in person. P&G is going into Indian schools (with government approval) to preach to girls the benefits of sanitary towels. It and Unilever have programmes to explain the health benefits of washing hands with soap several times a day and of brushing teeth regularly. But P&G has nothing to equal Unilever’s army of around 50,000 “shakti women” who sell its products in remote villages (and which has recently been expanded to include “shakti men” hired by their wives). P&G’s big push in India over the past couple of years was hugely expensive, including launching a price war between Tide, its venerable detergent brand, and rivals such as Unilever’s Surf and Rin. Some say it temporarily pushed the company’s business there into the red.
Both firms are trying to “straddle the pyramid” by offering products in each category aimed at three different sorts of consumer: high-end ones, who have essentially the same tastes as their counterparts in America or Europe; the rapidly emerging middle class, where the challenge is primarily to get shoppers to devote more of their spending to branded goods; and those at the bottom, who may never have brought any branded product before.
P&G is reckoned to have been slower at “reverse engineering” its products to be affordable to poorer customers: ie, starting with the price the customer can pay, then working out how to deliver a product profitably. Unilever started doing this years ago, by selling shampoo in small sachets as well as in pricier bottles. In Indonesia, one-third of Unilever’s revenue comes from purchases costing 20 US cents or less.
However, P&G is beginning to work out what these extremely demanding customers want. Its Olay shampoo is now sold in sachets. In India, P&G has launched Guard, a cheap new razor which, because customer research suggested it is likely to be used just once a week, comes with a comb in front of the blade to make the shave smoother.
Cincinnati central
P&G is one of the world’s most thoroughly integrated multinationals, whereas Unilever has only recently been reintegrated from a clutch of regional fiefs and continues to have two headquarters, in London and Rotterdam. This may have helped the Anglo-Dutch firm strike a better balance of global and local in developing markets compared with Cincinnati-centralised P&G. Even so, both face threats from agile local firms. “Decisions on how to innovate, say, [Unilever’s] Lux brand will be made by the global head of Lux, who will try to satisfy many different markets at once, which can marginalise some markets as well as being slow and bureaucratic,” says Vivek Gambhir of Godrej, an Indian consumer-goods firm. “We can get innovation done much faster, in three or four months.” The lower profit margins available in developing markets may have discouraged P&G’s brand managers from expanding in them, until they were ordered to do so, by which time they were playing catch-up, says Bernstein’s Mr Dibadj.
Soups, soaps and science
Whereas both firms have innovation centres around the world, P&G’s Cincinnati focus may have made it less effective than Unilever at “distributed innovation”. Consumers in Britain, continental Europe and Turkey have embraced Knorr Stock Pot, a bouillon jelly developed for Chinese consumers, who disliked existing packaged soup. Likewise, Clear, an anti-dandruff shampoo designed for China, where hair is thick, black and infrequently washed, is now being rolled out in America.
Starting in 2010, Unilever has launched Dove For Men soaps simultaneously in more than 20 countries, including Brazil, “far more efficiently than it would have done in the past”, says Martin Deboo, an analyst at Investec. He attributes this to Mr Polman’s focus on “better execution” since taking charge in 2009, a goal Mr McDonald embraced in Paris. In consumer goods, “strategy is only 10%; 90% of success is down to execution,” Mr Polman has said.
These are still early days for both firms in the developing markets, which unlike rich countries may have many decades of high growth ahead of them. For now, Unilever may be doing better, but elements of its developing-market growth strategy remain as unproven as whatever P&G’s updated strategy turns out to be.
For instance, Mr Polman sets great store by Unilever’s “sustainable living plan”, not as corporate social responsibility but as a way to generate better innovation, not least by forcing its product developers to focus on using energy and water efficiently. In Asia it has launched Comfort One Rinse, designed to reduce the amount of water used when washing clothes. Purpose-driven P&G has introduced a similar product, Downy Single Rinse.
Yet Mr Polman readily concedes that, so far, Unilever has been “picking low-hanging fruit”, and that “a lot of what we need to do we can’t do alone.” Much will depend on re-educating consumers in the rich world to use its products more sustainably, such as by taking shorter showers; or on establishing greener habits among new consumers in developing countries than those already deeply ingrained in rich countries. Behavioural economists have been consulted on how to do this. Unilever’s plan to incorporate 500,000 small farmers in developing countries into its global supply chain may ultimately give it a more secure source of high-quality produce, but making this shift is hardly without risk.
P&G has also begun to demonstrate that where it is willing to invest heavily in developing markets it can make inroads. This should give hope to the embattled Mr McDonald. If he can sort out his cost problem, and free up more money for marketing and innovation, especially in the developing world, P&G can rediscover its mojo. The potential of those markets is so huge that there is room for both these old rivals to win.
(Source: The Economist)

Business Process Outsourcing: At the front of the back office

IT’S midnight in Manila, and the capital is just waking up to the start of another working day. At the Worldwide Corporate Centre office block, thousands of young Filipinos are crowding into endless open-plan offices. Once seated, they quickly start answering the questions and calming the frustrations of vexed American consumers beginning their own day on the other side of the Pacific Ocean.
These Filipinos are call-centre workers. To outsiders it is hardly a glamorous profession, yet despite the antisocial hours these men and women have every reason to be as well-motivated and cheerful as they seem. They are well paid and know that they work at the heart of their country’s most dynamic industry.
The South-East Asian upstart (population 101m) is unlikely ever to surpass the South Asian behemoth (1.2 billion) across the entire range of outsourcing offerings, which also include all kinds of information-technology services. Yet given the extraordinary growth so far it is hard to gainsay the Philippines’ own projection that its BPO industry could add another 700,000 or so jobs by 2016 and generate revenues of $25 billion. At that point, the industry would make up nearly a tenth of GDP and be bigger in value than the remittances from the 10m Filipinos working overseas.
As in the call-centre business so far, some of these new jobs will come at the expense of India. Yet India’s relationship with the Philippines in back-office work is more complex than the numbers suggest.
The main reason for the success of the Philippine call centres is that workers speak English with a neutral accent and are familiar with American idioms—which is exactly what their American customers want. Of these, many have taken to complaining bitterly about Indian accents (which no amount of “voice neutralisation” coaching seems to have overcome). As a result, the Indian firms themselves have been helping to move jobs to the Philippines by setting up call centres in Manila and other parts of the country. Infosys and Wipro, as well as scores of other Indian firms, now have substantial operations there. And they aren’t drawn to Manila by cheap labour. Wages in the Philippines are slightly higher than in India since the Filipino accent commands a premium.
It also helps that the country has a big pool of well-educated workers. The million or so Filipinos who graduate every year have few other options to choose from, besides emigrating. And working in a call centre is considered a middle-class job (new recruits start at $470 a month).
The big question is whether the Philippine BPO industry, having conquered the call-centre market, can now move up the value chain. To keep growing rapidly—and profitably—it needs to capture some of the more sophisticated back-office jobs, such as those processing insurance claims and conducting due diligence. In these businesses, called knowledge-process outsourcing and legal-process outsourcing, India still rules supreme.
Integreon offers a glimpse of what the future may hold. The firm occupies just a few discreet, very secure offices. It employs 300 people in Manila, 40 of them lawyers who help multinational law firms with litigation. Familiarity with America helps. “It makes it very easy for us to do legal research for American firms,” says Benjamin Romualdez, the firm’s country manager.
This sort of operation is new in Manila, but Mr Romualdez expects that he can find the skilled workers to double his workforce over five years. Western banks have also discovered the Philippines. JPMorgan Chase now has over 25,000 workers on its own payroll in the country, many of whom do much more than answering phones. The Philippines is set to compete with India across the BPO board.
(Source: The Economist)

About 20% of rejigged loans may turn into non-performing assets : SBI Chairman

The State Bank of India Chairman, Mr Pratip Chaudhari, said 18-20 per cent of the bank’s total restructured loans could turn into non-performing assets.
Morgan Stanley, in a report, on Wednesday had flagged asset quality concerns in SBI.
As on March 31, 2012, the restructured loans of the bank stood at Rs 37,168 crore. Only 4-5 per cent of the total NPAs turn into eventual loss because of non-repayment, Mr Chaudhari had said while announcing the bank’s fourth-quarter and full-year 2012 results.
Morgan Stanley said the bank’s new gross and net non-performing loans are expected to increase by Rs 5,000 crore and Rs 3,000 crore, respectively, in the first quarter.
The country’s largest lender has cut loan rates to exporters by 0.50 per cent.
Speaking to reporters on the sidelines of a CII conference, Mr Chaudhari said the rate cut is effective from June 23.
Earlier, the Reserve Bank of India had increased the Export Credit Refinance (ECR) limit for banks to 50 per cent from the earlier15 per cent. This was expected to inject an additional Rs 30,000-crore liquidity into the banking system. ECR is a facility where the RBI refinances the banks against the loans they give to exporters.
SBI recently cut rates by up to 3.5 percentage points for corporate, micro small and medium scale enterprises (MSMEs) and farm loan borrowers.
Mr D. Sarkar, Chairman and Managing Director, Union Bank of India, said cutting interest rates for exporters is not a problem. However, the demand for exports from the US and Europe has been under pressure.
“Export credit rate is a function of demand from exporters. If rate cut can be compensated by sufficient volumes, then the bank will not have any problems in cutting rates.”
(Source: Business Line)

Discoms losses: States to take 50% burden

The Power Ministry has charted out a restructuring proposal for Rs 2 lakh crore short-term loans of state electricity distribution companies.
The nodal Ministry has floated a draft note on the issue, which is expected to be taken up by the Cabinet Committee on Economic Affairs in seven-eight weeks.
“Half of these losses would be taken up by the respective States, which will issue long-term bonds in phases. For the remaining 50 per cent of losses, distribution companies would get three-year moratorium on principal payment,” a Government official told Business Line.
“We expect within three years, distribution companies would come out of red and report cash-surplus,” he added.
States to issue bonds
The States would issue bonds based on their Fiscal Responsibility and Budget Management (FRBM) Act and they would get incentives. The distribution companies would take steps for reducing loss and at the same time would be allowed to increase electricity tariff. All these steps would be closely monitored by the Power Ministry.
“All bonds would not be issued in the first year. After facilitating the stimulus successfully over three years, 25 per cent of benefit would go to the respective States,” the official added.
Restructuring loans
On the side of distribution utilities, after three years of moratorium on principal payment and mopping up cash surplus, the remaining loan would again be restructured for seven years.
Nearly, 75 per cent of Rs 2 lakh crore losses are with Madhya Pradesh, Rajasthan, Tamil Nadu, Uttar Pradesh, Haryana, Punjab and Andhra Pradesh. The proposal has been mooted by the Power Ministry after deliberating the issue with States and all electricity distribution utilities.
(Source: Business Line)

Insurers, MFs run risk of contagion from banks: RBI

Insurance companies and mutual funds run the risk of contagion from the banking sector, cautioned the Reserve Bank of India.
Random failure of a bank which has large borrowings from insurance companies and mutual funds may have significant implications for the entire financial system, said the RBI’s Financial Stability Report.
Banks increased reliance on borrowed funds, especially short-term funds, due to disproportionate slowdown in deposit growth (at less than 14 per cent as at March-end 2012) vis-à-vis credit growth (16.3 per cent). This could translate into rollover and liquidity risks for banks.

Gold loan cos

Another example of interconnectedness cited by the RBI is between gold loan companies (non-banking finance companies) and banks.
The high dependence of gold loan companies on the banking system for funds could pose risks to the latter, in case the business model of these companies falters.
The exponential growth in the balance-sheets of the NBFCs, which are lending against gold, in recent years coupled with the rapid rise in gold prices along with expansion in the number of their branches is a cause of concern

The Challenges

Going into 2012-13, the operating conditions for the Indian banks are expected to remain challenging given the weakening global economic outlook, adverse domestic macroeconomic conditions and policy uncertainties.
Banks in India are likely to be affected due to de-leveraging in advanced countries, though the direct impact is expected to be limited.
The RBI said concerns on loan quality persist as the growth of non-performing loans (up by 43.9 per cent as at March-end 2012) accelerated and continued to outpace growth. The increase in NPLs in FY12 was largely from priority sector, retail and real estate sectors.
Going forward, power and airlines sectors are likely to continue to face funding constraints and could also be affected by prevalent policy uncertainties. These could pose challenges to the banks’ loan quality.

Risks to stability

The combined effect of the dismal global macroeconomic situation and the muted domestic economic performance has caused marginal increase in the risks to the stability of the financial system.
The threats to stability are posed by the global sovereign debt problem and risk aversion, domestic fiscal position, widening current account deficit and structural aspects of food inflation.
The RBI said the downside risks to growth may persist given the headwinds from the global economy and moderation in private and government consumption and investment demand.
The persistence of overall inflation in the face of significant growth slowdown points to serious supply bottlenecks and sticky inflation expectations
(Source: Business Line)

Gold loan NBFCs see muted growth

Amid tight regulatory norms set by the Reserve Bank of India (RBI), non-banking finance companies (NBFCs) engaged in the gold loan business see muted growth in the current financial year.
According to industry players, the 60-per cent cap of the amount NBFCs can lend against gold, or the loan-to-value (LTV) ratio set by the apex bank, would hamper volumes for these companies.
While industry sources expect India's Rs 1 lakh-crore organised gold loan industry to grow by 10-12 per cent in 2012-13, NBFCs engaged in this business have decided to consolidate their operations and prepare for a flat growth this year.
In March, RBI capped the LTV ratio at 60 per cent for gold loan NBFCs, curtailing the availability of gold for loan. RBI also raised the capital requirements for these NBFCs from 10 per cent to 12 per cent by April 2014.
"The volumes may get affected due to new regulations by RBI. We will have to revise our expansion plans and look for modest growth numbers. However, profits may not get affected as we will be able to save on operational costs by limiting our branch network," said George Alexander Muthoot, managing director (MD), Muthoot Finance Ltd. Muthoot offered loans with LTV ratio of around 75 per cent.
Muthoot Finance, which added close to 1,000 new branches last year, is now looking to add about 250 branches this year. Muthoot has Rs 24,400 crore worth of assets under management (AUM) with a network of over 3,700 branches. The AUMs registered a compound annual growth rate (CAGR) of 75 per cent over the past five years.
Manappuram Finance Ltd, another leading gold loan company, is also going slow on expansions. Manappuram has decided not to open any new branch this financial year but focus on strengthening its current branch network.
"We will not open any new branch this year. About 100 branches are already worked out and are on the verge of opening. But we will shut down 100 branches at different places in the country, so there will be no net addition in the existing network of about 3,000 branches," said I Unnikrishnan, MD, Manappuram Finance.
Manappuram has AUMs worth Rs 11,600 crore, which grew at a CAGR of close to 90 per cent over the past five years. Another leading player in the gold loan businesses is Shriram City Union Finance, which has close to 36 per cent of its earnings coming from gold loans.
MARKET MOVEMENT
Company19-Jun-1128-Jun-12% Change
Manappuram General Finance & Leasing 56.7532.10-43.44
Muthoot Finance Ltd160.10139.40-12.93
Shriram City Union Finance Ltd542.00627.9015.85
Sensex18693.8616990.76-9.11
Source: BSE
Shares of gold loan NBFCs have declined over the past one year. The shares of Muthoot Finance and Manappuram Finance fell by about 13 per cent and 43.5 per cent, respectively on BSE. Shares of Shriram City Union Finance, however, rose by over 15 per cent over the past one year. The benchmark Sensex fell by over nine per cent during the year.
"Things would get normal, but only after the LTV cap is fully digested by the system," said Unnikrishnan.
"The gold loan NBFCs will have to rework their growth strategy in the changed regulatory environment. The future depends on how they re-engineer their business plans," said an analyst at a leading brokerage house in Mumbai.
However, analysts see growth potential in the gold loan business, where demand has been genuine due to its fast and convenient way of financing the short-term personal or business financial needs.
According to analysts, the RBI regulations on LTV will have limited impact due to a shift in collateral valuation to replacement cost (including making charges) against the gold content-based valuation.
"Fiscal 2013 will be the year of consolidation for gold finance companies in terms of growth and margins. But from 2014 onwards, the business model would deliver steady growth of 15-20 per cent, impressive returns and benign asset quality metrics," said an analyst at Edelweiss Securities Ltd.
Gold loan NBFCs continue to have advantage over other competing banks in the gold loan space. "Despite their twin advantages of higher LTV and lower interest rate offerings, banks will have to work hard to tackle the aggression of existing players and changing customer perception," said the analyst from Edelweiss.
In recent years, more banks got attracted to the gold loan business as these loans are given against gold, which does not depreciate fast unlike other assets. Also, these loans carry higher interest margin compared to other secured advances.
Gold loans, classified under priority sector advances, is a potential space for banks to meet their priority sector lending targets.
(Source: Business Standards)

Carmakers streamline production, cut output to prevent inventory pile-up

Aligning with shrinking demand, carmakers plan to cut a fifth of their production in July, as customers intimidated by high interest rates and spiraling fuel prices shy away from making purchases. Car sales continue to dwindle though the two-wheeler manufacturers remain largely unaffected.

The impact of the slowdown is largely felt by carmakers. In a cascading effect, component makers, including world's largest automotive component maker Bosch, are curtailing production by temporarily shutting plants and trimming shop floor timings.

Sources in the automotive industry said companies are facing a huge inventory of unsold passenger vehicles that stood at over three lakh units in May and is likely to have scaled to over four lakh vehicles in June. The inventory has overshot the normal 25-day levels for most companies, though petrol vehicles are much more affected.
Nikunj Sanghi, president of Federation of Automobile Dealers Association, the apex body of automotive dealers, said inventory levels, which generally pile-up in the second quarter, have peaked unusually in the first quarter. "In case of petrol vehicles, the inventory is as high as 45-60 days, which is very tough and has a huge impact on the dealer's profitability."

The scenario shows no signs of improving, forcing automakers to take some harsh measures, including temporary production cuts, as dealers wail of June being the worst month for sales in 2012.

Maruti Suzuki is in the midst of a weeklong plant shutdown to trim its production cycle in July. A high level of inventory exists at its stockyard and the dealerships. "There is no respite in slowdown this month. In fact the inventory has increased since May. There would be some steps to rationalise shop floor operations, especially of petrol vehicles manufactured out of Gurgaon next month," a senior Maruti executive said.

Country's largest automaker by revenue, Tata Motors, faces a double whammy as sales of both its passenger cars and bigger vehicles like trucks and buses are tapering, thus necessitating plant closures.

It has stopped production of several vehicles, including light and medium commercial vehicles like 407 and 709, for the time being. Tata Motors shut its truck factory in Pune for three days earlier this week to align production with market demand and announced closure of its Jamshedpur plant for three days from June 28-30, besides trimming production at other facilities. "All different plants would have rationalised production as we want to keep our inventory under control," a senior executive of Tata Motors said.

Carmakers are largely trying to control stock of petrol cars, since numbers have spiraled as customers prefer diesel variants due to massive price difference in both the fuels. Toyota Kirloskar Motors, Italian carmaker Fiat and General Motors have streamlined their petrol cars production in tandem with the market demand. "Depending upon the demand and inventory situation, we may shut down our plant for 2-3 days next month," Fiat President & CEO Rajeev Kapoor said.

Meanwhile Europe's largest carmaker Volkswagen has trimmed its weekly production schedule in India. It operated for five days in a week throughout the month of June and plans to continue that in July, too, by cutting production days to 20. General Motors is curtailing output at its two plants - Talegaon and Halol - by observing no-production days to align supplies with slackening demand. "We are aligning our domestic production on a daily basis in line with market demand. We don't want to create unnecessary inventory and have following certain no-production days at both the plants," Lowell Paddock, President and MD of General Motors India, said.

Meanwhile, South Korean carmaker Hyundai is realigning its production to focus on export markets. The company is stressing on exports to cushion slackening demand in the domestic market.

Financiers are keeping a close watch on the market as around 75-80% of the cars sold are financed. Even higher discounts on cars have not decreased inventories, but they are expecting improvement in the next quarter. Sumit Bali, director, Kotak Mahindra Prime, said despite higher discounts inventories are piling up. "Automakers are taking the right steps by cutting down production to correct inventory levels. With strong indicators of petrol prices coming down and interest rates falling in coming months, things should improve before or around the festive period."

With auto companies curtailing production, the impact has directly transferred to component manufacturers that are also scaling down their output to prevent inventory pile-up. According to industry body for component manufacturers, Auto Component Manufacturers Association (ACMA), many component manufacturers have adjusted production so that avoid inventory pile-ups.

Several vendors supplying to Tata Motors, General Motors, Volkswagen, RenaultNissan, among others, said that the supply schedules have come down by 30-40% than what some of these companies had indicated earlier in the year. "The month of June was tough, but the July is going to be even more worse, a lot of companies are going for block closure and no production days. There are thousands of petrol cars lying at many of their stockyards and even diesel car pipeline is building up," said a vendor requesting anonymity.

ACMA said as carmakers lower capacity utilisation, their (component makers) factories are also operate at lower levels than before. "We expect the auto component industry to grow by just 7-8% this fiscal, which is almost half of 14-15% growth witnessed in the last fiscal. We are hoping for faster policy decision making and festive season to bring in some improvement in the overall market sentiment," said Vinnie Mehta, executive director at ACMA.
(Source: Economic Times)
 
 

RBI says about 9% of bank branches most reluctant to lend

The reluctance of bank branches to lend to the poor is hampering effective implementation of the Manmohan Singh government's financial inclusion scheme, being promoted as an antidote to the rising income inequality.

Reserve Bank of India has found that 9% of the country's 92,690 bank branches are the most reluctant in lending. Their credit-deposit, or CD, ratio is less than 25%. Loan disbursals through these offices fell by 15.4% year-on-year to December 2011 as against a 4% rise in the corresponding period in 2009-10.

These branches control 6.7% of the aggregate deposits and had witnessed a 21% surge in mobilisation last year. People having limited access to institutional credit had borrowed even less last year amid slowing economy and lesser opportunity to engage in economic activities.

Although banks have created the infrastructure to reach out to 74,200-odd villages in the last couple of years, these are yet to turn into profit centres despite opening crores of no-frill deposit accounts.

The branches are yet to earn any meaningful revenues in the absence of any big lending activity, since they are yet comfortable in engaging business correspondents for delivering cash to customers in remote corners. Besides, they also don't offer remittance facilities or sell risk covers, the other avenues of earning revenues.

RBI data showed that 3,350 rural branches, or about one-tenth of branches in the hinterland, are hesitant lenders. These rural branches control 5% of banks' rural lending and 17% of deposits mobilised from rural areas. RBI classifies banking centres with population less than 10,000 as rural centres. The disparity in accessing bank credit by the underprivileged is rather wide.

The 8,342 branches having reported less than 25% CD ratio actually control a mere 1.8% of bank credit while the top 200 centres in terms of gross bank credit accounted for 81.6% of the business. State Bank of India and its associate banks, which have a combined network of 19,200 branches, have reported a 0.6% fall in loan disbursement through "lazy branches".

The regional rural banks are the only group which reported a rise in lending through their most reluctant branches.
(Source: Economic Times)

Power Grid to spend Rs 6,000 crore on expansion plans

The Power Grid Corporation of India Limited a state-owned power transmission company has earmarked Rs 6,000 crore for expansion plans in Southern region, a senior official said today.

The southern region is one of the nine regions of power grid, spreading across the states of Andhra Pradesh and parts of Orissa, Maharashtra, Karnataka and Tamil Nadu.

According to V Sekhar, Executive Director (SRTS-I), currently seven new 765/400KV sub-stations are under construction at Nellore, Raichur, Kurnool, Hyderabad, Khammam, Vemagiri and Srikakulam and four out of these seven stations are the latest state of the art technology gas insulated sub stations.

Sekhar said the Region has 7,213 circuit kilometers (ckms) of 400 KV High Voltage Alternating Current (HVAC) and 1910 ckms of 500KV High Voltage Direct Current (HVDC) transmission lines in operation. The region has ten 400 KV HVAC substations with a transformation capacity of 6300 Megavolt Ampere.

"Transmission lines of over 4000 ckms are under construction spread over Andhra Pradesh and parts of Tamil Nadu, Karnataka and Maharashtra. We are spending Rs 6000 crore as part of the total expansion plans in the region," Sekhar told PTI.

For the first time in South, a double circuit 765 KV high capacity transmission line is being constructed between Nellore and Kurnool which is capable of handling about 5000 MW. Together with Nellore - Gooty 400KV Double Circuit line, about 6000 MW is handled in the Krishnapatnam area, he added.

For strengthening the reliability of the power system in the Southern Region, 765 KV Double Circuit line between Kurnool and Tiruvalem (Tamil Nadu) and 400KV Double Circuit line between Gooty and Madhugiri (Karnataka) are under construction, he explained.

Sekhar said the Government of Andhra Pradesh would facilitate Power Grid to obtain necessary permissions, registrations and clearances from respective departments of the state.

"All these projects will be executed in the next two to two and half years schedule. Many of the projects are under execution. And some of the projects will start very shortly," Sekhar said.

Meanwhile, the Power Grid in filing with BSE said the Board of Directors of the company have approved System strengthening-XVII in Southern region grid at an estimated cost of Rs 1508.74 crore with commissioning schedule of 33 months from the date of investment approval.
(Source: Economic Times)

How Aditya Puri has managed to pull off 30% plus growth for HDFC Bank

Sitting in the boardroom in the sixth-floor office of HDFC Bank headquarters, Aditya Puri lets us in on an inside secret. The CEO of HDFC Bank confesses, "By the time everyone walks into the office, I am already upset." Now that sounds a bit strange.

The bank he runs doesn't have ICICI Bank's aggressive ambition, Axis Bank's momentum or even State Bank of India's problems in aviation to stir things up. Even during the exciting results season, he follows his self-confessed 'boring' credo to the T, posting similar results every quarter. So what could possibly set Puri off ? Well, it could be one of the many things he constantly has on his plate: a delay in project somewhere, cost overruns, fluctuating service levels. "Don't get fooled by my designation. I look into 500 things at a time. Nothing moves here without my consent," he says.

It seems he has taken a leaf out of Ram Charan and Larry Bossidy's book Execution, which says excellence is about two things: doing the same thing over and over again every Monday morning and following through incessantly. But as a corollary, Puri has managed to create a world-class Indian bank in 18 years. How has he managed it? "If GDP grows at 8%, the banking system will grow at 20%, which is a multiplier of two and a half," says Puri.

"When the growth rate is higher, we gain higher market share. So if you have 8% growth rate, our growth rate normally is five or six per cent more than the system," he explains, with a Cheshire Cat smile. The answer is not as simplistic as Puri makes it sound. So then how has HDFC managed to outperform its peers through difficult times?

Before we go to the how, a look at the numbers will give a sense of bank's growth. HDFC Bank's customer base currently stands at 25 million, having grown at 35 % CAGR since 2001. The branch network stands at 2544, having added 819 branches in the last two years. The real story, however, is not just growth but the "quality of growth".

The superior quality of its funding franchisee - currents and savings account (CASA) at 48% - provides the bank a sticky and low-cost source of funding. And just how good that is can be gauged from the fact that compared to its peer group average of 36%, the bank has maintained an average CASA ratio of 56% over last seven years. And what a high CASA does is give the bank, a Net Interest Margin (NIM) of 4.2%, a good profitability number for any bank. Take a look at another key metric, a quality asset mix: the gross NPAs are just over 1% and have been actually declining in the last 10 quarters.

GO TO MARKET

Given that demand was abundant in underbanked India, the way HDFC positioned itself to take advantage of that demand is a case study. Though it did not have the products of the multinational banks and the reach of the public sector banks, the Bank's growth story is a story of continuous evolution and keeping a conservative approach.

The bank did not expand too aggressively in a product without building appropriate capabilities. However, it did not lag on growth or market share gains either. "A conservative approach, in the context of HDFC Bank, means the bank did not compromise on margins and asset quality risks and has waited for the right opportunities." says Sameer Lumba, Managing Director & CEO, JM Financial Institutional Securities.

During the first decade, the focus was on urban centres, but today semi-urban and rural areas generate a large chunk. "Some 4-5 years back, 80% of their income came from the top 15 cities, today 40% comes from semi urban and rural areas. That's an amazing strategic shift," says Nandan Savnal, an ex-banker and a keen industry watcher. Granular planning has allowed the bank to stagger investment in a way that present performance doesn't suffer while the future growth drivers are also being put in place.

"We plan our growth across three horizons: one that I can see in front of me; second, what I can see in front of me but will become a big business five years from now; third, at the bottom of the pyramid, which will become a big business, maybe five years from now," says Puri. Today, nearly 35% of the branches will be making a loss because it takes 20-24 months before a branch breaks even. But that's growth in 2014. The bank has also snatched market share from its competitors. For example, HDFC Bank's retail loans as a percentage of system retail loans, have increased 7.2 (Dec'07) to 13.2 (March'12). 

We have been consistently gaining market share. The overall banking system grew every year at roughly 2.5 times real GDP growth, while we grew 3-5% faster than the system," says Paresh Sukthankar, Executive Director, HDFC Bank. Of course, the bank has an enviable interest side income profile, but on the non-interest income side too, the bank does not rely on investment banking (a chink in the bank's armour) and project financing like other banks. Its strength is in the services it started with during its salad days of corporate banking - transaction banking, loan processing, private banking, forex services - and third party distribution that give it a strong fee income distribution.

THE BALANCING ACT

Puri has also not only managed the customer acquisition on both retail and corporate side very well for stability in profitability. During the last seven years, when retail was the main driver of growth, many banks were not growing wholesale or corporate banking and therefore suffered when retail slowed in 2008. HDFC Bank continued its focus on both, retail and corporate, and with its diversified product portfolio managed topline and bottomline stability.

In an under-banked country, growing fast isn't a big issue, but growing while maintaining the margins is a whole different game. The bank's net interest margins are amongst the highest in the industry. Over last seven years, the Bank NIM stands at 4.4% versus peer group average of 2.8%.

"If 50% of my portfolio is retail, my margin by definition has to be higher and if I take it lower I am putting the sustainability of my bank at a risk," says Puri. But given that retail is such a large component of the portfolio, the cost to revenue for the bank is higher than competition because of the cost of putting up new branches, especially in semi-urban and rural areas. So now that the bank is stable with a solid base of branches and a robust product portfolio why not gun more aggressively for market share? "I could grow maybe 10% faster but am not sure whether I can manage the downside," says Puri.

Even in its early days, HDFC Bank focused less on growth and more on quality assets, so NPAs were few. Thus, while other banks were spending a lot of time on legacy issues and salvaging bad loans, HDFC Bank focused on growth when the markets grew. It also helped that in that era, bank shares (other than SBI's) were not sought after. Consequently, Puri and his team were not obsessed with valuation. They had no compulsion to grow the balance-sheet at a fast pace.

WAIT AND WATCH

A cautious banker, Puri will not venture into a product headlong - it's a deliberate process of learning, adapting, creating viability, and then expanding gradually. In category after category where the bank is a leader - personal loans, gold loans, microfinance, two-wheelers, crop loans - it's been the same, deliberate process.

In gold loans, for instance, the pilot started four-and-a-half years ago but the product was taken national only last year. "HDFC Bank did not blindly follow ICICI Bank in entering the retail loan space. It waited for the market to mature, practices to settle in, and the industry got a sense of the default pattern, particularly in products like credit cards and personal loans," acknowledges a banking expert. Puri likes the deliberate growth path.

"We don't bet the bank on anything. If we don't understand anything, we don't enter that space," says Puri. Even in a tough category like credit cards where major players are either bleeding or exiting, the bank is a market leader with 36% market share (more than 55 lakh cards), even after being a late entrant into the category and it's has been profitable throughout.

"Even in 2008-09 and 2009-10 when the credit card industry was facing severe pressures because delinquencies had shot up and credit costs went up by 2-3 times, we identified segments to focus on and grew in a cautious but sustained way." says Sukthankar.

Today, 70% of the credit cards are issued to internal customers. A carefully managed evolution process from a corporate bank catering to the Tatas, Birlas, Reliances, and Levers of the world helped too, as the leaderships in transaction banking helped it become a leader in current accounts too.  

Similarly due to Puri's experience at Citi, the bank mastered that which no bank could. It entered the unchartered territory of financing stock brokers, giving guarantees, extending loan against shares to retail investors. Armed with proper risk management techniques, it associated itself in every way a bank with the stock market. Today more than 50% of the stock exchange settlement happens through the bank.

Since inception, HDFC Bank has a stated mission to be a world-class Indian bank. Puri and his team take that statement seriously. In benchmarking exercises, the bank's metrics are measured against global peers to gauge where it stands.

The CEO likes Wells Fargo for its product penetration and cross-selling, State Street for its transactions expertise and Hang Seng for how it manages margins. Three months ago, the bank completed a benchmarking exercise on engagement with the customers and cross-selling, and it is being rolled out across the bank now. "We aim for the global benchmark and then 20% improvement over that," says Puri.

There has been a big push has been to take customer engagement to next level. Now that product portfolios in corporate and retail banking have scale, the Bank has started moving from a product centric to customer centric mode using its data ware housing and analytics expertise to help cross sell better.

"In urban markets, we have scale in each product. In semiurban and rural markets our customers view the bank as a one-stop shop. So customer centricity has accelerated in the last two years," says Sukthankar. As man who doesn't carry a mobile phone, Puri is a curious mix of an old-style banker with a cuttingedge tech outlook. From day one, he has heavily relied on technology to reach new customers, better customer service and lower costs. The bank's IT investment is a high single digit percentage to its revenues. Today, only 16% of all transactions are done through branches and the rest through other channels.

"Our aim is always be at the fore front and we continue to invest and upgrade our systems: for example, the Electronic Data Warehousing, Business Intelligence suite and the ATM switch are presently being refreshed to take our capability to the next curve. We have a very active customer base and our systems handle heavy transaction volumes. Consequently, our systems have to be highly available, resilient and scalable," says Anil Jaggia, CIO, HDFC Bank. The bank's customers are heavy users of net banking and online banking channels (again, largest number in Indian banking), with robust net-banking and mobile apps (his latest obsession) in addition to mobile banking working on 3G as well as 2G platforms.

While a strong team aided by systems, processes and technology led to a sustainable business model, a large part of the credit for the Bank's growth undoubtedly goes to Puri's leadership. As any insider will tell you, he is the Aditya (sun) in the bank's solar system around which every thing revolves. "Given that Mr Puri has steered affairs of the bank since the inception of the bank and the Bank has followed a consistent strategy since then. He should be credited for providing the right direction and strategy, building the right team and ensuring the execution" says Lumba of JM Financial.

Through a delegative leader with a robust system of reviews and "special reviews" (highly avoidable!), Puri admits he may have a disproportionate say in strategy. But he adds that if projects are going to plan, he doesn't get into it. "But you have to be very careful with my delegation. If you are not performing you will find me there everyday," he smiles. But for a man who come in to office at 8.45 am and leaves at 5.30 pm, he runs a tight ship with a hands-on approach: meeting lots of employees and customers, visiting branches, and keeping a hawk-eye on things like cost, among others.

For example, costs are monitored very closely, because as the bank is expanding into rural areas the cost of business is going up, and with the tight ship that the bank runs, costs have to be controlled to maintain high margins. So for executives who miss targets, go off plan or veer from the budgets, Puri has meetings he likes to call "dental appointments".

"I tell people, please treat the CEO visit as a dentist visit. There will be pain. While you will get a lot of encouragement, my job is to tell you what's working and what is not." After 18 years at helm, Puri, HDFC Bank and its 30% profit growth mantra have become synonymous. The big question now is: after Puri, who? Technically, there is no age limit for the CEO of a private bank. But then that could be Puri's biggest secret.
(Source: Economic Times)

Is the world headed for another jobless recovery?

Since the financial crisis of 2008, the main focus of macroeconomic policy has been deficit reduction and austerity budgets. That's not enough, says the European Commission's President Jose Manuel Barosso.

''Europe's citizens will need an upgrade in their education and skills to be able to meet the demands of the labor market,'' Barosso says.

Currently there are 25 million unemployed people in Europe, nearly 10 per cent of the population. Bruno Lanvin, executive director of the eLab at the international business school INSEAD, believes that focusing on deficit reduction rather than improving skills inevitably will result in a jobless recovery rather than a job-rich recovery.

He cautions against a strictly vocational approach, however.

''We must look at skills as a pyramid,'' Lanvin says. ''The middle layer is vocational - the need for engineers, programmers, nurses. Below that is what you do in the primary-and-secondary-education sector to help children deal more with analytical thinking, deductive thinking, and with IT literacy. At the top of the pyramid are the management skills of the future for the knowledge economy.

''How do you create the skills to have more managers able to manage across national and cultural borders, addressing people in virtual teams in different languages?''

Lanvin acknowledges that the market and competition for talent is global. Companies in Europe need to develop a global mindset.

''We have to realize that skills management and innovation are leaky processes,'' Lanvin says. ''There is no guarantee that the people you invest in today will not be moving to your competitors.''

Natarajan Chandrasekaran, CEO of TATA Consultancy Services, agrees that skills and talent have become a global phenomenon. For many years companies such as TATA grew rapidly by capitalizing on their homegrown skills base and providing offshore high-end consultancy to companies in developed countries. Global companies were able to employ highly qualified graduates in India at a fraction of the cost of employing similar candidates in their home markets. The downside of this was that white-collar jobs in developed markets were effectively exported.

Chandrasekaran believes that this one-way flow of jobs is now becoming two-way. He estimates that as much as 70 per cent of global incremental growth is coming from Brazil, China, India and Russia, but is convinced that the economic benefits of that skills-based growth can now be shared by both emerging and emerged countries.
''What is important is the movement of labor and the skills development so that people can participate in job opportunities around the world,'' Chandrasekaran says. ''Job opportunities for someone in Europe need not just be located in Europe.''

According to a recent Eurostat report, there is are wide discrepancies between level of skills in different countries in Europe. Lanvin says that, in addition to developing a pyramid of skills, Europe has to make structural employment reforms to allow the skills gap to disappear.

''Mobility and flexibility is not as high as it should be,'' Lanvin says. ''If we don't make European labor markets more efficient, we will not get the benefits from any skills policy we can think of. What we look for is not skills per se but employable skills.''

Those skills need to be able to travel freely to plug regional skills gaps. By 2015, it is estimated, there will be between 400,000 and 700,000 unfilled vacancies in Europe's IT sector alone.

The scale of a highly skilled work force is one of the reasons why Chinese conglomerate Huawei has successfully made inroads into global markets so quickly. Ken Lao, the company's European vice president, claims that it has the biggest R&D resource in the world with half their staff of 140,000 working in R&D in huge centers of excellence in China and India.

''We have two advantages,'' Lao says. ''One is a cost advantage, but the other is the volume of educated people that we employ. Every year (we have access to) more than 2 million engineering graduates. We invite a lot of local talent in Europe to see how we do it.''

Jeronimo Calderon is the 27-year-old executive director of Euforia, a Geneva-based social enterprise which aims to engage people early in their careers with mainstream business by bridging the generation gap.

''I'm very focused on the individual empowerment of young people,'' Calderon says. ''I don't see a lack of skills. Youth has always been the holder of innovation. The great inventions were always made by people in their twenties. But this innovation is not going to go anywhere unless this youthful innovation is going to tap into the experience of other generations to develop and scale it.''

Euforia is not only facilitating the integration of new skills into the business world, but also harnessing the passion and enthusiasm of a new generation of innovators.
''There's a condescending view that we are the lost generation, that we lack the skills and the motivation,'' Calderon says. ''So we are trying to create a framework that enables people to be passionate about social and environmental issues. We show them how they can make a valuable contribution. We also help find the kind of skills that allow them to find a job, and the businesses can then benefit from all that creativity and ideas.''

With a quarter of those under 25 in Europe unemployed, there is a pressing need not only to create new jobs, but also to harness the talent and resources of the younger generation to create new kinds of jobs.

Chandrasekaran, whose group manages a multinational team of 248,000 professionals, believes that a skills-led, job-rich recovery can happen only if there is a two-way flow of people, skills and innovation between the developed and emerging markets.

''Skills and talent have become global phenomena,'' Chandrasekaran says. ''Talent is always going to be leveraged, no matter where it comes from. With the advent of the Internet and the new tools available today, we're going to see the global work force becoming more integrated. So I think boundaries are going to become less relevant.''
(Source: New York Times)

Mahindra's growth will be driven by innovation: Anand Mahindra

Anand Mahindra, the vice-chairman of the Mahindra Group, has been keeping a low profile in the group's IT business. He did not make a public appearance even to announce the merger of Satyam Computer, now branded Mahindra Satyam, and Tech Mahindra. Breaking the mould in an interview to ET, he spoke about the integration of the two companies, the aspirations for the software business and the branding of the combined identity. The Mahindra name itself may become more central to the identity and brand of the merged entity although discussions are still in progress. With revenue of approximately $2.5 billion, Tech Mahindra and Mahindra Satyam does not want to be another large top tier player like an Infosys or Wipro but aspires to growth based on innovation rather than size. The erstwhile Satyam actually embodies the spirit of the Mahindra Group, he said. Excerpts:
You've pretty much been behind the scenes, moving the chess pieces so to speak. What did you have in mind when you bid for Satyam?
The analogy of the chessboard is probably inappropriate here because there isn't just one player in this. The mental imagery of me sitting as a scheming grandmaster behind these moving pawns around is not how we work. I think most people understand the DNA of the group right now that big decisions like this cannot be taken without ensuring there is widespread appetite and hunger to do the deal. We were looking for opportunities to grow Tech Mahindra for a while before this. In fact, the board of Tech Mahindra at a certain juncture had to come to the conclusion that if we wanted to grow substantially now, we would have to grow beyond the telecom vertical. We had been looking at Satyam for a while even before its unique problems came to the surface. I had met (Satyam founder) Ramalinga Raju earlier, when the Indian School of Business was being formed. At one point in time, I had initiated a dialogue on the possibility of a strategic alliance. I renewed the dialogue when the Maytas situation surfaced. There was sort of radio silence on that subject and why that radio silence became evident when the full matter to light in January. Then much to the credit of the government was the holding action rather than letting it go down the tube. At that point, (chief executive) Vineet Nayyar was the one who brought the opportunity to the board and said we must look at this. So, far from moving any chess pieces, my only question to Vineet was, 'Are you sure you have the appetite to do this because you'll be the one who'll have to turn it around?' And Vineet's answer was an unequivocal yes.
What is the thinking on the branding for the merged entity?
It's a work in process. We are not taking it lightly. And we are very keen to even have a great deal of input and co-creation by the associates in the companies. There is a feeling that what emerges will be something that everybody buys into. That process is on right now. Yes, we will consult some experts but it's not purely a branding exercise. It's going to be a combination of taking exterior inputs but lot of internal inputs as well and then coming out with a brand. So it's not decided as yet.
How did you decide whom to put in and where?
Ultimately when you say the group has the competence to turn something around, apart from having leaders like Vineet and CP Gurnani (the CEO of Mahindra Satyam), these are equally important people who can go in and look at the engine room of the acquired company and really clean up things. In fact, Vineet regularly makes presentations to the Mahindra board and the last time when he spoke about Satyam accounts being cleaned up, everyone was thumping the table and applauding because they realised that is what gives the board ultimate confidence that the turnaround is complete and you have achieved success. It is not only about getting customers. Even more important in Satyam's case, where the problem was one about transparency, was that transition to transparency. For that to happen the contribution of the engine room is not to be underestimated.

You are no stranger to the integration process. You've done Ssanyong and also your tractor business. So is this integration just another day at the office?
Nothing is another day at the office. If you have that attitude, you're bound to fail. You have to treat everyday as a new challenge and you have to remain paranoid, as they say. That's just a generic answer. The specific answer here is, don't forget this is a people business, more than any other business.
So, how did two seemingly disparate cultures come together?
Just as a very broad comment on this, there was a complete isolation of the bulk of the people. Whatever improper was happening was happening at a very very thin layer at the top. So, the people below saw their company as transparent, saw their company as well-governed, saw their company as aggressive. Don't forget it was a fairly aggressive IT company - they had started a consulting outfit, there was inorganic growth through acquisitions, there was rapid expansion. So, nobody who was working there saw their company as some sleepy backwater. They saw themselves as being at the forefront of the IT revolution in India. They saw themselves as pioneers, as patriots, people who were taking India to the world, and as Vineet says, they were fed an opiate that they were completely above board, that they were profitable, that they were amongst the highest quality of people in the IT industry. I remember personally when president Clinton came to India, if you recall there was that famous meeting in Hyderabad with Chandrababu Naidu and on stage, with CII down below watching. There was Chandrababu Naidu, there was Bill Clinton and there was Ramalinga Raju being held up as an example of an entrepreneur who'd made a fortune estimated to be $3 billion of personal wealth. That's how people saw their leader and their company. So funnily enough, the cultures are not that disparate.
Clearly, when you come to the top level there was a very different culture that emerged. We saw the difference. But you have got to understand, this was not a culture that was that different. We see ourselves as being people who want to take India to the world; we see ourselves as being aggressive, assuming risk. So, therefore, I would argue there is greater commonality in culture than we would assume. To prove that point, you know our new tag line, Rise. The people who adopted 'Rise' as a corporate philosophy, imbibed it and internalised it first were the Mahindra Satyam people. When you go and talk to people in Mahindra Satyam, they say they are the prime story of Rise within Mahindra. Who else better embodies Rise than Mahindra Satyam? It is a story of a phoenix, of people rising to the occasion.
What is the recall of the Mahindra name among customers right now?
In fact, when we talked about what the name should be and I told Vineet he did not have to presume here there is a mandate to use Mahindra. He is the one that came back and said, we must have Mahindra in the name because that is the endorsement we need, that is the sign of reassurance. You cannot make investments in the brand through advertising and promotion.
(Source: Economic Times)

Wednesday, June 27, 2012

India Plans $5.3 Billion of Highways as Jams Sap Growth

India may spend 300 billion rupees ($5.3 billion) tripling the length of its expressway network to ease traffic jams that are slowing trade, wasting fuel and sapping economic growth.
The country intends to add about 1,600 kilometers (1,000 miles) of roads with at least six lanes, Raghav Chandra, joint secretary at the Ministry of Road Transport and Highways, said in an interview on June 14. He didn’t give a timeframe for awarding construction contracts or for completing the projects.

The new highways, linking major cities, will have higher tolls than existing roads and fewer access points so trucks won’t get stuck at toll gates or behind queues of motorcycles, auto-rickshaws and tractors making local trips. India plans to build the network as it contends with congestion that costs $5.5 billion a year, according to a study by Transport Corp. (TRPC) of India and the Indian Institute of Management, Calcutta.
“This is the first step towards really improving traffic movement,” said Vishwas Udgirkar, a Gurgaon, India-based senior director for transport at Deloitte Touche Tohmatsu India Pvt. “India is way behind other countries in creating such infrastructure.”
India’s 6 million trucks now average 19.8 kilometers per hour because of jams, according to the study backed by trucking company Transport Corp. Washington D.C. has the slowest traffic in the U.S., with an average speed of 74 kilometers per hour, based on a 2010 study by TomTom NV. Faster trips could save Indian truckers as much 600 billion rupees of fuel a year, the Transport Corp. study said.

‘Many Disruptions’

“There are too many disruptions by road,” said Mayank Pareek, head of sales and marketing at Maruti Suzuki India Ltd. (MSIL), which uses 400 trucks a day. “Everywhere you get slowed down.”
The automaker, which has about 20,000 cars in transit at any one time, is considering moving 30 percent of new vehicles by rail within three years, up from 5 percent now, to avoid the jams, he said.
Among the new expressways will be three connecting New Delhi with the northern cities of Meerut, Jaipur and Chandigarh, said J. N. Singh, finance director at road-building agency National Highways Authority of India. Others will link Chennai and Bangalore in the south, Mumbai and Vadodara in the west, and Kolkata and Dhanbad in the east. The roads will be designed for speeds as fast as 120 kilometers an hour, Chandra said.

China’s Highways

About 65 percent of India’s freight and 80 percent of passenger traffic moves on the highway network, which mainly comprises two-lane roads. The nation has 700 kilometers of expressways, mainly reserved for cars, trucks and buses. These roads, which have at least four lanes, run between Mumbai and Pune, and between Ahmedabad and Vadodara. China has 74,000 kilometers of expressways, according to the Transport Corp.-IIM study. In 1989, China had 147 kilometers of such roads.
In August 2009, Indian Prime Minister Manmohan Singh set a goal of building 20 kilometers of new roads a day as part of efforts to improve infrastructure ranked below Guatemala’s and Kazakhstan’s by the World Economic Forum. The daily average was 4.5 kilometers in 2011, according to PricewaterhouseCoopers LLP. India aims to spend as much as $1 trillion in five years on roads, ports and power plants.
Delays in acquiring land are the biggest challenge for Indian infrastructure projects, Deloitte’s Udgirkar said, as farmers refuse to leave their farms fearing they will lose their livelihoods. A quarter of the 226 roads commissioned by NHAI are behind schedule for reasons including delays in acquiring land, C.P. Joshi, road transport and highways minister, said in December.

Freight Corridors

“What we need to focus on is completing these projects on time,” said Manish Saigal, a partner at KPMG in India. “NHAI has awarded a lot of projects, but on the big freight corridors they are still lagging behind.”
An elevated road to Chennai’s port in Tamil Nadu state is among the projects held up because of land delays. In September, farmers also protested against the acquisition of plots for widening a highway in the western state of Rajasthan, according to Minister Joshi.
NHAI, which oversees road building, has already begun buying land for one of the new expressways, running from Mumbai to Vadodara, Singh said. The state agency intends to complete land acquisitions before issuing construction tenders, he said.
The proposed roads will have only about six entry and exit points, Singh said. Tolls will also be as much as 1.5 times more than a six-lane highway, he said. On the 28-kilometer Delhi- Gurgaon expressway, trucks pay as much as 82 rupees per trip.
G.R. Shanmugappa, who operates 80 trucks from southern Karnataka state, said he’d be happy to pay higher tolls for better roads. Highway improvements could help cut costs as much as 12 percent on a 4,200-kilometer New Delhi-Bangalore round trip, he said. Trucks could also cover as much as 700 kilometers a day, compared with the 300 kilometers they run now, he said.
“I wish there were roads that allow us to drive faster,” he said. “Then we could return home sooner.”
(Source: Bloomberg)

Honda Motorcycle & Scooter's to bring in more mass market models, reach rural market

Taking a leaf out of the well-honed strategy of the Munjals, its erstwhile partners, Honda Motorcycle & Scooter India (HMSI) is now working towards spreading its wings to far-flung towns as it aims to grow its market share in India.

The heart of the strategy is to bring in more mass market models and penetrate deeper by setting up 10 zonal offices across the country to be closer to the customer and react faster.

ET learns this is part of HMSI's five-pronged approach to gain market share in India. Other than reaching out to smaller towns and rural areas, the Japanese giant's India arm plans to build a mass market product portfolio, consolidate its leadership in scooters, use Bollywood star Akshay Kumar as a brand ambassador and work with vendors to bring down costs.

YS Guleria, vice president, sales & marketing at HMSI, says entry-level bike Dream Yuga is the biggest launch for the company in recent years and will give it a presence in over half of the market for two-wheelers.

"We want to be closer to the market with the launch of Dream Yuga. For the first time, we are going beyond regional offices to zonal offices and we are going to equip each of these zonal offices with training centers," said Guleria. In the current fiscal year, HMSI will add 500 touch points, many of which will be in smaller towns and rural areas.
Dream Yuga in the existing form will take on Hero's Passion, but going ahead there will be more motorcycles under the Dream series.

The next variant is expected to take on Hero MotoCorp's flagship bike, the Splendor, said people close to the development.

With the Dream Yuga in its portfolio, HMSI is aiming to grow by over 30% this fiscal by selling 2.75 million two wheelers. The company is also planning to boost capacity to 4 million units a year later.

Guleria is non-committal on specific model plans or number of launches, but admits the company is speeding up new model development.

"We would not like to reveal our exact model plan for the future due to competitive reasons. But suffice it to say that the 100 cc market has a lot of potential. In parallel, we will have to maintain our leadership in the automatic scooter segment, so we will continue to have new models," said Guleria. HMSI is a leader in scooters with a 45% market share.

Three people involved with HMSI's new projects told ET that in 2013-14, the company will come out with a 125 cc scooter codenamed K24A - based on Aviator platform - and an executive segment motorcycle (125-135cc) codenamed K23A to take on Bajaj Auto's Pulsar 135 LS. These launches will be before the entire scooter range comprising the Activa, Dio and Aviator are launched on an all-new platform.

Experts say HMSI is taking all the steps in right direction, right from R&D to branding. However, managing competitive pricing and spreading the distribution network in quick time will be the biggest challenges.

"HMSI will be able to command a 3-5% price premium, but it should not be too far away from Hero MotoCorp and Bajaj Auto's pricing; beyond that it will be a challenge. And quickly ramping up its network in hinterlands will play a key role in garnering larger market share," said V G Ramakrishnan, senior director, automotive, Frost & Sullivan.

Honda has already made it known that India will contribute 30% of its global volumes by 2020, more than twice the current 13%.
(Source: Economic Times)

Why Germany should quit the euro and introduce the Deutschemark

As the European economic crisis continues to intensify, policy makers are faced with the need to take ever more extreme measures to prevent a financial cataclysm. Tomorrow, European Union leaders will meet in Brussels to discuss the latest proposals: centralizing banking regulation and putting limits on national spending and borrowing.

A better, bolder and, until now, almost inconceivable solution is for Germany to reintroduce the mark, which would cause the euro to immediately decline in value. Such a devaluation would give troubled economies, especially those of Greece, Italy and Spain, the financial flexibility they need to stabilize themselves.

Although repeated currency devaluations are not the path to prosperity, a weaker euro would give a boost in competitiveness to all members of the monetary union, including France and the Netherlands, which is why they might very well choose to remain in it even if Germany were to gradually leave. A resurgence of manufacturing would also allow the vast unemployment rolls of Spain, Portugal, Greece and other countries to begin to decline. The tremendous loss of human capital and human dignity we are witnessing would ease.

Reintroducing the mark would not solve the debt burdens of southern European countries, but it would give them needed breathing room to restructure their economies, reform labor markets, collect more taxes and reassure investors. The ability of the southern European countries to service their sovereign debt would immediately improve, helping to end the slow-burning debt and banking crises that have engulfed the Continent since 2008.

A weaker euro would also encourage greater foreign investment. For example, Spain's distressed real estate market would become far more attractive. Rising capital flows would also assuage investors worried about the unrealized losses on property loans held by Spanish banks.

Unlike Greece - whose exit from the euro would require either a redenomination or outright repudiation of its euro-denominated debts (with potentially catastrophic financial consequences) - Germany would be able to reintroduce the mark without altering the form of any current asset, liability or contract. For example, euros deposited in German banks would remain euro-denominated. So would outstanding German sovereign and corporate debt now denominated in euros.

A German phaseout of the euro could occur gradually, by first issuing government bonds denominated in marks, followed by corporate securities. Germany could establish a transition period before the mark would be used on a daily basis.

Germany's industrial base would unquestionably endure hardship in the transition to a stronger currency. In the early years, Germany could use a variety of measures to manage the rate of appreciation of the mark, much as China or Switzerland do today. Over time, the industrial base of Germany would adapt and move forward.

Critics will say our plan invites financial chaos. To the contrary: Capital would flow from "safe haven" assets toward more productive investments, boosting global growth prospects. Resources now dedicated to the alphabet soup of bailout programs and financial guarantees could be redirected. Besides, the current situation is hardly a model of stability.

While most observers, including German policy makers, believe Germany will do what is necessary to save the euro, it is more important to save the European Union, which is older, larger and more significant than the euro zone. Continuing on the current trajectory will most likely entail more bailouts, more guarantees and ultimately dramatic sovereign defaults or enormous fiscal transfers. That would mean a continued loss of human capital and dignity for southern Europe and a nightmare of an open-ended commitment of trillions of euros on the part of Germany.

Germany's historic responsibility is at odds with present-day reality. The only way for the euro to survive is for Germany to put every bit of its financial strength at the service of the euro - an outcome that would be deeply unfair to ordinary Germans - and even then it's not clear the euro zone could be salvaged in its current form . Given what has played out in Greece, for German leaders to provide further financial assurances to the periphery would be unconscionable.

Like Britain, Germany can be part of the European Union without being part of the euro. What is essential is the preservation of the European Union's greatest accomplishment: the free movement of labor, goods and services. Germany alone has the ability to end a dysfunctional monetary union and to bring prosperity back to Europe.
(Source: New York Times)