Eveready plans foray into real estate, consumer goods market

Eveready Industries India Ltd, India’s largest dry-cell battery maker, plans to diversify into consumer products and real estate as part of an initiative to double revenues to Rs2,000 crore by 2010.

Eveready has around 993 acres of land in Mumbai, Lucknow and Hyderabad. The realty plans are at a nascent stage, said Deepak Khaitan, executive vice-chairman and MD, Eveready. Khaitan added that Eveready would also launch writing instruments and home-care products such as floor-cleaning solutions that will be sold through the company’s channel: 5,000 distributors who reach one million outlets directly and another three million indirectly.

“We have set up an in-house team to work out the strategy for the road ahead,” said Khaitan. Over the past decade, the company has been through two major rounds of restructuring: first, merging the Khaitan group’s tea business with Eveready, and then de-merging it from the company (it is now under associate company McLeod Russel India Ltd). “Eveready has been too caught up with its own restructuring to look at its core business more seriously,” said Jigar Shah, director at KR Choksey Shares and Securities Pvt Ltd.
In 2006-07, the company posted a loss of Rs22.69 crore on revenues of Rs953.52 crore. Eveready’s batteries and flashlights took a severe beating, with low-priced Chinese products dominating the market. The sale of the company’s popular brass torch fell from seven million to four million units. It sold fewer plastic flashlights too: two million, down from five million. The entry of LED (light-emitting diode) torches also killed a good part of the demand for Eveready’s D-sized (larger) batteries used in the conventional high-powered flashlights. The company launched its first LED torches in December 2006 and followed it up with the launch of LED brass torches last month.

Eveready’s move to develop its real estate comes in the wake of similar attempts by several business houses, including the Wadia Group. Eveready has also previously tried to leverage its distribution network—in the 1990s it tried unsuccessfully to sell soaps and other products made by German firm Henkel AG’s Indian arm. “That was before we (the Khaitans) took over from Union Carbide in 1995,” said Khaitan. The company has since tried to sell packed tea and has forged partnerships with Phoenix Lamps to distribute compact fluorescent lamps and with another company for mosquito repelling coils. The products the company now plans to distribute will be made by contract manufacturers and branded Eveready. The company is also considering a foray into coffee.

The diversifications could spur investor interest in the company’s shares. The Eveready scrip (with a face value of Rs5) closed at Rs54.95 on the Bombay Stock Exchange on Tuesday, marginally lower than the previous closing at Rs56.

Source: HT Mint

Real Estate Investment Trusts

India is considered to have a good institutional framework, a good capital market structure and an active investing public, yet one of the financial products that Indian investors have been deprived of is Real Estate Investment Trusts (REITs). Looking in hindsight at the real estate boom the country witnessed, if REITs had been in place a lot of small investors would have made money.

REITs give investors returns which are comparable to small cap stocks. An added advantage is that they are required by law in most of the countries where they operate to distribute 90 percent of their profits in the form of dividends. This will generate a good cash flow for the investor. This financial instrument however has been denied to the Indian investor on the pretext that, REITs are not suitable for the small investors and that the real estate markets are plagued by malpractices and black money.

So what exactly are REITs? A real estate investment trust is a real estate company that offers common shares to the public. In this way a REIT stock is similar to stocks of companies issued to the public. REITs typically operate and make money by buying, renting and selling commercial and residential spaces. To obtain an REIT status companies are required to distribute 90% of their taxable income to the investors and the investors in turn are taxed on their capital gains.

The disposable income in the hands of the Indian public has increased and many people buy houses solely for investing their money. Buying a house is not easy and the legwork required to be done is taxing for the working professional. To find the right flat in the right location, the piles of legal documents to wade through, tying up the loan and finally getting the registration process through is too much of work and maybe worth it when buying the dream house of yours. But if you want to buy for the sake of investment, then it’s certainly not worth the time.

This is where REITs chip in - an easy, hassle free way to invest in property. A REIT employs a horde of real estate professionals and legal eagles, who will make sure that every piece of property acquired has a clear title and is not embroiled in a legal morass. These experts will be on hand to fight any legal battles arising out of the property which individuals cannot.

Ascendas Pte is a Singapore-based property company, is using the city-state’s stock exchange to sell units in a business trust, which owns four large information- technology parks in India, including one in Bangalore. It is an irony that while investors in Singapore safely invest in India, sons of the soil find it to be a risky bet. That real estate investing is risky in the Indian markets must be a reason for REITs to be allowed by the regulators as it would be a boon for the aam admi who doesn’t have the legal, financial moat.

Revive the Swatanra Party

At the time of Indian independence there were two varying political schools of thought. The bipolar world that was, there were varied opinions on the path India should take. The Swatantra Party was founded by Chakrvarthy Rajagopalachari and it was opposed to Nehruvian socialism of the congress party.

The Swatantra party advocated free enterprise, opposing the licence Raj of those times. In his essay titled ‘Why Swatantra’ written in 1960 Rajagopalachari writes “The Swatantra Party stands for the protection of the individual citizen against the increasing trespasses of the State. It is an answer to the challenge of the so-called Socialism of the Indian Congress party. It is founded on the conviction that social justice and welfare can be attained through the fostering of individual interest and individual enterprise in all fields better than through State ownership and Government control. It is based on the truth that bureaucratic management leads to loss of incentive and waste of resources. When the State trespasses beyond what is legitimately within its province, it just hands over the management from those who are interested in frugal and efficient management to bureaucracy which is untrained and uninterested except in its own survival.”

In my endeavour to decipher history as it really was, I haven’t come across words which where more prophetic than this. The decline of the Swatantra Party and free market thinking was one of the biggest disasters which happened to the country. After thirty one years, the Indian government finally woke up to reality and ended the licence Raj. The benefits have been obvious and we have finally come out of the Hindu Rate¹ of growth and changed orbits. As with all other good things the Swatantra Party lost its shine². Vote bank politics was born³ and socialism was looked upon as a panacea. Probably the only thing socialism ever eradicated in India was free thinking and sowed the seeds of stereotyped thinking which has been wrongly attributed to British Raj.

It’s a paradox that India doesn’t have a liberal, free market political party. India has seen the benefits of an open economy, so a free and open society should naturally exist. This however is not the case in India. Indian politics is still marred by socialism. One of the most absurd laws in the Indian constitution stipulates that every political party needs to swear allegiance to socialism. Despite the fact that socialism threw the economy virtually into an abyss has been overlooked by the law. To add insult to injury, it is looked upon as a great form of governance.

This is one of the major hurdles in reviving the Swatantra Party which was the only voice against Nehruvian Socialism in the 1960⁴. In a way, people must be held responsible for this. There is a general perception among the Indian middle class that, capitalism is sinister. There is thinking that businessmen cut corners. There is also a general attitude that makes them think that success is achieved through luck, being born rich and not enterprise. People prefer the governments and unions to protect them and run for cover. The attitude of the Indian at that time was that we are on one side and employers on the other and both of us won’t trust each other. It was because of this that opportunistic and vote bank socialism surfaced.

Let’s look at corruption now. We all know that it is one of the biggest challenges India faces today. What the licence Raj successfully did was to create a multi level bureaucratic set up which was obsessed to thwart entrepreneurial zeal. Worse still was the fact that the bureaucratic set up was powerful and were bribed to start and sustain businesses. Once money has been shown to them, their appetite kept increasing.

One of the most glorified villains in history is Robin Hood. People think his ideology still lives on in the form of income tax, and that’s a misconception. Looking at the history of taxes, income tax was non existent in the past. Income tax was introduced in a democratic setup to tax the rich a give to the poor. But once the government saw money, their appetite grew, like termite on wood and taxes trickled to the middle class and the poor – the very people who voted in it. In the mean time the rich made corporations, started trusts, and found loop holes to evade tax. They have the power, intent and intellect to change things to their advantage. They just didn’t budge and to this day, the middle class are taxed the highest and that’s why the rich get richer. This example shows that a decision of the masses is not necessarily good for themselves. Ditto with Nehruvian Socialism.

India needs a party which is open to capitalism, open to the world and embraces globalization. Fortunately public opinion is slowly changing. With increased participation of the Indian public in the equity markets the perception of business seems to be changing. Perhaps we have already embarked on a long journey towards a free market.

1 In economics a lousy growth rate of 3-3.5% is known as the Hindu Rate of growth.

2 By arguable and controversial means

3Even at the time of Nehru

4If you thought why the congress gets elected repeatedly – this is why they have a law protecting their ideology and people always need to choose the best of the bad lot with no consideration to ideology

For more information on the subject visit http://liberalpartyofindia.sabhlokcity.com/

Eveready Industries

Eveready Industries is the largest dry cell manufacturer in India and has got a strong brand positioning in India. Being the market leader in a stable industry this is how the stock has fared.

This is I think because of the prices of Zinc which is the major raw material and account for 57% of their total expenses has shot up. Zinc inventories have been low in the past few years and as a result the company had to raise prices. However zinc prices are expected to deescalate now due to increased production. Though the escalation could continue in the short term, mine production is likely to increase in 2008 and 2009. That said the margins of the company can considerably improve and we can see profitability.

Their EBITDA margins have been reasonably strong at 16-22% and then it has suddenly dropped to 6% in 2007 that is largely due to the price rise of Zinc. Considering that their margins improve to as low as 10% and that their topline is almost flat the stock looks to be very cheap at forward multiples of 4.75 for FY07 and 2.82 for FY08.
Talking of a long term, we can expect the topline to increase significantly. Given the consumerism that is prevalent today there is no reason why battery sales shouldn’t increase. The per capita GDP is increasing and we could well be near an inflexion point. I think Eveready should be a good buy at these levels.
Eveready expects that after initial adjustments to the high prices the demand would grow and that the current downturn is only because the consumers have not been able to digest a sudden downturn. They also say that they have a 46.4 percent market share. The Eveready brand and its strong market dominance have been overlooked and the low stock prices seem to be only a reaction to the numbers. Their debt position is not very bad given all the pressures they have been facing. It surely doesn’t look like a disaster piece.

Bartronics India

Bartronics is in the Automatic Identification and Data Capture (AIDC) business. AIDC is the industry term used to describe the identification, and/or direct collection of data into a microprocessor controlled device such as a computer system or a programmable logic c controller (PLC), without the use of a keyboard. The technology supports two fundamental requirements - eliminating errors associated with identification and/or data collection and accelerating the throughput process. The key application of the technologies is in tracking and traceability of products/articles, product and item identification and sorting, information and data processing, security and access control and inventory management. The AIDC technology covers six distinct groups of technologies and services. They are: Card Technologies, Data Communications Technologies, Bar Code Technologies, Radio Frequency Identification Technologies, Emerging Technologies, and the Support and Supplies which serve the industry.

After its debut on the bourses in January 2006, Bartronics India did not do too well as its share price fell all the way to Rs 46 within a year. The slide in the share price was attributed to its high valuations in the context of its net profit being fairly low at Rs 5.33 crore and a turnover of Rs 29.5 crore in FY06.

But the company has justified its worth to the market by recording a substantial jump in its earnings.

In FY07, the company registered a sales growth of 120 per cent at Rs 63.5 crore and a net profit growth of 150 per cent at Rs 13.46 crore.

Recognising this change, the market has re-rated the stock with its price moving back to 131 and subsequently shooting up to 173. I started tracking this scrip on 8^th July 2007; it has gone up to 173 since then because institutional investors are buying in bulk. Somebody will initiate coverage after it probably touches 250 levels. There could be further upside as the company would continue to growth quite fast on the strength of its products mainly focused on the booming retail sector.

As supply chains improve in technology and retail majors take them over through backward integration, a spurt in usage of innovative technologies is highly likely.

The company has been around for the past fifteen years and was listed only recently. RFID is emerging as a sunrise domain and they are into production of RFID tags already and have a first mover advantage. The buoyancy in exim trade (15% CAGR for container traffic) will propel the logistics sector to which it supplies barcode solutions apart from the latest RFID technology is also expected to see a boom. The company has already established itself as an expert in bar code technology. So we can expect the topline to grow from the new technology as well as the regular barcode business.

I have conservatively estimated that their topline grows by 30% although the industry CAGR is expected to be between 35-50%. Even under this assumption the stock looks incredibly cheap. It trades at a forward P/E multiple of 13.1 for FY08 and 9.9 for FY09. From their website it looks like their management is also reasonably good.

While the upside potential is high and could push the stock up to 250 - 300, the downside is quite low.

San Diego, Shenzhen and Surat

Rings a bell? Yup! All these are cities which have grown from humble levels to one of the fastest growing cities in their respective urban systems. All these are cities which have transformed themselves from lousy towns into hubs of economic activity in a blistering speed. San Diego’s population grew by 9 times from 1950 to 2000, while the total US population less than doubled. Shenzhen saw its population multiply by a whopping 20 times over the last 25 years. Surat, in has also grown by many times the national average, increasing its population more than 3 times since 1980.

Cities can transform themselves in relatively short durations.

In general, the factors which give the impetus for a city’s growth can be put into two groups. First is natural selection - being on a coast, having a waterway (Venice), or a favourable climate. The second is being an industrial centre, strategic trade/transport. The not so obvious factor in the second group is knowledge centre (Nalanda). There are some cases where cities grow purely because they are administrative centres (Delhi). None of the factors identified above should be considered as ‘sufficient’ for a city to grow rapidly. However, the presence of one or a subset of them is ‘necessary’ for them to develop.

Surat has seen a massive influx of migrant workers in its textile mills and gems and jewelry business. The population of the city has grown from 0.9 million to around 3.6 million in 25 years. This is after the city decided to clean up its act after an outbreak of bubonic plague in 1994, and has now become a hub of activity. In the east, Asansol, about 3 hours west of Kolkata is emerging as a trading hub serving the nearby industrial and coal belt. Its location on the Golden Quadrilateral and as a conduit to Kolkata is helping it grow.

Meanwhile, nearby Dhanbad (50 km away) on the same coal belt has seen an increase of only about a fourth as much due to governance issues even though it has similar triggers as Asansol. In the north, the satellite townships of Gurgaon, Noida, Ghaziabad and Faridabad have all benefited from spillovers from Delhi, and strong manufacturing bases, to grow very rapidly. There are numerous other examples of cities—industrial towns and trading hubs such as Ludhiana, Aurangabad, Rajkot, knowledge centers such as Pune and administrative and governance centers such as

Bhubaneshwar which are showing rapid growth. It is extremely rare to see a city show an absolute decline in population size, but in relative terms some cities will show higher growth than others.

Cities are centers of economic activity and demand growth. Estimates of the contribution of cities to total output in India ranges from 60%-80%. Urbanization in India is being driven by economic growth, demographics—younger workers tend to migrate more than older workers, low initial stage of development and urbanization, better transport, especially roads, and better communications and openness. India’s urbanization rate, however, is slower than that of China’s as well as other Asian economies in part due to government policies. Although, a lower growth rate and a smaller manufacturing sector vis-à-vis China are fundamental factors, government policies such as lack of investment in urban infrastructure, the Rural Employment Guarantee Act which guarantees employment for 100 days each year to rural households, and the non-taxation of agricultural income act as a deterrent for the government of labour to towns. This prevents the realization of the gains from urbanization and leads to suboptimal city size. There is a misconception that urbanization will lead to only the growth of mega cities and increase congestion and other costs, while most of urbanization actually occurs in small towns. To achieve the full gains from urbanization, it is imperative that it is, at the very least, not discouraged by government policy.

Gains from urbanization to the economy stem from several factors:

• There are efficiency gains from having firms located in the same place. The variety of goods offered is greater, search and travel costs are reduced, and competition is stronger. This is what we call ‘economies of scale.’ A good example is a shopping mall which leads to efficiency gains in retail.

• Firms want to be close to their customers, whether it be firms in the same industry, or a mass of consumers. This creates a powerful force for clustering of firms in related industries in cities. Firms are then able to learn about and imitate the practices of other firms in the industry. Good examples include the clustering of software firms in Bangalore and car manufacturers in Detroit.

• Cities are also centers of innovation in the production of ideas, knowledge, and their commercialization. People can absorb knowledge from contact with more skilled individuals in their own industry. Large cities therefore facilitate learning, and are particularly attractive for highly-talented young people, e.g., London.

Other benefits of moving to cities include political access, enhanced by proximity to the administrative and governance center, as well as the anonymity that city life rings. The latter is especially the case in India where urbanization can often mean freedom from the oppressive caste system of the villages.

And now some number crunching.

According to Goldman Sachs’ projections, another 140 million rural dwellers will move to urban areas by 2020, while a massive 700 million people will urbanize by 2050. This is because India’s urbanization rate of 29% is still very low compared with 81% for South Korea, 67% for Malaysia, and 43% for China. Rural-urban migration in India has the potential to accelerate to higher levels as, judging by the experiences of other countries, migration tends to hasten after a critical level of 25-30% urbanization is reached, and due to faster economic growth.

The implications for productivity growth are significant. Goldman Sachs’ estimates show that movement of labor across sectors, primarily from agriculture to manufacturing and services, adds 0.9% to GDP growth a year, a process that is likely to continue. Demand for urban housing and infrastructure such as electricity, health care, sanitation, and education is set to jump several-fold.

Verdict: Urbanization is not necessarily sinister, especially if it can aid the growth of tier II cities.

Could agriculture be the new oil?

For quite some time now, there has been a scare on the rising food price. Investors have been troubled by the global food inflation. With the passage of time, the food issue seems to be looming bigger.

In the past few months food prices in many countries has pushed up headline inflation. It’s one of the causes attributed to the rising inflation in India (though it seems to have quieted now). Key headline food items are still rising aggressively in China, with pork and egg prices up anywhere from 30% to 50% in the months of May and June alone. Are we really going to face a crunch in food? Is there a shortage of grains? Not really.

Historically global agricultural shocks have been temporary and unevenly divided among diverse product categories. However as China becomes more dependant on imports wont it result the world economy entering an agricultural “super-cycle”, with large, sustained and across-the-board price increases just as we saw with oil and minerals over the past five years, and this would have a much bigger impact on CPI indices everywhere. Not really.

Unlike fuels and minerals, China’s food imports are starting a very low base, both as a share of overall global trade as well as total domestic demand. Even more important, there’s no sign that China is even starting the process. Of course food prices have been rising sharply in the mainland over the past few months, but much of the action here has been due to temporary spikes in specific product categories.

If you want to be rich

If you want to be rich, first stop being so frightened

Felix Dennis, publishing tycoon, has written a guide to becoming a multi-millionaire. All you need is thick skin, cunning - and a work ethic

Why would a rich person waste time writing a book to help other people get rich? Two reasons. Because I enjoy writing about something I feel I know about. And because I believe that almost anyone of reasonable intelligence can become rich, given sufficient motivation and application.

It also helps that I am writing while sipping a very fine wine (a Chateau d’Yquem 1986, if you really want to know), nibbling on fresh conch tidbits, ensconced by a window with one of the most beautiful views on earth.

Across the valley, far, far below me, palm trees fringe the fishing boats and yachts nodding in the harbour. Beyond the bay to the west, a turquoise sea ripples out to a purple and pink horizon, heralding another glorious sunset.

I am in Mustique, a tiny island in the Windward Islands of the Caribbean. More specifically in my “writer’s cottage”, a study-cum-library some distance from the main house, built solely for one purpose — to permit me to write whatever I please in peace and quiet.

All of this, as if you needed me to remind you, costs money. It’s what you get, if you want, when you’re rich.

You’ll be suggesting next that it will improve my sex life.

People who grow rich almost always improve their sex life. More people want to have sex with them. That’s just the way human beings work. Money is power. Power is an aphrodisiac. Money did not make me happy. But it definitely improved my sex life.

Just how quickly can I become rich?

I have known it done inside five years, but there are very few “short cuts”. Knowledge learnt the hard way combined with the avoidance of error, whenever and wherever possible, is the soundest basis for success in any endeavour.

The bottom line is that if I did it, you can do it. I got rich without the benefit of a college education or a penny of capital but making many errors along the way. I went from being a pauper — a hippie dropout on the dole, living in a crummy room without the proverbial pot to piss in, without even the money to pay the rent, without a clue as to what to do next — to being rich. And I am certainly no business genius, as my rivals will happily and swiftly confirm.

Yet the odd thing is, I’ve ended up far richer than most of my rivals.

How rich are you, anyway?

I don’t know. Nor does any rich person know. I haven’t cashed in all my assets and I’m not certain what they will fetch. Let’s say $400m-$900m (£215m- £483m) of net worth before tax.

Five homes. Three estates. Fancy cars. Private jets. (The jets are always rented. If it flies, floats or fornicates, always rent it — it’s cheaper in the long run.) Thousands of acres of land. Art on the walls and libraries stuffed with first editions. Bronze statues littering up the garden. Chauffeurs, housekeepers, financial advisers and other personal staff coming out of my rear end. Oh, and thousands of bottles of fine wine in the cellars. Never forget the wine.

Less the debt, of course. Around $30m (£16m) of debt. Rich people always have a certain degree of debt. Apparently it helps to reduce taxes. I’m not so hot on the bean-counting side. But I can’t fly the jets or drive the Rolls-Royces or Bentleys either. I never had the time or the inclination to learn.

Honestly speaking, what kind of people get to become rich?

An interesting topic. There is a confidence that radiates from first-born sons and daughters. Not in all the cases but in too many for it to be a coincidence. A similar confidence is to be observed, more often than not, in people who are rich, no matter whether they were born with it, inherited it or acquired it through their own efforts.

You can see it in the way they walk into a hotel or restaurant they have never visited before. In the irritating disposition of rich women to haggle in an Oxfam shop over a designer dress — unlike any working-class woman, who would be horrified at the thought of doing any such thing, even though she perhaps needs the discount while the rich woman does not.

You can see it, too, in the way the children of the rich appear to assume that the world was created entirely for their sole benefit. Money brings a kind of insouciance with it. It is among wealth’s least attractive characteristics.

Whatever qualities the rich may have, they can be acquired by anyone with the tenacity to become rich. The key, I think, is confidence. Confidence and an unshakeable belief it can be done and that you are the one to do it.

Tunnel vision helps. Being a bit of a shit helps. A thick skin helps. Stamina is crucial, as is a capacity to work so hard that your best friends mock you, your lovers despair and the rest of your acquaintances watch furtively from the sidelines, half in awe and half in contempt.

Becoming rich does not guarantee happiness. In fact, it is almost certain to impose the opposite condition — if not from the stresses and strains of protecting it, then from the guilt that inevitably accompanies its arrival.

If I had my time again, I would dedicate myself to making just enough to live comfortably (say £30m or £40m) as quickly as I could, hopefully by the time I was 35. I would then cash out immediately and retire to write poetry and plant trees.

Making money was, and still is, fun, but at one time it wreaked chaos upon my private life. It consumed my waking hours. It led me into a lifestyle of narcotics, high-class whores, drink and consolatory debauchery. As a philosopher might have put it, all the usual dreary afflictions of the seeker after wealth.

These afflictions, in turn, helped to undermine my health. But like an old, punch-drunk boxer, I couldn’t quit. It’s no excuse, but making money is a drug. Not the money itself. The making of the money. This sounds like so much hooplah, but it’s true.

Nobody believed that exercise could prove addictive until science stepped in and discovered endorphins. And making money, I assure you, is a hell of a lot more of a rush than jogging.

Up to just seven years ago I was still working 12 to 16 hours a day making money. With hundreds of millions of dollars in assets I just could not let go. It was pathetic. Because whoever dies with the most toys doesn’t win. Real winners are people who know their limits and respect them.

Eventually I found a way out. I handed over day-to-day control of my businesses to younger and mostly smarter boys and girls. I cleaned up my personal life.

I began doing what I wanted to do — not what I felt I had to do. After all, what did I have to prove? Except, perhaps, to myself.

IT IS possible that you will avoid such mistakes when you get rich. I hope so. One thing is for sure: “the usual afflictions” are no reason not to make the attempt. There is no reason on earth why financial success should lead to personal catastrophe.

If you wish to be rich, however, you must grow a carapace. A mental armour. Not so thick as to blind you to well-constructed criticism and advice, especially from those you trust. Nor so thick as to cut you off from friends and family. But thick enough to shrug off the inevitable sniggering and malicious mockery that will follow your inevitable failures. Not to mention the poorly hidden envy that will accompany your eventual success.

Consider carefully this shortlist:

If you are unwilling to fail, sometimes publicly, and even catastrophically, you stand little chance of ever getting rich.

If you care what the neighbours think, you will never get rich.

If you cannot bear the thought of causing worry to your family, spouse or lover while you plough a lonely, dangerous road rather than taking the safe option of a regular job, you will never get rich.

If you have artistic inclinations and fear that the search for wealth will coarsen such talents, you will never get rich. (Because your fear, in this instance, is well justified.)

If you are not prepared to work longer hours than almost anyone you know, despite the jibes of colleagues and friends, you are unlikely to get rich.

If you cannot convince yourself that you are “good enough” to be rich, you will never get rich.

If you cannot treat your quest to get rich as a game, you will never be rich.

If you cannot face up to your fear of failure, you will never be rich.

The truth is that getting rich means sacrifice. And it isn’t always you that’s doing the sacrificing. This is not a calling for the faint-hearted. There is no shame in turning away. After all, if everyone was prepared to make the necessary sacrifices, who would be left to work for my own companies? Quite apart from sacrifice, there is a last brutal truth to be confronted. After a lifetime of making money and observing better men and women than me fall by the wayside, I am convinced that fear of failing in the eyes of the world is the single biggest impediment to amassing wealth. Trust me on this.

If you shy away for any reason whatever, then the way is blocked. You will never get started. You will never get rich.

Fear of failure is almost certainly the reason that you have not already begun to make yourself rich. It haunts all of us.

In essence, it comprises two components. The first is our natural desire to avoid letting ourselves or others down. The second is the exposure of that failure to the outside world.

This nastier, stickier second component, the “broadcasting” of our misjudgments or errors, especially to our peers, is often the nub of the matter.

The same factors apply to me, sitting around with colleagues at Dennis Publishing trying to figure out if we should invest millions of pounds to launch a new car magazine, or to a young woman considering whether to take over her father’s used-car business or to invest another two years of her life into obtaining a PhD in bio-engineering.

Neither decision will involve utter financial ruin. But fear of a result that cannot be easily hidden weighs heavily in the balance.

The board of directors that runs Dennis Publishing will talk earnestly and sensibly about the effect on morale for the rest of the company (usually forgetting to mention its own morale) in the event our proposed new magazine bombs.

In reality, Dennis Publishing staff working, say, on The Week or Maxim or Computer Shopper, won’t give two hoots if the company’s new car magazine is a sensational flop. But by discussing the matter in such terms, in code if you like, the board gives itself the opportunity to weigh its own fears while appearing to weigh the fears of others. It is a form of well-disguised cowardice.

On a less corporate level, the young woman believes she might be able to expand her father’s used-car business more aggressively than he has done in the past. On the other hand, a PhD would add status to her life and offers the prospect of a fulfilling career in science.

She must decide. Her father is unwell and cannot wait for her decision. What if she takes over the company and it goes belly up? What if she shoots for a master’s degree and does not achieve it? A failure to obtain her master’s degree could be disguised fairly easily. She could always claim she has become bored with bio-engineering. The decision to take over her dad’s company, however, will be far more closely monitored — by relatives and neighbours, by the people who work there, by rival car dealerships, by the bank manager, and not least by her father. Should she fail, she will run the risk of becoming a laughing stock or an object of pity.

So what is her best option? She is unlikely to get rich as a bio-engineer. But she might well get rich expanding the dealership, especially because she is aware that her father has never invested to the extent that he might have done in marketing and promotion, especially on the internet.

The car dealership is already capitalised, and, although she will have to pay off her father eventually, he is hardly likely to foreclose on her. There is an opportunity, but is she prepared to exploit it? So what should our young college girl do? Normally, I would hesitate to offer any advice. But I happen to know her. I was half in love with her once. She happens to be real and her name is Julie. All this happened a long time ago.

In the event, she took her degree and her father sold the business to an outsider. Julie is a highly competent bio-engineer and has enjoyed her career enormously. But on more than one occasion she has told me she regrets not taking her father up on his offer.

What swung the balance was her fear of failure in such a “public” endeavour. She was frightened that others (especially the male-dominated community of car sales firms) would laugh at her.

It irks her to know that she will never be rich. It always irks intelligent people like Julie. And I can give you other examples. One of them is my mother.

She will be furious (if she ever reads this) that I have mentioned her in such a context. But I know my mother well. I know beyond a shadow of a doubt that everything I have achieved I owe not just to care and love but to her genes.

She could have built herself a fortune had she wished. Her personality combines the resilience, the drive and the restless energy of so many people who become rich. But 60 years ago it was almost unheard of for a woman to act out such ambitions. Her parents would have been scandalised. Neighbours would have viewed such behaviour in the most negative light imaginable. And had she succeeded, horror of horrors, she would have earned their undying enmity. It just was not “done” for a woman to earn a fortune for herself — except, somewhat dubiously, as a movie star perhaps. Or a writer of crime novels.

Single or newly married women from respectable families in the 1940s and 1950s were actively discouraged from involvement in business except for a little light typing or serving in shops and department stores. Especially if they had children. Especially if they lived in the south of England.

Never mind that my mother had more brains in her little finger than half the twerps she worked for as an accountant. Women were not even allowed to sign a hire-purchase form back then. They had to get their husband or their brother or their father to do it.

So she didn’t become rich. She had a decent career. She earned enough to support my brother and me and to provide us with more than just the necessities of life. And she married again and became a pillar of the community. But I know that she could have done it, had she been prepared for the unpleasantness, the sheer nastiness that would have been unleashed upon her if she had chosen to say: “To hell with them. Let’s go!” It was not so much a fear of failure on my mother’s part, I believe, as a fear of upsetting the whole apple cart of the community in which she lived. And now she is an elderly, if formidable lady who quietly walks her dog along English country lanes.

From: stockcarrel.blogspot.com

Aviation Update

Increase in aviation fuel price and onslaught of spot fare offers from Indian (Airline) are expected to limit the benefits from an otherwise seasonally good quarter for the aviation industry. We expect Jet Airways to be hit by Indian’s price war, which would also lead to loss of market leadership, while SpiceJet will likely post all-time high margins on the back of continued cost reduction. Airlines increased fuel surcharge by Rs150 in mid-Q1FY08, boosting average realisations, while the rupee appreciation led to lower cost/ASKM since ~50% of the expense is directly or indirectly denominated in foreign currency. International routes continued to record high realisations for Jet Airways, though load factor was lower on account of seasonality.

Fuel surcharge increased to reflect the rise in ATF prices I
Increase in ATFprices led to a rise of Rs150/ticket in the fuel surcharge component levied byairlines during Q1FY08. In contrast, ATF prices increased an average 3.8% over the preceding quarter. Fuel surcharge has been further hiked Rs50/ticket beginning July ’07 after ATF prices rose further 2.8%.

Rupee appreciation to positively impact bottomline
Almost half the expenses of airlines are denominated in foreign currency including lease rentals, expat pilot salaries, ATF prices (correlated with crude), maintenance etc, while only ~19% of
the revenue is US dollar denominated for Jet Airways. Foreign currency revenue share is negligible for other domestic airlines. On the back of ~7% depreciation in US dollar/rupee exchange rate, we believe airlines’ bottomlines have been positively impacted during Q1FY08.

Spot fare offer by Indian dampens sentiment
In a bid to boost its market share during the quarter, Indian re-launched spot fare for last minute bookings at fares as low as Rs600/ticket (excluding tax and surcharges). This led to a lower load factor share for other major airlines such as Jet Airways.

Reiterate BUY on Jet Airways and SpiceJet
International routes continued with their excellent performance trend with realisations maintained in excess of Rs15,000/ticket for Jet Airways in spite of seasonality affecting the load factor. SpiceJet successfully continued with its cost reduction strategy reaching operating cost/ASKM of Rs2.34, very close to break-even. We believe improving industry fundamentals leading to favourable pricing environment will take SpiceJet to the realms of profitability.

Source: I-sec Research

Investment Basics - Reading an Annual Report

The thought of poring over annual reports to glean information about a company or its growth prospects may seem terribly dull to most new investors. At a time when there is an overflow of information across media channels and scores of analysts churn out stock calls on a daily basis, you may be excused for taking the short cut and just looking up financial snapshots on the Internet.

Nevertheless, the annual report remains the most authentic source of information about a company and contains important facts about its financial condition, growth strategy and current challenges that are not readily available upon an Internet search. A well-written report can give you a rare glimpse into the management’s outlook for the industry or its views on new trends in the market. So for those who do not know (or remember) what an annual report looks like, here is a quick guide to reading this document.

The manner of presentation differs from one annual report to the other; some are mini opuses that promise to be a one-stop guide to the industry and company, others barely make the cut when it comes to providing crucial information. Most reports, though, will have the following important components:

The director’s report, which will detail the company’s operational performance in the year gone by.

Management Discussion and Analysis, where the management provides an outlook on the industry, competitive scenario, new challenges and risk factors and outlines its future strategy.

Detailed financial statements of the company and its subsidiaries, as well as consolidated financials, along with the auditor’s report.

The basics, for starters

You may also find pictures of happy employees participating in corporate events. Heart warming, but we suggest that you skim through all that gloss and start with the director’s report. This will give you an overview of the co mpany’s performance across various segments and an idea of the factors that drove performance.

If you are unfamiliar with the industry the company operates in, then the Management Discussion and Analysis (MDA) is the best place to begin. Clueless about the pig iron industry? Read the Tata Metaliks report for data on the globa l pig iron and foundry market and pig iron price trends. The report also includes an interview with Tata Metaliks’ management, which discusses some of the key events that took place during the previous year and its perception about the competitive scenario.

Companies put forth their views on a variety of topics that concern their industry, be it Government regulation, consumer or user industry trends or changes in the global picture in the MDA. They then articulate their own plans to capitalise on unfolding opportunities.

Between the director’s report and MDA, you will get a fairly good idea of the businesses the company operates in, its key focus areas, the challenges ahead and the measures it has in place to improve financial performance in the year ahead.

For number-crunchers

For those who believe that it is numbers that do all the talking, the financial statements in the annual report provide you with details that you are unlikely to find on the BSE or NSE Web sites. For instance, you can figure out the extent to which a company is able to fund its expansion plans on the strength of its current operations by looking at its cash flow statements.

The schedules to accounts provide break-ups of income, expenditure and other items. For instance, you may want to know what components constitute “other income”, particularly if it has been a significant contributor to profits that year. The item-wise split-up of the components classified under other income will help you decipher how much of the non-operational income is recurring in nature. You are also provided with segmental information — both geographic and business.

Similarly, schedules elaborate on balance sheet items such as long-term and short-term loans. For retailing companies, for instance, inventory management is crucial and you may have to compare the inventory positions over a three-year period to understand how efficiently the retailer manages its stores. Or for cash-rich companies, the quality of their investment book may well play a role in valuations.

The annual report also discloses the financial information of the company’s subsidiaries, besides providing financials on a consolidated basis.

As new, high-growth ventures are typically routed through subsidiaries, companies are beginning to command valuations based on their consolidated numbers.

Be sure to look at the notes to accounts to understand the accounting treatment of various revenue and expenditure items. Those who are unfamiliar with accounting practices can make-do with looking for changes in accounting policies . This might tip you off on the impact of one-time earnings or expenses.

Also look for the auditor’s qualifications to accounts for any assumptions that have been made while preparing or auditing accounts.

Nooks and corners

The annual report also contains little nuggets of information that could provide you with additional insight into the company.

Management background: For instance, you can find brief profiles about the directors on the board of the company. The presence of directors with strong industry standing lends credibility to the management of the company.

The shareholding pattern of the company will reveal the extent of promoter holding and the extent of institutional interest in the company.

Production and utilisation figures: For manufacturing concerns, the production figures assume significance. The production as a proportion of installed capacity (utilisation) could give you an idea of the efficiency at which the compan y is operating and the headroom for further volume growth. This information is particularly pertinent if the company is planning further expansion.

IPO proceeds utilisation: For newly listed companies, the progress on the expansion plans that had been outlined in the offer document and the utilisation of the IPO proceeds are also disclosed in the annual report.

Notices to resolutions: Some special resolutions passed at the annual board meeting also merit attention. For instance, resolutions passed to increase borrowing limits are cues to the company’s desire to leverage its balance shee t.

Explanations are also available on why the resolution has been mooted. For example, Colgate Palmolive India’s latest annual report explains the reasons for its declaration of a special dividend and a capital reduction.

This list is far from exhaustive. Going through all this might mean a lot of time and work. But it does make your information more authentic than the tip from your broker friend or the analyst on TV.

Source: Deadpresident Blog

Capital Account Convertibility – A Chronicle of Arguments

Foreign exchange reserves rose by $937mn to touch $213bn during the week ended June 29. The steady rise in foreign exchange reserves over the last few fiscals has sparked off a lively debate – ‘Is the time ripe for capital account convertibility (CAC)?’ This has been one of the nagging questions which policy makers have tried to answer in the last few years. While the left party has been waving their red flag as always, there is a definite case to take a cautious approach.

Flipping a few pages of history

In 1996, five Asian economies (South Korea, Indonesia, Malaysia, Thailand, and the Philippines) received net private capital inflows amounting to $93.0 billion. One year later (in 1997), they experienced an estimated outflow of $12.1 billion, a turnaround in a single year of $105 billion, amounting to more than 10 percent of the combined GDP of these economies! Consequently, three of these economies Indonesia, Thailand, and South Korea) are mired in a severe economic crisis the magnitude of which would have seemed inconceivable even to the most knowledgeable and insightful observers of the region. Well that’s CAC for you – a sudden influx and efflux of currency with unpredictable boom and bust cycles.

And this too will pass

In the old legend wise men finally boiled down the history of mortal affairs into a single phrase, “This to will pass”. That’s exactly what we need to understand. It’s easy to be deluded to think that opening up of capital accounts will bring in a lot of funds in, when the country is in the cusp of robust growth. What if the conditions change? The efflux is much faster and happens with such a brutal force that it leaves the state coffers gasping.

Close parallels

A fully convertible capital account can be closely compared to the financial markets. Financial markets are known traditionally for high volatility for no specific reasons. One of the arguments favouring CAC is that – ‘if convertibility is good for goods and services (India has a virtually fully convertible current account) why should we be wary of capital account’. The reason they say is that financial markets operate with a wide degree of uncertainty. Market failures from asymmetric information and inefficiencies are endemic to financial markets. Markets for goods and services are rarely textbook-perfect, but they operate in most instances with a certain degree of efficiency and predictability.

Is it mostly fundamentals?

A counter-argument is that financial markets get it mostly right, and that sharp reversals of capital flows are usually the result of changes in fundamentals, such as external shocks or policy mistakes. While at least a grain of fundamentals surely underlies every financial crisis, the magnitude of the crisis is often incommensurate with any plausible change in the fundamentals. There was nothing terribly wrong with the economies of Malaysia, South Korea and other Asian countries in 1996.

Every crisis spawns a new generation of economic models. When a new crisis hits, it turns out that the previous generation of models was hardly adequate. The moral of this twisted story is twofold: (a) financial crises will always be with us; and (b) there is no magic bullet to stop them. These conclusions are important because they should make us appropriately wary about statements of the form, “we can make free capital flows safe for the world if we do x at the same time,” where x is the currently fashionable antidote to crisis. Today’s x is “strengthening the domestic financial system and improving prudential standards.” Tomorrow’s is anybody’s guess.

Lies, damned lies, and statistics

A scatter plot on capital account liberalization vis-à-vis per capita GDP increase and inflation shows no evidence in favour of CAC. Secondly policy choice regarding CAC is endogenous and to a certain extent determined by economic performance itself. Thirdly reverse causation clouds interpretation because countries are likely to remove capital controls when their economic performance is good.

The other side

Those who advocate full convertibility in capital account list out the possible benefits for the country, including greater confidence levels of global investors in India, the present feel-good factor and strong macro economic parameters of the nation and so on. In such arguments, there has been no mention about `the appropriate figure' of forex reserves considered the safe level for any country. The other way of looking at the issue is: What is it that present foreign exchange market lacks that CAC is going to dramatically change? Such a proper figure and rigorous mathematical models are difficult to arrive at. However we can say that CAC should work fairly well with countries having good financial institutions. Appropriate macroeconomic policies can reduce the risk.

There is a widespread belief that convertibility causes crises. If this belief were true, the countries which faced the East Asian crisis should have been circumspect about convertibility. However, barring Malaysia, none of these countries suspended convertibility either during or after the crisis.

Inevitability of capital flows

In a global village capital flows will expand irrespective of government policies. Current account convertibility and capital account convertibility go together in the “package deal” of harnessing globalisation. There is a line of capital controls manned by RBI staff, but enough holes have been punched in it so that there is substantial, and increasing, de facto convertibility. “Should India go for convertibility” is no longer a meaningful question. The question that India faces is about how the intellectual framework and institutional capacity of monetary policy and financial regulation can be rapidly overhauled to match the needs of a trillion-dollar rapidly globalising economy. There’s no escape – India has to open up. The real question is - How do we put systems in place to manage this? Do we have the stomach to live through boom and bust cycles?