Airtel – Hutch = 46000 crore!!

It sounds surprising, though. Comparative valuations of the two
companies reveals that bharti has been valued by Vodafone at Rs 67000
crore, while Hutch at just 21000 crore. Interesting is the fact that
while Bharti has a subscriber base of 14 million, hutch has a base of
11 million. The difference is due to the fact that Bharti, with its
Airtel brand is into fixed lines, is a NLD (national long distance)
service provider, ILD (International long distance) provider and a
Broadband provider as well.

The increase in FDI provision to 74% in telecom has been well tapped
by Bharti. Its current acquisition targets include Spice and Aircel.
If it gets these, the move could largely marginalize hutch and other
smaller mobile service providers.

Information souce: Economic Times, 31 Oct 2005

The Lexus and the Olive Tree

If you want to know how the fall of the Berlin wall brought an end to the cold war era and gave a fresh life to the world, if you want to know how the national borders are diminishing, there is no threshold any more and that the world is moving towards higher efficiency, read this book by Thomas Friedman.

Undoubtedly, it gives a fantastic insight of how the globalised world has progressed, taking a re-birth post the cold war era. A lot of us would be surprised to know that prior to 1920, globalization did exist, but not in the embodiment we know it today. Undoubtedly the microchip had not seen the light of the day, and people moved goods (the stock, in Adam Smith’s parlance). But today it’s information that needs an efficient transfer. The book talks about information arbitrage, not unlike the one done in the financial markets.

Just as Dayanidhi maran is moving towards ‘one India’ in making telecom policies, the world would move towards ‘one economy’ erasing boundaries my means of M&As in the process. Currently hostile takeovers would be objected by the UNO, and friendly mergers are quite surreal. But it might not be long before it happens, if we are to give up our olive trees and adopt the Lexus is return!!

Are you ready to pay tax?

In response to http://www.financialexpress.com/latest_full_story.php?content_id=107039&pn=1

Its queer to know that just about 3% of our 100 billion plus population pay taxes, and collection rate is just about 10% of GDP. But what gives the people the audacity to avoid paying taxes? Looking at it objectively, I can think of

• Inefficient tracking system
• Corrupt officials
• Slow judicial system
• Law loopholes
• Lack of faith in the politicians running the government
• Demotivating to find 97% of the population not paying tax

The government's plan to send sms's is a novel idea to exploit technology; it was quite effectively done during the july 26 rains, when messages from the police commissioner were circulated to all mobile users in Mumbai. But I don't see how an individual can hold his head high by paying taxes. With the kind of collection system in place, there is hardly anyone who cares if his neighbour and his uncle are paying taxes or not. All they know is what they hold in possession.

Our agrarian economy does not allow us to collect taxes from the farmers. Unfortunately, there are those who end up making mansions with the agricultural produce, without paying taxes. A majority of our transactions take place by cash, thereby blurring any kind of tracking system.

Gini index

In response to http://economictimes.indiatimes.com/articleshow/1272191.cms

In the world of economists, the indexes are commonplace. Comparison of
the disparity between the rich and the poor is well represented by the
Gini index. Statistically, these valuations hold greater significance
with the rise in the sample size. And it makes such indexes harder to
move. The widely publicized growth rates have little to do to the
population in the remote areas, where many are still in want of water
and food supplies. Money does have a cascading effect, and in spite of
the socialist philosophies of the creators of the constitution, we are
going towards the philosophy that has worked wonders: capitalism. Our
communist strategies have not worked, this is evident in the state if
west Bengal. A high population makes things difficult. Education is
the key to any kind of development.

BOP

FMCG giants looking at the bottom of the pyramid, the prominent term
coined by Prof CK Prahlad, tend to have an interesting problem. The
costs of selling goods at the BOP are some 5-10% more expensive than
selling in the urban areas. The masses spread across the country only
add to the transportation costs. ITC's echoupal initiative was
estimated to break even after 7 years. With all this, what can be done
in order to penetrate these markets? And is it really worth?

The answer is yes. Urban markets being already saturated with FMCG
companies with squeezing margins selling their products. They are in
the dogs stage of the BCG matrix. So growth can only come from the low
income areas.
Operational efficiency apart, in what ways can be ensure proper
growth? Concepts of echoupal are being replicated and competition is
killing margins. We need to look at opportunities to sell products at
low cost.

HSBC looking at India!

In response to http://economictimes.indiatimes.com/articleshow/msid-1257742,curpg-3.cms
Undeterred by the volatility of the capital markets, the rising indexes are indicators of a booming economy. Foreign players no longer find it unsafe to park their monies in the land of elephants and snake charmers. Only that these are embellished in gold.

India has reached a position to aid US for the Katrina relief operations. As per a report, Pakistan is looking for some aid from India for their earthquake victims. Why has India suddenly become a messiah of sorts? Or is it that India is ‘Marketing’ itself well?

HSBC has big plans for India. The economy is being opened up; more and more FDI is being allowed. Perhaps India may not remain the poor cousin of China in the years to follow.

Enron fiasco

The market is watching! Lower your debts, or the stock prices will fall under the piling loans. So what to do? Get more equity, but that would dilute our control. Sell some assets, but not many would be ready to take our stakes, because our investments have been bad. Hmm, how about some tweaking in the balance sheet? How about converting long term loans to current liabilities? But the SEC is watching. So how about going into a contract by taking additional loans to pay off our existing debt, and treat this loan as current liability. The current ratio would suffer, but so what. Current ratio doesn’t attract so much attention as the D/E ratio!! Great Idea, lets do it!!

The above is just one of the various techniques Enron Used to manipulate its financial statements. It exploited the term of prepay, erstwhile used for short term advance payments. Prepay involves an advance payment for goods/services. In 2000, Enron went into a contract with the Chase Manhattan Bank in order to sell gas to it in 2010, and also buy the same amount of gas in the same year. The catch was that the first transaction involved prepay, and the other did not. So effectively Enron received a loan of $275 million, while the same was not treated as a debt, but a operational liability. So at the end, money came in without affecting the D/E ratio!!

I haven’t read the book, but the name ‘The smartest guys in the room’ doesn’t seem inappropriate. Flagged as the greatest of corporate scandals in the history of America, Enron had a series of questionable practices. so it’s the accountants who are the most competent in managing such practices. They had developed competency in eliminating debts by selling of assets (for which they couldn’t find buyers in the markets) to the paper company Chewko.

This is perhaps the reason why CAs are so much in demand!!

But how come no corporate scandals are reported in India? The only raids we know about are from the income tax department. Doesn’t the SEBI carry out surveillance properly? You never know how many people are kept out of whistle blowing either by stuffing them with goodies or threatening.

Will the clause 49 requirement be able to stifle corporate malpractices? That remains a question to be answered.