Bol India bol

The TV ad of reliance infocom takes us through the history of telecom in india. There was a time when trunk calls were the order of the day, it was followed by STD, booths, queues and then to expensive calling rates of the cellular phones. Even the constant reduction of the calling rates to 1 Re / min doesn’t seem to be good enough. And so Reliance came out with free unlimited STD to another reliance mobile in the country.

What does this mean to us? I don’t know many people who use 93 numbers, and I don’t think I will benefit by taking the scheme. But who will? Cant discount the long lost lovers who cant get with more of talking. I can even suggest it to some of my friends. Perhaps reliance is trying to woo some GSM customers as well, since Tata Indicom has been offering it for quite some time now.

Why this sudden surge of low margin propositions? This is an indicator that the industry has matured, and can be treated as an FMCG. There is a clear lack of innovation or differentiation in the services offered by the many operators. This morning I read that around 25% of the Indian population is already connected. The growth from here is not expected to be exponential anyway. The original high costs were fallout of initial investments in towers and other infrastructure (which are capital intensive). Now that the golden years are over, the multitude of players can only compete on costs.

3G has not taken off very well in India, primarily due to high costs of usage. Till wireless broadband gains popularity, people will have to make do with GPRS data packets only.

For the heavy talkers, there is good news. Falling rates implies they can talk even more. Bol India bol!!

Business standard article

What does the global delivery model have for the low cost worker?

IT projects have traditionally been priced based on labor hours. Availability of skilled and comparatively labor in a far fetched country has driven IT work offshore. Clients definitely love the presence of the employees at their site, if costs are good enough. This is because it gives them feel more comfortable about the kind of work they are getting.

Hence India and Indians have enjoyed the incoming cash flows over the past decade or so. There are so many who passed out of their engineering colleges, to be lured with the huge opportunities abroad. Many of them, by virtue of being acclimatized with the alien environment, chose to stick on. Going forward they have applied for dual citizenship and a green card.

Water flows from a region of higher pressure to a region where it is low. The flow of money can also be compared to this model. But there comes a time when the speed of flow gets reduced, as the pressures try to reach equilibrium. The real world is much more complicated. But it would not be wrong to use this model to understand what opportunities offshoring can give us.

Undoubtedly, the speed has reduced and the opportunities are not so many. The US growth rate is stalled at 1-2%, while the Indian economy is growing at 9%. There are various sectors contributing to this, and software does not feature at the top. If one looks at the price chart of the various stocks in the BSE sensex in the past 6 months, it is evident that IT does not remain in the top 10.

So does that mean it marks the end of IT? It seems unlikely. Its time IT developed itself into a mature industry. Companies are being forced to be more innovative in their solutions & services. In this effort to make them more wanted, IBM has developed and is strongly focusing on the global delivery model.

The GD model simply means more offshore, minimum onsite. Clients are being made to believe that India has emerged as a favorable destination, and reducing their data privacy and quality concerns.

What does that mean to the employee in the GD era? It simply means lesser onsite, implying lesser good experience, and more offshore. The organizers of the GD party (ie the management) will definitely have a lot to add to their CV, for they are bringing in a new way of doing business.

But for the employee it is bad news. Lesser travel means interacting with the client only on chat, telephone and (where practical), video conferencing. They do not get to know their client, nor do they get to understand their working. More importantly, the ground level workers are shielded from the strategic initiatives, and one often gets to hear rumors (usually bad).

What will happen in the future? If we say that the GD era has arrived, it will translate to cost savings for the client, more revenues for the forerunner of the model, and lack of learning opportunities for the workers.

What must someone in this rut do? They must enhance their skills that will make themselves more valuable. They must make sure they get to meet a client and not take an impersonal view. They must be more innovative to look for things that sell…

For one’s value is determined by what the Market is ready to pay.

Links:
What is global delivery? http://www.offshore-softwaredevelopment.com/global-delivery-model.asp

Global delivery implies stronger partnership: http://www.itbusinessedge.com/item/?ci=16239

Comparison of global delivery models: http://www.forrester.com/Research/Document/Excerpt/0,7211,34317,00.html

Wall Street: Is It Just The Chill Or Convulsions Are Round The Corner?

Received from Tips 4 Trade.com

---------- Forwarded message ----------
From: Tips4 Trade <tips4trade@gmail.com>
Date: Sat, Mar 1, 2008 at 9:50 PM
Subject: Wall Street: Is It Just The Chill Or Convulsions Are Round The Corner?
To: Tips4Trade <Tips4Trade@googlegroups.com>

New York Sank Last Night, Will Bombay Sink On Monday?

Manmohan Singh re-capitalised PSU Banks 15 years ago, and will end his career the same way after the disastorous Budget presented by Chidambaram.

Indian's need to change their lives now-sell all assets, buy agricultural land and liberally borrow from PSU Banks. There is no tax on agricultural income, so income goes tax free. Then after years of making partial bad debt provisions, you will not have to pay-off the Bank Debt.

The Bank bail-out will be funded by taxing Stock market transactions...simple.

In a painful year for Wall Street, even the shortest month couldn't end soon enough.

Stock markets sank on Friday -- Leap Day -- after a new round of credit woes and a painful dose of weak economic reports reignited fears that a recession may be imminent.

The Dow Jones industrials plunged 315 points, and every major index shed more than 2.5 percent. The Standard & Poor's 500-stock index is off to its worst start to a year since 1941.

"The drumbeat of economic news has been unrelentingly bad," said Edward Yardeni, an investment strategist. "The recession scenario is looking more and more credible."

The market was poised for a poor opening after American International Group, the world's largest insurer, posted the worst quarterly loss in company history Thursday night. The Dow was off 100 points shortly after the opening bell.

The sell-off accelerated from there. A bellwether report on Midwestern business activity unexpectedly fell to its lowest level in more than six years. A survey showed consumer confidence at a 16-year low. And analysts predicted that banks stand to lose an additional $350 billion from the subprime mortgage collapse.

The bad news added up, and so did the losses. At the closing bell, the Dow had given up 315.79 points, or 2.5 percent, to 12,266.39. All 30 of its components closed down.

The S.& P. lost 2.7 percent, to finish at 1,330.63. The technology-heavy Nasdaq composite index dropped 2.6 percent, to 2,271.48.

"Fridays have become very difficult days for the markets," said Ryan Larson, a trader at Voyageur Asset Management in Chicago. "Given the uncertain environment, nobody wants to buy into a weekend unless they have good reason."

Shares of financial services firms, an albatross on the market for months, led the losses on Friday. A.I.G. stock tumbled 6.5 percent. Shares of MF Global shed 18 percent after the brokerage firm was hit with downgrades from ratings agencies stemming from an unauthorized trading incident earlier this week.

Treasury yields plummeted as investors flocked to the safe havens of government bonds. The dollar, already at a record low, ran flat against the euro but fell against the yen. Crude oil futures fell back slightly after flirting with their all-time high earlier in the week.

The losses followed declines in overseas markets. The Nikkei 225 index in Tokyo lost more than 2.3 percent, and the major European indexes were down around 1.5 percent at the close.

"Investors try to ignore the underlying trends -- credit conditions and economic indicators -- and jump on anything that says this will go away soon," Mr. Yardeni said. "And then you get hit on the head with the more serious underlying issues in the credit markets and the economy and you realize that the bullish news just isn't enough."

Indeed, the Midwestern business report was only one piece of a host of poor economic news that rattled investors on Friday, underscoring anxieties that the nation is facing one of the worst economic landscapes in decades.

Consumer confidence plunged in February to a 16-year low, according to a survey by Reuters and the University of Michigan, as rising inflation forced Americans to spend more and save less.

Income growth slowed in January and consumer spending was flat when adjusted for inflation, the Commerce Department said. For the first time in at least 50 years, Americans spent more than they earned for the third consecutive month.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

Nothing in this article is, or should be construed as, investment advice.


What does it mean for us? The Indian Budget coupled with slowing US economy has been construed as a recipe for disaster. The please all budget intends to fund its Rs 60000 crore to the farmers by adding to the capital gains tax, thereby discouraging trading. Long term investors (like me) are spared. No doubt, it would reduce volatility and encourage people to delve into the stock market only for investment purposes. But it would also reduce the responsiveness the Indian bourses have to the world conditions. In the event of FIIs making an exit due to (subprime) crisis, it will not enable retail investors to book profits (or losses) easily.

It has been seen in the past that when US sneezes, the the world catches cold. In the recent past, there have been instances when the bellwether index has kept up in the face of the impending storm, thereby implying that India is no longer a volatile Market, it is an economy of opportunities where funds can be parked (subject to stringent regulations,though). But my opinion is that with the budget proposals on the capital gains tax and the falling US indexes, India may also feel the brunt.

Old Boy Alan Talks Up Recession

---------- Forwarded message ----------
From: Tips4 Trade <tips4trade@gmail.com>
Date: Thu, Feb 28, 2008 at 11:11 AM
Subject: Old Boy Alan Talks Up Recession
To: Tips4Trade <Tips4Trade@googlegroups.com>


The former chairman of the US central bank Alan Greenspan has warned that US economic growth has stalled and a quick recovery is not likely.

"As of right now US economic growth is at zero," he said, adding the longer it stayed this way the greater the risk of a deep recession.

Wall Street giants Goldman Sachs and Merrill Lynch have both forecast that the US economy will contract in 2008. The US Federal Reserve has said 2008 growth will be between 1.3% and 2%.

The forecast, made last week, was half a percent lower than the Fed's previous estimation.

The gloomy outlook was blamed on falling house prices, reduced bank lending, turmoil in the financial markets and higher oil prices.

More gloom?

Mr Greenspan also predicted that booming oil prices, which reached a record of more than $101 last week would keep rising and that the US housing market would see more misery before the tide turned.

On Monday, figures from the National Association of Realtors showed US house prices fell 4.6% to $201,100 (£106,691), while inventories rose.

This adds to the drumbeat of bad news for consumers, including higher unemployment, more expensive fuel costs and higher credit card repayment costs and raises worries about their ability to spend and prop up the world's largest economy.

Increased globalisation of trade could offset a sharp downturn in consumer spending and "facilitate the absorption of shocks in the US," Mr Greenspan said.

Foreign investors

In a separate speech at an investment conference in the Gulf state of Abu Dhabi, he said US resistance to Gulf or Asian government-backed investors would be "counter-productive" and will result in all parties being "losers".

Lehman Brothers has predicted that these funds have assets of about $3 trillion at the moment, including large stakes in many banks, which have turned to them for capital after sustaining heavy losses on investments centred on soured US sub-prime debt.

Often secretive, they have come under fire for their investment motives, which some interpret to be political rather than commercial.

"The negative response is protectionism and that is counter-productive," Mr Greenspan said.

"The US has gained much in post-World War II globalisation and for us to be pulling back makes me sad and is not in the best interest of the US," he added.

Mr Greenspan left the Federal Reserve in 2006 after 20 years at the helm.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

Nothing in this article is, or should be construed as, investment advice.

Thanks

Tips4Trade

www.tips4trade.com

Reliance Power bonus issues?

http://economictimes.indiatimes.com/R-Power_plans_bonus_to_win_back_investors/articleshow/2790920.cms

The financial acumen of ADAG is truly brilliant. They have carefully crafted a way to increase the valuation of the REPL by offering the bonus. The scrip has already risen some 10% after the news of a possible bonus issue.

Looking at the numbers, the existing shareholding report on the REPL website mentions a promoter share of 89.92% while institutional and retail investors have 10.08%

At 1:1 bonus issue, the share of the external investors will be 10.08 x2 / (10.08 + 100) = 18.31%, or a rise of 8.23%

At 1:2 bonus, it will be 10.08 x 1.5 / (5.04 + 100) = 14.39%, or a rise of 4.31%.

This implies that even in the bearish market, REPL has found more takers than the numbers suggest. A rise in price directly translates into higher networth of the promoters, who are laughing all the way to the stock exchange :D

Is it the end of the telecom era?

Today I read an article on business standard, which reported Indian Telecom minister A Raja mentioning that local call rates may drop to something like 10p / min. I was wondering if it would do me any good. That’s because I enjoy free local calls to airtel already; to other operators its about 40p, and 1 Re to landlines (which I call rarely). If it were a few years ago, I probably would have been delighted by this news. But not today. My line of thought has moved to a different direction. While in italy, local calls costed me some 35 cents (Rs 20) on my Vodafone prepaid; and I couldn’t imagine using my mobile to make a call back home (2 Euros or Rs 114 / min).

I remember reading a report mentioning that local call rates are the lowest in India. That was some years back, when local calls were charged at Rs 2.40 or more. With increased penetration, it is evident that costs would reduce, adding to the revenues and falling ARPUs.

Bharti Airtel has an ARPU of Rs 359, and RCOM is close on its heels with Rs 339. These figures coupled with a national average hovering around Rs 300, the figures amongst the lowest in the world.

The industry has grown at 30-40% CAGR over the last 5 years; and investing in telecom companies was a sureshot win.

But it may not be so for long. With a wave new licences being issued to newer (and little known) operators, the market will only get more competitive. In my recent visits to some of the rural areas of West Bengal, I was amazed to find the Airtel signal strength at the remotest of the regions, though getting through was difficult during the evening (peak) hours. These new players can be expected to target such far flung areas, but this may not justify the massive investments required.

The value added services do not find so many takers as the voice services do. It is a niche segment, and applications on GPRS are only being explored by the early adopters. These services are expensive, and contribute significantly to the revenues. With competition coming, the operational margin may only demonstrate commoditization.

In spite of the growing concerns of commoditization; the vastness of the country can only serve as an opportunity. The teledensity in India stands only at 18%, as opposed to much higher numbers for some of the developed economies.

India still has a lot of catching up to do. Yet the astonishing numbers and jumping scrips may be a thing of the past, as Sunil Bharti Mittal mentioned.

IPOs losing their sheen?

A few months ago, any investor worth his name would jump at the mention of an IPO, in order to pocket, if nothing else, the listing gains. Even non sophisticated investors, sans any working knowledge of the capital markets, knew that IPOs guaranteed gains, even though they did not assure allotment.

This was the scene at the time of high demand and low supply of shares. IPOs have always been over hyped for their listing gains, even though not for investment. It allowed companies to conveniently price their issues high, making good money in the market. And everybody was happy.

But the party did not last long. With the exodus of FIIs it appears that capital markets are not that interesting any more. Caution is the name of the game. Everyone is trying to sell or is stuck because they had bought at higher levels.

Who would believe that an infra IPO could not get fully subscribed? But it has happened to Emaar MGF, they have resorted to private placement for funding. At least this capital budgeting technique does not work on volatile sentiments, but on fundamentals.

http://economictimes.indiatimes.com/Emaar_MGF_withdraws_IPO/articleshow/2767016.cms

The biggest IPO (already devoted two articles in my blog) does not seem to find many takers. Banks are already bombed with stop payment orders. The IPOs suddenly appear overpriced.

How to expect next? The IPOs listed in this bear market will surely have a hard time. And listing gains may be a thing of the past.

I am not technical analyst, but I believe in the India story. Over the long term, the fundamentals look intact. Hence I will take every opportunity to buy…the FIIs wont knock before joining the party!!!

The jumbo offer

Last Friday’s big news was the offer of Microsoft to buy out Yahoo Inc for $ 44.6 bn; I heard somebody shouting it out in my office. I had no idea whats and whys of the breaking news, but it was big nevertheless.

So I decided to do some investigation. The news was probably big because of the amount involved..it was probably larger than the valuations the current price levels reflected. And yes, I was right! The scrip rose from $19.15 to $ 28.38 on Friday, giving it a jump of a whopping 48%!. In the volatile and sentiment stricken economy like ours, a 20% would have touched the upper circuit. But at 48%, it had to be something!!

The valuation at the end of Thursday was $26.45 bn, while it rose to $ 39.58 by the end of the week, still lower thMicrosoft’s valuations. Whats there in yahoo that Microsoft is after?

One of the apparent objectives appears to be to take on google, the fastest growing name in the industry. With its unique offerings and revenue models, google is leading the way; and is strongly challenging Microsoft’s dominance in the desktop market. With concepts of SaaS getting more prevalence, buying getting-obsolete-soon software may not find many takers, if google comes up with their offerings in a big way. This would seriously affect Microsoft that has held the PC market with its software for decades now.

Some changes are happing in the Microsoft’s front as well. Applications like CRM are finding their way on the Microsoft network on the web. Windows live is an initiative in that front. An interesting article on this move can be found here

The dealbook on New York Times gives an interesting perspective of what the deal can be. It can be read here

Interestingly, google founders Larry Page and Sergey Brin had offered Yahoo to buy it out, while the former was a startup, it was refused. The cyber world today would have been so different, had the deal got through. This is a juncture where the history of the Internet will be rewritten, and whatever happens, the Internet will not be the same again.

Candor anyone?

Yesterday we had a so-called “all hands meet”. There were people from the client side, and the honchos of the particular account tried to make a good show, despite all their gaucherie. but when it came to the so called human capital, they were asked to be present only to display the interest and dedication for the client and the local management. The usual presentations were followed by rounds of Q&A session…but no one tried to speak! I tried my hand at some of the so called future prospects, but it appears that my pointed questions were too blunt for their digestion. Then what is the objective of participation? Nothing but a facade of zeal.

Two days back someone told me about a meeting that was supposed to cushion the layoff blow; when rumors were prime that some shakeout was on the cards. But candid questions on the fairness of the selection were stifled at the root. Not a very nice thing to do: but so it happens.

Call it a cultural effect or a fear of getting reprimanded, I find this feature exemplary of lack of candor. Currently I am reading Jack Welch’s book on Winning, and he identifies lack of candor a serious impediment in the growth of any organization. Unfortunately the lack of candor is strongly celebrated in the environment where I am posted. There is always a majority speaking behind the backs, but are unable to put up in front of the bosses.

Why does the majority prefer keeping mum? Because that’s what has been taught to us since childhood. We should not call someone ugly, or fat or ineffective or … (include any negative word). We should be nice to others so that they can be nice to us. That’s quite a deal! It might help in the social set up, but definitely not in the corporate world, where your every action is accounted for.

It happens in big organizations, it happens where there is a legacy. But can it be changed? A difficult job, but a change agent can do it, if he/she gets a good deal of support. Unfortunately, those on the top do not like to hear what the junta has to say, so it can be a tough nut to crack!

volatile times

The stock market is being, and has been viewed akin to gambling. There are those who like to take risks: short term traders, traders in the F&O segment et al looking for a killing when they presume they can predict the trend. What they forget is to keep their personal downsides in control, or hell will break lose.

The stock market is a gamble to those who are lured by the growing numbers (the indexes, not the corporate results). Technical analysts tend to outperform the fundamentalists (if one would like to call them). But going by the tenet of Warren Buffet, looking for long term investments that have intrinsic value (and not value derived from the crazy bull run) gives the foundation to the stock.

It hardly makes sense to buy when the stock is on a peak, just as it is beyond commonsense to buy a depreciable item when it is expensive. But we humans, steered by greed and fear (both of which are vices as per the bible) lose all our common sense when it comes to making money.

I know there would be people around me who would say "I knew that, so I don't like to dabble in the stock market". Stock market is not necessarily bad; ideally it should reflect the performance of the companies. When it does not (remember the rising price earning multiples), the disaster is about to happen.

The largest IPO in the history of corporate India saw just too many takers; for they were driven not be logic or fundamentals (there isn't much to speak of), but by the fact that others are buying, so listing gains are as sure as the long term India economy. But they forget that when too many people are looking in the same direction, it can spell trouble. Yesterday, I came across a nice article that compared the unjustified valuation of Reliance Power with its competitors: NTPC and Tata Power. Its there in my previous entry.

In conclusion, I would say that invest in companies are out of favor in the market (contrarian approach), but have strong fundamentals. Trust the performance of the company, not the scrip.

RELIANCE POWER IPO ANALYSIS.

Got the following message from Tips4Trade. Interesting

---------- Forwarded message ----------
From: Tips4 Trade < tips4trade@gmail.com>
Date: Jan 22, 2008 11:45 PM
Subject: RELIANCE POWER IPO ANALYSIS.
To: Tips4Trade <Tips4Trade@googlegroups.com>

Now for all who have invested in the i PO... something to read !
Reliance Power Limited IPO

Opens: 15th January 2008.
Closes: 18th January 2008.

Price Band: Rs 405 to Rs 450.
Price Band for Retail Investors: Rs 385 to Rs 430. (Rs 20 discount).

Number of shares offered to public: 22,80,00,000 (22.8 crore).
+ Number of shares to be subscribed by promoters: 3,20,00,000 (3.2 crore).

Total new shares issued (sum of above two) = (26 crore)

Number of shares for retail investors: 6,84,00000. (6.84 crore).

Issue size (public) = (22.8 - 6.84) X 450 + (6.84 X 430) = 7182 +2941.2

= Rs 10123.2 crore.

Number of shares outstanding pre-IPO: 200 crore.
Number of shares outstanding post-IPO: 226 crore.

=======================================

Retail Investors and NII can apply with Rs 115 margin per share. (The details of this have already been discussed in earlier posts).

Maximum application possible in retail category = 225 shares.

=======================================

Already, a lot has been discussed about Reliance Power and its business (which will be there a few years from now).

This is an extremely rare case where SEBI has allowed a company with almost 0 revenues, to raise money via an IPO.

If this was an IPO by some smaller group, it would have been 100% rejected by SEBI for having no business.

=======================================

Business:

The company claims that it will be developing power generation projects of 28200 MW over the next decade.

According to the IPO RHP, some of the projects that it will be developing are:

Rosa-I (to be commissioned in March 2010) - 600 MW - Coal based.
Butibori (to be commissioned in June 2010) - 300 MW - Coal based.
Rosa-II (to be commissioned in September 2010) - 600 MW - Coal based.
Shahpur Gas (to be commissioned in March 2011) - 2800 MW - Gas based.
Shahpur Coal (to be commissioned in December 2011) - 1200 MW - Coal based.
Dadri (to be commissioned in March 2013) - 7480 MW - Gas based.
Krishnapatnam (to be commissioned in September 2013) - 4000 MW - Coal based.
Urthing Sobla (to be commissioned in March 2014) - 400 MW - Hydropower based.
Tato II (to be commissioned in March 2014) - 700 MW - Hydropower based.
MP Power (to be commissioned in July 2014) - 3960 MW - Coal based.
Siyom (to be commissioned in March 2015) - 1000 MW - Hydropower based.
Kalai II (to be commissioned in March 2016) - 1200 MW - Hydropower based.
Sasan (to be commissioned in April 2016) - 3960 MW - Coal based.

If

everything goes as planned, capacity of Reliance Power at end of each year till 2016 will be:

2008: 0 MW.
2009: 0 MW.
2010: 1500 MW.
2011: 5500 MW.
2012: 5500 MW.
2013: 16980 MW.
2014: 22040 MW.
2015: 23040 MW.
2016: 28200 MW.

=======================================

Other Similar Companies:

I can think of two companies in the power generation sector that Reliance Power can be compared with:

NTPC and Tata Power.

NTPC has current capacity of 28000 MW and has target to achieve 66000 MW by 2017. ( See this thread on NTPC).

Tata Power has current capacity of 2300 MW.
It will be adding 10000 MW of capacity more by 2012. Thus, it will have a capacity of around 12300 MW by 2012 end.
The additions will all be coal based.
-Mundra Ultra Mega Power Project -4000 MW.
-Power plants in Maharastra - 3000 MW.
-Captive power plants for Tata Steel - 2000 MW
-Maithon Power Plant at Jharkhand - 1000 MW.

Tata Power also has other smaller business and also wants to enter shipping and logistics. Besides that Tata Power has investments valued at Rs 400+ per share of Tata Power. This works out to be Rs 10000 crore.
Around 2012 - 2013, both Tata Power is expected to have similar capacity as Reliance Power.

The interesting thing is at current price of Rs 1457, Tata Power is valued at just Rs 30000 crore. Remove Rs 10000 crore of investments and you can have it only for Rs 20000 crore.

At Rs 900, Reliance Power will have market value of 200000 crores....6.67 times that of Tata Power. .

========================================

Financials:

With 2300 MW capacity, Tata Power made standalone profit of Rs 700 crore in FY 2007.

With 28000 MW capacity, NTPC made standalone profit of Rs 6900 crore in FY 2007.

Lets assume Reliance Power turns out to be much more efficient than these two companies. Add to that increased power rates.

With 28200 capacity, assume Reliance Power makes Rs 15000 crore of net profit in 2016-2017. Power companies are considered as utilities and worldwide trade at 10-15 times their earnings.

Lets assume 15 times ratio for Reliance Power in 2016.

What will be its market value?

15000 X 15 = Rs 225000 crore or Rs 995 per share.

This is an optimistic view:
-there will be no further equity dilution till 2016.
-assuming nearly twice as much efficiency as NTPC.
-that all projects will be completed before 2016 end.
-the company would have paid back all debt by then and interest costs would be in similar range as NTPC.

(NTPC already has established 28000 MW capacity and comparatively much lesser interest costs. (NTPC's P&L account states Rs 1800 interest cost for FY 2007).

So what about the debt?

The RHP mentions estimated cost of six projects Rosa I, Rosa II, Butibori, Sasan, Shahpur Coal, Urthing Sobla as Rs 30000 crore+.

Analysts estimate that Reliance Power will need Rs 70000 crore of debt to finance its projects which are estimated to cost 100000 crore+.

Rs 70000 crore of debt is not going to come at 2% interest rate. Even a 6% interest would mean an annual interest cost of Rs 4200 crore. Only in 2013, the company's capacity will cross 10000 MW. Thus, I do not expect any major debt repayment before 2014. If things don't go as planned, the debt burden will make a mockery of the balance sheet.

With Rs 12000 crore raised in equity and Rs 70000 crore of debt, these whole business will become a high-risk venture.

Any unforeseen delay/derailment of plans may create major problems for this company.

========================================

Reliance Power - The Overlooked Fact:

Is Reliance Power just "Reliance Power"?

No.

It is actually "Reliance Power Limited" - a limited company.

 So what does this mean for Reliance Power Limited?

It means if in the rare case, the calculations of the management go wrong and the company somehow goes to insolvency, none of the shareholders will lose anything expect the value of the shares.

If you are a share holder of Reliance Power and it goes into insolvency (unable to pay back debts), what do you stand to lose?

Rs 430 per share.

Lot of money....right?

What does Anil Ambani's AAA Project or REL lose?

Both of them had got their 45% (post-IPO) stake for Rs 1000 crore each. Plus they will each subscribe to 1.6 crore shares each at Rs 450 in the IPO......which works out to be Rs 720 crore.

Thus, AAA Project will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore and REL will be getting 101.6 crore shares of Reliance Power for Rs 1720 crore.

Little less than Rs 17 per share.

This is what both the promoters are risking in this project.... Rs 17 per share ; while investors will be risking Rs 450 per share.

This is exactly the reason why Reliance Power was created.

First, by contributing just Rs 1720 crore each to Reliance Power, the promoters have shifted all risk to investors.

Second, by getting 45% stake (in REL's projects) to AAA Project for a mere Rs 1000 crore, AAA Projects (and Anil Ambani) have created wealth out of thin air.

Anil Ambani's Rs 1000 crore investment will be worth Rs 100000 crore when Reliance Power lists at Rs 900.

If the gamble works, the promoters (holding 90% stake in Reliance Power) will be worth billions of dollars.

If the gamble doesn't work, the promoters will lose Rs 1720 crore each and investors will lose Rs 10000+ crore which they will be paying for a mere 10% stake in Reliance Power.

What a way to create wealth...!!!....I don't have words to describe the brilliance of Anil Ambani's plans... .

========================================

So what will I do with this IPO?

Firstly, I will subscribe to it,

not because I think it is a good company or is offering great value at Rs 430,

but because I am in this market to make money.

The markets are in such a frenzy, nobody bothers about valuations anymore........not even QIB and other institutional investors.

Everyone knows that Reliance Power will list at a premium and thus everyone will apply....valuations can wait for some other day.... .

Everyone should wait till last day and apply for it. Just check the subscription levels by 11 AM on last day.
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What will I do post-listing?

For bigger IPO's like Power Grid and Mundra Port, I have followed a sell-half-keep-half strategy.

Assuming listing at Rs 900, for Reliance Power, I will follow sell-all-keep-none strategy.

First, other companies are much cheaper.

Why should I keep a company valued at Rs 200000 crore -

when another company (with similar capacity by 2013) is available at Rs 30000 crore with much smaller debt burden and Rs 10000 crore worth of investments ...........referring to Tata Power.

If Reliance Power (at Rs 900) is available for Rs 200000 crore, why not buy NTPC for a similar price......Rs 225000 crore. NTPC plans to have a capacity of 66000 MW in 2017, while Reliance Power will have 28200 MW capacity in 2016.

Second, the risk is higher than other existing companies.

With marginally cash flows for next 5 years and Rs 70000+ crore of debt, the risk for Reliance Power is high. Tata Power and NTPC have existing cash flows to handle expansions....Reliance Power does not.

Third and the biggest factor is....the valuation of the company doesn't make much sense.

Why should Reliance Power be valued at Rs 200000 crore, when in highly optimistic scenario, it will not make more than Rs 15000 crore of profit in 2016 ? Even if it touches that figure of Rs 15000 crore, its market value in 2016 will not be much more than 225000-300000 crore. (if given a 15-20 times multiple).

A fixed deposit will make more money than that in 8 years.....and that too without any risk.

Also, I got the optimistic Rs 15000 crore figure by assuming two times margins as NTPC.

The fact is..... at least till 2014, Reliance Power will still be carrying most of its Rs 70000 crore debt and its interest costs will squeeze margins to a large extent.

========================================

Final verdict:

Apply.

I will be selling all shares at 9:55..........not even waiting for a better price.

If you want to try for a better price, hold at your own risk.

The level of insanity in the markets is at a high...

Value and risk mean nothing today..... price and profit are the keywords.

Who knows.....the stock may got to Rs 1100 or more.

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Addendum:

Reliance Power may win more projects in the future.

However, it is unlikely that any new project that Reliance Power gets will be commissioned before 2012. Additional projects will also bring additional costs too.

It doesn't make much sense to consider future projects before they are actually won.

Also, Reliance Power is winning projects by offering very low rates - another factor that will decrease margins and increase risks for the company.

For example, in case of Krishnapatnam Ultra Mega Power Project, Reliance Power won with a bid of Rs 2.33 per unit.

L&T had bid Rs 2.69 per unit and Sterlite had bid Rs 4.19 per unit. Such aggressive pricing may backfire if costs rise due to some unexpected factors

--
Thanks
Tips4Trade Team
www.tips4trade.com

Reliance Power

What happens when faith defies logic? The situation can be nothing less than crazy. With global interest shooing away from the stable economies to emerging markets, it’s the liquidity that plays.

Reliance Power has been the biggest IPO in the history of corporate India with Rs 7.52 lakh crore being thown in for a Rs 11,700 crore offer. In fact, it has made a world record. BSE Sensex, the bellwether index of the Indian economy tanked 1713 points, while investors were keeping themselves cash ready for the investment.

So bullish is the sentiment for a company that has not even started its operations! In addition, it plans to further raise capital from institutional investors, diluting the stake. The offer opened at a price band of Rs 420 – 450, with retail investors being shown the opportunity to invest with the maximum allowable amount by just paying 25% of the value. Further, they had an offer of a discount of 20Rs per share, as icing on the cake.

The NDSL and CDSL saw some 10 lakh demat accounts being opened in 5 days, again an unprecedented event. The offer was oversubscribed some 20 times in the retail segment, and how many would get allotted is anybody’s guess.

Why this euphoria behind the POWERful offer? In the recent times, the group has come up with IPOs like Reliance Communications and Reliance Petro; the latter being under construction at the time of the issue. Both managed to draw investors like a swarm of bees; and suddenly everybody has an interest (read:stake) in Reliance. Fundamentally speaking, the valuation cannot be justified without the presence of existing operational assets. Upon listing, the volumes will push the price levels to 900 or even 1000. One cant even look at the PE levels, since the E part is 0. Such is the faith on Anil Ambani’s management; he is already the 3^rd richest Indian.

IPOs in the recent times have been popular only because of the listing gains. REPL has no different story. Analysts caution that the absence of any operating history does not justify the current valuation levels, and should be used primarily for making money on day 1.

Valuation is yet another area of concern. “We are unable to accord any definite valuation to the company since it has no operational assets,” says Emkay. The brokerage adds that valuations are stretched based on an individual project-based DCF approach. Equitymaster believes that “other listed power generators are available at much attractive levels than REL Power (where there is no underlying business to calculate the valuations!)”.

This week’s fall is expected to be made up upon the share allotment and listing. I haven’t invested myself, for I preferred making good use of the fall and investing in the blue chips at lower levels.

The poster boy has an excellent marketer. Using dabbawallas for sending IPO forms has been unheard of. I happened to see IPO forms being available outside Churchgate station in Mumbai, but this attempt to reach the masses is an attempt to arouse investor (or consumer) interest.

We are waiting for the listing..But the patriarch must be smiling up there.

The Nano is here

Tata’s small car Nano has raised too many voices and too many inquisitive glances. It was a truly ambitious project, and a prototype itself has taken all the media attention since the opening day of the auto expo; currently on at Pragati Maidan.

What amazed me is the extent to which it has been able to be on the top of the minds of the junta. Last weekend, we had been out to Taki, a tourist spot at the Bangladesh border; and a (mostly) rural area. My blue Wagon R caught the attention of the folk; not because of the color or the fact that it is new: because it resembles (!!) the Nano!! I was awestruck when I heard someone talking if this car was a nano (which automatically implies that they have never seen a Wagon R before, and probably would put the same question on every hatchback that comes their way). They had no idea that the Nano is still to reach the market, or the bookings are yet to start; or even that it is much smaller; or it comes only in white, yellow and red. Initially I was disappointed to hear the people comparing my Wagon R (which is about four times the price) with the 1 lakh Nano; but ultimately I was simply amused, to say the least.

Tata’s are known to show the way; they did set up the first private sector steel plants in the country when India was still under the British rule. The Indica was the first diesel hatchback; giving stiff competition to Maruti and Hyundai. Ratan Tata would retire at the top of his career; and he would surely be remembered in the years to come.

About the economics now: everyone is talking about the little Nano. Its too cute in looks as well as price. It is encouraging the Indian mass to get a four wheeler; but at what cost? Jagdish Khattar commented that this car has opened up a new segment. It definitely has, and a migration from two wheelers to four is expected soon; leaving bike companies in despair. Undoubtedly, Rajiv Bajaj has made a smart move to join the bandwagon with a sub $3000 car. Maruti is also expected to come up with innovations that will compensate for the expected shortfall of revenues from Alto and 800.

For an individual jumping into the foray of a 1 lakh car, what other factors does he need to look into?

One time costs: Rs 130,000 (including insurance and road tax)

Monthly cost:

Garage: Rs 1000 [Parking on the road is an alternative, but the volumes are surely going to make the metropolitan authorities disallow such nuisance. Noida already has this rule]
Fuel: Rs 1500 [600 km / month; 20 kmpl; Rs 50 / lit – Fuel prices are set to rise, thanks to $100 barrel]
Maintenance: Rs 500
Driver, strongly applicable in non self driving place like Kolkata: Rs 2500

Total: Rs 5500.

Do we expect everyone to be able to afford this? Seems unlikely.

The major concerns are infrastructure and environmental. Without an adequate infrastructure in place, it would get very difficult to sustain this system. Road tax and registration are sure to fill up coffers; but without a good initiative to utilize the money, we are planning for an urban nightmare.

Some people like me would stop using cars for work if there is a good public transportation system.

Thomas Friedman rightly said in his New York Times article that India must not blindly copy the developed world.

Only time will tell what will happen once the Nano is out in the market. But rest assured, it will surely bring in quite a lot of excitement not only in India, but also in the world where the Nano would be exported.

Give me red!

I heard of give me red when it related just to eveready batteries...but there is more to red!

For Red seems to be the in thing now. The poor pug changed its colors from orange to pink, and now to red; after losing its master to the UK telecom giant. So while hutch has been suitably rechristened Vodafone effective 21^st September 2007; the company is now spending some 250 crores in its brand recognition exercise. The hoardings of Vodafone (and the red color) are as ubiquitous as the ongoing real estate projects at Rajarhat. Its competitor, Airtel was always in red (though its P&L statement is not). What differentiates the two telecom players now? Only the strength of the brand will tell; for telecom services are now commoditized.

Remember Red FM and Radio Mirchi…are both pretty reddish!

A wave of consolidation is hitting the airline industry as well. Captain Gopinath gave India its first low cost no-frills airline (I shouldn’t have used the hyphen!); the Air Deccan. But after years of being in blue and yellow (its logo), and its P&L deep in red; the airline is in for a major revamp. The blues would soon change to reds; if Vijay Mallya has his way. Yet it did not seem likely that a full service flyer (Kingfisher) could be associated with a low cost (and less reliable) Air Deccan. The latter has a presence in the B category cities, so Kingfisher would now have a slice of the pie as well. This acquisition is possibly good for both Deccan as well as Kingfisher, for it will help them leverage on each other’s competencies. But what about the brand image? While Kingfisher is elitist, Air Deccan (with its flaws) is for the common man. Being able to manage both the brands will be a tough job for the UB group.

Another forgotten airline has just got light-er. The acquisition of Air Sahara, and its amalgamation with Jet airways, has resulted in Jetlite, the low cost airline. In fact, a cursory comparison of the prices reveals that jetlite is a bit cheaper than most of the low cost airlines. Call it a consolidation; or competition; the consumers are laughing their way to the airport (giving airport authorities nightmares)

Web 2.0

There was a book fair at my office premises, and they were selling Britannica encyclopedia CDs for a handful of thousand rupees. I was taken aback and wondered why on earth who would like to buy these CDs, when I have an option of wikipedia! A friend didn’t seem to like my view, and added that it is a trusted source of information (an artifact!) and I could use it offline (Am I ever on a computer and offline?). I didn’t want to get into an argument for she found some emotional (!!) value..I had no comment!

Looking back, did I ever need an encyclopedia? School days were best spent on study books (they were more than enough), and college had a library. Work life gave me the need to search, and I ended up googling to find real time info, with varying details. Wikipedia happened to be a profound source of information, and it has been getting richer ever since.

Little did I realize that I had actually started being a part of web 2.0; a phenomenon that took the virtual world by the storm. The wikis, web services, blogs et al are facets of this new way of the web. SaaS, or software as a service has only increased our dependence on the internet. It isn’t long when it was considered that the Internet is only good for business or “wasting time”. Some companies still forbid usage of Internet from offices, citing productivity losses!

So what’s web 2.0? Historically, the concept of "Web 2.0" began with a conference brainstorming session between O'Reilly and MediaLive International in 2004. We are progressing towards the web being a platform, applications wont stay at your PC any more, they would be somewhere in the multidimensional databases, you access them over the Internet.

Google has already taken a few steps towards making the web a “better place”. Look at the multitude of applications from Google, they don’t sell software anymore, they sell services. The concept of web services is central to the theme of web 2.0.

Wisdom of Crowds

Amazon.com’s competitive advantage comes not from its existing catalog of books, but on its user engagement. Wikipedia is managed by individuals, who do not want to be seen as trouble causer. Orkut is a network of individuals, who like to keep in touch. The fact that humans love collaborating is corroborate in the number of existing orkut users (these days they have stopped showing the number of users, but its close to a billion)
Blogging has created many writers (including me). These are just extensions of personal web pages, but what differentiated blogs from personal web pages was the ease of publishing (and subsequent end user popularity). The world of web 2.0 is one in which audience decides what’s important, not a few people in the back room. Call it a democracy in the cyber world!

Web 3.0 is the next thing. We do not know how big a buzzword it will get, but rapid development (and acceptance) of technology, coupled with user participation will create the virtual world a better place (or a chaotic place, it’s too early to guess)

Financial education

Have you heard of the term “financial education”? Nor have I. A google search term brings up a few links that talks about federal agencies, financial aids and some sophisticated terms that a layman would loathe to consider. And these are centered around US only.

But why are we concerned? Do we have enough money that we need to plan? I would say that a proper plan is necessary for anything and everything, even if its going out to watch a movie..but there is nothing called movie education!! Then why financial education in the very place? We are not bankers!

A financial education is as important as the need to know the road signs. The other option is to stay cocooned in your own world, without any concern of what’s going on around you. Stock Markets? That’s a gamble! Mutual funds? I don’t understand..

Today’s India cannot afford to live without financial education. The presence of ubiquitous promising you the world, insurance policies that will secure your post-death experience (wow); loans that will make you a home owner (???), car owner (!!). A result of this is that the fine print is skipped, misunderstood, leading to hassles, cries and problems all over.

The fault likes with India’s education system. While we were young, we got the impression that having money is “bad” and being rich is akin to looting the unprivileged. Being poor was “cool”. Watch the hindi movies of pre 80s, you will get the hint. India was grappling with the communist philosophies that didn’t allow growth for 4 decades post independence. Communism failed, and high fiscal deficit forced India to open up, and changes have been happening ever since.

India’s financial system got more sophisticated, and NSE is now the world’s third largest stock exchange in terms of volumes. But the sophistication is centered on the people in the financial arena (who make sure others didn’t understand them). Today most people fail to comprehend the basics of finance, but they deal with money every day. (Remember the high rates of interest charged by the money lenders a couple of decades ago, today they have assumed the form of credit card institutions, notably banks).

Financial education must be imparted at a very early age. I hardly had any idea till I actually handled my own money (that was just because I put in some effort to understand). Many in my workplace still don't! In India, even today, money is considered sacred (and any manipulation of money a heinous crime). Children are never taught how to handle money.

With India going forward, it is only imperative that the intellectual levels of the mass has to increase. Schools should take initiatives to increase the level of awareness, for as they say “catch them young!”.

Where does the direct model work?

Selling direct has always been the hallmark of Dell. From a school dormitory, the company has come a long way to being a $ 60 billion enterprise.

Currently, I am reading the book “Direct from Dell”, by the CEO himself. He saw the advantages of going direct, in reaching out to the end customer by passing the middlemen. It was an unconventional approach then. But it worked, and as he mentions, it was too obvious that this would work, for what more could people ask for, when they were getting better value at a lower price?

Catching on the wave of Internet, Dell has expanded all over the globe, with region specific customizations. I had heard, read and understood the Dell model a few years ago, but I used to wonder why wasn’t it in India, the fastest growing economy in terms of IT?

I realized that going direct may not be the ultimate way of selling a product. And the fact remains that not all products can be sold direct to the end customer. When a customer feels okay to wait for 4-5 WEEKS before getting a desktop/laptop, this model can find an acceptance. This model can even work for some other white goods as well. But I understand that in this model, production starts after the product has been customized, so you have tailor made products, albeit with a delay. Not all products can (or needs to) be customized!

People have the urge for seeing and touching the products before buying them. In such a situation, the Internet or telephone is an impersonal channel. Emotional that the people are, they would not like being treated as just another call or an order no..they like to see someone in person, who would remember their name, or their last purchase..something a cookie (on the Internet) cant do that well.

In India, people in general have a general trust on the owner / dealer, rather than the brand. Poor levels of service, coupled with lack of information leaders to greater dependency on the dealer. So the role of the sales channel becomes all the more important.

How many people know about a call center, and what good it can do? And to top it all, waiting for twenty minutes listening to “your call is important to us” is far from satisfying. They would rather take their product and dump a defective product on the seller’s table; implying that it’s their headache now, since they have taken money!
A direct channel can work where the customer doesn’t mind making an advance payment, by her credit card on the Internet / telephone. It gets even more difficult when the concept of going online has only caught on at the elite level. For the majority in India, its just another piece of sophisticated equipment which they don’t understand, leave out exploit the opportunities it provides.

Going towards sophistication, a direct model can work when the consumer KNOWS what she wants to buy. For a complicated equipment like a computer, it may not be an easy task. Peer pressure reins supreme, rumors fly, and one might end up buying something they may not have wanted. But everyone knows some expert in the area, and their recommendations will be worked upon. Often sales persons double up as consultants, which is why the sales channel becomes all the more important.

Possibly these are the reasons for the late entry of Dell into the Indian market, which is quite different from the rest of the world. I found that www.dell.co.in does not have adequate varieties like the www.dell.com does, probably because of limited manufacturing capabilities. With increased awareness (read sophistication), Dell will get more popular in India, provided they keep prices low enough to grab attention!

subprime market - jittery effect

With inputs from:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/17/MNHSRK67M.DTL&tsp=1

A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders due their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

The great mortgage crisis of the summer of 2007 has slopped over into nearly every nook and cranny of the financial markets, laying low stocks that until a month ago had been on a great bull run.

On Thursday, U.S. stocks took off on a wild ride, the Dow Jones industrial average falling as much as 343 points in midday trading before recovering and finishing at 12,845.78, down just 15.69 for the day. At the day's lowest price, major market averages were 10 percent below highs posted a few weeks ago, a fall that would qualify as a correction.

Despite Thursday's rebound, stocks remain vulnerable, analysts caution.

The reverberations from the collapse of the subprime mortgage market have yet to fully play out, they say. The global investment market is more tightly interlinked than ever before. Troubles in one corner, such as mortgages, have profound ripple effects on investments such as technology stocks, gold and oil, which seem far removed.

"This is classic financial contagion," said Russ Koesterich, a portfolio manager at Barclays Global Investors in San Francisco. "You've got people in multiple markets. Losses in one force them to capitulate in others."

So far, the main actors in the stock market sell-off have been institutional investors and big money managers, many of whom specialize in risky and complicated investments. Retail investors have mostly sat out the selling spree of the last few weeks, market watchers say.

The root of the problem lies in tectonic shifts in financial products in recent years.

Exotic financial products created from mortgages in the last decade or so are being tested for the first time in a market crisis, pushing investors into uncharted territory. No one knows the full extent of the losses caused by the failure of a mushrooming number of subprime mortgage borrowers to pay back their loans.

A mortgage made in, say, San Jose gets sliced and diced - some of the interest payments are packaged as securities and sold to an investment fund in New York, and part of the principal is put into a security sold to a bank in Germany. When the borrower stops paying the monthly mortgage, the investors lose income. What's more, they can't sell those exotic mortgage securities because no one knows what they're worth.

"People have been moving into new territory," said Zachary Karabell, a portfolio manager with Fred Alger Management in New York. "It's a complex system that nobody fully grasps."

The mortgage investors suddenly face a desperate need for cash - perhaps to pay back margin loans they took out to buy the securities in the first place or maybe to pay off big clients who are yanking their money as fast as they can.

What makes this crisis so hard to measure is that trillions of dollars worth of U.S. mortgage securities have been sold around the world, in many cases to hedge funds, those secretive, largely unregulated investment vehicles that don't have to disclose their finances.

In recent years, institutional investors largely stopped paying attention to the risks of buying mortgages made to people with bad credit records. Suddenly, they have become allergic not only to subprime mortgages but to almost any kind of risk. That means all borrowers - from a consumer who wants a home equity loan to a hedge fund that wants to finance new investments - must pay more for money.

That's a key connection to the stock market. Hedge funds and other big institutions that need cash can't borrow easily. Instead, they've been selling anything that isn't nailed down, whether it's crude oil or shares of hot technology companies.

The process feeds on itself. Because exposure to bad mortgages is so hard to calculate, a wide array of lenders, financial institutions and banks fall under suspicion. Rumors fly.

Rumors have their share in EMs (emerging markets) as well. The interlinking of markets has created a behemoth of a financial system, where ripples spread every where, including countries like India.

The volatility is measured from the option prices, and these reveal that over the years, volatility is actually declined. There is a reduction in the debt-equity ratio of companies, resulting in stronger equities. The fundamentals are strong, so we can be bullish in the long term. Short term jitters will keep happening..just ignore them, and use such falls to buy!

Its a networked world!

I happened to scan through a HBR article on the importance of networking. Before I could read through the 9 pages of text and illustration and comprehend what the stalwarts mean, thoughts gazed through my mind, and I thought that its better to put them down. I can read the article later, anyway.

What is networking? Being a part of a society, an individual is forced to interact, and take help of others. A standalone human doesn’t survive for long. The same rule applies in business as well. Networking is a form of interacting, and keeping good relations with those that matter in business.

One may be tempted to say “I have no business networking, I’d rather concentrate on my work!”. Its undoubtedly true that focusing on the core competencies is what Hamel and Prahlad would like you to do; yet looking around you, understanding whats happening and whats not (after all, one needs to spot opportunities as well) requires a good deal of networking.

I have often come across people who do not like meeting others, or for that matter, meeting too many people. Meeting too many people is like creating a shelter, you never know whom you will need. It doesn’t make business sense to have too many enemies, for the animosity will get the better of you any day.

In the work that I do (that becomes by core competence), I often have to interact with the other teams for gaining knowledge, and getting their help in solving the client’s problem. After all, the ultimate objective of my effort is to make my client happy, and thereby develop rapport (a flavor of networking), and lead to my own growth. Getting other’s help and helping others is the process of unlocking the potential hidden within us. Together, we know much more than each of us do, or possibly can know. Its true that synergy adds value, and I can come to know that 1 + 1 >> 2. Why? Because of the immense potential hidden between individuals, or teams as the case may be.

So why not network? Why is it that people still do not like to do it? There are various reasons, all emanating from the human psychology. We do not network because we fear our inabilities will be out in the open, we are scared of being mocked at. We fear that others will take advantage, and leave us high and dry. And most importantly, we do not network because we simply don’t “feel like it”.

I hope I would be reading through the HBR article now, and getting some more sensible ideas.

Too little

From Business Standard article Not really. Sometimes that is just what the customer wants.

Unfortunately, it is all too common: dreams and aspirations move to the back seat when confronted by the urgency of meeting day-to-day needs and other, more practical priorities.

But Fullerton India Credit takes the contrarian view and says it doesn’t have to be like this. The new non-banking finance company made that clear with its first ad campaign a few weeks ago.

Launched in phases — in Tamil Nadu and Andhra Pradesh from the second week of June and up north a fortnight ago — the two television commercials show families satisfied that their small wishes have been fulfilled. One film has a young child going to bed smiling in anticipation of a summer holiday in Delhi — earlier he was dreading having to lie to his friends when school reopened.

Another shows a teenager looking up with pride at his father’s newly spruced-up shop — he had been ashamed of the earlier, run-down kirana store. The message is clear: financial assistance from Fullerton made these dreams possible. The tagline underlines that: Humse kariye dil ki baat (Tell us what’s in your heart).

Formally launched in January 2006, Fullerton is a subsidiary of Asia Financial Holdings, which in turn is a subsidiary of Singapore’s Temasek Holdings. It lends to individuals and businesses from the middle- and lower-income groups — a section that the company believes has not been catered to sufficiently by other financial institutions.

Of course, there’s a good reason for that: very often, such people don’t have the credentials banks and financial institutions need to sanction loans. They lack proper documentation and proof, can’t offer suitable collateral and don’t really come under the radar all that often.

Fullerton is trying to reach out to this group through a relationship-led and community-based model. It focuses only on customers within a 5 km-radius of its branches; relationship managers make house calls and speak with potential customers about their financial requirements.

Going by the company’s expansion, the model seems to be working: from 25 pilot branches, Fullerton now has 275 offices in 18 states. The growth explains the strategy behind launching the campaign now: the time was right. “We have reached a mass where we need to build the brand,” says G S Sundararajan, CEO and MD, Fullerton.

The theme of the campaign was decided after careful, qualitative research a couple of months before the account was handed to Ogilvy & Mather, Fullerton’s agency since the start of operations.

The findings weren’t surprising: among the lower and middle income groups, financial security and future planning take precedence over “frivolous” pursuits.

Which means investing in pension plans and your child’s education is higher priority than revamping the store or going on holiday. The message Fullerton wanted to convey was easily decided, therefore: with a little help from us, you can do both.

Armed with the findings and timeliness of reaching out to people after a successful stint in business, the company launched its brand-building exercise with a press campaign in March, followed by radio spots in 15 cities in April.

The TVC was broadcast first in Tamil Nadu and Andhra Pradesh — Fullerton has 90 branches in the two states. Naturally, then, spots on regional language channels such as Sun TV, Eenadu and Raj TV were priority, but the campaign is also on air on mass channels such as Zee, Sahara and Sony.

Shot in Mumbai, the 60-second films — with 45- and 30-second edits — aided in breaking away from the short-and-quirky-ads clutter and were a blatant play on emotions.

“But that was essential,” explains Anup Chitnis, group creative director, Ogilvy & Mather, Mumbai, “We are talking to a section of people who do not have a very good understanding of finance. For them it is about their dreams being fulfilled.”

Interestingly, the same team at O&M had been responsible for State Bank of India’s “Surprisingly SBI” campaign — a completely different approach using humour to target younger people.

With a marketing and advertising budget of Rs 14 crore, the campaign will now continue with fresh radio spots in the coming weeks as well as extensive below-the-line initiatives such as banners, billboards and posters, strategically near the branches.

Print ads, though, will be limited and appear only in vernacular newspapers. Both the company and the agency claim that initial reaction to the campaign has been heart-warming.

The general impression of Fullerton’s target customers is that they slip through the gaps in mainstream institutional lending — they aren’t the poorest of the poor who qualify for microlending initiatives, nor are they the regular, income-tax paying professional who is the focus of most banks’ personal lending programmes.

They are the small traders who run the store with their brothers, the junior employees who are paid salaries that are exempt from income tax, or the first-generation entrepreneur who doesn’t maintain his account books religiously.

It was important, therefore, to keep the message simple — and emotional. “That’s how it works. Our branch employees belong to the same region and culture as the people to whom they lend,” says Sundararajan.

This homogeneity, Fullerton claims, makes it easier to assess the loan seeker; of course, there are the usual risk-assessment exercises as well.

Loans are disbursed under two schemes. “Parivaar” caters to the salaried class and includes products such as unsecured product loans, secured loans, home finance and home equity.

“Vyapaar” focuses on small businessmen, entrepreneurs and traders with a turnover of under Rs 2 crore. Fullerton offers loans of Rs 10,000 to Rs 1 lakh, at interest rates of 1.5-3 per cent a month. The company also sells third-party insurance and has plans to launch its own mutual funds products.

With a loan portfolio of Rs 1,500 crore and plans to more than double that by end-2007, Fullerton is also aiming for 1,200 branches in the next 12 months. But what about competition from the unorganised market and giants such as GE Money, Citifinancial and HSBC Pragati? After all, they have been in the market far longer. “I am sure they are doing well,” says Sundararajan.

“But the market is large enough to accommodate us extremely comfortably.” He points out that dipstick surveys among the target audience shows that although people know about these rival companies, they have little knowledge about their offerings and products.

Then, Sundararajan adds that Fullerton has an edge: physical proximity to the customer, compared to the others who concentrate more on the metros. That also helps in keeping the heart-to-heart chats going.