Nimesh Marfatia in Indian Express (National). 31st Jan 2010.

http://epaper.indianexpress.com/IE/IEH/2010/01/31/ArticleHtmls/31_01_2010_010_002.shtml?Mode=1.

Thanks,
Nimesh.

"Have Breakfast… or…Be Breakfast!" By Y. L. R. MOORTHI

[Management Views from IIMB is an exclusive column written every two weeks for india.wsj.com by faculty members of the Indian Institute of Management Bangalore.]

Who sells the largest number of cameras in India?
Your guess is likely to be Sony, Canon or Nikon. Answer is none of the above. The winner is Nokia whose main line of business in India is not cameras but cell phones.
Reason being cameras bundled with cellphones are outselling stand alone cameras. Now, what prevents the cellphone from replacing the camera outright? Nothing at all. One can only hope the Sonys and Canons are taking note.


Try this. Who is the biggest in music business in India? You think it is HMV Sa-Re-Ga-Ma? Sorry. The answer is Airtel. By selling caller tunes (that play for 30 seconds) Airtel makes more than what music companies make by selling music albums (that run for hours).


Incidentally Airtel is not in music business. It is the mobile service provider with the largest subscriber base in India. That sort of competitor is difficult to detect, even more difficult to beat (by the time you have identified him he has already gone past you). But if you imagine that Nokia and Bharti (Airtel's parent) are breathing easy you can't be farther from truth.


Nokia confessed that they all but missed the smartphone bus. They admit that Apple's Iphone and Google's Android can make life difficult in future. But you never thought Google was a mobile company, did you? If these illustrations mean anything, there is a bigger game unfolding. It is not so much about mobile or music or camera or emails?


The "Mahabharat" (the great Indian epic battle) is about "what is tomorrow's personal digital device"? Will it be a souped up mobile or a palmtop with a telephone? All these are little wars that add up to that big battle. Hiding behind all these wars is a gem of a question – "who is my competitor?"


Once in a while, to intrigue my students I toss a question at them. It says "What Apple did to Sony, Sony did to Kodak, explain?" The smart ones get the answer almost immediately. Sony defined its market as audio (music from the walkman). They never expected an IT company like Apple to encroach into their audio domain. Come to think of it, is it really surprising? Apple as a computer maker has both audio and video capabilities. So what made Sony think he won't compete on pure audio? "Elementary Watson". So also Kodak defined its business as film cameras, Sony defines its businesses as "digital."


In digital camera the two markets perfectly meshed. Kodak was torn between going digital and sacrificing money on camera film or staying with films and getting left behind in digital technology. Left undecided it lost in both. It had to. It did not ask the question "who is my competitor for tomorrow?" The same was true for IBM whose mainframe revenue prevented it from seeing the PC. The same was true of Bill Gates who declared "internet is a fad!" and then turned around to bundle the browser with windows to bury Netscape. The point is not who is today's competitor. Today's competitor is obvious. Tomorrow's is not.


In 2008, who was the toughest competitor to British Airways in India? Singapore airlines? Better still, Indian airlines? Maybe, but there are better answers. There are competitors that can hurt all these airlines and others not mentioned. The answer is videoconferencing and telepresence services of HP and Cisco. Travel dropped due to recession. Senior IT executives in India and abroad were compelled by their head quarters to use videoconferencing to shrink travel budget. So much so, that the mad scramble for American visas from Indian techies was nowhere in sight in 2008. (India has a quota of something like 65,000 visas to the U.S. They were going a-begging. Blame it on recession!). So far so good. But to think that the airlines will be back in business post recession is something I would not bet on. In short term yes. In long term a resounding no. Remember, if there is one place where Newton's law of gravity is applicable besides physics it is in electronic hardware. Between 1977 and 1991 the prices of the now dead VCR (parent of Blue-Ray disc player) crashed to one-third of its original level in India. PC's price dropped from hundreds of thousands of rupees to tens of thousands. If this trend repeats then telepresence prices will also crash. Imagine the fate of airlines then. As it is not many are making money. Then it will surely be RIP!


India has two passions. Films and cricket. The two markets were distinctly different. So were the icons. The cricket gods were Sachin and Sehwag. The filmi gods were the Khans (Aamir Khan, Shah Rukh Khan and the other Khans who followed suit). That was, when cricket was fundamentally test cricket or at best 50 over cricket. Then came IPL and the two markets collapsed into one. IPL brought cricket down to 20 overs. Suddenly an IPL match was reduced to the length of a 3 hour movie. Cricket became film's competitor. On the eve of IPL matches movie halls ran empty. Desperate multiplex owners requisitioned the rights for screening IPL matches at movie halls to hang on to the audience. If IPL were to become the mainstay of cricket, as it is likely to be, films have to sequence their releases so as not clash with IPL matches. As far as the audience is concerned both are what in India are called 3 hour "tamasha" (entertainment). Cricket season might push films out of the market.
Look at the products that vanished from India in the last 20 years. When did you last see a black and white movie? When did you last use a fountain pen? When did you last type on a typewriter? The answer for all the above is "I don't remember!" For some time there was a mild substitute for the typewriter called electronic typewriter that had limited memory. Then came the computer and mowed them all. Today most technologically challenged guys like me use the computer as an upgraded typewriter. Typewriters per se are nowhere to be seen.
One last illustration. 20 years back what were Indians using to wake them up in the morning? The answer is "alarm clock." The alarm clock was a monster made of mechanical springs. It had to be physically keyed every day to keep it running. It made so much noise by way of alarm, that it woke you up and the rest of the colony. Then came quartz clocks which were sleeker. They were much more gentle though still quaintly called "alarms." What do we use today for waking up in the morning? Cellphone! An entire industry of clocks disappeared without warning thanks to cell phones. Big watch companies like Titan were the losers. You never know in which bush your competitor is hiding!


On a lighter vein, who are the competitors for authors? Joke spewing machines? (Steve Wozniak, the co-founder of Apple, himself a Pole, tagged a Polish joke telling machine to a telephone much to the mirth of Silicon Valley). Or will the competition be story telling robots? Future is scary! The boss of an IT company once said something interesting about the animal called competition. He said "Have breakfast …or…. be breakfast"! That sums it up rather neatly.

—Dr. Y. L. R. Moorthi is a professor at the Indian Institute of Management Bangalore. He is an M.Tech from Indian Institute of Technology, Madras and a post graduate in management from IIM, Bangalore

Banking Sector overview.

What is Bank:
A bank is an entity that is engaged in operations of depositing and lending the money. Channels used by a bank for conducting its business are Branch, Electronic (Netbanking), Phone, Mail, Direct sales and brokers and agents. Different lines of business (Engines) of banks are Core Banking, Insurance, Asset Finance, etc as shown below.

Source: http://www.howbankswork.com/images/framework1.gif

Primary operation of Bank:

1. Accept deposit
2. Lend money
3. Invest.

Secondary operation of Bank:

1. Demand Drafts.
2. Issuing Letter of Credit.
3. Bank Guarantees.
4. Forex Transactions.
5. Safe Deposit Lockers.
6. ATM Debit Cards.
7. Credit and other plastic cards.


Banking Sector:


Banking sector in India is growing and it is very well governed by RBI (Central Bank of India). In India there is lots of Mergers and Acquisitions happening in the banking sector. Small banks are taken over by the large banks to increase their business and use its operational efficiency for scaling the business.

Indian economy is growing and a growing economy requires strong banking system. In 2008 the Indian economy grew at 7.1%. We are expecting a growth of 6.8% in 2009. Our Banking system is very strong and well governed. It is because of this strong system, we were able to face the Global recession and Sub Prime issue in US in a much better way. Indian Banking sector is recognized across the world.

Data Source: World Bank.

If an economy is growing, it means that the Industries in the economy is also growing. Thus it will result in increase in Banking business as companies will require funding from Banks. Indian Banks are growing strongly every year. Banking firms are generating high profits every year and growing every year.

Competition is also growing in this sector as there are many companies who are targeting same customers. But this competition is required for the sector as it is keeping the interest rate low and at par with all other banks. If they increase the rate the customer has many other options, hence the business will go to other company. What customer wants from bank is personalized service. This factor has become the key for getting customers.

Key Points:

1. Supply: Liquidity is controlled by Reserve Bank of India (RBI).
2. Demand: India is a growing economy and the demand for the credit is high though it could be cyclical.
3. Barriers to entry: Licensing requirement, investment in technology and network.
4. Bargaining power of suppliers: High during the period of tight liquidity.
5. Bargaining power of customers: For good creditworthy customers bargaining power is high due to availability of large number of banks.
6. Competition: High between public sector banks, private sector banks and foreign banks along with Non Banking Finance Companies (NBFC).


Ratings and Balance Sheet size of Banks in India:


Overall Banking Sector size is approximately Rs. 52.519 lakh cr. Some of the fasted growing banks in India are SBI, ICIC, HDFC, Bank of Baroda, etc.
 
Important data on Banking Sector:


• Q3 GDP growth of Banking sector is 6.8% in 2009.
• RBI’s projection for credit and deposit growth for FY10at 18%.
• Strong capacity utilization in sectors like Auto, Steel, cement, real estate, etc.
• CRR: 5.75% as per RBI policy declared on 29th Jan 2010. Increased by 75 BPS.
• Repo Rate: 4.75%; Reverse Repo: 3.25%.

Inflation in India is increasing and its reaching 7%. Hence there were some changes expected in the Banking sector in order to curb the excess liquidity. Changes in the CRR (Cash Reserve Ratio) and Repo rate were expected. On 29th Jan 2010 the RBI increased the CRR rate by 75 BPS from 5% to 5.75%.


Indian banks enjoyed high level of money supply, credit and deposits as a percentage of GDP in FY09 as compared to FY08.

Thanks,
Nimesh.

Nimesh Marfatia in Sakaal Times - microSCOPE 2010.

Coverage of microSCOPE in Sakaal Times - 29th Jan 2010. In Picture from L-R Mr. Sunil Vitkar (Owner - Aditya Snacks), Nimesh Marfatia (Student - Europe Asia Business School), Ms. Uma Ganesh (CEO - Global Talent Track Pvt. Ltd.).

*Due to limitations of space the tables might cross the screen size, you can click on the table to view the complete table.

Thanks,

Nimesh

Micro Entrepreneurship Exercise - micro SCOPE 2010 @ EABS.

Have we ever imagined, how does a micro entrepreneur (Tea Stall, Wadapav, Sandwich, Dosa, etc . vendor) manages his business?? How does he plan his business activities?? How does he takes important decisions?? How he generates and manages profit, Etc.. Doing a business after learning Management is not an easy job. Just imagine what will the situation be, if one does a business without knowing management. To understand this situation, we got an assignment from our college to spend a day with a micro business. The background of the assignment is given below:

Background: The assignment requires each 1 year PGPM student to adopt a small or a micro business which they will be observing very closely in order to get an insight into the functioning of the business. The size of the business setup has been deliberately chosen to be small so that it is easier for the students to get overall knowledge of the end-to-end business. During the end of the process students can create a value proposition for the business to help him in moving up the value chain.

Duration of the Initiative: Four Months – 1st Jan – 30th April.
Day of Operation – 28th Jan, 2010 morning till closing hours.

I had selected a micro business (Aditya Snacks) located at Viman Nagar in Pune. I started my day at 8 am in morning. The stall opens at same time and we had a calculation of inventory that was brought over for the day. The team was ready and started preparing the food items. Items prepared were (Wada Pav, Idli, Poha, Upma, Tea, Dosa, Medu Wada, Dal Wada, Utapha).

The preparations were made in batches, so that they could stay for 1-2 hours and once it gets over the next batch of food was prepared. We started getting customers from 8:30 am. This stall is quite known for the breakfast and most of the customers come to the stall between 8am -11am in morning and 4pm – 7 pm in evening. The batches that were prepared during this time was in higher quantity.

I was surprised to see the system in which the things were take care at the stall. It was professionally managed and the service was quick which the customers were enjoying it. Goods more than Rs. 50 were sold on an average every minute during the peak hours.

I had collected some statistics from the owner and the details are given below:
 Average Daily Turnover of the stall was Rs. 10500. Below is the list of the item and its quantity that are sold on an average on daily basis.

 
 
 
 
 
 
 
 
  
 

 The stall is opened 6 days a week. And thus the monthly turnover approximate is Rs. 221520 (Rs. 8520*26 days).

 Stall was started in year 2005 by Mr. Sunil Vitkar taking into consideration the IT park developed (Giga Space). He was able to identify the potential of that area before taking this decision.
 He made an investment of Rs. 2.5 lakh (self financed) for beginning this stall. All the assets are owned by the owner and it is not leased.
 5 people are employed by the Snacks stall and salary of Rs. 30K is paid monthly.
 Return on Investment is 30-40 % annually.

The owner Mr. Sunil wants to expand his business and has a vision of starting his hotel one day. I liked the passion he has and also his vision. We management graduates are taught about this. Mr. Sunil has studied till Std 10th i.e. S.S.C. only. He still manages his business well with limited qualification due to some constraints. He also gets involved in the work if any employee is not available.

We calculated the inventory and cash collected at the end of the day. The details of inventory are as given:

 
 
 
 
 
I was surprised to see the accuracy of the inventory prepared. Materials worth Rs. 83 were only wasted at the end of day. The waste was only of 0.97%, which is great.





I did SWOT Analysis for the stall with the help of the owner and the result are as below:

Strength:
 Variety of Food items.
 Location of Stall.
 Competitive price.
 Quality of food items.

Weakness:
 The stall is on Road and some potential clients might underestimate the quality of food items.
 Capital required for opening a hotel is not available.

Opportunities:
 Start Canteen services (snacks) in companies.
 Tiffin services for companies.

Threat:
 Competition from other vendors on road.
 Competition from fast food hotel in the area.
 PMC Attacks.

Suggestions given by me:
 Clean the premises of the stall.
 Put plastic bag in the dustbin and dump the same at the end of day.
 Prepare a Menu Card and Display it on the stall and on the road where the stall is located.

 Start preparing Dosa’s in butter and charge the cost to the customer.
 Increase the variety of Dosa’s and Utapha’s. ( Mysore Dosa, Cheese Dosa, etc.)
 Play soft music (not songs) during the daytime and in evening.
 Start supplying the snacks to canteens in companies of IT park.

From my observation and learning, I found that there is a huge potential for the micro entrepreneurs to grow in this country. But this is not legal in our country and thus these people face problems and have to bribe the BMC’s to maintain their business. Overall, it was an interesting experience and great learning. I thank my college for giving me this opportunity to work with micro entrepreneur and understand their way of doing business with limited resources. They are still able to make profits out of these limited resources.

I will definitely use the important learning in my own venture. Its very important in today’s scenario to reduce the cost and generate the maximum profits with the limited resources.

Thanks,
Nimesh.

Stock Picks - Please read disclaimer in Earlier Posts

Dear All,

I know that the subject line reads “Play it safe” but that does not mean that you do not play at all in the markets. I write this because I know for a matter of fact that most of the traders & investors on this list stayed away from buying in the markets yesterday even after we suggesting a strategy to invest in this market. The strategy of 10%x10 was for the weak hearted and you should modify this strategy based on your risk taking abilities. Everyone who shied away from the market at 8000 or lower levels on the Sensex was repenting all through 2009 & finally when you came to the party by late October/November the prices had already sky rocketed. Remember that every dip in this market is actually a long term buying opportunity.

We have a major advise for you’ll i.e. first define if you want to be traders in the market or rather be investors in the market. Here are a few thoughts that will help you decide your stand in the market.

• Investors do not back out of stocks with just a 10% gain as against a trader who is happy with even a 1% gain off the stock
• Investors think long term (beyond 6 months at the very least) and are willing to average at lower levels if the stock falls in price as against a trader who get out of the stock if the price falls below his stop loss levels. A trader is mostly unwilling to average the stock he purchases.
• Investors play it safe and buy stocks with good fundamentals & research as against traders who are more than willing to buy anything that will show them the money.
• Traders play on small profits but multiply them with large number of buys & sells as against investors who generate fewer buys & sells but play it for larger profit %s. For e.g. a trader would have bought Reliance / Reliance Infra / SBI and several other stocks had at least a 1% gain opportunity within the day itself as against an investor who would have either averaged his stock or triggered a new buy.

Hope these points give you enough to decide your stance and in the market and make your life simpler in deciding when to enter as well as when to exit the market.

Getting back to our markets, we believe that there is heavy selling pressure hitting all the markets globally. Any company posting a bad result is getting badly sold off in the market; L&T being the case in study (10% wiped off in 2 days). Even companies that meet the analysts expectations are being sold off majorly; Google being the case in study(5% sell off in 1 day after results were announced). Money is being poured back into bonds after selling off in the equity & commodities markets making the dollar rise and everything else (crude, oil, base metals, shares, stocks) fall globally. Having said this the next question would be if the blood bath has ended. According to me, not yet. I believe that there is still some down side left in the market & we set the Nifty (CMP 5036) target at 5000 / 4972 & 4960. As far as our stock picks for the week go we have

·         Areva T&D – CMP 283.5

o   Target 1/2/3 – 286/293/297

o   Stop loss 272

·         Educomp – CMP 716.6

o   Target 1/2/3 – 725/730/738

o   Stop loss 700

·         Hindustan Uniliver – CMP 257.8

o   Target 1/2/3 – 260/263/267

o   Stop loss 251

These are all high risk calls since I am expecting almost every alternate stock in the BSE A group to fall by at least over 1% on or before 28^th of January 2010. I have a lot of short calls in the market if anyone is interested, then do drop me an email before 4pm. Also, I am heading out of town today at 7pm and will be back on the 27^th so till then I will not be available for your stock queries.

This week is going to be tough for all you bulls / long only players out there. For all you bears out there is a minimum of 30% on margin money to be made on every alternate stock in the BSE A Group segment so play it wise and enjoy minting money.

PS: One of you had asked me if they could buy ABAN at 1460+ levels where we had advised you to wait. We still advise you to wait before buying it even at 1330 levels.

Bank Rankings in 2009 as per the Size of their Balancesheet.

*Due to limitations of space the tables might cross the screen size, you can click on the table to view the complete table.

Source: Businessworld Magazine.

Pooja at Office - 20th January (Vasant Panchmi)

Vasant Panchmi is known as an auspecious day for starting a good deed. We decided to do a pooja in our office on the same day. As the decision was taken on short notice, the pooja was attended by only first family members of myself and Dewang.

With the help and support of all our well wishers we are able to reach at this level. We are on the verge of completion of our office infrastructure. We will be inaugurating the office soon and we will send out the invites to all of you.

Thanks again for your warm wishes and support.

IPO Pipeline - January.

*Due to limitations of space the tables might cross the screen size, you can click on the table to view the complete table.

Stock Picks - Please read disclaimer in Earlier Posts

Following are the stock calls carried forward

·          Reliance Infra – Long since 1126 for a target of 1160 (2% return with a target of 1147 was achieved with the intraday high of 1153)

·          IFCI – Long since 53.9 for a target of 56 / 58 /68

·          Long Hero Honda – CMP 1694 for a target of 1710 / 1720 (2% return)

Following are the new recommendations

·          Godrej Industries – Long @ CMP of 169.7 for a target 173/175/178

·          HDFC Ltd. – Long @ CMP of 2510 for a target of 2540

·          Maruti Udyog – Long @ CMP of 1419 for a target of 1450 / 1463