IIPM Education: March 2013

Thursday, March 28, 2013

Andreas Schaaf, President & MD,BMW India

Andreas Schaaf, The Man in Charge of BMW India, Discusses his Company’s Product Portfolio Expansion, Distribution Network and sales Target Strategies with B&E’s Pawan Chabra. Question is: Will Schaaf’s India Plans Work?

The past 10 months have been a smooth drive for BMW India – an 81.41% y-o-y increase in sales in the luxury car market, with a 95.73% increase in production volumes. It has not been all marked with subtlety though. [During the period, BMW outsold the erstwhile #1 Mercedes Benz India by 213 units.] And given the strong December 2010 launch of the X1 (in terms of market response), the March 2011 unveiling of the 6-Series convertible and the fact that BMW is now planning to launch one of its best-selling SUVs by mid-2011 – the X3 – in India, much more is expected from the German. But competitors, who have failed to capitalise on their first mover advantage, will try and force a stalemate situation. Will BMW yield to peer fights? Not if it gets its sales & manufacturing plans in place. And this is what Andreas Schaaf – the man in charge of BMW India – hopes to get lucky with.

B&E: Late last year, BMW India announced the launch of its in-house financial services arm, BMW Financial Services, that was meant to enable it to launch tailor-made financial offerings. Not much has been spoken about it. Any numerical proof to support the advantage of this initiative?
Andreas Schaaf (AS): The performance of the financial arm has been overwhelming. In the first two months of this calendar year alone, our Financial Services arm accounted for 50% of the total sales for BMW India. You are right – the presence of our in-house financial services arm gives us independence to launch tailor-made services, which is not possible with an external partner. Moreover, it helps in accelerating the entire sales process.

B&E: In the past 10 months alone, you sold 6000-plus units. Better still, the luxury car market in India also grew at a double-digit rate, which is expected to continue for many years. What would be your projected annual sales figure, say nine years later, in 2020?
AS: The Indian luxury car market has grown at a strong double digit growth in recent years. The sales figure stood at about 15,000 at the end of 2010. We believe the segment will touch unit sales of over 1.5 lakh units by the end-2020. And considering that we would not like to lose our #1 position and market share that moves in the range of 35-40%, we plan to be selling close to 60,000 units by the end of 2020.

B&E: “Bullish estimate” we must say. Would it not prove a case of counting the crops before the monsoons?
AS: The industry is expected to grow by 30% in 2011. We sold 6,426 units in 2010 and are confident of keeping in pace with the industry growth rate. Product and sales strategy will be key for us. We recently launched the 6-Series convertible and plan to launch the X3 by mid-2011. So, if our product launch plans go well, we should be able to outperform all estimates.

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Sunday, March 24, 2013

Who’s The one Joking out Here?

The new Profit Sharing Formula introduced by The Ministry of Mines has upset miners in India. While they contest that The New Legislation will wipe off The Industry, The Government Strongly Believes otherwise. Who’s The one Joking?

After having displayed a laggard approach on the need of a more contemporary mining policy for years together, the government appears to have woken up and has shown great urgency in bringing out a new mining policy that promises to address mining-related concerns of most stakeholders. The new proposal, titled ‘The Mines and Minerals (Development and Regulation) Bill, 2010’, is an amendment to the MMDR Act, 1957, and has been approved by the cabinet to be put before the Parliament.

The new legislation, as the government claims, aims to open up the country’s resources to foreign and local private investment and increase the benefits from mining to local communities. The contours of the new bill make it mandatory for mining companies to give 26% of their net profit as compensation to locals displaced by the projects. The goals laid out by the government in drafting the legislation are wide-reaching and, in some cases, do seem uncompromising. “We are trying to give enough options to the local community by giving them a recurring financial compensation. It’s not a compensation for their land, it is to enable them to do something different. We cannot, sitting in government or industry, decide somebody’s way of life. All we can do is empower them,” says S. Vijay Kumar, Secretary, Department of Mines. The expansion of mining in India is key towards maintaining the GDP and export growth of the country. In a recent interaction with a parliamentary panel, Mines Minister B. K. Handique asserted that the share of mining sector to the country’s GDP, which currently stands between 2.5% and 3%, is poised to increase substantially. To be exact, as industry movements suggest, it could contribute around 5% by the year 2020.

However, talking about the present, despite the geologically established presence of huge mineral reserves in the country, the current scenario of mining in India is rather disappointing. Considering that the mining and construction equipment industry volume is around 40,000 to 45,000 units per annum amounting to a turnover of $2.6 billion to $3.1 billion, the Indian industry is in its nascent stage as compared to the $75 billion global market. Moreover, as per official estimates, out of the 5.75 lakh sq km available in India with potential minerals, only 75,000 sq kms have been explored in detail so far. Not to forget, the battle between the mining companies and the people displaced by their projects have contributed in a big way for this poor show. While neither the existing spotty government mechanism nor the mining industry has been able to provide any relief to the lives of those affected by earlier projects, the question remains, will the new bill be able to resolve these battles?

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Saturday, March 23, 2013

P. Kothari

Prithviraj Kothari, President, Bombay Bullion Association & Managing Director of The Mammoth Rs.17,500 crore RS Bullion Ltd (RSBL) speaks to B&E’s Mona Mehta on The Company’s overseas Acquisition plans, Growth Ambitions and The General scenario in The Gold and Silver Market

B&E: You have been recently appointed as president of Bombay Bullion Association (BBA). Amidst rising gold & silver prices, what will be your agenda for the yellow & white metal market?
PK: Firstly, we want BBA to be recognized as an industry body on a global platform. This is because currently, some 1 million Indian families are involved as artisans in the gold & silver jewellery market that generates a business of Rs.8 trillion. Hence, we feel that their demand should be met at par with that of international standards. Besides, we feel that there has to be a rise in arbitrage in the Indian gold market. Currently, BBA boasts of 460 members from Mumbai & plans are to increase the number of members to 1,000 from the international market. To start with, the officials of London Clearing Exchange (LCE) are arriving in India & would be meeting the BBA board of directors (to set up an LCE branch here). Clearing Houses are organisations associated with an exchange to handle the confirmation, settlement & delivery of transactions, hence fulfilling the main obligation of ensuring that transactions are made in a prompt & efficient manner. They are also commonly referred to as “clearing firms” or “clearing houses”.

B&E: What would be the function of the London Clearing House (LCH) & its warehouses in India, once LCH is set up in India? How will it benefit the individual companies trading in bullion exchanges & also the members of the Bombay Bullion Association?
PK: The officials of LCE are arriving in India to set up a clearing house in order to take responsibility of stocking & delivery to SEZs & international clients. In case the order has been taken & the supplier is short of stock, then he can make & order with the Clearing House to deliver the stock & the party will make the payment. The purpose of the visit of LCE will also be to set up London Clearing House & warehouses in India. Since India’s economic growth is expected to cross 9% by the end of this fiscal, international trading firms are eyeing it as an investment destination.

B&E: Is RSBL also looking at acquiring gold mines in the overseas market? If yes, what are your plans with regard to funds in this regard?
PK: Yes, RSBL is planning to acquire two to three gold mines in US. The initial requirement for acquisition of mines would be around Rs.2 billion, which we will raise within one year through banks. And in the next two to three years, RSBL is planning to come up with an initial public offering (IPO) with an aim to raise Rs.3-4 billion.

B&E: But what will be the rationale behind acquiring mines?
PK: Once we acquire mines in US, we will look at setting up exclusive branded traditional jewellery retail showrooms in India, so that we can source gold from the acquired gold mines in US & make bars & coins to sell them through the upcoming showrooms in India. Besides, we will source 2000 carat diamonds from the local market to make diamond jewellery & sell them through the showrooms. Currently, apart from having 200 in-house designers, we have recently roped in four exclusive designers to design exclusive jewellery for us, which will ultimately be sold as private labels through our exclusive jewellery showrooms. For the purpose, RSBL is planning to invest around Rs.500 million.

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Sunday, March 17, 2013

P. K. Anand

Executive Director,Punjab & Sind Bank in conversation with B&E’s Avneesh Singh

It is the smallest of all the PSU banks. But, outperforming the average growth rate of the sector in just five years, Punjab & Sind Bank has climbed the ladder from Rs.250 billion to Rs.890 billion, and now it stands on the same orbit as the likes of Dena Bank and Vijaya Bank. Set to go public in near future, P. K. Anand tells B&E how the bank is planning to attain sustained growth in the long run.

B&E: Banking was one of the key industries to face the slowdown blues. How much did it affect you?
P K Anand (PKA): Our growth in the last five years has been very satisfactory. In fact, we have grown above the banking average. Our deposits and advances have grown at a CAGR of 24% and 36.25% respectively. Our overall business too has grown at 31.1% during the period and now we offer an EPS (earning per share) of 26.98%. At the same time, our gross non performing assets are at a low of 0.63%, which happens to be the lowest in the banking domain.

B&E: You are planning to go public soon. How much funds are you expecting to raise?
PKA: The issue will be of 40 million shares with a face value of Rs.10. Through this issue, the government is planning to bring down its stake to 82% from the existing 100%. But what’s worth noticing is the fact that after the issue, the book value of our share will move upward to Rs.138 for the fact that the entire proceeds will come back to the bank.

B&E: How are you preparing yourself for the public issue?
PKA: We have just completed our QIP road shows in Mumbai, Hong Kong, Singapore and London. The response so far has been very encouraging because the Indian growth story is strong and the appetite for public sector banks is there.

B&E: You have a very strong branch network of 928 branches but a poor ATM network (only 63 ATMs). Going by the cost factor, an ATM is more economical than a branch. Can you justify such an odd strategy?
PKA: One of the main reasons behind the same is our tie-up with the National Financial Switch, which allows our customers to use the ATM network of other banks associated with the NFS scheme. Meanwhile, we are also trying to increase our own ATM network. Like on Dhanteras, we installed 10 ATMs and plan to repeat the exercise soon. In fact, we are considering the continuous addition to our existing network in blocks of 10-20 ATMs. We are targeting to add another 100 ATMs in this year itself. Apart from that, we have plans to increase our delivery channels as well. At present we have around 920 channels, and planning to increase it to 1,100 by next year.

B&E: You are associated with an image that depicts you more as a regional player. Post the IPO, do you plan to increase your footsteps to the other parts of the country?
PKA: At present, we are largely concentrated in the North. And the region still holds a lot of scope. There are many places in the region which are relatively unexplored. So, we plan to explore such untapped places first. Having said that, there is no denying that we have plans to spread out to the other parts of the country. In fact, out of the 90 new branches we are planning to open soon, 55 to 60 will be outside the Northern region.

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Monday, March 11, 2013

“We Have Traditionally Grown Above the Industry”

She began her Journey Inheriting a Legacy of Hard-to-Change Processes, A Rebuilding Phase post the Worst of the Recession, And an ever Expanding Competition from Cutthroat Rivals. She has Weathered Every Storm and firmly Established herself as The Frontrunner among the Most Powerful Women in India Inc. In an Exclusive Conversation with B&E, Shikha Sharma defends Axis Bank’s future plan

B&E: Axis Bank has just launched an infrastructure index. What’s the logic behind the move?
SS: Axis Bank, as you know, has some key focus areas and infrastructure is one of them, with others being entrepreneurship (SME segment), retail franchise and our payment structures. So, these are the four areas where Axis Bank is currently focused on. As far as infrastructure is concerned, we have a lot of expertise in that area. In fact, in the last ten years, we have been looking at infrastructure projects in India across roads, ports, airports and other various segments. Further, if India has to grow fast we have to look at the gaps – and one such gap is infrastructure, because we can’t grow without having world class infrastructure. The other thing that the country needs is the capital for these infrastructure projects. Capital not just from domestic source, but also through broader based market participation including both domestic and foreign institutions. It’s with this intent to encourage investment into infrastructure that we are launching this index, which hopefully over a period of time will give investors the confidence to look at one single transparent number where they can gauge the investment climate in infrastructure sector.

B&E:How big is your infrastructure portfolio right now and what targets does the bank have for the sector?
SS: Infrastructure is a key focus area for Axis Bank and about 20% of our total advances are to the infrastructure sector including power. We believe that infrastructure will be one of the big growth engines for India over the next couple of decades. We also believe infrastructure, retail and entrepreneurship are going to be the big growth areas and that is why these sectors are a key focus area for our bank. We have to build capability to execute that well as we believe that infrastructure will grow significantly in the near future. I think if it goes up to 25% of our portfolio, we will be fairly comfortable because we do have expertise and experience in evaluating infrastructure projects and managing the risks. We don’t have a target number practically, but the way we are looking at this is that we are an India focused bank and as such will focus on the opportunities that we have in hand in India right now and the ones that will come up in the near future. We really don’t have a pre-determined ratio of what a particular segment will look like. What our portfolio ends up looking like will depend on which of the segments grows the fastest (out of the four mentioned earlier) and which create the demand for funds. We believe that if the promise of infrastructure happens, then our proportion of infrastructure could go up.

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Sunday, March 10, 2013

B&E’S POWER TALK SERIES

Chief Executive Officer, Essar Hypermart in talks with B&E’s

B&E: Today, Essar Steel Mart contributes 33% to Essar Steel’s overall revenue. Do you have any plans to increase this contribution?
GR: Yes, today we contribute considerably to Essar Steel’s total revenue. We are planning to double our turnover over the next three years. However, our overall contribution to Essar Steel would remain the same as at Essar steel we are planning to increase our production to 10 million tonnes from the current level of 4.5 million tonnes. In the meantime, we are also planning to increase our penetration in the market as well as increase our product portfolio. For the same, recently, we have added heavy plates, colour quoted retail products to our offerings; and it has been appreciated by our customers.

B&E: So far, the only competition you have in this particular segment is from unorganised retail players. But what will happen when more players join the competitive fray?
GR: The steel market in India is huge and there is ample room for everyone. Naturally, the segment will transform into organised retail from unorganised. Having said that, Essar Hypermart will continue to get the first mover’s advantage. Our customers will continue to come to us as we also provide many value added services. For example, recently, we have started investment in IT infrastructure to have a better inventory management.

B&E: Marketing steel as a commodity; how difficult or easy is it? How do you plan to market your products?
GR: It is very difficult to market steel as the product does not carry any brand. Moreover, it changes shape from one form to another, which is not the case in any FMCG or electronic product. However, people over the last couple of years have realised the importance of an organised retail outlet. So, we have allocated a budget of Rs.150 million for branding and marketing exercises. Also, we are focusing on several BTL activities in the rural areas and outdoor media initiatives in the urban areas.

B&E: Apart from giving you the recognition of an organised player, what are the other strategic advantages that the hypermart is providing you?
GR: Essar Hypermart has led us to reach a huge customer base across India. By catering to the retail market, we mitigate the risk of being dependent on a single industry and segment like auto or infrastructure. Further, the retail form of business gives us better margins and adds a great value to our brand. Also, our direct presence in the market helps us to understand the customer in a better way.

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Wednesday, March 6, 2013

Festival of Lights, Camera… Action!

Junior Bachchan’s wife is all set for a blockbuster Diwali, celebrating it the way she likes – the traditional way, with her friends, family, and loved ones. All set to welcome the release of four new flicks in the near future, Aishwarya’s making sure she finds time for the festival. She will soon be seen in Guzaarish, starring heartthrob Hrithik Roshan, and will don the retro look, opposite Khiladi Akshay Kumar, in Action Replayy.

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Tuesday, March 5, 2013

Story of despair

Tathagata Bhattacharya and Haroon Reshi report from ground zero

Sixty five protesters killed, more than 3,000 agitators and 2,500 security personnel injured, general strike and curfew for more than two months, businesses and shops shut, banks closed, hotels empty. This might not seem unusual in a state where more than 1 lakh people have been killed since 1989. Nothing is abnormal in an abnormal state. But what is indeed unusual is the longstanding ostrich-like attitude of New Delhi, no matter which party is in power. There is a problem in Kashmir and this needs to be acknowledged first. Only then can one start working at a solution. And the solution, it is obvious, is not in managing the situation by sending in more and more security forces. Even the Centre has admitted that there is little militancy in the Valley except in the Baramulla and Kupwara sectors which border Pakistan-occupied Kashmir. But there are roughly 7,00,000 armed security forces personnel in the Valley. And still, places in the valley erupt every now and then in the name of the Quit J&K Movement.

We visit the Sher-e-Kashmir Institute of Medical Sciences (SKIMS) where the injured are rushed in by groups of youths every now and then. The usual quiet of the hospital corridor is suddenly broken with cries for independence like “Hume kya chahiye... azadi/Bharat ka gundagardi nehi chalega.”

Dr Reyaz Ahmed tells us, “This is a tertiary care referral hospital and we have already treated over 400 cases of bullet injuries. Most patients were hit in the head or upper torso.” We meet 20-year-old Sumera Dabloo who went to rescue her father hit by a bullet. She was herself hit in the chest by two bullets. We come across a 24-year-old Tariq Ahmed on life support. He has a bullet in his arm and has received severe head injuries. His uncle, Mohammad Amin, says, “The local hospital in Tral was ransacked by CRPF men. Tariq was helping the injured when he was shot at and beaten up.”

The roads of downtown Srinagar are deserted with security forces in every nook and corner, the Valley resembles a beautiful prison. The generation of Kashmiri youths who are pelting stones is an abnormal one. They are mostly born after 1989, they have seen militants and forces all around, guns blazing, blasts ripping off bodies. Their reaction to situations is abnormal. “When the police starts firing, people generally run away. In Kashmir, they come closer,” says a top state police official, himself a Kashmiri Muslim, on the condition of anonymity. We will call him X for future reference.

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The well intentioned programmes and policies

No matter how laudable the political objectives may be, a majority of them fail to convert into reality as there are no concrete efforts made to reach out to the beneficiaries. Three and a half years into the XIth FYP and inefficient implementation perhaps has been the greatest stumbling block for the well intentioned programmes and policies by Gyanendra Kashyap

Even the report card of access to education is in an equally pitiful state. Though enrolments have been impressive (thanks to schemes like mid-day meals), what is worrisome is the drop-out ratio that is still pegged at 43%. Adding to the woes is the Annual Status of Education Report 2010, which too paints a shoddy picture of the learning achievement. Consider any other inclusiveness programmes – Integrated Child Development Services (ICDS), Accelerated Rural Drinking Water Supply Programme, Total Sanitation Programme, Indira Awas Yojana or the Rajiv Gandhi Grameen Viduitikaran Yojana (the cumulative annual budgets for these programmes is pegged at `404.90 billion for 2010-11) – the overall picture only reveals deficiencies in their implementation. And the irony is that though the Mid Term Appraisal for XIth FYP clearly mentions the fact that progress in reducing malnutrition has been particularly slow and that it can not be dealt with a single instrument such as ICDS, it surprisingly does not suggest any mid-course correction.

Certainly, the devil lies in the details as Amit Sen Gupta, Joint National Convenor, Jan Swasthya Abhiyan, points out: “Only 20% of the children receive supplementary food from ICDS centres.” Moreover, the plan document emphasised on National Urban Health Mission (NUHM) and National Rural Health Mission (NRHM) to bridge the gap between rhetoric and reality. “But while NUMH was prominent by its absence, NRHM, for its part, promoted limited package of services through the government health centres rather than extending comprehensive services,” adds Sen Gupta. Even Shirish N. Kavadi, Social Researcher at National Centre for Advocacy Studies feels that there is a very large gap between the rhetoric of inclusive growth and what is being pursued to attain high economic growth.

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Friday, March 1, 2013

‘‘Japanese domestic market has reached to near saturation”

Satobumi Taguchi, Deputy General Manager (Paper Trade Dept.), Overseas Division, Nippon Paper Group, Japan, talks to B&E’s Gyanendra Kumar Kashyap & Ashutosh Harbola about Nippon’s vision 2015 and its overseas expansion.

B&E: What prompted Nippon to integrate four mills in the Hokkaido region? Is it about improving the cooperative structure or just a strategic move?
(ST): Well at present, there are four plants, and Nippon Paper Industries decided to integrate three mills, namely Asahikawa Mill, Yufutsu Mill and Shiraoi Mill operated by the company in the Hokkaido area.There was only one manager who was managing the whole facility at the respective plants. Subsequently, it became a problem as we had to focus on different plants, too. And through this integration move, the managers now can share information between each other. In addition, it’s becoming profitable for us and we are certainly leveraging from it.

B&E : In 2008-2009, there was a drop in demand of paper coupled by digital documentation. How will the paper industry cope it?
(ST): The market is shifting from the holistic music players to scratch iPod or iPad. However, the best part for Japan is that the economical condition is slightly better than the general ones. The import paper also comes to Japan. That’s why Microelectronics Technology Inc. (MTI) has a holding and this trend can’t stop. Our goal is to move beyond domestic market by 2015. Despite having a big market outside, the domestic demand was not there earlier. We want to expand our overseas plans, and India is certainly the high growth potential market. Unfortunately, there are not many manufacturers of paper from small to medium market.

B&E: What is your 2015 vision and what figures are you looking to boost your business?
(ST): The Japanese domestic market is near stauration. Our main focus will be to become one of the top five players in the global pulp and paper industry by accelerating our overseas business development to achieve growth. Also, we would aim at 30% of our revenues coming from the overseas market compared to the present 10% level.

B&E: What kind of investments are you looking outside Japan?
(ST): We have already spread our wings in Australia, China and Taiwan. As far as India is concerned, we do not have any expansion plans right now, but within a year or two we look forward to expand our business. India is an important market for us, it is a high potential growth market. In addition, it is one of the fastest growing market and has a lot of potential and the paper domain is very strong here. There are not many producers, but the demand is comparatively high.

B&E: Do you have any plans to tie up with the local players like the Savant group to enter in the Indian market?
(ST): Looking at the current industry dynamics in India, tieups would certainly make a lot of sense. And lots of debates are going on the issue. But to cater to the needs of Indian market and to be counted amongst the formiddable players in the growing Indian market, we will have to think of partnering with local players sooner or later.

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