Brand Hyderabad in Tatters

22 03 2009

 

For most, after the breakout of the Satyam scandal, perceptions about Brand Hyderabad have caught up with the reality. I must say though I fear that the city’s image has taken more beating than it was due.

 

 

Capital market magazine has brought out a cover story titled “Guilt by association” on the Hyderabad stocks post-Satyam scandal. Some of the caustic remarks made there are reproduced below:

 

 

  • Analysts have always treated Hyderabad-based companies with caution as these companies have a big mouth when it comes to guiding revenues and net profit. This caution has been proved right by the Satyam scam

 

  • Hyderabad based companies are generally a one-man organization with the Managing Director and CEO running the show

 

  • The second aspect of concern is the shareholding pattern. These companies have a high foreign holding. There are companies where foreign holding is higher than promoter holding. Recently, Chandra Babu Naidu, former Chief Minister of AP, hinted of money laundering and bogus funding.

The poor perception of Hyderabad has reached such levels, that even BusinessWeek carried a large story titled “Satyam scandal takes toll on Hyderabad“. Excerpts from the article are presented below:

 

 

 

 

“It has been a dramatic fall from grace for Hyderabad, the southern Indian city that had emerged as a viable competitor to Bangalore as the public face of the new India. Giants such as Microsoft, Dell, Oracle, and Google have opened offices there. But Satyam was also among the city’s leading lights, and Hyderabad today is rife with tales of murky land dealings, companies that cook their books, and owners who siphon off cash.

 

 

Now investors are talking about a “Hyderabad discount” for companies based there.

 

 

Satyam’s fall seemed to validate those latent fears. Since Jan. 7 stock prices for the top 50 listed companies from Hyderabad, mostly managed by their founders, have fallen by an average of 23 percent [not including Satyam’s near-total collapse], vs. an 11 percent fall for the Bombay Stock Exchange’s benchmark index.

 

 

Hyderabad‘s dodgy reputation extends to its professional class. Accounting firm KPMG runs a busy practice in India that helps companies spot fake degrees and exaggerations of job experience. While Hyderabad isn’t alone in this sort of activity, it’s the embellished-resume capital of India, says Garuav Taneja, who runs the KPMG operation.

 

 

Some in Andhra Pradesh are trying to change the system. EAS Sarma, a former top economist in the Finance Ministry in New Delhi, now lives near Hyderabad. He’s battling to reverse Satyam’s December purchase of 50 acres of state property along an endangered coastline. Satyam bought the land for what Sarma says was just 10 percent of its market value, resulting in a loss of at least $52 million for the state. He is also demanding details of property sales to 14 Hyderabad companies that he says are closely connected to the state government. “It’s crony capitalism,” Sarma says. “Giving away cheap land is not promoting industrialization; creating a corruption-free environment and simplified procedures is.”

 

 

There is a lot of pressure on Hyderabad companies to prove they are not like Satyam,”  says Rajeev Chandrasekhar, a member of Parliament and president of the Federation of Indian Chambers of Commerce & Industry.”

 

 

 

One can, of course, argue  that several  criticisms leveled against Hyderabad are applicable to India at large.

 

 Now that the damage has been done and the reputation has been tarnished, let us contemplate as to how Brand Hyderabad can be repaired. This is essential for the growth of the city.

 

 

 

Here are a few suggestions to the industrialists and businessmen of Hyderabad.

  • Move from one-man shows to professional teams : The publicly listed companies are seen as one-man shows. The top-team usually consists of family members or members belonging to the same caste or village. Bringing in professionals from other parts of the country or even abroad and giving them important roles will dispel this notion to an extent.

 

  • Move from convenient CAs to competent CAs : The analysts and the fund managers do not believe the accounts presented by the Hyderabad companies, particularly after a blue-chip company like Satyam confessed cooking books for several years. The companies in Hyderabad have to clean up their books once for all. Change their CFOs, wherever possible and also change their statutory auditors. Even if the current auditors are good enough, there is a need to change to improve the perceptions. When Reliance was faced with several charges related to duplicate shares etc, it changed its auditors and brought in an international name to restore faith.

 

  • Under-promise and over-deliver : One of the charges against the Hyderabad entrepreneurs is their big mouth. It is time these companies learned from companies like Infosys who always under-promise and over-deliver. In the long run such companies are respected more and get superior valuations. It is time the Hyderabadi businessmen realise that one-upmanship among each other is actually hurting the city’s interests and thereby their own.

 

  • From ostentatious to simple living : The Hyderabadi tendency to flaunt wealth and success has to be curbed.Even if the wealth has been earned and not stolen, the media and the public is viewing the ostentatious display of wealth suspiciously.  

 

  • Distancing away from politicians: Hyderabadi businessmen are seen as too close to the politicians. Even if they perform social service and CSR activities, they are always viewed with jaundiced eyes. It is time they distance themselves from politicians. Better they could become citizen activists and fight for problems faced by the citizens against the government in power. This will improve the perceptions significantly, like what the Bangalore Agenda Task Force did to the industrialists of Bangalore. 

 

 

The Hyderabadis have to now go more often to Shirdi than to Tirupati. The popular belief in AP is you turn to Sai Baba of Shridi when you have a crisis and you turn to Lord Balaji of Tirupati to fulfil your dreams. It is crisis time at Hyderabad, so it is time for a trip to Shirdi.

 

 

Once the crisis is blown over, the Andhra spirit of enterprise will be back in action and then it will be time to call on Lord Balaji.

 

 

 G. Mohan

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Dealing with Deceleration: Is TCS on the Right Track?

17 03 2009

 Economic Times has reported that in an internal communication, TCS management has communicated to its employees informing them about deferred promotions, cost cutting and stringent performance appraisals. In another news item which appeared in The Hindu Business Line, the headline news says “TCS asks 1,300 employees to leave.

 

 

 “Around 1,300 employees of Tata Consultancy Services will resign from the company following an bi-annual performance appraisal. The employees being asked to leave will constitute around one per cent of the total staff, numbering over 1,30,000, said a spokesperson for the company.

 

Their leaving the company is not part of any cost-cutting exercise designed to cope with the economic slowdown, she said. TCS’ bi-annual performance appraisal throws up under-performers who are given special training; but if they are not up to the mark in the next appraisal, they are asked to leave.” 

 

These measures may give an impression to the public that TCS is incurring losses or it may be ridden with debt, as is the case with several companies, including some Tata companies. TCS is still a debt-free company and it continues to make good profits. For the HY ended September 2008, TCS reported revenues of $3.1 Billion and net profit of $ 582 million. In the full year, the profits will be over a billion dollars. No small amount. In this recessionary market, it will be hard to find companies, not only in India, but across the world which report a billion dollars in net profits.

 

 

Then why is the TCS management taking such steps. It is what can be termed as ‘deceleration blues’. The Indian IT services industry has got used to growing at the rate of 30-35% per annum and net profit margins of over 20 %. These rates are built into the planning process and the entire industry engine runs to meet this growth. Now suddenly, the assumptions are being questioned. The growth rates for the IT services will not be more than 10-15% p.a for the next two years at least. The margins are under pressure. TCS grew by 17.7% in revenue and only 2.8 % in profits, during H1 2009. 

 

 

The stock markets are already reflecting the new expectations. TCS stock is perilously close to its IPO price of Rs. 425 (Rs. 850 pre 1:1 bonus) after over four and a half years. Aside the relatively liberal dividends of Rs 12 per share, the shareholders have got very little returns, even as the company has grown over two and a half times since IPO.

 

 

Deceleration blues in TCS is quite similar to what Indian economy itself is facing. In an editorial piece in ET, Swaminathan Aiyar said “What’s wrong with 6% GDP growth?”. The problem is India having grown at 9% for four years in a row, growing at 6% is painful. Similar pains are felt when TCS decelerates from 30-35% p.a to 10-15% p.a.

 

 

A quick look at the business model of TCS will help analyze where the pain will be felt and why. In simplistic terms the Business Model is USA-BFSI-ADM-T&M-STP/SEZ- M2. Let me expand the alphabet soup. The key geography in which they do business is USA. The major vertical which contributes over 40% of the revenue is Banking Financial Services and Insurance (BFSI). The service which contributes bulk of the revenues is Application Development and maintenance (ADM). The type of contracts which TCS engages with clients is Time and Material contracts. On these contracts programmers are deployed either offshore or onsite, and billing is done by the hour. For offshore business, TCS has built millions of sq ft of office-space in Software Technology parks earlier and now SEZs. The business grows by manpower multiplication (Msquare). In order to keep this economic engine in motion, tens of thousands of fresh engineers are recruited from all kinds of engineering colleges in their third year itself.

 

 

The major market US is in recession and there are even indications that it may be a depression. Although US $ remains strong, the movement of the currency is very volatile, making the job of the CFO extremely volatile too. The banks are suffering the most. Many BFSI clients of TCS are either merging or on the verge of bankruptcy. ADM is doing fine. TCS has strong delivery capabilities. The company knows that there will always be several old applications which need to be maintained and supported. After ERP has come into mainstream, TCS is using its ADM capabilities to maintain and provide production support to ERP. The onsite business of TCS will be impacted by the growing protectionism in US and difficulty in getting visas. On-site is also expensive. So the focus is shifting off-shore. For offshore business, TCS and other IT companies are in the process of creating office space in SEZs across the country. Now, with the deceleration in business, the need for office space is reducing. 

  

The effect of the deceleration will be felt most in the bottom-most layer of the chain viz. in STP/SEZ and M2. Already, several SEZ projects have been put on hold. Rationalization of office space is being done and rentals are being renegotiated.

 

The braking of the manpower multiplication engine in the largest employer in India will definitely have an impact. It will have an impact not only on the 130,000 employees of the company. But the thousands of engineers who have an offer from TCS but do not have a joining date yet. The thousands of engineers, who are graduating in 2010, suddenly do not know whether they will get placed at all. The biggest employer in the campus suddenly is acting funny.

 

 

Now, the thought that occurs to me is that the stimulus in the form of the changes in the business environment is for all of us to see. But given the strength and the financial muscle the company has, could the response have been different. Look at Tata Motors, even when it incurred huge losses in its last quarter and its Nano project delayed, it proudly goes to the Geneva car show and launches Nano Europa and a sedan called Prima. In the same global IT market in which TCS operates, IBM has launched a new initiative backed by an aggressive advertising campaign “A smarter planet”.

 

 

Behooving an industry leader, TCS would be well advised to look at the downturn as an opportunity to grow beyond ADM. It could use the financial muscle to enter new businesses (not acquiring BPOs like the Citi One). It could once again, revisit the once stated goal of 30% sales through software products, which it ditched, pursuing easy money in ADM services. The downturn also presents an opportunity to attract the best of software engineers in the US to return to India and create the new businesses. TCS attempts at brand building have been very feeble and advertising campaigns have always been done in fits and starts. A consistent advertising campaign like an Accenture or an IBM will be more apt for an industry leader.

As the adage -never waste a crisis – says TCS has an opportunity to set new rules for the game as it is pushed into an uncharted territory. It will require visionary thinking not just reactive measures for TCS to become a game changer.

 

– G. Mohan





Gilt Fund Blues

15 03 2009

On January 1, 2009 as I was reviewing my portfolio or, whatever is left of it, one asset class that looked attractive was Gilt Funds. In the Oct-Dec 2008 quarter when NAVs of equity funds went down in line with the stock markets, the Gilt Funds gave over 10 % return. Seeing that the inflation was coming down rapidly and RBI was making announcements about rate cuts, it appeared logical that bond prices would go up making Gilts attractive.

 Around the same time the banks were also reducing the deposit rates, I decided to invest in a Gilt Fund on Jan 1. Assuming Gilt Funds are steady, I did not look at the NAV regularly. Yesterday, when I looked at the investment I was shocked to see losses on my Gilt Fund investment. 12 % loss in a matter of 2 and a half months. Over 50% drop, if annualised.

A study of what could have been the possible reason, revealed this : I had invested in Gilt Fund at probably the lowest yield in January. Bloomberg says that ” The yield on the note has climbed 1.99 percentage points since reaching a record low of 4.85 percent in January.” Government borrowing is the main culprit. Bloomberg says that ” India plans to sell a record 2.61 trillion rupees ($50.3 billion) of bonds in the fiscal year ending March 31, an increase of 67 percent from the previous 12 months and 80 percent more than initially planned. Sales are estimated at 3.62 trillion rupees for the next fiscal year.”

Mumbai-based Raghavan, a primary dealer who underwrites government debt sales says “Yields should continue to rise in the near term.”

Understanding the yield curve and the factors which affect the bond prices is not as simple as I thought. I am humbled. I’ll continue to hold the Gilt Fund, with the hope that the fund will yield the coupon rate of GoI bonds – 8.25% over a two to three year term.

– G.Mohan





Fighting Economic Downturn: A Saga of Gastronomic Compromises

12 03 2009

 

 

A few days back, Warren Buffett in an interview to CNBC not only mentioned that the US economy had fallen off a cliff but people were changing their habits like he had never seen.

 

Looks like the economic slowdown has not spared the  passionate foodies of  Hyderabad (and Secunderabad) either. I heard a colleague who met with the manager of a restaurant called Arya Tiffins Centre in Secunderabad. It is a typical Udupi kind of joint which serves South Indian breakfast and snack items like Dosa, Idli, Uttappam, Vada etc along with   beverages. It is frequented by office-goers and middle class families. It has a thriving business, with people having to wait to get a seat during rush hours. Its average daily sale was about Rs 1,45,000, until six months ago.

 

Even today, the rush at Arya Tiffins is more or less the same. Yet, the daily average sale has dropped sharply to Rs 1,05,000 – a drop of over 30%.  The manager blames it on the trading down of eaters due to the slowdown. While the sales of inexpensive   but bland idlis have gone up significantly, down are the sales of fancied items like paneer dosas , mushroom uthappams ,  flavored milkshakes etc.

 

No wonder, the  McDonald scrip is soaring at the US bourses.  

 

– G. Mohan





The Mystique of Leadership: Sound vs. Light

8 03 2009

 

 

It is very difficult to really pinpoint what makes a leader a leader. There is an unexplainable “X” factor. 

 

Enterprises across the globe have always felt the need to develop leaders among their rank as they believe leadership qualities can make crucial differences in their fortunes.

 

Jack Welch, the former head of GE probably was a great champion of the “Leadership” dimension. A trip to the GE’s institute for leadership development at Crotonville was considered a pilgrimage by corporatewallahs. Perhaps inspired by GE, companies like Infosys and Satyam built their own Leadership Institutes in Mysore and Hyderabad respectively.  

 

Many HR managers take the easy way out in developing a ‘leadership pipeline’ by sending their executives to the plethora of Management Development Programmes (MDPs) in B-schools. MDPs with the word – leadership – suffixed or pre-fixed – e.g. Value-based Leadership, Transformational Leadership, Emotionally Intelligent Leadership etc are cash cows in b-schools all over the world. 

 

A new leadership training institution has sprung up in Gurgaon, founded by Anil Sachdeva which calls itself “School of Inspired Leadership” SOIL in short. Their web-site proclaims:  

 

“Inspired leaders build sustainable organizations creating value for shareholders, while caring for the environment and improving the lives of those around.” 

 

Pray, tell me how it is different from the trite catchphrase – the triple bottomline? 

 

I often find the sermons on leadership by management gurus ineffective and uninspiring. The lack of clarity in their thinking can scarcely be camouflaged by confusing verbiage.  

 

Contrast this with an illuminating piece on leadership by a Spiritual Guru, Paramahansa Sri Nityananda. In a lucidly written piece in Economic Times, he states “Leadership is a state, not a status.” 

 

 

I am reproducing the entire piece for the benefit of those who might have missed out reading that column. 

 

Leadership is not a quality. It is an experience that an individual who has undergone personal growth and transformation radiates. 

 

 

This is the simple truth. There are so many books these days about leadership and how it is an important part of making an organization successful. There are so many leadership gurus who teach and train people in organizations to ‘develop’ leadership. Yet when we look at all organizations, be it businesses, government services or in the area of social services, true leaders are rare. A true leader is a person who is ready to take responsibility consciously. He is ready to handle life consciously and he is not constantly dependent on the past. A true leader is a person who is able to respond spontaneously to situations. He is fresh in his ideas and continuously keeps himself alive.

 

A small story: There was once a great war between two countries. On a hot afternoon, a man in civilian clothes was riding past a small group of tired soldiers digging a huge pit, doing a seemingly impossible task. The group leader was shouting orders and threatening punishment if the work was not completed within the hour. The man riding the horse stopped and asked, ‘Sir, why can’t you help them yourself?’ The group leader replied, ’I am the leader. The men do as I tell them. If you feel so strongly, go help them!’ The man worked with the soldiers till the job was finished! Before leaving, he congratulated the soldiers for their work, and approaching the group leader said, ‘The next time your status prevents you from supporting your people, inform your higher authorities and I will provide a more permanent solution.’ The group leader was completely surprised. Only now he realized that the man was in fact the army general!

 

Most of us achieve the status of a leader, but not the state. State is totally different from status. Status comes from society. When I use the word ‘state’ I mean our inner space. Our inner space should be mature enough to handle the responsibility, which we assume. Each one of us is a potential leader. The quality of leadership arises from one’s ability to take responsibility for a particular organization, a situation or a particular group with tremendous awareness and maturity. Leadership is simply a conscious choice made by an individual to act out of deep sensitivity and awareness to one’s situation and surrounding. Then automatically, the inner space will start transforming and send out the right words and actions.” 

 

As I finished reading the above piece, my need for reading leadership spiel by management gurus died an instant death.

 

– G. Mohan





Renaming of the Anil Dhirubhai Ambani Group

3 03 2009

In Prince Anwar Shah Road, Kolkata , you will see two very small electric shops both calling themselves Kundu Electric. If you see closely one signboard reads Kundu Electric (Old) and the other one Kundu Electric (Original). 

In Bhowanipur, Kolkata, where you will see several jewel shops with similar sounding names. You will find “Lakkhi Babu Ka Sone ki Dukaan’. Alongside that there is another jewel shop which says ” Asli Lakkhi Babu Ka Sone Ki Dukaan.” Yet another one says “Asli Lakkhi Babu Ka Asli Sone Ki Dukaan.”  All have one thing common, they all write “We have no branch.”

Perfect examples of how brothers fight to keep the original brand name built by their father. with each brother trying to claim to be the true inheritor of the father’s legacy.

A similar fight  though on a much grander scale was on among the Ambani brothers when the Reliance Group split. Both retained the Reliance name, built by their father .The original logo remained with the Mukesh Ambani Group. The Anil Ambani side had to rechristen itself as Reliance ADAG and also had to get a new logo. Until the split, the younger brother was always known as Anil Ambani. But in order to get some of the goodwill of his late father, he chose to use his full name Anil Dhirubhai Ambani.

As per the separation agreement, at some point of time Reliance ADAG may have to give up its use of the name Reliance. Given Anil’s penchant for dabbling in varieties of business and also to appropriate some of the father’s goodwill, he could rename his group as “Dhirubhai Ambani’s Asli Reliance”- in short “DALLIANCE”.

– G. Mohan








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