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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2 responses

23 03 2009
Karuna

A very interesting article. It is true that Satyam has had a ripple effect. Investors in Satyam have also felt this.
Infact, I would go far enough to suggest that is the ‘Brand IT India’, which has taken a blow, post the Satyam debacle.

28 03 2009
Raghuvir

I was discussig this topic with my dad yesterday when he reminded me that Satyam is not the first case.

Global Trust Bank and Ramesh Gelli was an earlier case of a Hyderabad company / promoter who let the public down in a big way and where intervention was needed.

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