Opinion: One business is getting back to profits and another waiting for next victim

Two businesses are in news. They have gone through the up-down cycles. They attracted investor interest in the beginning but turned out to be nightmares. They almost went out of business but there is revived interest in them. One is moving back towards profits after several years of losses (Suzlon) and another (Spice Jet) is waiting for its next victim.

Suzlon wind turbine maker had left a deep scar in many retail investors. Its debut and the run after IPO in the initial years made it an index stock but an acquisition mistake proved too expensive for it. Its stock performance made investors lose most of their capital, do not mention the gains. But it is getting back to business of making profits and turning out to be an investment grade stock again after a gap of many years for the following reasons.

• It could not hold to its acquisition of Germany's REpower (later renamed Senvion). When things looked bright for Suzlon, it had ambitions to become a top global player and REpower was expected to add to its prowess with its offshore wind turbines business expanding the portfolio of Suzlon. But the aftermath of global financial crisis in 2008, Suzlon could not arrange long term finance at lower costs, and the interest costs were more than operational profits Suzlon was making, so it could not service its debt and had to default on FCCB’s and to refinance with most banks losing its credibility as a profitable business. Last month, it exited from REpower in a distress sale. Along with it, the debt load on Suzlon too had come down. Had this decision been made a few years ago, it would have prevented its promoter Tulsi Tanti from the embarrassment of pledging all his holdings.
• Dilip Shanghvi, a prudent business man (who runs Sun Pharma) taking a stake in Suzlon and infusing much needed capital into the business is a big boost to Suzlon. It always had a good top-line but the borrowings made the business suffer. This money coming from a drug-maker as equity will free Suzlon from the fever it had suffered for long time.
• Improving business environment: With the new Govt. set to boost spending in renewable energy, Suzlon’ revenue is set go higher. And the recent move from RBI in reducing the policy interest rate has indicated that interest rates are set to come down from here. With its revenue going up and finance cost coming down, Suzlon seems all set to show profits in next financial year.

Spice Jet too went through a rough period and many were guessing it will go out of business like Kingfisher Airlines but it is finding new investors. Unlike Suzlon, there are no hopes of it getting back to profits because the structure of the business. It was not financing that is the issue here. Though there are exceptions, very few airline businesses generate profits. Competition is intense and margins are thin.  More the sops they offer to customers, higher are the losses. More flights they

operate, quicker is the cash burn rate. If you had bought those discount tickets and flew with Spice Jet, you too had helped Spice Jet in burning their money.

Income statement of Spice Jet. Source: Moneycontrol.com

Take a look at their income statement and their operational profit; it appears they do not make money no matter what. So the Marans had it enough, and got out of this expensive fancy business. But there are new suitors to give it a fresh lease of life. Will they be able to change the structure of the business? Competition will not let it do. And if they operate in the same fashion, fresh capital won’t last long. What will happen then? Another new investor may walk-in. If not, Spice Jet will have to learnt to live within its means and not worry about its market share. If it does not, it has to follow the ‘king of good times’ for whom good times seem to be over.

Opinion: Apple-onomics

Source: Apple company site

Last quarter (Q1’2015) results for Apple broke records. A profit of $18B made it Apple’s most profitable ever quarter and also the biggest quarter of any public company in history.

Source: Wikipedia

If we extrapolate quarterly revenue of $74,500 M into one full year and consider Apple as a country and compare it with GDP of countries, Apple would displace Singapore and take 37^th place in the list. Phew!!!

Source: Data from Apple company site

If you take a look at geographic distribution of its revenue, 59% ($44 B) of it comes from outside of US. All of that are exports for US. Apple's products were approx. 13% of all of US’s exports for that quarter. Since most of the manufacturing for Apple happens outside US, we can exclude direct material and labor costs from that $44 B, it would still amount to $17 B of net contributions to trade. And considering domestic impact, it adds $30 B of economic value to US economy for that quarter.

So it might be clear now. Apple is not just making money for its shareholders but boosting the economics its parent country too.

If Apple was an Indian company, India would be a trade surplus country (India's trade deficit is less than Apple's exports) with a strong current account. And Rupee would have been a currency to seek after!

You will say stop dreaming and I would agree. But those who are making noise with ‘Make in India’ need to take a look at what Apple is doing for US despite the absence of manufacturing facilities for it in US as it sources most of components from Taiwan and South Korea and gets the assembly & testing done in China. Apple has proved it. It is not manufacturing what matters. What makes a difference is innovation, IP rights, marketing and delighting the consumer.

Are we thinking about it? Do we need Foxconn or Apple in India?

Opinion: Ambani and Adani will run India (and make most of India’s fortune)

Two articles in today’s newspapers made me think two business houses (or rather families) will be the biggest beneficiaries of the upcoming policies and Govt. spending.

First news item is, Anil Ambani getting into defense manufacturing - http://economictimes.indiatimes.com/industry/indl-goods/svs/engineering/anil-ambanis-reliance-group-forays-into-defence-manufacturing-sector/articleshow/46206018.cms?imageid=45757525#slide9

Ambani’s always meant business – the senior Ambani built the empire from oil to textiles, and his sons took it further getting into Telecom, Retail, Energy, Infra, and you name it. They always knew next big what and made sure they are there. But see that they are quick to cut loss and exit when their new businesses do not make money (like Reliance Timeout). Now Anil is keen to enter into defense manufacturing. Do they have experience in that – you may ask but it does not matter is what you will realize quickly. The biggest challenge in India is to work with Govt. and its bureaucracy, they can beat competition there and the lack of experience is made up by hiring the experienced from industry. Anil hired a former managing director from Lockheed Martin to lead this business. You can see he will make this happen.

And another news item is, Adani’s plan to get into Airport sector via Ahmedabad - http://timesofindia.indiatimes.com/business/india-business/Adani-eyes-airport-foray-via-Ahmedabad/articleshow/46207279.cms

Gutam Adani already runs Infrastructure business. His company operates ports in Gujarat – so why not operate Airport too? Again the success here depends on ability to work with Govt., and securing long term finance at low costs as rest of the project related skills including technology can be hired or bought and some of the works can be outsourced through contract works. It is how he transformed his small scale businessman into billions worth enterprise.

With the ‘Make in India’ initiative, both Govt. spending and private investment are expected to go up significantly in the manufacturing and infrastructure sectors. And you know who is set to ride that wave. They already made news today and you will see their fortunes rise too in the coming years.

Book Review: Shattered Dreams - Ramayana-The Game of Life by Shubha Vilas

Most of us would have heard the story of Ramayana early in our lives from our grandmothers (even before we learn to read or went to school). Thanks to Ramanand Sagar, his TV serial filled the gaps in those homes where grandmas were absent. At schools, it was teachers who retold it. At dramas, our elders enacted the scenes from it. After one learns to read, it opens up the bigger world as there are numerous books on Ramayana written over many centuries. Each author had put forward his or her views though the central plot and the subject matter remained the same, it was the style and the focus on certain characters made them unique. So it became an epic as it had the strength to survive many generations and remain relevant.

I too had read many versions of it with different perspectives and kept wondering each time about the capability of the story to be retold but still holding readers interest. And I had my set of questions too. If the purpose of Rama’s birth was to kill Ravana and if it was all destiny, why Sita was made the ignorant victim as Rama would have found any other reason to kill Ravana? I always found Rama too ideal for a human being (is that the reason they term him God?) and wondered how such a person who did not lose his tranquil in many odd circumstances but lost his serene when one of his countrymen accused his wife. It was strange for me to see Lakshmana losing importance in the story after the war gets over and wondered why nobody thought of his wife. As a fellow human being, Lakshmana’s wife would also have craved for her husband’s love but she gets little attention than she had deserved and so on.

When I had received the book “Shattered Dreams - Ramayana-The Game of Life” from BlogAdda, I begin with an impression that I am reading another version of the great mythology but soon I realized that the footnotes are making it more than a novel like read. For fictional/novel readers, footnotes are a distraction as they break the flow and continuity. But in non-fiction books, they are a must to provide references and other notes from the author. This book is full of footnotes almost in every page which are sharp and full of wisdom which gave me a feeling of reading a case study and the take away from case study captured in the form of foot notes. As you read a page from the book, the footnotes below it offer an explanation and reasoning why the characters behaved that way. That helps us understand the characters in depth and dissect the situation.

If one reads this book like a novel, I suppose the objective of the author will not be met. It is the synthesis of Ramayana and how we can improve our lives reading it is the significance of this book. So this book appeals to me more of a personality development/leadership guide book, and a good one at it as it has the backing of the great epic. The story of it everyone knows but what we can learn from each character and the situation from Ramayana, this book shows it. So it cannot be read in one go but need to be used like a study guide and I feel it is worth the time invested. It helps to clarify one’s understanding of life, transform himself and elevate to next level of understanding and produce a tolerant leader out of the reader. It helps the readers understand the importance of character and integrity. 

I am sure to come back to this book again in time.

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Book Review: Travels With My Aunt by Graham Greene

Henry Pulling is a retired banker. He is unmarried and content spending time growing flowers at his home garden. At his mother’s funeral, he meets up with Aunt Augusta, a younger sister of his mother who was not in touch for decades. Aunt Augusta too is unmarried and they take a walk together after the funeral and decide to meet up frequently. And his Aunt reveals a secret to Henry that he is his father’s son but the mother who was dead was a step mother and he was born to someone else as a result of wandering of Henry’s father. Henry surprised with this revelation, wants to know more as no one else knows about this as his father is long dead and his mother (or step mother) is too dead now. He visits her aunt’s house and as he gets to know her more, he is drawn into a world of adventure, romance, and he travels to the places he had not seen in his conventional, predictable life as a banker.

When his aunt asks him to accompany for a travel, Henry joins her but he is not aware that they are going far away from London where they lived. Henry had not traveled out of his home country till then. And he did not have a slightest suspicion that his aunt is taking out gold (smuggling!) with her to pay for the foreign exchange they need. When he finds that and asks if she is aware that it is illegal, she smiles back and tells she has not read the law so she does not know what is legal or not and it does not matter for her. Travel takes them to Paris, and then to Istanbul. Over a series of conversations Henry learns about the past of his aunt and her lovers. Though she was not married, she had moved from one lover to another during her prime of life. And this travel was to meet the people from past life again. Henry gets to meet those people from his aunt’s past and that this travel had many purposes to serve for his Aunt.

After they return, Henry wants to know how his father had died and where he was buried. Who else can take Henry to his father’s grave? So Aunt Augusta joins him and they find another mourner there at his father’s grave, who was a lover of Henry’s father and was present when Henry’s father breathed his last breath. Henry is curious to know more details about his father from her but he is surprised to see how irritated his Aunt Augusta is with this new woman in his father’s life.

Aunt Augusta leaves for another travel leaving Henry behind. After several months, he is asked to join her and that journey takes him to Argentina and Paraguay. That is where his aunt has found an ex-lover of her and plans to get married with him and settle. And Henry learns that his aunt is his real mother and her elder sister had marred his father to cover up the mistake. And that Aunt Augusta along with her marriage plans, has a found a match for Henry too there.

This plot involving two elderly people (Henry in the mid 50’s and Aunt Augusta in the 70’s) and their journeys into their past is a fascinating story. I read this book during my commute hours between office and home (which is 2 hours a day one-way!) and I was transported into a fictional world created by the author and was so involved with this novel that I wondered how quickly two hours passed. It took me five sittings to completely read this novel. I was impressed by this author but felt somehow the end of this novel doe not go with the flow of it. Aunt Augusta after her marriage allows killing of her another lover Wordsworth but that does not seem to fit her character in this novel and Henry agreeing to marry a teenage girl too. And both of these central characters deciding to marry at an old age is strange since they remain unmarried for most of their life and did not not have inclination towards marriage till then.

This book was first published in 1969. Author Graham Greene has more than 25 novels to his credit and is one of the most widely read British novelists of the 20th century.