Archive for the ‘$tock World’ Category
When dithering government meets activist courts,it spells trouble for the economy
The Indian rupee has been driven to a new low of Rs 65 to a dollar,largely by the uncontrolled current account deficit and the decline in economic growth.RBI and the finance ministry are now running helterskelter. But their attempts at controlling the exchange rate appear to be measures that treat the symptoms rather than the disease.Governments knee-jerk measures included restricting what individuals can spend outside the country from $2,00,000 a year to $75,000 a year.As stock markets reacted adversely the following day,government said don’t panic!
The rupees recent decline might appear sudden but it hasn’t really come as a surprise to keen observers.This crisis has been building up for a long time.For years,successive governments have relied on capital inflows to balance the CAD and support the rupee.In the past,fortunately,the capital has come in.During 2003-08,capital inflows averaging $45 billion per year easily wiped out the up to $15 billion CAD and exerted upward pressure on the rupee.But they have dried up since then,and the government is now appearing powerless to rein in the CAD to its target of $70 billion for FY14. The global economic crisis hasn’t helped.In fact,the Indian economy has managed to hit the perfect storm: the government has been twiddling its thumbs,so the courts have shown an unprecedented inclination towards judicial activism.
While dithering on matters of economic policy,government has chosen to focus on unaffordable doles and subsidies.The latest in that trend is the rather ambitious food security Bill.Its cost is expected to be in excess of Rs 1,00,000 crore.God alone knows if the intended benefits will actually reach those for whom they are intended,as the malfunctioning of the PDS scheme is well known.Meanwhile,the prolonged regulatory process of environmental clearances and the difficulties in land acquisition have made industry rethink new projects.The economy has been drifting directionless,with many delays in much needed economic reforms and without incentives for FDI.
Largely compelled by government lethargy,the Supreme Court has been intervening in policymaking.This has resulted in further regulatory uncertainties for investors.Sectors ranging from telecom and mining to pharma and real estate have been left shaken.
In the coal sector,India has some of the largest reserves in the world,of around 300 billion tonnes.Yet,its expected to import 82 million tonnes of coal in FY14.With an average price of $100/t,the bill will total to around $8 billion.It was with the very aim of tackling such shortages that successive governments had chosen the policy of captive coal block allocations,instead of taking the auction route.With Coalgate simmering inside SC,and outside,its now unlikely that coal production will rise in the near future as both government and investors will dither in taking initiatives.Why would an investor choose to develop a captive coal block if the court or the government is likely to de-allocate the same And why would someone develop any power intensive project associated with a coal block
In the case of natural gas,not only is the KG-D 6 basin producing only a fraction of the projections,the matter of pricing this gas has also landed in SC now.
Even worse is the curious case of iron ore mining.SC had imposed a prolonged ban on mining in Karnataka and has now imposed one in Goa,in response to PILs alleging illegal mining.It has also imposed restrictions on exports.The loss in potential export earnings since 2010-11 is estimated as being at least $17.5 billion.This apart,thousands have been rendered jobless.
As well intentioned as the actions of SC may be,industry and economy now exist in a state of constant uncertainty,which also demands from them lots of patience as a final resolution of PILs can take years.What a pity that a country with the worlds largest resources of iron ore has now turned into a net importer of iron ore!
Even the star of Indias rise in the last decade,the telecom industry,is now in doldrums on account of the double whammy of ever-changing regulations and consequent SC actions.Telecom received cumulative FDI of Rs 58,782 crore in the last 13 years,which accounted for 7% of the total FDI inflows into the country.FDI in the entire telecom sector,which includes radio paging,cellular mobile and basic telephone services,plunged 81.64% in 2012-13 to Rs 1,654 crore.Since SCs 2G scam decision,only a very brave foreign investor would venture to put his foot into what could be a legal landmine.
Numerous road projects of NHAI have also been stuck for years for want of environmental clearances.In December 2012,GMR Infrastructure terminated a concession agreement with NHAI for a 555-km Kishangarh-Udaipur-Ahmedabad project due to delays in environmental clearances.Following this,NHAI had to move SC to delink environmental and forest clearances for its road projects.
We can go on citing instances,as industry after industry in India is reeling under the vicious circle of government inaction (or corruption) and unprecedented judicial activism.Unless controlled,this cycle could spin into complete doom.
The writer is a senior advocate at the Supreme Court and a former Additional Solicitor General.
Even the star of Indias rise in the last decade is in doldrums
With Yahoo’s board members approving Marissa Meyer’s plan to buy the blogging platform Tumblr, the internet giant has stepped into one of the biggest acquisitions in its life time. The deal is rumored to cost the ‘resurrecting’ company $1.1 billion, which is the biggest ever gamble made by the young CEO.
The acquisition will surely send tremors to Facebook and Google headquarters, as a recent survey had revealed Tumbler’s popularity- 75.8 million posts per day! However, things are not clear on what Merissa plans to do with the platform. Let’s hope Tumbler’s future is safe in the hands of Yahoo, or will it invite the fate of some of Yahoo’s early acquisitions?
Here is a time line on what happened to Yahoo’s 5 biggest acquisitions, compiled by NDTV Gadgets.
Cost: $5.7 billion
Acquisition date: 1 April, 1999
What Happened: Broadcast.com was an internet radio company. Yahoo approximately paid over $10,000 per user ($5.7 billion valuation), to acquire the company, which was soon renamed to Yahoo! Broadcast Solutions.
Fate: Yahoo split the company into separate services, Yahoo! Launchcast for music and Yahoo! Platinum for video entertainment. Yahoo! Platinum has since been dead, however Launchcast, the internet radio still lives on.
Cost: $3.57 billion
Acquisition date: 28 May, 1999
What Happened: In 2009, GeoCities was the third most visited website in the world. It allowed people to host a website for free, under the name of neighborhoods like “Hollywood” and “Silicon Valley.” The extremely popular service was brought by Yahoo in the peak of dot-com bubble.
Fate: Yahoo’s acquisition was extremely unpopular among users. Company changed the neighborhoods and street address URLs for members to “vanity” URLs through members’ sign-up names to Yahoo. The new ‘terms and conditions’ of the search company provoked large number of users to leave the service. Finally On April 23, 2009, Yahoo announced that it will be closing the U.S. branch of GeoCities. However the service continued its operations in Japan.
Cost: $1.63 billion
Acquisition date: 14 June, 2003
Overture was a company which provided pay for placement search services. Businesses, including some of Yahoo were using Overture’s technology to have their Web addresses displayed at the top of search listings. It was a market kept under close watch by Yahoo’s rival Google.
Finally, Yahoo has acquired the company and renamed it into Yahoo Search Marketing.
Fate: The service is currently a part of Yahoo Marketing Solutions. However, the Overture brand is still used by local businesses in Japan and Korea.
#2 Right Media
Cost: $850 million
Acquisition date: 29 April, 2007
What Happened: Right Media is an online advertising company that operates a marketplace that enables advertisers, publishers, and ad networks to trade digital media. In a move to boost the reach of company’s advertising to social network sites, Yahoo bought Right Media.
Fate: Right Media has been integrated with Yahoo’s offerings to small businesses. It is now a part of Yahoo Marketing Solutions.
Cost: $579 million
Acquisition date: 26 March, 2004
What Happened: Kelkoo is a price comparison service in Europe that allowed customers to find information on products they want to purchase, including price and seller information. With its acquisition, Yahoo tried to specifically target the individual customers in Europe, by offering advertising options to businesses.
Fate: The company has lost much of the traction after it was acquired by Yahoo. However, it continued offer the services till finally Yahoo decided to sell it off on 21 November 2008 to a Europe based private equity firm, for an amount which is lower than 1/4th of buying price.
Kelkoo still operates, offering its service in 12 countries.
Nasdaq-listed iGATEBSE 0.00 % Corporation announced that its board of directors has terminated the employment of president and chief executive officer Phaneesh Murthy as a result of an investigation of the facts and circumstances surrounding a relationship that Murthy had with a subordinate employee and a claim of sexual harassment.
The Board has appointed Gerhard Watzinger as President and CEO on an interim basis.
“The investigation, which is ongoing, has reached the finding that Murthy’s failure to report this relationship violated iGATE’s policy, as well as Murthy’s employment contract,” company said in a statement. “The investigation has not uncovered any violation of iGATE’s harassment policy.”
A former head of sales at India’s second largest software exporter Infosys, this is the second time Murthy is getting entangled in asexual harassment case involving another employee of the same organization. Earlier in 2003, Murthy faced a sexual harassment lawsuit filed by his former executive secretary at Infosys Reka Maximovitch. Maximovitch had complained of sexual harassment and wrongful termination of employment. Infosys, settled the lawsuit out of court for $3 million.
Co-founder and co-chairman Sunil Wadhwani said that the board “deliberated extensively” on the matter
“We recognize the significant contributions Mr. Murthy has provided over the past ten years in helping to establish iGATE as a leader in the IT industry. He has worked hard to improve the value of iGATE, and we greatly appreciate his efforts. However, as a result of this violation of iGATE policy, we asked Mr. Murthy to step down,” Wadhwani said.
The other co-founder and co-chairman Ashok Trivedi said that Murthy’s departure was not related in any way to the company’s operational or financial performance.
Gerhard Watzinger, age 52, has previously worked at iGATE from 1998 to 2003 in a number of roles, including CEO of the iGATE Solutions business. Watzinger returns to iGATE from security software-maker now owned by Intel chip-maker McAfee, where he was EVP and Chief Strategy Officer.
Wadhwani and Trivedi will work closely with Watzinger during his tenure as interim president and CEO to ensure a seamless transition.
A Search Committee within the Board of Directors has been created, which will oversee the process for the identification and selection of a new president and CEO. Watzinger has taken himself out of consideration but he will serve until the selection process is complete.
iGate does not expect to make any additional structural or executive leadership changes in the near future.
Tumblr founder David Karp in New York earlier this month (Getty Images)
Guess there will be big news at Yahoo’s Monday product event in New York: The Wall Street Journal reports, “The Yahoo board has approved a deal to pay $1.1 billion in cash for the blogging site Tumblr… By acquiring Tumblr, Yahoo would instantly gain a social-media website that has become a hub of communication and blogging for millions of people. Yahoo could help Tumblr generate more revenue from advertisements.”
AllThingsD adds, “Sources close to the board said the deal was a foregone conclusion and was an unanimous vote by the Silicon Valley Internet giant… There were no other competing bids, despite reports, to snap up the New York-based hipster blogging service.” Yes, because besides starting Tumblrs like “Halloween or Williamsburg,” hipsters love to blog porn.
Forbes notes the eerie similarities of the deal to a 1999 Yahoo deal:
Imagine a company backed by Fred Wilson, one of the top venture capitalists on the Internet. The company is largely reliant on user-generated content and has had difficulties generating revenue in line with its stratospheric valuation. All of a sudden, Yahoo appears and offers a billion-dollar-plus valuation to acquire the company.This scenario may be the one many people are considering as rumors swirl that Yahoo is about to acquire New York-based Tumblr for over a billion dollars. But if you were to rewind to an earlier time, let’s say 1999, you’d find that the scenario is exactly the same as it was for Geocities, a company Yahoo acquired for $3.57 billion in stock…
Back in 1999, Geocities had trouble monetizing its audience, slapping low-priced ads all over the site in a desperate attempt to monetize as much of its traffic as it could. Today, Tumblr is just starting to monetize its traffic, with mainstream advertisers still worried about the user-generated content next to which they might appear. To its credit, though, Tumblr has taken a slow and concerted approach to introducing advertising on its properties, carefully tuning their effort to improve response rates.
Another difference is that this Yahoo-Tumblr deal is reportedly all cash (the Facebook-Instagram deal was $1 billion, but $300 million cash and the rest in Facebook stock).
The timing of the deal is great for those New York hipsters who work at Tumblr: Techcrunch had reported on Friday, “Tumblr employees have been told that the company only has enough funds to operate for a few more months, as its costs far exceed the limited revenue it earns. Tumblr pulled in $13 million in 2012, but has accelerated its advertising offering in hopes of hitting $100 million in revenue this year. The money’s not coming in fast enough to support its expenses though. Employees were recently told not to be concerned, though, because the company is expecting to be bought.” And thus David Karp can still sleep without an alarm clock.
At social gatherings when people ask N Sathyanarayanan, an engineer from Bharathiar University in Coimbatore, what he does for a living, he tells them he is a “parking guy”.
“Most people in India associate the parking business with ruffians,” says the 42-year-old, whose company, N Sathyanarayanan’s startup Central Parking Servicesmaking millions through car parking solutions, provides parking facilities for cars and two wheelers in India’s malls, airports and large scale weddings.
Braving preconcieved perceptions is paying off for the Bangalore-based entrepreneur, whose company aims at clocking revenues of about Rs 140 crore next fiscal. More so, as the business is one that he discovered quite by chance.
In 2005 he was running a technology services venture,Building Control Solutions that provided system integration facilities for large buildings. WhenBangalore’s first shopping mall, The Forum, was setup, the developers approached Sathyanarayanan to take over the parking systems.
“In building management we would install systems and then earn an annual maintenance but in parking management there is daily cash generation,” says the intrepid entrepreneur who had to learn the ropes from scratch. On an average one parking bay generates around Rs 2,500 per month with a few busy lots like those within airports generating up to Rs 2 lakh of cash every month.
His initial stint at the Forum mall proved to be a success and brought in newer projects from new clients such as the Select City Walk in New Delhi and Amanora Town Centre in Pune where over a lakh people visit malls every month. “We don’t have the bandwidth to manage such traffic and it best outsourced to outside parties like CPS,” says Tushar Mehta, Centre Director at Pune’s largest Mall Amanora Town Centre.
Buoyed by this growth in the consumer retail sector, CPS soon emerged as the flagship division for the company. “It is a capital intensive business.
We have to invest Rs 6-7 lakh per parking bay in any retail mall to make it functional,” says Sathyanarayanan. The leap into the big league however came with the contracts to manage parking for Terminal 1 and Terminal 2 at Delhi Airport. In the same year, the young company also bagged the contract to manage 3,000 car slots at the Bangalore Airport. CPS now manages about 65,000 bays across 32 cities now.
Strong growth has helped the company attract the attention of risk capital managers. In 2010, early stage investor, Venture East put in $5.5 million (aboutRs30 crore now) in the company. CPS is also trying to change people’s perception towards the business. Last summer, a customer’s shirt was torn during a brawl in a parking lot managed by CPS in Greater Noida.
The customer asked CPS staff to sew the buttons. “Unlike the unorganised parking guys, our staff sewed the shirt just to demonstrate customer service,” says Sathyanarayanan.
Another big challenge is retaining trained staff as semi skilled youth trained by CPS often switch jobs to food courts or air conditioned shops inside the same malls where they are employed.”Its a dangerous job for staff in some of our installations in towns of Uttar Pradesh where goons take out country pistols when asked for parking fee,” adds Sathyanarayanan. The company monitors parking bay occupancy at each of its installations through a command and control centre in Bangalore.
With about 26 lakh new cars on Indian roads every year, demand for parking spaces is at a peak in India’s metros. Growth of about 25% in organised retail sector has led to similar companies like Secure Parking, Wohr, FAAC, Tenaga emerging in the parking solutions business.
Besides malls, CPS also earns from large day-long events such as political rallies, religious congregations or marriage functions of high profile industrialists which require management of over 4000 cars with valet service.
Next on the agenda for CPS India is toll and traffic management. CPS is aiming at earn revenues of Rs 250 crore in FY 15. “We aim to grab the majority market share of this business and becomes a billion dollar parking business in India,” says Sathyanarayanan.
Source: Economic Times
Infosys fell short of a revenue target it lowered twice during the financial year and forecast that growth would be anaemic, causing investors to dump a stock once regarded as the bellwether for the Indian software industry.
With its forecast of 8-10% revenue growth during the year to March 2013, Infosys’ guidance trails the growth estimate for the industry by Nasscom and puts it in serious danger of being overtaken by rival Cognizant as the second largest software exporter.
Other than the mortification of losing its place in the software industry pecking order, Infosys’ under performance could mean that it risks losing the confidence of investors and analysts who could question whether the management has a coherent strategy that is capable of delivering growth while protecting margins.
“Infosys has been most disappointing; it is below all estimates. It seems more company-specific rather than a problem with the sector,” said Sanjeev Hota, assistant vice president for research at Mumbai-based brokerage Sharekhan.
Indication of the Street’s disappointment came from the way the company’s shares were pummeled – the Infosys stock fell by nearly 13% on Friday the 13th, regarded a day of bad luck by many.
The shares lost Rs 20,000 crore in value in a single day and recorded the steepest fall in 30 quarters. In the financial year that ended in March, Infosys grew its revenues by 15.8% to $6.99 billion (Rs 33,734 crore) while profits grew 14.5% to $1.72 billion (Rs 8,316 crore).
At the beginning of the financial year Infosys said it would grow revenues by 18-20% but later lowered that to 16.4%. “This is a statement of fact; this is our reality based on our client base,” Chief Executive Officer SD Shibulal said of the growth forecast. “We state it as we see it.”
Infosys blamed developments in the final month of the January-March quarter for missing revenue forecast, saying there was a decline in spending on regulatory compliance in the US and hesitation to fund programmes won by it because of personnel changes at two major clients.
Compared to the December quarter, revenues fell by 2% and income rose by 1.1% to $463 million.
Stock may be downgraded
Infosys announced a special dividend of Rs 10 per share (to mark 10 years of its BPO business) in addition to a dividend of Rs 22, involving a total payout of Rs 1,870 crore.
During the quarter ending in June, it said revenues would be barely changed from the three-month period in March.
“Infosys’ FY13 guidance of 8-10% revenue growth is disappointing. The company’s guidance of 0-1.1% quarter-on-quarter revenue growth in a seasonally strong first quarter is even more disappointing,” said Saibal Ghosh, chief investment officer of Aegon Religare Life Insurance.
“Company-specific scepticism may now result in consensus downgrading of the stock.”
Despite the volatility with some clients, Infosys said it closed five large deals in the last quarter, with at least three of them bigger than $100 million in value. Bank of America and UBS are Infosys’ largest clients.
The feeble guidance comes at a time the US economy, which contributes nearly 60% of the revenues of the $100-billion Indian IT industry, has been stabilising. For a year now, Infosys has been the laggard among large Indian IT services providers such as Tata Consultancy Services, Cognizant, HCL Technologies and Wipro.
While rivals such as HCL and Cognizant have been chasing revenue and market share growth, sometimes at the cost of profit, Infosys is seen as having lesser risk appetite.
“Our margins would have rushed to the toilets like that of the others if we had hit this air bump while chasing high-volume, low-margin business,” said Ashok Vemuri, who heads the banking and capital markets for the company, in defence of Infosys’ strategy of chasing higher margins.
But an analyst with a foreign brokerage blamed the top management for the lacklustre performance in recent quarters.
“At this point, it is extremely difficult to predict where the overall growth of the company is headed. They may not be able to report high growth at least till the end of FY13. The company doesn’t seem to have much momentum as of now.”
In a reflection of its lower growth expectation, the hiring target for the year has fallen from a year ago. In the year to March 2013, Infosys plans to hire 35,000 compared to 45,000 last year. As work volumes come down, more Infosys employees are sitting idle, with only 67% of its nearly 1.5 lakh employees working on active revenuegenerating projects.
While Infosys struggles to maintain revenue growth, the fluctuating local currency is making it harder. “The rupee will be under pressure somewhere in the range of Rs 50-54,” said V Balakrishnan, the chief financial officer.
Infosys’ “big miss on various counts” will inevitably raise questions among investors about the health of the sector, JPMorgan wrote in a note to clients after the earnings announcement.
But Balakrishnan said the market has its own way of looking at things and reacting. “We can’t be too concerned about that. Companies can’t be run based on market reactions. You have to take decisions in the interest of the company’s long-term goals.”
The famous promoters of Infosys have steadily been reducing their stake. The combined promoters holding at the end of March 2012 in the index heavyweight stands at 16.04 per cent. They held 28.72 per cent stake in March 2002.
During the period, the Rs 5-paid Infosys jumped from Rs 256 (after adjusting for bonus and stock split) to Rs 2,402. It had hit a life-time high of Rs 3,499 last year. The company had given 3:1 bonus (three shares for every one held) in 2004 and a 1:1 offer in 2006. The company had hit the capital market in 1993.
Reduction of stake is quite prevalent among its promoters. From Mr Narayana Murthy to Mr Nandan Nilekani to Mr Gopalakrishnan and their family members, all have reduced their grip in the company.
Interestingly, Mr N.S. Raghavan and his family members have quit the company completely to pursue their own interest. They were holding about 4.85 per cent stake in Infosys. Mr Narayana Murhty launched Cataraman Ventures, a venture capital fund to help start-up companies.
Even as promoters cut stake in Infosys, foreign institutional investors and domestic institutions have reposed their faith in the company. Interestingly, FIIs holding at 39.02 per cent, is more than double that of promoters group. In all, 928 FIIs have exposure in the company. They held a stake of 36.59 per cent in 2002.
Mutual funds’ holding in the stock currently reduced to 4.69 per cent (from 7.39 per cent in 2002), while that of insurance companies increased to 11.83 per cent (2.03 per cent).
Retail investors, including HNIs, have largely maintained their holding to around 13 per cent.