Goyal’s Air Sahara acquisition marks a turning point in Indian aviation, but will it fulfil expectations?

IIPM PUBLICATION

India’s largest domestic airline just got larger. In a landmark deal on January 19, 2006, Jet Airways announced an agreement to acquire the entire share capital of Air Sahara for $500 million. This could well begin a wave of consolidation in the already overcrowded Indian aviation industry. But lobbying by other players is on, and the regulator has still not given its verdict

Naresh Goyal’s designs on Air Sahara were certainly not unknown. That’s perhaps why the Jet – Sahara deal didn’t ruffle many feathers. Since Dr. Vijay Mallaya’s Kingfisher Airlines gave up the idea of acquiring Air Sahara on various grounds, it was almost certain that Jet would be the one to guzzle Air Sahara. With this acquisition, Jet Airways’ market share in the domestic air traffic in India will reach nearly 50%, which, in effect, means Jet will rule the Indian skies. And whoever said Jet is new to the idea of monopolies? Even Bill Gates himself would perhaps vouch for the business intellect and acumen of Naresh Goyal, in this regard. A commerce graduate with extensive experience in the aviation industry, Goyal took the giant leap to set up Jet Airways in 1992, and soon , Jet had the state owned carriers on the backfoot. Jet has also been accused of using its premier position in the aviation industry rather unfairly.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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The undisputed king of petrol

IIPM MANAGEMENT INSTITUTE

With a vision to be the global emperor, will Mukesh be ‘the one’

The man must be encountering a string of conflicting emotions. Relief at having managed to hang on to Rs.850 billion out of the Rs 1,000 billion empire; sadness at having to give up his “brainwave”, “favourite baby” and recent passion, Reliance Infocomm. A surge of joy at having kept the post of Reliance Chairman – last occupied by Dhirubhai Ambani; and worry at having to fill his shoes.

At the moment, Mukesh looks like the clear winner when it comes to inheriting the Ambani legacy. Dhirubhai Ambani’s driving passion was to create an industrial empire that rivalled the best in the west. He did that, by starting with textiles and going all the way to oil and gas. What Mukesh has inherited is really his father’s legacy and vision. Even he has admitted during the launch of Reliance Infocomm that it was Dhirubhai who dreamt of a mobile phone call at just 40 paise.

The problem is: the core businesses of Reliance can only grow so far organically; after all, what more can you do after setting up a 30 million tonne refinery and discovering India’s largest ever source of gas? Historically, the oil majors of the world have grown at a pace that is far slower than companies in the services sector. Oil companies like Shell, Amocco, Texaco and British Petroleum may be garangutan, but conceivably those are companies in services like Wal-Mart, Microsoft , Intel and FedEx that will rule in the 21st century.

The way the sibling rivalry has unfolded, there is simply no way Mukesh would be content to gloat at the huge share he got of the divided Ambani pie. Predictably, there are clear indications that the elder brother might invest in real estate, retail and value added services. He will obviously use the huge cash generated by Reliance to finance his ventures. That’s exactly what he did with Reliance Infocomm. Innovating in mass marketing of petroleum by bringing it to the doorstep of normal retail customers is a sure shot investment he’ll undertake soon. In fact, Reliance has already unveiled a plan to launch about 150 ‘dhaba’ style budget hotels strategically located in company owned petrol pumps. But right now, Mukesh Ambani doesn’t have the luxury. For starters, the group’s cash fund will dwindle because of pay off s to younger brother Anil. Then again, the famed Ambani clout in the corridors of power is no longer as envied as it was.

If one were to look deeper, the future of Mukesh Ambani’s truncated Ambani empire looks virtually impregnable. The size, the cash, the pedigree, the ambition, is all there. India now needs no kings, India needs emperors, and Mukesh may be the first, incumbent to the throne!

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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All in the process of making ‘quality’ tyres inside the Baroda Steel Plant

IIPM PUBLICATION

Another threat to the company is the alarming rise in prices of raw materials, conspicuously reducing the bottom-line growth. Even if we talk about just the price of rubber and crude oil (which are the main raw materials), the combined cost-to-company due to procurement of these two raw materials have soared (from an already dangerous 62% during 2001-02) to a spine-chilling 70% during 2005-06 – proving a major headache for Apollo and other big players in the industry which hope to control costs through increase in scale of production. And the problem only seems to be getting worse with domestic rubber prices increasing by 59% y-o-y during 2005-06. The problem internationally too does not seem alleviated, as there too, prices increased by 76% over the same period! Talking about the threats, Onkar Kanwar said, “It has not been a smooth journey but it definitely has been fruitful. We follow stringent quality processes to ensure product quality. As a company, we have constantly increased our capacity without additional capital expenditure. We are very costconscious. Fuel efficiency, energy usage & conservation is a major thrust at Apollo Tyres to ensure both conservation and cost savings.”

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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When the sky fell on us (64)!

IIPM MANAGEMENT INSTITUTE

What’s in a name – a name is after all a name and nothing more. Well, don’t be so sure! Who better than UTI to know plight of a name, and more so when the name has been associated with a cataclysmic scam, that shook the nation and the mere allusion to which fills investors’ mind with torturous dread till date.

Mention Harshad Mehta, Ketan Pareekh, C.R. Bhansali, Teak Equity, Vanishing Company, UTI et al and ‘SC- A-M’ is the top of mind association. This is precisely the beauty and power of a name; it can create, and it can destroy. Although the name UTI has instilled a feeling of trust, the name has a dark past as well.

UTI Bank itself has nothing much to do with this history, yet such is the power of the name that even to the most prudent and the intelligent, the name UTI brings back ghastly memoirs of the 2001 scam – the US-64 scheme fiasco (perpetrated by UTI AMC). It is a matter of a fraction of a second before one delves into the past and imagines the plight of a retired person who would have put a large part of his or her PF, gratuity et al in the US-64 scheme, considering it to be the safest possible investment on earth. Not only did the small investor’s income (interest/dividend) become half overnight and shatter this belief; they also lost a major part of their precious earnings.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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