The Other Side of Things...

There is always the 'Other side' of events that happen in our life. With experience most of us become more prudent to realize this reality.

Our elders were not wrong when they said, "Its the youth in you that wants to take risks, experiment and experience." Till we are parents ourselves, we don't get to know what our parents thought when we sought our own way and defined our own priorities. Similarly, my bias to stick to what I held as an opinion at work was wrong, I failed to see the other side of things. Though, what I meant was not weighed by 'Others' from 'My side of things...'.

My elder daughter will be a teen in a year's time. And I better know the 'Other side..' of why a Facebook profile is important before turning 18, why looks matter more today and what independence is all about. I, as a teen must have gone through a similar phase but still chose to react in a way that replicates 'My Side..' approach followed by my parents. 

Optimists are ones who are confident and have a coherent story that validates their belief. However, there is an "Other side..' to this. Quoting from the book, "Thinking and Fast and Slow", "A CFO who informs his colleagues that 'there is a good chance that the S&P returns will be between -10% and +30%' can expect to be laughed out of the room. The wide confidence of interval is a confession of ignorance, which is socially not acceptable for someone who is paid to be knowledgeable in financial matters." 

Anyone who has a coherent story will be rewarded and the moment it is qualified with 'Other side..', it is subject to criticism. President Truman (of United States) famously asked for a "one-armed economist" who would take a clear stand; he was sick and tired of economists who kept saying, "On the other hand.."

Why is knowing the 'Other side...' important? First, nothing in life is certain. Striving for certainty and ending-up to have overconfidence may make us blind to risks associated with an uncertainty. Acknowledging the 'Other side..' will help us prepare better both for facing risks and accepting the failures. Second, it makes us more understanding and accommodating. It helps us connect and bond well with those we love and care for. Lastly, 'Other side..' is a personality trait that is defines ones leadership skills and formally defined as a 'Lateral Thinking'.

I failed to see so many things in my life from the 'Other side..'. However, I am beginning to realize this. 

My wife was not mistaken to have unwavering belief in my strengths, my capabilities. Atleast, I have started to take note of such an opinion. Whenever, I had an argument (lucky one to do so) with her, I lost it since she always had a more logical 'Other Side..' which was more convincing.

I grew to be more accommodating to my friends from different economic and cultural backgrounds. Today, I connect with a Sindhi, Brahmin, Bengali, Jaini, Gujarati, Christian and a Punjabi whether from India or Canada. 

For me praying was more about acknowledging the fear associated with almighty's powers till I realized that its all about igniting the source of energy within ourselves. 

Phone calls to parents staying away from me is about recognizing their efforts to make us what we are. And, its not a bad idea to have your parents staying away from you since that gives them a lot of free time in their lives that they longed for. 

Buying your kids things they demand is not the ONLY way to compensate for quality time that I fail to spend with them. 'not the ONLY' since I still believe its a good short-cut to ensure happiness and save time for oneself. 

Watching television is not a waste of time. Its also a source of entertainment as well. Elderly today are kept entertained and updated about developments in the world via television who otherwise cannot venture out anymore. 

Fitness is a way of life but this is not an universal reality. We have healthy humans on this earth who never exercised as much as I do. 

However, whenever I had 'Other side..' to express, I was called, "He is a person who can take any side, can argue both sides- for and against." "Don't be a thaali ka baigan (Brinjal)" or "You are a "Bin paende ka lota". (can take any side). May be the criticism is for the indecisiveness associated with my approach to take note of 'Other side..'

But I am not calculative and diplomatic for sure...

Learning to Exercise

Exercising does not come naturally to most of us. A very subjective estimate may go like this-

-          - 90% never exercised and believe they do not need to;

-          - 5% think only overweight needs to exercise;

-         -  of the remaining 5% less than 1% is actually able to exercise and sustain it over a long period of time.

Exercising is a lifestyle issue and not a stop-gap arrangement as if under some medication to get desired results. Empirical research has always proved that optimal level of exercising strengthens both internal and external organs of human body. But despite all what is written, read and understood very few of us are able to introduce exercise as a permanent change in their lifestyle.

Last year, I began exercising after a gap of some 15 years. In the interim, I had several failed attempts to introduce it permanently into my lifest with efforts lasting maximum 3-4 months. When I tried again in March 2012, I was not sure of being successful. I started off with a very light exercise regime so that I could still be full of energy to work for 12 hours every day. The schedule I followed was a self-developed one that gave me comfort and allowed my body to adjust to exercising. Coupled with some diet restrictions I was able to get desired results. My weight reduced by 15 kgs, waist shrunk by 3 inches, stamina increased to a level that from being out of breath ascending few stairs, I could run at 9km/hr for min of 45 minutes with ease.

Post 12 months of exercising for atleast 5 days a week, I was back to having a diet which was twice was what I ate in last two years. Once we attain the permanent change- which in my opinion is possible after exercising regularly for a min of 12 months- diet plays an important role to ensure that your body is not devoid of minerals and vitamins in requisite quantity. In other words, no such diet control from quantity perspective is applicable. It should find balance with the quantum of exercise we do.

My schedule was also put to test accidentally by my friend who was overweight (by 30 kgs) and was worried when Doctors he visited were threatening to put him on medication- 1 tablet for cholesterol, 1 for blood pressure control and a couple more for other associated problems. It is not less than a shock for anyone to hear from a Doctor that he/she is ill. Our whole approach to our bodies (that is usually least cared for) becomes very scientific. We immediately get concerned about what we eat, how much we work and the rest we get. Most of us usually end-up blaming polluted food we get to eat and not the choices we make to eat. Blame our work schedule for strain and inappropriate sleep. But that is not the case always. Fault lies with us and we are blame for the problem at hand.

In first month, my friend called me to say that he had followed my schedule and was able to reduce his weight by 7 kgs and as per Doctors he should continue to build on the new exercise regime. My friend was amongst those who had not exercised before and was settling down comfortably into the exercise regime developed. What he followed is presented below for the benefit of all others. I suggest consult your Doctor with the schedule below, if in case you intend to follow, and then go ahead only when he confirms it to you. 

Indecisiveness is good?

All our actions in life are goaled towards ‘Certainty’. The more we have it the better we feel. However, indecisiveness is a personality trait that is common across most of us unless it is chronic. We are indecisive about which course of action to take. Our preferences swing like a pendulum between choices at hand. As per Behavioral scientists indecisiveness emanates from the need to achieve certainty. So for a layman ‘Certainty’ is root of indecisiveness.

Consider the indecisiveness that a teenager undergoes when she is not clear of what interests here. Symptoms of poor motivation, high peer pressure, low self-awareness etc. may be evident in her personality. Similarly, consider a professional who is to choose one job offer from the two options he has. Firstly, if she approaches it rationally, final call can be taken post listing out pros and cons for each option and then chose the one that has higher no. of pros. Alternatively, we may have a situation where the professional is impulsive and opts to accept the job offer that assures ‘Certainty’ to any of the priorities he has defined for himself. For instance, more salary, dream company, better job profile, better designation, proximity to residence etc. In most cases some or the other bias exists that impacts our decision-making.  

Indecisiveness despite several disadvantages has several benefits while preparing us better for ‘Certainty’ in our lives. If it’s not chronic, since that’s a psychological disorder, it is good to be indecisive at times. There are several reasons for this:

1.      Multiple factors impact any decision and most of them are unknown to us. Such hidden factors are revealed usually with time unless we have a researcher’s approach.

2.      We do not control all the factors that influence our decision.

3.      We will have to define a pecking order of the factors for their relative impact on the decision to be taken.

4.      It prepares us better to face the risk associated with a decision since we have run through all possible scenarios in our imagination.

Forgetting Fear and Winning Uncertainty

Uncertainty breeds fear. Despite all our strengths and preparation to face a situation in our lives, factors beyond our control exist as roots of uncertainty. Our perceptions, beliefs and past failures build upon such uncertainties to have a full fledged fear with deep roots inside us.

 

Significance of factors beyond our control vary and hence possible impact these factors have on the 'Desired' outcome. Please take note of 'Desired' here.

 

Fear has its roots, both, from uncertainty around factors beyond our control and from doubts on factors that are under our control, our strengths, in other words.

 

As individuals we all face situations in our lives- both expected and unexpected. Our ability to foresee/pre-empt these situations helps us prepare better but FEAR may still exist.

 

Law of attraction is a concept that teaches to fight fear and get a desired outcome. It educates us to practice sending out positive statements/desire statement to our brain. Constant positive re-enforcement impacts our thinking and finally, influences our actions. As a result, we forget about the uncertainty. We only remember what we desire and the strength that we posses to achieve the desired outcome.

 

Ultimately, we FORGET FEAR and WIN UNCERTAINTY.

Leverage and SMEs- Is capital structure of any relevance?

Optimal mix of debt vs equity helps define the hurdle rate while taking capital expenditure decisions. Choice of capital structure; its optimal level compared to equity and how and when companies churn their capital structure has been researched widely in academic research.

 

While reviewing the relevance of capital structure for Indian companies due consideration to constraints to finance is important. Large and 'A' rated companies have a wide array to chose from while SMEs are highly constrained in terms of choices. Further, most of the SMEs in Indian are family-owned businesses who have a strong aversion to debt.

 

For SMEs, pecking order of financing (when internal accruals are not enough) are:

1) Unsecured loans from promoters/group companies;

2) Equity from promoter;

3) Secured borrowings from banks;

4) Equity/quasi-equity from non-promoters.

 

Working capital gap is funded by stretched trade credit and borrowings from non-market sources, as well. The quantum of borrowing usually depends on the nature of business and reputation the promoter enjoys in the business circle.

 

Traditionally, world over, family-owned businesses are known to re-deploy the retained profits to reduce debt and/or grow their business. Cost of capital is not a very important criteria for two reasons:

1) Promoters have reasonable return expectations and hence unlike an ROI of 20% and above for a PE, promoter is happy with a return of 10-12% spread for over a longer time horizon;

2) More than the cost of debt, control dilution is a far bigger reason for aversion to debt from banks.

 

 In recent years- with what is observed by me in case of Indian firms- over-leveraging has become quite evident in the balance sheets of Indian companies, especially more alarming in case of SMEs. Increased competition and shrinking profit-margins have forced firms to resort to debt, to ensure enough liquidity to tide over trough phase of business cycle.

 

Hence, any attempt to comment on the relevance of capital structure for SMEs, we should look at them in a financing-need induced framework. Byoun (2007) has suggested to review capital structure changes under 4 scenarios:

 

1) Financial SURPLUS with MORE than optimal level of debt

 

2) Financial SURPLUS with LESS than optimal level of debt

 

3) Financial DEFICIT with MORE than optimal level of debt

 

4) Financial DEFICIT with LESS than optimal level of debt

 

* Byoun, Soku, How and When Do Firms Adjust Their Capital Structures Toward Targets?. Journal of Finance, Forthcoming.  

 

CHANGE IN MY LIFESTYLE- Exercising my way to a new life

Going for a preventive health check-up was an impulsive decision last year in March-2012. I was sensing some discomfort in my overall fitness and well-being. Finally, the trend to go for a preventive health check-up caught on me.

I was never so unfit in my life. I have a past of a sportsman. I did some rigorous cycling during my college days. My fitness levels were- weighed 65 Kg (for a 5ft 10 inch height); heart beat in resting stage was 60 beats per minute (indicative of the stamina); cycled some 3000 km in a month.

 

 

Today, 15 years hence, I had enrolled myself (unknowingly, just like others) in the rate-race club. While getting my love was my decision, rest all events in my life unfolded, as if they were freebies with that one decision of mine. However, no excuses on my laziness and negligence. I WAS RESPONSIBLE and I AM RESPONSIBLE  for my health and fitness.

 

 

My test reports were out in a day's time and was shocked to note that atleast five readings across lipid profile, liver function and kidney function test were out of the normal range. Nothing alarming medically though, but shocking to me personally since my body was expected to work for some 40 years more to take care of seven dependents. Outliers in my medical tests may be acceptable to a statistician and a doctor but no way acceptable to me personally.

 

 

Finally, I had that one reason to stretch myself to come out of self-created web of reasons of not having enough time to exercise. Since that day, I am awake before alarm goes-off on my mobile phone- Good Morning- at 5:30 am.

 

 

I started initially with 2-3 km runs and then exercising at home. I exercised a min of 4 times in a week. First one month was an acclimatizing phase when my metabolism was increased to a level that demanded I ate more and rested post workouts. But resting was not possible. I had to be at work by 10:00 am six days of week.

 

 

I was entering a phase where I needed some motivation to continue my new routine. I tried hard to restrict my diet to multiple but short bites during office hours. I kept narrating my workouts with my colleagues to ensure their encouragement kept me to go-on.

 

 

Then my dream of being back to cycling once again turned out to be a reality. One Sunday evening despite having fever my wife accompanied me to buy a racing bike.

 

 

That night, I could not sleep. I lived through my past life 15 years back, when I cycled. I could not wait for the morning alarm to go-off. First day, I cycled on my new Canondale cadd 8 series was Jun 29 2012. I covered some 32 km at 20.5 km/hr i.e. I took some 1:33:51 hrs to cover the distance. Compared to that, today, I average around 27 km/hr for same distance and same route of cycling.

 

 

Since my first day of cycling, after a chasm of 15 years, I have covered some 3,776 km at an average speed of 26.1 km/hr. I have burnt some 128,132 kcal in total. So after such an effort and with a balanced lifestyle, I do not have the urge to redo my medical tests. I have lost some 12 kg of fat and reduced waist size from 38 inches to 33 inches.

 

 

June 29 2013 was the first day of my workout recorded on the sports-tracker app. Today, I covered 48 km on same Gurgaon-Faridabad road and despite being a humid and hot day was averaging 26 km/hr.

 

 

I aim for competitive cycling now in my age group. I am assured that I have managed to change my lifestyle permanently but will not take it for granted. Today, I can cycle for some 40 km in morning and still me active through out the day. I have the luxuries to break rules of a controlled dieting over weekends. I sleep deep and sound. I am happy and less stressed. I have been impressing people around me with my new hobby and fitness levels. My wife is the first one to adopt the new regime in her life as well, easy for her since she has been a great swimmer through out her life. Since then, I have impressed upon my father and my chacha ji to buy a bicycle.

 

 

 

I intend to impress upon others as well- known or strangers- take-up fitness route to life.

 

Also do read - http://www.linkedin.com/today/post/article/20130625095621-250042058-the-5-30-a-m-workout-that-will-change-how-you-live

 

Why you should not look for a new job?

People end-up searching for a new job for varied reasons. While they have a convincing rationale to explain others, they fail to realize the exact reasons within and evaluate them thoroughly. Money is one of the key factors they often get carried away. Forget evaluating reasons for change, most of them fail to decode the new company's CTC structure which may be hiring them under pretext of higher increase ultimately paying far less. 

Before identifying the reasons for NOT changing a job, what situation(s) or reasoning prompts to upload their resume on Naukri should be listed:

Boss Related:

1. Hate his personality and behavior. 
2. Takes credit for my work.
3. Preaches transparency but practices conflicting task allocation amongst colleagues.
4. He knows nothing. I am better not report to a person who knows less than me. I wonder how is he my boss.
5. He is using me to meet his task and will render me useless in company the day he has a back-up for me.

Job Related:

1. I have a monotonous job. Sick of coming to work at same place with same frowning faces around.
2. I have an ugly workstation and no one cares or respects me. Only select seniors in the company are respected. 
3. I have a new role before I have settled well into the existing one. 
4. I actually do not like my current job. I landed up doing it accidentally. 
5. My father earns enough so why should I slog for someone else.
6. My current profile is name sake. Actually I have no job that could land me a new job easily. So lets move before its too late.
7. I have mastered my current job and equivalent to a Doctorate. Lets explore out I am sure I will be able to perform.
8. I will not be paid enough in my current company for this role.
9. The role may not last in my current company and I will have to change job since I am not ready to accept anything other than the current one.
10. My colleague wins "Best Employee" reward while I fail to get one.

Money Reasons:

1. My friends are earning more
2. I am yet to buy a house.
3. I need to own a car or a bike. 
4. Salaries are delayed as if my employer does not feel like paying me. 
5. I performed very well but then annual appraisal will average 10%
6. I already have an offer paying me 40% more.

Despite the easy way out, taking up a new job has its own challenges and at times and with some adjustments and thinking style you are better to continue in current job:

1. Start thinking like a businessman- just like your employer. Keep asking yourself- Why should I continue to be paid? Answer to this is easier to find with existing employer.
2. In case of Boss related issues, you are better off dealing a 'Known Devil' than an 'Unknown One'
3. You already know your boss's strengths and weaknesses; leverage them to your and your employer's advantage.
4. Be proactive at work this is possible only if you know what to do and enjoy the support of colleagues. In new company you will not be able to get this comfort with ease. 
5. Proving and establishing your credentials takes time. Better stick to current job them re-start it somewhere else. Remember- time not only heals old wounds but also create favorable biases.
   
6. Stability of a job is letting you plan for other things in life better- more time with kids; comfort of taking leaves; personal favors from colleagues; family connection etc.
7. Accepting change in a well-known set-up is far easier than in a new environment.
8. Better-off spending energy getting more efficient in current job than finding a new one.

Trending on New year eve

On new year eve, listed below are some trends that I sensed or hypothesized to turn into reality in coming years...

1) Market for small cars is shrinking. SUVs are a fascination. Good to see that manufacturers had to customize the SUVs to fit Indian customers' budget. Last year it was XUV 500 and this year DUSTER.

2) Indian Women may have to be more patient before she gets her rights- the wait seems to be longer. Jai Mata Di... 

4) Health consciousness is on the rise. Till few years back Baba Ram Dev marketed yoga that prompted people of adopt healthy living style. Going forward we may get to see marathon runs and sporting events like skating, cycling and golf taking lead over yoga.

5) Preference for football over cricket represents a divide between HNI and middle class of Indian society. Football is preferred over cricket by kids of HNI (High Networth Individuals). Cricket is left to middle class kids- My friend highlighted this to me and I believed it instantly.

6) Privatization of hospitals will reduce dependence on government hospitals. Within next 5 years we may see hospital chains in smaller towns of India. Where will they find good doctors? God Knows!

7) India moving towards presidential democracy..with decisions delayed and falling credibility of politicians what else is the option. But this may take another 50 years..

8) Online shopping may not be cheap for long. Dear Entrepreneurs of E/M-commerce industry please plan to make money from day ONE. Loyalties of customers are low and will not stay long to let you en-cash them. 

9) Gaming on couch is gone. More innovations on virtual gaming are on the way post launch of Kinect by XBox.

10) Networking sites like FB and Twitter may not last another 5 years.

Apps to be disciplined and stay healthy

On Health and fitness front:

Taking up cycling after almost 16 years was a totally different experience. Back then in 1993 we were restricted to using speedometers installed on our bicycles that tracked the speed and distance to be precise. And most of us never afforded the gadgets. I had not even heard about mobile phones then. Also, in those days rarely anyone would have spent INR 7.5 K to 20 K on a road bike and neither would have they been  available easily.

Today, we are overwhelmed with smart gadgets, most of them free to use, not only keeps one entertained during the workout but also tracks your performance. One of the main advantages, they help you step beyond just fitness, to performance.

Business line carried an article listed out some of these applications titled "Track your walk". Two additional apps that I would like to suggest here are http://www.sports-tracker.com/ .  This app is a free to use on symbian phones ( I am not aware about other OS). The app allows you to export the workout details in excel format, upload live to the its website and of course on facebooks and orkut. The website www.sports-tracker.com shows world map with blinkers of users already registered on site and sharing their workouts in public forum. This is one of the prime attractions to visiting their site.The apps tracks altitude as well and shows the speed and altitude as a graph.

Next, app that is not mentioned in the article is micoach by Addidas. This app is again free to use but allows you to track your heartbeat. ensure to check whether the same is compatible with app else they sell their own set of gadgets to track the same. Please visit http://www.adidas.com/us/micoach/


On Discipline front:

We at office may object to restricting access to Facebook,Linkedin, Orkut and Twitter and may even win the case with management for allowing access to these websites. But the reality is, with advent of these sites which are now accessible on mobile phones as well, lead to increased levels of distraction. Distraction in simplest terms is reduced focus on task at hand. Reduced concentration has its own problems- extra time to complete the task, lack of control, incorrectness in interpretation or calculation of data. All this, further complicates when most of us as professionals tend to carry "status quo" approach to decision-making. All the talk to innovation and efficient management remains in books and talks of consultants. Anyone who succeeds may smartly attribute it to what is said such books and talks. So we may all will agree that we have a problem at hand i.e. Distraction.

I came across some very good apps that control your distraction. Please read about them here Apps for Online workers  .

Limited role of non-financial stakeholders?

Financial decisions (funding of firm's investments) interact with overall strategy of the firm. The role of stakeholders assumes significance since a firm continuously engages with its customers, suppliers, employees (including prospective ones), lenders and shareholders. Each of them having their own objective for being associated with the firm. 

Customers expect the firm to service its product purchased while employees look at career growth. Vendors look to continue to supply so that they continue to have the firm as its customer while shareholders and lenders desire return on investment. None of the stakeholders would like to engage with a firm that is loss making or is highly leveraged (measured as Debt-equity ratio). This seems quite illogical atleast in case of equity shareholders or lenders who have put their own money into the business. For instance, in case of shareholders such a situation arises only when the cost of liquidation outscores the cost of running the firm. 

Stakeholders can be categorized into two types- Financial and Non-financial. Financial stakeholders have access to financial information using which they take decisions to invest or withdraw from the firm (irrespective of the size of the firm). However, in case non-financial stakeholders access to financial information is limited. This is true, more in case of unlisted firms/SMEs. Hence, it can be reasoned logically that non-financial stakeholders have limited role in shaping the overall strategy of SMEs. In other words, managers of SMEs will be more focused on protecting interests of its financial stakeholders over its non-financials stakeholders. Is this true?

Alternatively, is it that managers of SMEs, unlike managers of large corporations, are far less constrained in their choice of financial decisions? But do they have enough options to chose from?

Motivation for my research topic

I have struggled hard to work on my research topic due to lack of focus, time and motivation. My attempt below is to document the three key motivators to continue to pursue my research topic on capital structure theories:

1. Study of capital structure is a complex due to involvement of multitude of factors that vary within firms over time, across industry and across countries. Majority studies have taken large sample of firms across industries to ascertain the determinants of capital structure and its adjustments. Hence, its imperative small subsets of sample firms are studied to better understand capital structure theories. This is of immense significance in context of Indian firms. 

2. Existing studies convincingly argue that careful measurement of key variables including the dependent variable (debt/equity ratio) is critical. Studies have tried to develop statistical models that attempt to explain the capital structure variation but each is a partial fix and still leaves much of capital structure variation unexplained. (see Graham, John R. and Leary , Mark T., A Review of Empirical Capital Structure Research and Directions for the Future (April 7, 2011). Annual Review of Financial Economics, Vol. 3, 2011.) Hence, using non-parametric methods on primary data (collected through) questionnaire is expected to help identify qualitative factors that influence the choice and variation in capital structures. The proxies for qualitative factors in parametric models may have failed to capture their effects completely.

3. Despite years of research, capital structure remains a "puzzle" (see Myers, Stewart C., Capital Structure Puzzle (July 1984)). NBER Working Paper No. w1393.) Is capital structure of a firm an outcome of its business decisions or is it a determinant of business decisions? We have trade-off and pecking order theories  and several decades of empirical research attempting to validate the capital structure theories but the "puzzle" provides enough scope to validate and study it further. 

--

Regards

Jaspal Singh
09711001973
New Delhi

Right workplace

"Workplace is place of worship. We work hard at this place to achieve our goals that we set ourselves to achieve. Some of us are employers while others employees but basic characteristic of a work place remains the same."

 

If what is stated above is true why do we keep hearing of companies trying to set-up amenities at workplace that prompts the worker to show at work for longer hours? May be they have been preached by some consultants belonging to following school of thought- Keep him stay long and he will be worth nowhere except here :).  We are most productive if we work short and specific. Workplace should have minimal distractions and an environment that lets you focus and work better. If we limit the time spent on aligning with each other we will be complete tasks on time.

 

Imagine a situation- You work with 100% focus for 8 hrs. Leave office at 6 pm to a gym or a game of squash or tennis or an evening back. You return home by 7:30 pm. Chat with kids. Refresh the lessons learned from your kid's books. Eat with them and then go to sleep at 10:00 pm.

 

Working long is making us socialize less in real life and over-socialise over facebook, linkedin and orkut. Our employer states, "Focus on end results and I do not care what you do" but rates a colleague of yours higher who spends longer hours at work.

 

 

 

Failed Economics of retail in India

Offering organized retail as a choice of shopping for extra price-sensitive Indian consumer was never going to be easy. Failing to attract enough footfalls into their stores, the road ahead lies in effective positioning and branding. Will the sector get there?

Few years back all looked upon organized retail as the next big thing in Indian economy. Players like Reliance, ABRL, Shubiksha launched their offerings in supermarket, Specialty and Hypermart formats. Supermarkets were opened next to Kirana shops with size ranging from 4-7k sqft. Hypermarts were opened in city outskirts where the real estate development was just happening ensuring enough parking space and recreational facilities for visitors while Specialty stores were restricted to prime market space. Rentals in a typical Class B city in India would have been INR 90 per sqft per month for Supermarket, INR 45-50 per sqft per month for hypermarts and INR 110 per sqft per month and upwards for Specialty.

Business plans developed had a pay-back period between 15-20 years with EBITDA margins of 7-9%. Merchandize mix was premised to offer 13-15% at gross levels and 7-9% at EBITDA levels. Choice of financing mix was going to be critical to ensure erosion of just 1-1.5% between EBITDA and PBT (Profit Before Tax). Players with deep pockets could have only survived and almost all had plans to bring in a foreign player by 5th to 7th year of operation.

So what went wrong?
a) Rentals increased disproportionately due to boom in realty sector
b) Merchandize mix in earlier days had limited local brands for sale which otherwise had a strong consumer loyalty
c) Overstaffing at stores
d) Supply chain flawed- procurement was centralized.
e) Limited understanding of catchment area
f) High shrinkage especially in case of fruits and vegetables (F&V)- F&V was expected to be footfall driver instead consumers stuck to Kirana store while they shopped F&V from these stores
g) Excessive Competition- multiple players opening stores in the same locality
h) Rapid expansion plans- some players opened more than 1000 stores within a year

Ultimately most of the players failed to make profits at store level. Further, challenges relating to centralized supply chain, merchandize procurement and manpower recruitment and training all impacted the operations. Within first few years of starting, operations went out of control and top management was devoting more time to review the operations and decide on appropriate merchandize for each category of stores than focusing viability of the business plan drawn.

By the time things went out-of-hand for some, they were trapped in high debt while business plan was premised on negative working capital requirement.
Today, visiting a supermarket store in locality is a pain. Billing counters have been reduced significantly. Management of stores has been outsourced to agencies that lack sales ethics and merchandize is complete only for 10-15 days in a month. 
Only FDI in multi-brand sector can provide an exit option of some of the best corporate houses trapped in the web of retail. When is it coming? Some are losing sleep over the issue…

Approaching Due Diligence

Due diligence is a critical step to rope in an investor into the company.

The hunt begins when 'need' for external money is felt. Though with due considerations to set norms of approaching an investor, 'want' of it may not be synonymous with the 'need' felt. Agreeing on a valuation, post first-hand understanding of the business is at times a sticky issue. All the academic research on arriving at a correct valuation metric seems to go unheeded. Parties usually prefer 'comparable firms' approach with strange discounting factors on the multiples. Finally, a prelim document called 'Term sheet' is signed and dates for due diligence are finalized. Work on an exhaustive checklist begins.

All kinds of possibilities are evaluated by teams- Is the data in place?, Will we be ready in time? etc. In some companies even getting a scanned copy of MOA may be a challenge. Tasks are allocated and work begins by finding all lease agreements, ROC registrations, minutes books etc. The team has to be aligned and given a valid reason for them to work towards the target especially given the sensitivity of the matter. Final milestone is only a mirage at this stage.

Teams get on with the work. There is always group that is motivated towards the task, then there is a section that is building all kinds of possibilities on whether the due diligence is for infusion of funds or sell-out by promoters, still others who doubt if they will continue to have a job. Some are totally cut-off from the demands and live in an alien world where time and priority has no meaning.

Quite surprising in the whole scheme of things is the way the PE has approached the Company. PE ensures 100% confirmation from Company on all aspects of the deal, irrespective of whether the decision to reach the due diligence stage is based on a comprehensive review of company/sector or a pure hunch. The final decision- to invest or not- (to the knowledge of very few) rests with the investment committee of the fund. At times the feedback from the committee is- Sector is not where we will invest, Company does not meet our criteria, Just No for no reason significant enough. And the decision of the investment committee is based on a brief note from one of their team members who lacks even remotest idea of what capability/potential the company has.

I doubt the IRRs expected by the funds across.. 

Disclaimer: The views expressed are personal and should not be linked to author's association with any organization.

Where are the old guys?

Despite being employed with a manufacturing company for last 6 months, I am yet to meet an employee of age greater than 50 yrs whether in my or other companies that I visited. 

My office is located at Udyog Vihar, Gurgaon and I pass through the BPO/Service companies' office cluster at Cyber Greens. Assuming my eyes have not got biased to only look at young, I rarely saw employees who would be in her fifties. 

Of course we may have department heads/CEOs/CFOs etc. in their fifties but how many of us have seen a floor manager or a manager aged fifty. Not all get to grow up the corporate ladder with age. Working age has surely come down but old also seems to have vanished from our corporate environs. Two possibilities may emerge in future:

a) Excluding those who grow to take role of a CEO etc., others aged fifty plus may have opted for an early retirement. They may be doing some part-time job or experimenting their entrepreneurial skills.

b) Or may have joined some other sectors like chemicals, textile, steel manufacturing etc. that are usually located outside the city limits or metros.

I leave this to be probed further by research companies but surely a warning signs for all of us in their mid-thirties- Either grow or perish.

INVESTMENT WORLD : Is it better to rent a house or buy one?

Finally in addition to my calculator (rent vs buy), the article in Business line (July 3 2011 edition) talks in detail about the trade-off between rent vs buy. Given the fact that most of us are very poor savers, real estate investment may be an option but tenure of loan is for sure dependent on current savings and future expected growth in income.

http://www.thehindubusinessline.com/todays-paper/tp-investmentworld/article2154096.ece

Interested can download the calculator from here: Buying vs rent calculator

Continue to live the dilemma but better take the decision fast.

PE investments into food/snacks segment

Finally, our favorite snacks/namkeens get their due. As layman we all knew that its a profitable business once it takes off.

I read about 2 such deals:

Prakash Snacks has been selling its snacks under brand Prakash Namkeens for long. I knew about them in Indore. Akash Namkeen, run by the other brother of Prakash is equally profitable and popular. Indore a fantastic city in MP is known for its snack food. Only Indoreans how tough it was for Mc Donalds and Dominos to convince them to try their products. Sharafa bazzaar is a fantastic place for rich during day when they can buy the jewellery of their choice but in night the place is a perfect place for snacks and enjoyed equally both by rich and poor. 

Sagar Ratna also gets investment for expansion. 

For details please read:

a) http://articles.timesofindia.indiatimes.com/2011-02-10/india-business/28540828_1_due-diligence-buyouts-bjn-group

b) http://www.fnbnews.com/article/detnews.asp?articleid=30114&sectionid=1

Food/snacks business in India is a cash rich business with no upfront capex spends. 

I appreciate business sense of PEs like Sequoia Capital and SAIF partners who considered investing this industry. 

Should be expect an announcement for a snacks business from Ratlam anytime?

Corruption, Inflation & Monsoon worries

Corruption

I am not very supportive of Lokpal bill. Its need questions the viability of our constitution. Do we not have systems within current set-up that check this? All the credit to unearth the corruption cases- Bofors, Hawala, Fake stamp paper, 2G, Common wealth etc. should go to only to our democratic set-up where judiciary and investigating agencies are independent enough to act.

I do not discredit what Anna has done for India but threatening to re-start fast is an overkill and too immature a reaction. Why does he not exercise rationality and diplomacy in fighting for the draft of Lokpal bill with government? Fasting and mass movement methods help create awareness but decisions should be taken post a thorough and comprehensive analysis of all factors in play. 

Is corruption such a worry when we have millions following our rich Babas who preach how to be better humans? Is there no corruption in US or  in China or in any other developing country? Its better if we spend our energies on narrowing gap between rich and poor. In my view poor in our country should have access to good healthcare facilities, education and programs to make agriculture in this country a profitable/viable profession. 

While we claim to have build on a very efficient and cost-effective distribution channel we all know where is all the money made- the intermediaries who trade at no risk of their own. This situation at times prompt me to support FDI in (multi-brand) retail. Farmers through Gram Panchayats can always fix the price at which they sell to big retail chains and hence not threat of repeat of what Wallmart has done to US. We are not as capitalist as US.

Inflation

In current state of affairs extra effort on part of RBI to target inflation is wrong. We all understand why inflation impacts growth but I feel extra efforts on inflation targeting is making GDP growth short-lived- just a few quarters spread over a span of 2-3 years. Lets risk a little with high inflation. If we have to growth at 9-10% year-on-year containing inflation below 8-9% may be a challenge in the current set-up (atleast for a period of 5 years). Government should ensure through its social schemes that poor is least impacted, rest market forces will make higher inflation a 'zero-sum game'- no single agent in economy makes disproportionate gains.

Monsoon

We are lucky that monsoon this year is expected to be normal and on time. 

Proud user of Kinect (XBox 360)

This note is not impulsive but post a thorough evaluation and experience of XBox Kinect.

I had first experienced Kinect when my colleagues carried it to our office to experience it. This was sometime in November 2010 when Kinect was not launched in India. 

Since then I had been planning to buy it for my kids. I believed they may enjoy it for sure. I was not sure if we as adults would be able to enjoy the Kinect experience as much. I was wrong. I and my wife enjoy it and much more since its not just sitting in front of TV with some control gadget in your hand. One really needs the stamina and will power to play it.

Last month I visited Croma at Faridabad and decided not to wait for my elder daughter's birthday till June 13. We went for it. I appreciate that I somehow curbed my instinct to not go for purchase of LCD 40 inch TV as well. Had I opted for it the experience would have been much different.

Kinect is synonymous to Kinetic energy. Energy produced in motion is called Kinetic energy. Same is the case with Kinect. You need to have atleast 10 feet by 10 feet of free space in front of TV. You are not to wear any sensor require any gadget to control or run the game on Kinect. Couch and bean bags are now only for visiting friends. 

Kinect costs around INR 24 K with a free CD. We bought 2 additional CDs- Sports and Dance series. Dance series has a work-out mode. Excellent to practice it post a 20 minute run on tread mill. I am sure no one will miss an aerobics session. Sports CD has boxing, volley ball, football, athletics, bowling and table tennis games. You have the option to play with computer (at different levels), with another player and in some cases even four of us can play together.

On Saturday last week post a 2 Km run on tread mill, I challenged my wife for a boxing match. I dominated first round as I was warmed up. However, round 2 and 3 belonged to my wife. I never planned my effort well and hence lost due to exhaustion. We opted for a Volley ball match later and somehow managed to rescue some pride.

I already have a list of 4 guys who have already decided to get one. 

It seems good days for Microsoft are around- Windows 7 ( more stable and less frequent updates), MS Office is more cheaper and hence a success with home users  and Kinect adding a totally new dimension to gaming. 

First 10 years of 21st century

A year passes by but we realize it only at select times- on key festivals, birthdays or Dec 31. This year is also an end of a decade and recalling some of the developments witnessed as a citizen of India can be a good idea. An attempt at highlighting some of those developments and how they impacted my life- a common man.

First the global ones:

1. 9/11 shocks US and world. Tragedy highlights how deep and severe is the problem of terrorism. From my perspective, US has lost its financial hegemony. Financial crisis of 2008 is a testimony to it. 

2. Concept of BRIC economies came sometime in 2004-05 when emerging countries gained greater attention not for extending more aid to alleviate poverty but from investment havens perspective. Which economies are growing at >8% GDP than BRIC economies today.

3. China's domination in manufacturing became prominent and today it enjoys comparative advantage in several sectors over other nations.

4. Euro currency introduced in physical form in 2002. Expected to be a rival to US dollar with huge volume of trading in forex markets. Financial crisis seems to hit Europe badly and Euro seems to be in danger.

India centric key developments:

1.  Suzuki gains majority stake and management control in Maruti Udyog Ltd. (MUL). Represents a first most successful divestment by Indian government from a profitable company. 

2. Automobile sector hots-up with more players and more options for Indian consumers. MUL continues to lose market share to new entrants in the sector. Small car dominates Indian markets. No looking back for sales with improving road quality.

3. Outsourcing industry became a talk of every household with entry age to work reduced significantly. Just a graduation was enough to land-up with a job of INR 20-25 K per month plus opportunity to learn English language with accent at no additional cost. 

BPOs started to flourish around in metros but with more than proportional rise in real estate prices and higher manpower cost BPOs had to venture into class B cities of India. Courtesy of BPOs and several other factors count of top cities in India increased from 4 to 6 and then 8 and today its around 12. 

4. Organized retail boom picked. Big Bazaar, Reliance retail, More, Vishal became household name. Consumer is having a great time shopping though may not be ending-up with best price or value- as may be  perceived looking at promos. "Sabse bada din" concept of Big Bazaar is one of the most innovative promo in retail space for this decade. 

5. Real estate boomed, got larger and more organized. Many real estate firms went public. However, the hype about real estate is reverting to normal since 2008. Organized retail found hard to break-even early due to rising rentals. 

6. Indian consumer got rid of cable operator mafia. Got to experience digital quality program courtesy of DTH. Tata Sky and Dish TV ventured early and 2-3 years after others stepped in to cash-on the trend. 

7. LCD took over CRT. A Television was a TV till LCD came in to differentiate it from a CRT. LCD prices have dropped 60-65% in last 10 years. Same may be the fate with LED and or 3D TVs. 

8. Radio finds its own market (between a mobile, TV, disc players etc.) with private operators permitted to resume non-news based FM services across Indian cities. Satellite radio flopped despite initial hype but FM radio is here to stay.

9. Mobile phones were used more as "callers' identity". Near-by Local/STD calling booths were used for calling back. But with charges waived for incoming calls, pagers died, local/STD booth business flopped and craze of owning a colored mobile handset gained prominence among consumers. With years passing new players stepped in, cost per call dropped almost every month and mobile phones landed in hands of teenagers/youth (non-working). I acquired my first mobile phone in 2004. 

A black&white mobile handset cost INR 3000 in 2004 and today we get an entry model "smart phone" for the same price. Price drop of mobile handsets helped rural consumers to buy their first handsets faster while urbanites shift to high-end high-price phones. 

10. Shopping malls became a favorite hang-out zone for youth, playground for kids and window-shopping venue for middle-class Indians. Shopping malls offered to a common man the experience of air conditioning. AC sales grew exponentially while Indians dumped water coolers citing humid climate in India as if not experienced summers before.  

11. My wife today calls up a grocery shop in neighborhood and says, "भैय्या एक किलो चने की दाल और एक लिम्का घर भिजवा दीजिये गा". Home delivery has been a revolution and spread like a virus across India- not just restricted to urban cities. Lazy Indians became more lazy with married men skipping their holiday homework of shopping for kitchen. Private banks introduced ATMs and netbanking saving men from standing in long ques to pay utilities bill. But yes, no more lame  excuses to leave office early.

12. "Incredible India" campaign not only attracted foreign tourists to India but prompted Indians to prefer India over foreign locations for holidays. 

13. Transportation improved significantly. Had it not been low airfares- courtesy of domestic private airlines in domestic circuit- not many of us would have traveled by air. Road quality improved courtesy of a financial innovation called "securitization". Toll tax is a burden on all of us but we get good roads to try our expensive cars.

14. Fast food became a household name. Thanks for Dominos for adding an additional dish in my menu.  My first pizza was in 2006 at Mumbai. Since then I have it once every week.

15. I can buy my kids a remote-controlled helicopter, a talking doll or a kitchen set just like Barbies'. This is because of Chinese toys flooding the Indian market. Many Indian toy manufacturers would have become traders instead. :)

16. I can write blogs when at home and stay connected with my friends. All this is possible today because of braodband reaching our homes, Orkut and Facebook facilitating social networking at no cost and a computing device at hand in form of a laptop and or blackberry. My Orkut account was opened in 2004 and Facebook in 2008.

Overall a great decade to live and live it healthily. May God bless all of us with health and more happiness.

Happy New Year to all