Mallya's leap of faith

Vijay Mallya is undoubtedly the most flamboyant businessman in India. In the Indian press, he is often compared with Richard Branson of Virgin. He leads a colourful life and is a successful businessman. His spirits group- United Breweries- is an industry leader. He also owns ‘Kingfisher Beer’, which is a reasonably known international brand. More recently Mr. Mallya has entered the airline industry. Doing well in this segment will be much more of a challenge as the competitive landscape is extremely tough right now, and the stakes are much higher.

When Mallya’s Kingfisher airlines entered Formula One earlier this year as a sponsor to Toyota F1 team, it seemed to be a good, measured move which would enhance the brand visibility of his airline just as it was about to start services in international routes. But Mallya’s latest move to buy the Spyker F1 team is a much bigger move and an extremely ambitious one. It is to be noted that Mallya will use his own money - rather than involve any of the shareholders of his publicly listed company- for buying and running Spyker. The kind of money involved here is huge. Buying the team will cost around 80 – 90 million euros (450 crore Indian Rupees). In addition to this, the operations of the team will have to be financed. Considering that Spyker is presently a loss making entity (it made a loss of around 30 million euros in the first half of this year), this will be a very costly affair. Moreover, Mallya will be hoping for a turnaround in the team’s fortunes in another 1-2 years. This will be the most difficult part. Teams like Toyota and Honda have proved that money cannot guarantee success in this sport. And anyway, Mallya can never hope to match the budgets of the manufacturer-backed teams.

My guess is that, having entered the deal, Mallya will stick on with Spyker for 2-3 years and control the financial bleeding of the team. He is smart enough not to believe in miracles. He will try and minimize the bleeding of the team financially. He will utilize the 2-3 years to build a well-known brand out of his airline. He will try and bring in an Indian driver and use him to endorse his company. He will also try and make sure that an Indian Grand Prix happens- latest by 2009. At the end of these 2-3 years, Kingfisher Airlines will be known world over and Mallya would’ve achieved his objective. At the end of this period, Mallya will start looking for a good price at which to exit his ‘investment’. Inevitably there will be another corporate entity somewhere which would want to utilize Spyker’s (or whatever it will be called then) services for achieving its own corporate objectives, and the story will continue thus…

Things could go wrong though, if Spyker’s financial bleeding cannot be stopped without severely hampering its competitiveness. Mallya is rich, but he is not stupid. He is not a Roman Abramovich, who is spending his personal fortune on a soccer team to simply amuse himself. Mallya’s move is strictly business oriented. This is a calculated gamble that he is making. He is hoping that the money that he will bleed in Spyker will be compensated by making Kingfisher the airline of choice for flying in and out of India. But this is a risky move since Mallya is totally inexperienced in running an F1 team. I doubt if he has ever owned any motorsport team.

Mallya is going for all or nothing here. He is entering untested waters and the only reward that will justify his risk is if his airline becomes the number one Indian carrier in international routes. Here’s wishing Mr. Mallya best of luck in his leap of faith!

Click Here for more of my views on Formula One

LIC's MoneyPlus Scam

The image you see here is the brochure used by LIC agents across the country for fooling middle-class people into investing their hard earned money into an investment product through fraudulent means. I am talking about LIC’s Money Plus. It is a highly successful ULIP instrument.

Not for a moment am I questioning the legality or quality of the product itself. What I am appalled with is the ethical standards of LIC’s agents. Typically what happens is that the agent shows this brochure to a prospective customer and talks to him about the ‘indicative’ returns. The brochure seems to suggest that his expected returns will vary from 20% to 30% on an annuated basis. This would mean that an investment of Rs. 30,000 will give you returns in the range of 7 lacs to 34 lacs.

In most cases the prospective customer will not think beyond the boundaries of what is being shown in the brochure. Of course, the agent can back his claim by showing LIC’s record in the past 3 years when the stock market grew exponentially. The possibility of a loss is not suggested anywhere except in the statutory warning about Market Risk which is present in a corner in the finest of prints.

A 20% yearly growth in assets over a 20-year time frame is the kind of growth that hasn’t been attained by the likes of Warren Buffet and Peter Lynch who are among the greatest investors in the world. If ever these guys come to know about the claims made by LIC’s agents…

Only last week, one of my friends fell in the trap of a LIC agent and subscribed to the Money Plus policy. This guy works in a top IT company and is a very intelligent person. If such people can be fooled, then think about people from the lower economic strata like auto rickshaw drivers and the likes. Rs. 10,000 is a significant amount for these guys. But the lure of getting Rs. 30 lacs from an investment of just Rs. 30,000 will be very difficult for them to resist.

The most worrying aspect is that this kind of sales tactics is not an isolated event. I now know atleast three agents who have used this trick. I must say that this has been a very successful method albeit unethical. It seems that whoever knows about the MoneyPlus scheme seems to have a favourable opinion on it, thanks to the lucrative figures mentioned in the brochure.

Needless to say, something needs to be done to stop this unethical practice. The regulators can do their bit by imposing strict restrictions on the commissions paid to insurance agents. More importantly, the LIC should rein in its agents.

The MoneyPlus scheme is now closed for investors and hence no one will now fall for false promises of the LIC agents- but I hope that this article gives investors more wisdom in future when one can expect more such schemes in the market.

Colleges or Schools?

People who are aware of the situation will appreciate how an increasingly large number of engineering colleges in Tamil Nadu are being run like schools. One can find these colleges enforce strict and in many cases ridiculous rules and regulations which often infringe on some of the basic rights given to an Indian citizen. One should not be surprised to see engineering colleges in chennai that do not allow guys and girls to talk to each other. Yes, you heard me right. It may be tough to believe, but this actually happens in many places. Yours truly can bear evidence to the same, having spent four years in one of the strictest engineering ‘colleges’ of the country. Of course, its an irony that this was followed by a 2 yr stint in one of the most lenient and ‘chill’ b schools of the country!

Coming back to the topic of discussion, I believe that the 3-4 years of college life completes a person’s journey to adulthood. These years are crucial for a man in shaping his personality, which will be his asset for the rest of his life. College life is the time when a boy encounters a lot of new things in life. For the first time he realises how close he is to adulthood. He gets the perks that come with adulthood and also the responsibilities. He experiences freedom- it is exciting and sometimes scary too. The experiences at this age- the friends he makes, the enemies he makes, the situations he encounters, the first love, the second love, the college strike, the secret drink sessions with mates, the third love, the leaked exam papers, the ragging sessions, etc- determine the kind of man he will be for the rest of his life.

South India, especially Tamil Nadu is well known for its ‘intellectual’ tradition. The educational footing is strong in these states and as a result the region is a favourite with the industry. This positive environment has resulted in a virtuous cycle where the people have a strong faith in the power of education as a means to reach prosperity. This has resulted in a large number of higher educational institutes based out of the south. The number of engineering institutes is astonishing. Tamil Nadu alone has more than one lakh (100,000) engineering seats to offer every year. Of course, the quality of most institutes is very questionable. Nevertheless, the economic environment in the state and the country at large is such that any half decent engineering graduate gets a well paying job. People from rural regions of Tamil Nadu have suffered for a long time with an unreliable monsoon and an unfriendly neighbour when it comes to sharing of water resources. After years of a downhill ride in the state’s agricultural fortunes, many people have lost faith in agriculture as a means of livelihood. People want their sons to go to the city and enter the industry and see prosperity. An engineering seat is a very good means to achieve this.

The opportunists have capitalised on this opportunity by opening engineering colleges in every nook and corner. But the most important ingredient to lure students to a college is by having a credible placement record. The colleges try to ensure that they achieve a good academic record (read examination results) every year. There are regular exams and assignments. Failing in these will result in heavy impositions and other punishments. Academics is not just the most prominent issue in the agenda, it is the Agenda for these colleges. Things like sports and cultural activities are given only a cursory treatment. They also enforce strict rules like 100% attendance, no interaction between the sexes, formal wear (I heard that there is one college in chennai which requires students to wear ties 5 days a week! Now beat that… ties in chennai!!), no funky haircuts allowed, clean-shaven faces becoming mandatory. Such measures usually convince parents that here is a good college which will ensure that their son will not end up going in the wrong path and will get a good job in the end. The thing about no interaction between the sexes is a major selling point with parents of girls who are usually more worried about leaving their ward in a hostel far away from their hometown.

Things have come to such a turn that colleges are now competing with each other to impose stricter and more ridiculous rules. And these rules are actually enforced with a high degree of success. The end result is that at the end of four years you get a boy- not a man- who is seemingly bright chap with 80% in his engineering degree, but doesn’t know the fundamental engineering concepts. This kid is a very disciplined person, is used to formal wear and a can talk English. This is enough for a recruiter from an IT company to come and recruit him.

These ridiculous rules will not only cause students to forget about the fun element in college life, but it will also result in producing men of inferior quality. Men who are bound by the system. Men who believe that the system is insurmountable and do not even wish to change it for the better. Men who are cowards, because they have never gone through a ragging session where you learn to tackle bullying. Men who can never respect a woman because they never interacted enough with them. Men who cannot tolerate a rebel because they could never be one. Men who loathe optimists because they were never allowed to be one. Of Course there will be a few exceptions who come out of the system unscathed as normal human beings, but those numbers are unsignificant.

The situation can be rectified only when the mindset of parents change. This change can only happen in the coming generation of parents who have grown up in relative prosperity and who realise that there is more to education in life than can be obtained in text books and class rooms. I hope that this happens sooner than later.

Irritating Headlights!

I ride a bike and wear a helmet with visor. One of the most irritating things I encounter while on the roads is the high beam headlights of motorists in the nights. Most vehicles that I encounter in the roads in the city use high beam headlights which are actually meant for the highways. When the light from these headlights falls on the glass visor of the helmet, it spreads all over the glass surface and the glare is so much that one has to close his eyes till the vehicle from the opposite direction has past. Even if one manages to keep the eyes open, it is hardly useful as one cannot see anything in the road except the light beams. This forces one to slow down considerably in order to avoid an accident. Since such a thing keeps happening, it is highly irritating. I am sure a lot many accidents in the night would've been caused by such things.

Cars and two wheelers are equally guilty of using high beam headlights in the city. Apparently, motorists in India need to be educated in driving etiquettes such as this and others like lane changing. I hope that atleast the few readers of this blog will keep these things in mind and make the life of bikers and drivers in the generally bad Indian roads a little easier!

Enjoying every moment of IT!

A few days back I heard a colleague in office saying, “I am working in general insurance, my cousin is in health insurance, my sister is also in insurance. Only my brother in law is in retail. We are trying to convince him to join insurance too!”. A closer inspection of the conversation revealed that this person was implying that all his family members are working in the insurance domain of various IT companies.

We Indians are living in an era in which the demographics of middle class urban population is increasingly becoming homogenous. Almost every family has someone working in the IT sector. This is even more evident in the southern states. When you hear that a particular IT company hires over a thousand students from Anna University (which is around half of its student strength), you know that something strange is happening. As most of you know, I am talking about TCS which hired 1006 students from Anna University this June. TCS might as well consider setting up a strategic business unit for Anna University students. Incidentally this is not a one off case. Similar figures of campus placements have been emerging from many reputed engineering institutes in Tamil Nadu and other South Indian states. Things have come to such a state that the sole purpose of students enrolling for B.E. courses is now getting into the IT bandwagon.

The students or their parents are not the reason behind this phenomenon. They are simply reacting to the market situation. Who would want to pursue a career in electrical engineering today? Getting a job in the first place is itself difficult. Even if one manages to get into a decent company, the chances of his starting salary being more than that of his friends in Infosys and Wipro are extremely slim. To add to things, our electrical engineer most likely has a 6 day working week and has to spend a substantial part of his day in the workshop in the sweltering heat while his friend in Infosys is comfortable in his A/C cubicle, checking emails and chatting to friends. The Infosys friend also has pretty female colleagues around him to provide him with some entertainment. After two years of struggle and slogging, the electrical engineer proves his capabilities in his workplace. He gets good salary raises and is now proud to be earning almost twice his starting salary. But his ego comes crashing down when he sees that his Infy friend is now with Wipro and is earning thrice his starting salary. To add salt to the would, this guy announces that he is going to the US next month on a H1B visa. The only worry in his life is that he will be leaving behind his latest Wipro girlfriend. The electrical engineer comes home and finds that his parents have been unsuccessfully searching for a marriage alliance for him. The good candidates are either software engineers and prefer marrying another software engineer or they are not software engineers but still would prefer marrying a software engineer. The poor electrical engineer thinks that enough is enough and enrols himself for a Mainframes course.

We Indians are proud of our rich and diverse culture and heritage. But in 3000 A.D., archaeologists will find that urban India- especially southern India in circa 2000 – 2050 A.D. was a boringly bland society and was largely a softwarian (an analogy to agrarian) economy.

A serious issue

I saw an interesting article in ET today. According to the article, top IT companies in India like Infosys, Wipro, etc have decided to ask their employees to sign a non compete agreement. The gist of the agreement is that if an employee of any of the following companies- Infy, Wipro, TCS, Cognizant, Accenture, IBM- quits his job, then he/she is not free to join any other company from the above list for 6 months from the date of termination.

The link to the article is: http://economictimes.indiatimes.com/articleshow/2102946.cms

Such an agreement has serious implications to IT employees, who have fallen into the habit of changing companies every 18 months or so. There is no doubt that if this policy is comprehensively implemented then the sky high attrition levels in the Indian IT industry will fall drastically and will consequently help IT companies cut costs. But it also raises many important issues. The most important one is the issue of employee rights. An extract from the article: ‘Infosys Head (HR), Bikramjit Maitra, confirmed the move. He said the reason behind including only a few firms in the ‘named competition’ was to keep the terms reasonable and not restrict employment opportunities available to individuals

The present scenario in the Indian IT setup is such that around 70% of the market is dominated by the companies mentioned in the above list. So, if an employer decides to quit Infosys, his choice of a future employer will be severely restricted. He will have only 30% of the market to choose from. Of course, no one will consider sitting at home of 6 months. In such a scenario, this agreement will be a gross violation of the rights of an employee. It will also make IT companies to concentrate less on being employee friendly. At times like these one wonders if there is indeed a need for a union for IT employees. I seriously hope that voices are raised against such a policy.

Having said all this, my gut feeling is that ET, as usual, has gone overboard and has probably been inaccurate with its story. This thing sounds so ludicrous that it is hard to believe it. Perhaps the article fails to highlight some aspects of the story. Once all the aspects of the proposed contract are known, the story will be clearer.

Hi there!

This post is to assuage any fears of the readers (if there are any left!) that I may have left planet earth! Well, I am here and I am very much alive! I hope that this long hibernating blog will become much more active from now on.

Back to Cognizant!

The placement season is over and I am glad to announce that I have been placed. I will be going back to my old employer, Cognizant Technology Solutions. I will hopefully be put in the banking vertical and be located in Chennai. Thus ends the great quest of a job at the end of a MBA course. Well, the course is not over yet…but for all practical purposes, it has now lost its importance in our eyes. The placement week itself was more stressful than I had imagined. I thought I was very calm and composed and confident. But just one rejection shook me up and I realized how vulnerable I was to failure. I am forced to follow some protocols here which do not allow me to disclose which company I am talking about. This company came to campus about a week before the official placement week that started on 30^th Jan. And it wasn’t just me who was disappointed. Scores of others who were rejected were also dejected and depressed. I hadn’t imagined the kind of gloom and negativism that set in throughout the campus as companies started their pre processes and shortlists started coming in. We MBAs are supposed to be a self confident lot. But a lot of that is actually pretension. Placement season makes even the most self confident soul feel humble about himself.

By the time 30^th Jan arrived, I had regained my old self confidence. I knew that confidence, calmness and composure were the key to get through placements. And with the amount of preparations I had put in over the past few months, I knew that I could not rely on my knowledge- coz I don’t have much of it. So confidence and composure was very crucial. Thankfully things ended well and I ended up in the IT sector as I had wanted to. The interview itself was very cool. I had never expected it to be that way. The subject on which my knowledge was tested most was Formula One racing! I couldn’t have asked for a simpler interview. Anyway, I guess I got placed at the right moment. At around 7 pm people who were yet to be placed started getting anxious. Some cried- especially girls. The tension was explicitly palpable. I stuck around till my other room mate was placed. Then I quietly got down and took a drag and went back to the hostel.

By the end of the day, less than 20% of the batch was remaining to be placed. These guys were placed the next day. The placecom guys did a really commendable job. The first year students who handled the show were extremely good at their task and kept the inevitable confusions to minimum. The quality of the companies coming to campus was not compromised even till the last moment. Unlike the previous years there were no ‘bulk recruiters’ that took candidates in droves. Yet everyone got placed very fast. When placements ended, around 40 odd companies were yet to come! This speaks of two things- the marvelous effort of the placecom guys in convincing so many companies to come to campus, and the present crazy demand for MBA students from institutes like NMIMS by corporates. I guess the official placement statistics are not out yet. But the average salary this time will be substantially higher than last time’s figure. A look at the salary figures in top b schools over the past 5-6 years will give a mind boggling picture. Wage inflation is running up like crazy. It will have to stop at some point. At least the party hasn’t ended until I entered the dance floor!

Well, that was placements @ NMIMS for you. Now that it is all over, life is boring. But I am glad that I got most of what I wanted from placements. I am back at home now. I have a pleasant feeling going around in my head now which I would like to call- peaceful relaxation…

Guru

The latest movie by Mani Ratnam starts with a message which reads something like this:

ALL CHARACTERS IN THIS MOVIE ARE FICTITIOUS AND ANY RESEMBLANCE TO ANY PERSON DEAD OR ALIVE IS PURELY COINCIDENTAL

That message is crap. But the movie isn’t. The movie is not simply “inspired by Dhirubhai Ambani’s life”. It is as close to a biography of Mr. Ambani as Mani Ratnam could dare to make. The movie is very good and deserves to be seen by every Indian. Inspirational stuff, especially for aspiring entrepreneurs.

Like many other people, I had an opinion in which I used to see the Tatas as the ideal businessmen, full of ethics and values and I used to see Reliance as an example of how not to do business. This movie has made me think a bit on this and now I see things in a different light. I see that all is not black and white in this world. Sometimes breaking the law is not the wrong thing, in fact it is the right thing. To borrow a line from the movie, 70 years back a man broke the law of the land, and today we call him Bapu. Dhirubhai might have done a lot of things that may be termed as fraud or illegal or unethical. But he did what he did, in order to grow despite the stupid license - quota laws that were prevailing in the country at that time. When you put in your sweat and your hard earned money and risk it all to do business, it is but natural that you don’t want an illogical system to stop you.

Ambani was successful at a time when it was a sin to make huge amounts of money- unless you were rich with your forefathers’ wealth. Though he himself became hugely rich, he also made thousands of common shareholders rich. Not only that, he gave employment to a lot of people and inspired countless entrepreneurs. He gave confidence to businessmen across the country and played an important role in building the nation.

India is very lucky to have had Dhirubhai Ambani and others like him. To overcome all those odds and still succeed, takes guts and determination. Dhirubhai had ample amounts of both. Thanks to people like him, today India has a stature of its own among the nations of the world. There have been others too, who have given the country as much, Narayana Murthy being a top of the mind recall. And I feel naturally proud that I am born in the same land as such great men.