Friday, April 19, 2013

A successful venture: The past, present, and future of Venture Capital

The Venture Capital model is not broken, nor does it need to radically change. In fact, its future looks quite bright, with demand for VC-backed companies likely to rise in future.
Venture capital (VC) has fueled many of the most successful start-ups of the last 30 years. Microsoft, Apple, and Google – three of the biggest companies in the United States – were once backed by VC firms. Many well-known and highly valuable companies such as eBay, Amazon, Yahoo, and Starbucks likewise started out with funding from venture capitalists. The VC model of financing young and untested companies with high growth potential has been so successful, it has been replicated all over the world.

However, a recent study me Steven N. Kaplan and Josh Lerner of Harvard Business School, shows that the U.S. VC industry is not broken; it is simply going through the expected ups and downs of a competitive market. In the study titled It Ain’t Broke: The Past, Present, and Future of Venture Capital, we show the amount of money committed by investors to this asset class as well as the amount invested by VC firms in the last 30 years has been remarkably constant. In addition, average returns to VC funds do not appear to be unusually low or high relative to stock market returns.

In fact, based on the historic relationship between commitments to VC funds and subsequent performance, the historically low level of funds committed in 2009 and 2010 suggest that the returns to investing in these funds will be relatively strong. Moreover, the declining importance of central corporate R&D facilities in favor of buying small firms to acquire the latest technologies is another reason to be optimistic about the future of the VC industry.

The efficient man in the middle
Entrepreneurs have good ideas but sometimes do not have the money to set them in motion. Investors, on the other hand, have the resources but may lack good ideas. In this case, VC firms step in to bring entrepreneurs and investors together. They do this in three ways.

First, VCs spend a lot of time and effort screening, evaluating, and selecting investment opportunities. It is an intensive and disciplined process that typically takes place over several months. VCs scrutinise the attractiveness and risks of the external environment – market size, competition, and potential for customer adoption; the feasibility of the strategy and technology; the quality of the management team et al.

Second, VCs efficiently design contracts in such a way that if the entrepreneur is performing well, he or she is well compensated. If the company is running smoothly, VCs do not have to get involved in the company. However, if the company performs poorly, the contracts stipulate that VCs can take full control. As performance improves, the entrepreneur obtains more control rights. It also is common for VCs to include provisions that would make it very costly for the entrepreneur to leave suddenly after investors have already made a significant investment in the company.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
For More IIPM Info, Visit below mentioned IIPM articles
 
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Monday, April 15, 2013

National

Hike in retail FDI

The central government is all set to raise the limit of foreign direct investment in the retail industry in India. The Department of Industrial Policy and Promotion (DIPP) has moved a cabinet note to the proposal to increase the limit of foreign direct investment in single brand retail from 50% to 100%. DIPP was earlier in favour of upping the limit to 74% but later took an aggressive stand to allow complete ownership of a company by a foreign player in single brand retail. DIPP is of the view that if foreign luxury brands like Louis Vuitton of France and Swedish furnishing house Ikea are allowed to open more stores in the country, they will look to source their products locally due to the ramp-up in their scale of operations. Similarly, for multi-brand retail, the proposal is to allow 51% foreign direct investment. The move has come in a time when the government is trying hard to push through the proposal to allow more liberal foreign direct investment in multi-brand retail, which will allow big players like Walmart, Carrefour, Tesco, etc., to enter the Indian market and will help the government to shore up declining foreign direct investment.

No more good times

The flamboyant Vijay Mallya-led Kingfisher Airways is in a hot soup these days. After cancellation of over 200 flights in recent weeks due to oil companies’ stopping supplies because of non payment of their dues, it has received a show cause notice from the Director General of Civil Aviation. As on date, Kingfisher is due to clear a bill of around Rs.13 million to Hindustan Petroleum. It was the second time this year that the oil marketing companies stopped supply of aviation fuel to Kingfisher pending the clearance of huge dues. Besides, Kingfisher is also finding it difficult to service its Rs.6 billion in debt that it has taken at a high cost. The airline is in talks with the lenders for a debt restructuring plan. Presently over 23% of Kingfisher’s stake is owned by a consortium of 13 banks, including SBI, ICICI Bank, IDBI Bank, Bank of Baroda and Punjab National Bank.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
For More IIPM Info, Visit below mentioned IIPM articles
 
2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
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Health is wealth, beauty is wealthier!

As Reckitt Benckiser’s India business heads towards contributing more than 5% to global revenues, B&E highlights the possible opportunities and imperatives for the company.

Winters are generally dull for FMCG companies in India. But such was not the case with Reckitt Benckiser last year. Even as the December 2010 winter fog hovered over the Indian plains, Reckitt Benckiser, the British health & hygiene FMCG giant sharpened its growth ambitions in India by acquiring OTC-drug maker Paras Pharma for $726 million. Experts said it was a high price, but Reckitt rebutted them by countering that it’s an apt price for a healthy future. In the warmer sunny days of April this year, the man behind the action, Rakesh Kapoor, then EVP of Category Development, was awarded the CEO baton and his role in acquisitions was key to his case. He led the acquisition of Boots Healthcare in 2006 and SSL International and Paras Pharmaceuticals in 2010, which added brands like Strepsils and Clearasil (Boots), Dr Scholl’s and Durex condoms (SSL) and D’Cold, Dermicool, Livon and Setwet (Paras), to Reckitt’s kitty. Reckitt Benckiser’s acquisitive strategy has brought it to a position of reckoning. Instead of the P&Gs and the Unilevers, its major global competitor was a much smaller SC Johnson (over $8 billion in annual sales, also in the health & hygiene space).

Last month, Rakesh Kapoor was in India accompanied by his board members. India is among the top two developing markets in the company’s agenda, and the company is eager to make its Indian arm count. The Indian FMCG industry with a worth of over $13 billion is dominated by the personal care/beauty segment, which comprises of more than 50% of the market, and is dominated by players like P&G, HUL, ITC, Colgate Palmolive, Marico and Dabur. Health (& hygiene) comprises about 25% of the FMCG space. It’s widely fragmented in terms of players (local & international), as well as product offerings. But it’s rapidly growing, and central to Reckitt’s grand plans.

Reckitt Benckiser India’s turnover is just over Rs.20 billion (of which Dettol alone makes over Rs.10 billion). With the assimilation of Paras Pharma, which has a turnover of around Rs.5 billion, and Reckitt’s own CAGR of around 40% should see it rise the Indian FMCG ladder and soon match the likes of GCPL and Dabur (revenues of around Rs.40 billion), in near future. Moreover, Reckitt’s India division is well on its way to cross the 5% contribution (to global turnover) benchmark, even before HUL & P&G.

Reckitt is investing over Rs.2 billion in a Paras manufacturing facility near Badii to further strengthen its OTC offerings. Chander Mohan Sethi, MD, Reckitt Benckiser India informs, “Currently, OTC comprises 15-20% of business, and is one of our strategic growth pillars.” With Reckitt’s track record for innovation – 40% of its sales comes from products developed over the last three years better times are expected. Besides, it gives Reckitt the opportunity to enter hitherto unknown categories like haircare/body care (Set-Wet deodorants & hair gels), hair oil (Livon). Reckitt has already moved up to the third spot in the Rs.75 billion soap market with its Dettol variants.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
For More IIPM Info, Visit below mentioned IIPM articles
 
2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
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Saturday, April 13, 2013

‘Euro Steel’ gets a brand new spin

Leading European steel players have announced that they are hiving off their stainless steel units. Considering how these units have been performing, it makes perfect sense

Finnish stainless steel maker Outokumpu holds around 23% share in European stainless steel market and is currently a loss making enterprise with an operating loss of around €169 million for the quarter ending June 2011. To focus more intently on its core business of stainless steel, it has announced plans to sell off its 4.3% stake in miner Talvivaara to the Finnish state as part of the deal to cut its debt and boost its finances. In another development, Outokumpu confirmed that it would be selling off its fabricated copper products business as well to become the world’s number one in terms of profitability and quality of stainless steel products.

In the context of two well reported and debated announcements by its peers in Europe, Outokumpu clearly stands out. The first one was by ArcelorMittal, which spun off its stainless steel business to form a new unit Aperam in January this year. According to the company’s announcements, the stainless steel business had been showing signs of deceleration and pulling down the growth of the group. The unit employs around 11,000 people and is around 4% of the group’s total workforce. In 2009, the unit accounted for around 7% of the group’s revenues amounting to $4.2 billion; with ArcelorMittal holding upto 22% market share in the European market. As a separate entity, Lakshmi Mittal feels that the company will get valued at a premium, be able to attract more funds and also set its growth agenda.

The second major announcement was from ThyssenKrupp AG, which has the largest market share (31%) by capacity in Europe and is the largest producer of steel in Germany. ThyssenKrupp announced in May that it will spin off its stainless steel business that is valued at $8.7 billion to cut debt and focus on its core expertise in engineering. New CEO Hienrich Hiesinger plans to cut the group’s dependence on steel as iron ore and coking coal prices skyrocket. The spin off will ease the debt burden that ThyssenKrupp had incurred due to investments in building steel plants in Brazil and Alabama to reach US clients and source iron ore from Rio de Janeiro-based Vale SA.

It is widely speculated that this is the beginning of consolidation in the stainless steel industry in Europe. The moves have been aggravated by the continuous rise in material costs such as coking coal and nickel prices that are driving companies towards possible M&As, ultimately leading them to cut costs of production. In 2010, the stainless steel market was observing declining growth mainly due to decreased investment in infrastructure projects marred by the after effects of the global downturn. But 2010 onwards, the production has increased manifolds, leading the stainless steel units to an overcapacity, which could be as high as around 2.5 million tonnes in Europe.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
For More IIPM Info, Visit below mentioned IIPM articles
 
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Friday, April 12, 2013

B&E This Fortnight

INTERNATIONAL

BUSINESS, ECONOMY & FINANCE
$10Bn bid for Foster’s

Despite slow growth and maturing markets in beer producing countries, Australia’s largest brewer - Foster’s Group - has been offered $10 billion by the world’s second-largest brewer - SABMiller - for a takeover of the Australian favourite. SABMiller offered $4.90 per share to Foster’s for the buyout, which was 8.2% higher than the latter’s closing stock price on Monday. The deal would have been the biggest in the brewing industry since InBev bought Anheuser-Busch for $52 billion in 2008, but it was rejected by Foster’s on the grounds of being too low. Showing a strong investor confidence in the decision of Foster’s, the share prices shot up to a 9-month high of 14% on the news. Foster’s has been the subject of takeover ever since it announced its plans to spin off its struggling wine operations - Treasury Wine Estates that got listed in Australia, just last month. SABMiller that makes Peroni, Grolsch and Miller Lite, has been a favourite among the potential bidders. Despite a downturn in the beer market, Foster’s is supposed to be a good option to acquire due to its dominant position in Australia and high margins of about 37% that is almost double of its global peers. It is expected that SABMiller will increase the offer price in the second round of negotiations and the offer price can see a hike of 10-12% to A$5.40-A$5.50 per share.

Cheap us stocks
The shares of companies that make up the S&P 500 index - one of the most used benchmarks for the U.S. stock market - will earn 18% more this year on the back of cheap valuations of shares, the cheapest level in 26 years. Since April, share prices have been on a decline, pushing the price of the S&P 500 to 14.5 times the past year’s earnings, compared with the average of 20.5 since June 1991. As a result the index is valued at 8.7 times cash flow, cheaper than it has been 81% of the time since 1998. But if S&P 500 companies are expected to earn more in 2011 than in 2010, why, then, have prices been falling? That’s because investors are apprehensive of future gains on account of concerns such as the Greek crisis coupled with China’s rising interest rates & the Federal Reserve’s $600 billion stimulus programme.

Greek Crisis Eases
Despite a severe debt crisis hovering over Greece since April 2010, the double blow that it was scheduled to face due to the re-scheduling of the Greek government bonds as insisted by the German government is now slowly easing off. In fact, the German government has also indicated a voluntary rollover of Greek government debt. The debt rating (by Standard & Poor Ratings) for the Greek government bonds has been falling constantly and currently has a “CCC” grade, the lowest rating for bonds in the entire world. But with some luck, Greece may be able to stablise its situation in the short term.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
For More IIPM Info, Visit below mentioned IIPM articles
 

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Monday, April 8, 2013

Ranbaxy’s cookie – will it crumble?

Much of Ranbaxy’s fortunes is riding on the way its impasse with the USFDA over Lipitor generic sales pans out. The timely resolution of the dispute can make a big difference for India’s largest drugmaker – between making a fortune and being content with making a living. Caution: November is fast-approaching.

The feelings run both ways. Indian generic drugmakers exporting to US are salivating over a goldmine of opportunity worth $96 billion that is expected to come their way from drugs going off-patent between 2011 and 2013. Also, governments the world over – US, Europe and Japan, as also fast-growing markets such as Brazil, Russia, India, China, Turkey, Mexico and South Korea – are pushing for cheaper, generic drug equivalents. But the bumper bonanza in generics may still slip from the grasp of Indian pharma companies because of quality concerns and the underlying fear of possible litigation. Not a pleasant sight.

Indian drug firms, which account for about a third of US applications for approval to sell generics, could add $2 billion to $2.5 billion to their US market sales over the next five years, doubling their revenue from the country, according to Morgan Stanley. Though the outlook for Indian companies looks good due to continued demand for generic drugs – or chemically similar versions of original medicines – ratings agency Fitch singles out regulatory concerns and litigation as a key risk. The US Food and Drug Administration (USFDA) has in recent times raised regulatory concerns and quality issues of varying degrees of seriousness with regard to a host of Indian companies, be it Ranbaxy, Claris, Sun Pharma or Lupin. With Ranbaxy, for instance, which stands to gain the maximum from original drugs going off-patent thanks to its licence to sell the generic version of Lipitor – Atorvastatin in the US market, quality issues have dogged the company from late 2008, just after it was acquired by Japanese drug major Daiichi Sankyo in a $4.6-billion deal earlier in the same year.

For Ranbaxy, the ghost of its regulatory problems with the USFDA still remains to be exorcised. India’s largest pharma company by sales (Rs.81.47 billion during FY2010) with operations in 46 countries has been facing a regulatory clampdown from the American drug regulatory body (USFDA) for about three years now, which has affected its prospects for launching products in the US market. This is how it started. In 2008, Ranbaxy had sealed an agreement with Lipitor’s original maker Pfizer and obtained from it a licence to sell a generic version of Lipitor in the US market from November 30, 2011. Due to its first-to-file status with the USFDA, Ranbaxy also got the exclusivity right on the drug for 180 days before other manufacturers can introduce their versions of the drug in the US market. But late that year, a bomb fell on Ranbaxy. The USFDA imposed a ban on import of the company’s 30 generic drugs, after two of the company’s manufacturing facilities in Dewas and Paonta Sahib failed on quality parameters. This run-in with the USFDA has led to a delay in the approval of the drug copy of Lipitor, a blockbuster drug for lowering cholesterol.

With clouds of doubts hanging heavily on Ranbaxy’s Lipitor gambit, investors are getting edgy and the company’s earnings have fallen in recent times. In the second quarter ended June this year, Ranbaxy posted a 25% drop in quarterly profit, hurt by slowing overseas sales and rising costs. In Europe, the company’s growth has been sluggish given the pricing pressure in most countries of the continent.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
For More IIPM Info, Visit below mentioned IIPM articles

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Thursday, April 4, 2013

B&E Indicators

Matching increasing demand

By 2035, global demand for energy is expected to be about 33% higher than it is today. In fact, the International Energy Agency projects that satisfying the world’s energy needs for the next 20 years will require $1 trillion in annual investments. However, even given strong growth in renewables, about 75% of the increased demand is likely to be filled by fossil-fuels, thus making it clear that oil & gas demand will continue to grow in the future.

Demand will vary by sector and region

Further, the issue will not be simply about matching increasing demand, but also about matching that demand where and when it happens, which is certainly no easy task from the current starting point. For instance, downstream markets are experiencing stronger demand as the recession recedes, but meeting that demand is challenging. Reason: The industry has seen little addition to greenfield refining capacity.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
For More IIPM Info, Visit below mentioned IIPM articles

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