Deep Discounts or Deep Distress?

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I am as usual caught in a conundrum when I read some stories. On the 15th of August National Restaurant Association of India (NRAI) launched a logout campaign against the deep discount coupons that are offered by these five aggregators Zomato, EazyDinerNearbuyMagicPin and DineoutSince then, more than 2300 restaurants across the country de-listed themselves from these food apps claiming that “discount structure, terms and conditions, by the food tech companies are unjust and unsustainable.” The president of NRAI said that to stay competitive in the market, some aggregators give discount of buy one and get one free. Others have done the same thing differently; they have straight away offered a 50% discount, which means the same.  

The story does not end here. On particular Gold Card membership, such discounts are allowed on one itemBut our desi brain works interestingly. The people go to restaurant A and take starters- 50% discount. They go to another restaurant to take drinks- buy two get two free! Finally, they go to the third restaurant and order the main course- buy one get one free! Using this method, they get the whole meal at 50% discount which kills the business.   

The worst part of the whole thing is that the discounts are being borne by the restaurants and not the aggregators. The association wants these discounts to be removed so that customers get used to not getting high discounts. It is a sort of detox action that is essential, according to the association. It appears that both the sides have understood the problems created by deep discounts and they also know that it will take some time to reach normalcy and come out of the deep discount issue.  

You and I are naturally going to be unhappy with these changes. We have to now look for happy hours or special days to get good discounts. Now, these changes are going to take my outflow back to normal, which I do not like. But we should not forget that such gimmicks never work in the long term.  

I always felt as if I am an uneducated person, though I have run a small business for more than 35 years. Giant organisations like Amazon and Flipkart have been in the deep discount game for quite some time. The difference is that they give deep discounts from their pocket. For years, they offer deep discounts, give Prime memberships and so on. They keep on investing billions of dollars for years. Amazon has never made profits in the last twenty years. But they continue to invest in the business to get more and more customers all the time. Uber CEO has recently made a statement that Uber may never make profits. What is the business model of such companies? Jeff Bozos has become “poor” when he settled his divorce, and his wealth is at lowly US $ 65/ billions. He bought some time back Washington post for an all-cash deal of US $ 250/ million.  

Uneducated me does not understand the principles used in these businesses. Uber charges higher rates when demand is up. But I have seen that as a routine, they charge about 10 to 15 % more than an Auto Riksha in Pune. The price difference between an Auto Riksha and a car can be three lacs of rupees. Many Rikshas give mileage about 1.5 times more than the cars. 

On top of that, Uber takes 30% of the amount we pay to the driver. To me, the driver may break even, Uber’s figures show that they make losses. Other than making vehicles available quickly to us, are they running a charity organisation? Is it not similar to deep discounts offered by Zomato or Amazon?  Or for that matter, Oyo?

Venture capitalists, angel investors, put in their money in such companies. Venture capital is defined as capital invested in a project in which there is a substantial element of risk, typically a new or expanding business. I am sure that those who invest in such companies expect reasonable returns on their capital. By what I have described above, there are no returns, then why are the investments continued? Where is the source for such unlimited funds?  

There is no doubt that Amazon, Uber, Zomato are market disruptors. They have shown the world a new way of doing business, which even 25 years back did not exist. New methods, new ways of doing things make a lot of difference in day to day life. Consider AirbnbThe concept is so good that it is helping people all over the worldIt reduces the cost of travel and uses people’s assets which have been remaining idle.  

Amazon, WalmartJio are gamechanging companies which have made a big difference in our lives. But they are making these changes with their own money or at the cost of competitors. They are disrupting the market and making their competitors think; I am sure the competitors will come up with even newer ideas.  

But this deep discount business with own money or someone else’s money is not sustainable business model. I am not surprised that NRAI has revolted against it. I was talking to someone about these aggregators. It was felt that the aggregators probably sell the data of their customers to make money! When companies like Facebook have done it, what will stop the aggregators from selling data!  

Ultimately, market disruptors come with ideas and business models which were never seen before. But one thing will never changeSuch organisations have to make profits at some stage. Unless, of course, you are an Amazon or an Uber. But don’t forget that Amazon is the market leader in Cloud Computing business; so as a group, they make profitsBecoming Unicorn company (market value exceeding One Billion US $) is fine for publicity; it will help companies get more VC fundingBut if they don’t start making profits, such companies fall in the group of 95 % plus companies, which close down sometimes even without a whimper.  

 

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Recession or Cyclic downturn?

The automotive sector in India is under significant stress. Sales are going down drastically in unprecedented numbers. It is a vast sector and has already started giving layoffs, having non-production days- a euphemism for plant closures. A large number of dealerships have cancelled their tie-ups as the business does not appear to be lucrative. On top of this, BS-VI norms will be starting from 1/4/2020, which will cause further stress as no BS-IV vehicle will be even registered from 1/4/2020.

More difficulties will come up during this year and maybe even next year. The reasons for this is that CAFÉ norms will come into the picture from 2022. There is already a discussion of auto companies going slow on investments, but statutory requirements are mandatory, and these companies cannot avoid them. BS-VI norms and CAFÉ norms will increase the prices of cars. One thing that never comes into the discussion is the sale of old vehicles. It is not that people are not buying cars. People suddenly don’t change their habits. But people become practical and smarter.

George Mathew

I will tell you what I mean. I read an article from Indian Express which was discussing the sales pattern in the industry in general. The data in the table is for two thousand plus companies. The table above shows the business figures for April-June quarter comparison of 2018 and 2019. Sales of AC’s are generally seasonal. But other items like TV’s, Microwaves have not shown any decline. Sales are almost normal and have only shown seasonal changes.

I want to write a disclaimer. I cannot “read” the financial data, and hence, I cannot analyse it too! But as a layman, I thought there is not much difference for these two years. The sales have gone up in 2019.  Operating margins have reduced slightly. Depreciation is quite high in 2019, indicating the investments done in the that year. Hence interest paid has gone up maybe due to investments in plant and machinery. Proportionately tax paid has gone down, and profit has gone down. These figures do not show any drastic changes happening in the market. Companies considered in this table exclude banking and finance companies.

Then why is the auto sector in distress? I have mentioned that people have become smarter and practical. In the last financial year, the total number of vehicles sold was large. But the sales of new cars have come down. There is a secondary market where people buy used cars. The total number of old vehicles sold was four lacs more than new cars. Why is this happening? Small cars like Alto are now sold more in three-tier towns. Young people in big cities want to buy bigger vehicles. I understand that a 3 to the 4-year-old big sedan is now available for the price of an Alto. The trend of buying used fancy cars is affecting the sale of new cars.

I am not arguing that there is no recession in the auto sector. But we should not forget that it is one of the most protected sectors in India. Customs duty on cars below US $ 40000/ is 60 % and above this value 100%. The used cars have a customs duty of 125%.  For various reasons, this sector has remained inefficient. After many international companies started coming to India and opened their factories in India, the auto sector had a tough time. Some Indian companies took 15 years to reach the quality levels of global companies. One company that followed a correct way of doing business is Bajaj Auto. They currently export 1.8 million motorcycles every year. It gives them a buffer when the local market sales dip!

Some of the reasons for the downturn could be that main barrier for transport vehicles like octroi has been removed. The action has speeded up the turnaround time of vehicles  substantially. The effect would be that the number of trucks needed to transport material would be less than those previously required. Another reason that is making rounds is that demonetisation effect causing the sales to drop. Is such a large industry dependent on cash? In the rural areas cash was being used to buy vehicles; even large SUV’s were bought using cash. If people had so much cash with them why did they not use bank instruments to pay? The answer is obvious. Not paying taxes honestly is a habit that does go away quickly.

What was the auto industry turnover 20 years back? How much has this industry grown? The auto industry has made decent profits all these years, so I am sure they have reserves. Pollution norms have been known to everybody, so no point in raising hue and cry about investments needed.

Any sector that is in stress always talks of alarming results of the recessionary trends in their business. Should the government give selective help to the stressed industry? Is such action fair to other sectors which are doing okay in their business? The financial stimulus can be a solution, but such money gets diverted from equally essential areas. We should not forget that high tariff on imported vehicles has helped the industry for a long time.

All the companies in the automotive sector are large organisations, and they have the wherewithal to overcome current tough times. Asking for a reduction in GST is a short-term major and is taking a myopic view of the situation. In the last couple of years, the government has been receiving feedback from business about GST. Government has already made changes for the benefit of both industry and the government. Making changes for a specific industry for a short duration is an incorrect way. The auto industry has been generating decent profit for the last few years. Some things have changed; some new variables have come into play. There are who experts can find a solution and suggest corrective actions. I am sure the industry will come out of it.

Raising the alarm, making statements like “It is the wake-up call for the Government of the day” does not solve issues. But the government help should be an exception but not a rule. There is an interesting story about General Motors and Chrysler. When they were in serious financial trouble, a decade ago, the senior executives of both companies were called to Washington DC for discussions. In the initial informal chat, they were asked if they reached Washington the previous night. The surprised executives said, “Oh, we landed only about 45 minutes back. We chartered a plane to come here.” The government official was aghast!

So where is the vendor conference this year? Italy, Las Vegas, Macau? How can you have the conference inside your factory? Cost cutting is for others. I have attended General Motors vendor conference once in Pune. It was at the Oxford club and there were at least six helicopters used by GM bosses to arrive at the venue! It is not a surprise that GM closed their shop in India.

Article 370! Common Man’s View!

On 5th August 2019, President Ram Nath Kovind issued a constitutional order revoking the 1954 order, and making all the provisions of the Indian constitution applicable to Jammu and Kashmir void. Following the resolutions passed in both the Houses of Parliament, he issued a further order on 6th  August declaring all the clauses of Article 370 to be inoperative.  

To me, as a layman, 15th August 1947, 26th January 1950 and 5th August 2019 are the dates of equal importance. My thoughts are without any political views and prejudices. Who did it? Which party took the decision, to me is immaterial. I have been reading about the situation in Kashmir since childhood. As the world in my youth, the people who were involved in the issue were naïve. The naivety kept the problems below the boiling point most of the times. Except for a few serious incidents, nothing major happened, till 1989. The situation started changing after the 1971 war with Pakistan. Ninety thousand plus Pakistani soldiers surrendered to the Indian army in Bangla Desh 

It was the first golden opportunity for a strong leader Indira Gandhi to repeal article 370. She could have done this change in exchange for the return of POW’s. But in those days, India’s finances were not very strong. India’s stature in the global arena was not very high. It is said that Nehru followed the doctrine of NAM (non-alignment movement) by remaining out of groups formed by the USA or Russia. The analysts of those times said that this was done to win Nobel Prize for peace! But post-1965 and 1971 wars, India realised the folly of NAM and joined hands with Russia. The fall of the Russian Empire later led to India slowly switching over to the American group. The last twenty years has made India economically powerful. Adding to this, India got a strong leadership in the form of Mr Modi.  

Countries world over started looking at India as a stable country (though it was accepted reluctantly by some countries). While these changes were happening, our friends Pakistan went in reverse gear. Their leadership had only one agenda that is how to trouble India. They started with supporting the Khalistan movement. India handled the situation assiduously. International relations with other countries were handled with great aplomb. The world supported India in handling the Khalistan issue. Under the leadership of Director General K P S Gill India crushed the Khalistan movement in Punjab. 

Whenever the infiltrations happened or terrorists attackedit was being discussed until 4th August, as terrorists attacked so and so place in Jammu and Kashmir. (Some even wrote Indian occupied Kashmir) The narration always talked of Kashmir. But friends, from 5th August the narrative will be terrorists attacked so and so place in the Indian state of Kashmir! Now the attack will be on India and not on disputed Jammu and Kashmir region. The article 370 helped some nations to always refer to the region “disputed region of Kashmir”. The narrative has now changed for good; incidents, if any, will be in the Indian state of Kashmir! The events of 5th August are game-changing events. 

There could be different views about the Indian government’s action on article 370.  Some people feel that the procedures followed were incorrect.  Others think that the move may not stand the legalities in the court of law. Some are discussing the illegality of the action itself. In today’s world, anything and everything is challenged by differing opinions and views. It is because each individual, each organisation or each country needs to decide what is right for them. Perspectives in the international arena are many a time diagonally opposite to each other’s views. Why India delayed this decision for 70  years is anybody’s guess. But I felt that India needed leader with total clarity about world affairs to take such a bold decision. The resounding victory in recently held elections helped the matter for the current government. Though there was no majority in Rajya Sabha, the bill was first introduced there. Modi-Shah had absolute clarity that this step would be supported by even opposition parties, barring a few. 

There is an attack on freedom of the press, and people’s voices are muzzled; opinion of people of Jammu and Kashmir was not taken on the matter. These comments are genuine if taken out context. The context is when 5th August dawned, the people making such comments had forgotten the previous 70 years. What had the article 370 achieved for Kashmiris?

Three main achievements of article 370 were that it helped Pakistan to create vicious separatist atmosphere and continuously send terrorists in India. It created a situation where religious cleansing of Kashmiri Pandits was done systematically. It forced India to keep a large number of armed forces permanently, leading to some coercive actions from them. From 5th August onward, point 1 and 2 will change for better  but 3 might become worse before tapering off.

It was used more cunningly by Pakistan by continuing with proxy war when they could. Another issue with the Kashmir problem is hyphenation. It was always said to be Jammu-Kashmir issue. But the issue was more about four or five districts in Kashmir valley rather than in Jammu or other parts of Kashmir. Another point was Ladakh also came to be dragged because of the geography of that area.  

The central government was transferring a huge sums to Jammu-Kashmir area every year. Kashmir always got the lion’s share because it cried loudly. People from Jammu had to fight for the development money but managed to get it as their population was substantial. Area of Ladakh is enormous, but since it has a small population, it always lost on funds. Ladakh’s MP Namgyal put this point succinctly during his recent speech in Lok Sabha when the discussion on article 370 took place. Declaring Ladakh as a separate Union Territory was well thought of act.  

All said and done, will this be a smooth ride? No, it will not be a smooth ride. How people will react to this action only time can tell. The Indian government was managing the issue for 70 years within certain limitations. Now it can use the carrot and stick policy which could be under more control. There are such regions all over the world. The Kashmir issue was born due to the actions taken by the British rulers when they were forced to leave India. When something did not work for seventy years, it was time to at least try something different. I am sure the concerned people have come up with a well thought of policy. There must be plan B and plan C if plan A fails. But these will be under controlled conditions unless Pakistan opts for a nuclear option in desperation.  

I have some thoughts about experts on these issues. For such an important issue, why some of them grind their axe with the current government? Why do they discuss such issues with prejudice? If they are totally against the action of the government, it is perfectly okay. They can write the reasons and argue why they are against this. There is no need for rhetoric and diatribe. India is a democracy, and all of us can write our views. Is such rhetorical reporting going to help anyone other than Pakistan? What Pakistan does is, from such speeches and articles, they pick up some parts out of context and try to show the world that even Indian media is against the action. 

I saw one video where NSA Mr Ajit Doval is asking a young Kashmiri boy, “Are people in Kashmir happy?” Next to him was an old man who says, “Is anyone happy in Kashmir?” The irony of this video is that Mr Doval is protected by Z level security! One thing it proves is that this is not a doctored video! Jammu-Kashmir and Ladakh are work in progress! How long? Only time and God can tell.  

 

 

World Cup 2019 Jamboree! The Human Side!

I was not going to include the cricketing aspect in this blog, but India’s unexpected loss in the semi-final needs to be mentioned.

Jaya and I should have been in England by now like we travelled to Melbourne in 2015 for the world cup Cricket final. But that was not to be for reasons beyond control! But I am not writing about the game. I am writing about various things that happen on the side which I came to know more because of the social media! Yes, social media is great if you use it with discretion! The commercial side, of course, has been taken over by Indian Companies! Bira, MRF, Booking.com to name a few!

One thing is for sure; the game has been taken over by Asians! India, Pakistan, Bangala Desh, Sri Lanka and Afghanistan. Though only India is in semi-finals. We Indians love festivals and watching a cricket match in the stadiums has been converted into a celebration.

There has been a tradition of drinking Beer while watching the matches in other countries. So, who is the official sponsor of the Beer sold this year? Bira is an Indian company; only their Beer can be sold inside the stadiums! There is an aside to this. The deal between the company and ICC was such that the price of Beer to Customers would have been steep. ICC/ECB jointly subsidised the sale by British Pounds five hundred thousand. Just imagine how much Beer must be sold during the matches.  Then, of course, you have Kabab Stalls, Biryani and Samosa stalls in large numbers to cater to the Asian spectators. (They are all referred to as Desis!) The tickets for the matches where desi teams are taking part are bought mainly by desis; we see some locals also watching the games. Believe me, these matches are held right in the interior of England, but the number of desis present in the stadiums was unbelievable.

There has been a tradition, in England, of a group called Barmy Army. It is a group of Britishers who travel all over the world to cheer the British teams in Football and Cricket matches. On the same lines, a group is created by Indians called, what else, Bharat Army. For Bharat wasis, one more festival gets added to their repertoire! So how do they celebrate? They came together and met the ICC. They discussed with ICC a deal. Two packages of four matches each. All ticket sales were online. So the deal was they would get to buy 11000 tickets. They would be given a slightly higher priority than the general public in the buying pyramid. The ICC made a deal that international travel, local travel from city to city and hotel stay will be handled by Bharat army. The ticket buyers have to become a member of the Bharat Army group. They are required to use at least one of the three facilities offered. Bharat Army has hired five buses on a captive basis to travel inter-city. No doubt that cricket has been taken over by Asian spectators.  One person from Ahemdabad asked his 25 family members to join the army. They all applied for tickets and were allotted one ticket. Only our friend wanted to see the matches! Indian Juggad?

In the review before the semi-final, English cricketer Graeme Swan was asked about the atmosphere near the Old Trafford Stadium. He said, “I have already seen two New Zealand supporters and about 25000 Indian supporters. I also understand that there are about five thousand Indian supporters who did not get the tickets for the match. They are going to spin around the stadium in their cars, honking loudly, to support their team.”

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Charulata Patel story is the fairy tale story of this world cup. Eighty-seven years young Charulata was born and brought up in Kenya and moved to England. There is a saying that Indians will move out of India, but you cannot move India out of the Indians. Charulata had ancestors from India and must have visited India a few times, but she never lived there. But the way she and her family were supporting India in India’s match against Sri Lanka. It was a sight to behold! She came to the ground on a wheelchair, and her enthusiasm must have been infectious. She was blowing a home-made trumpet and clapping every good event. At the end of the match, Virat Kohli and Rohit Sharma had the magnanimity to go and meet her and talk to her. Virat showed a nice gesture and gave her two tickets each for the semi-final and the finals. That India lost in the semi-final is an unfortunate part.

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In the image above, Jadeja is gesturing to Manjrekar after completing whirlwind 50!

Social media creates some unusual situations. Sanjay Manjrekar commented that he is not comfortable with having bits and pieces player like Jadeja in the team, on Twitter. Jadeja did not like it at all and replied to him, “I have played double the number of matches that you have played, and I am still playing in the team. Respect people.” The next day Manjrekar predicted that Jadeja would be in the playing eleven. Ex English captain Michael Vaughn pulled his leg saying how come bits and pieces man is in your team. In the match, Jadeja bowled, fielded and batted very well! Vaughn pulled his leg again asking Manjrekar, “Hey the bits and pieces player can bat, bowl and field well! What say you!” Manjrekar blocked Vaughn on the Twitter! Manjrekar next day praised Jadeja but with an emoji! The emoji indicated that it was not wholehearted praise!

How did people and newspapers react to India’s unexpected defeat? In most cases, the reaction was sensible and supporting the Indian team. Most people accepted the fact that after playing very well all through the tournament, yesterday was not Indian teams day. There have to be exceptions to this. ABP asked Harsha Bhogale whether he can take part in a program “Who was responsible for the defeat?” He advised them ” Please don’t do such a program.” But the worst of the lot was Marathi newspaper, Sakal.

http://product.sakaalmedia.com/portal/SM.aspx?ID=142726

It was in poor taste. They printed photos of Rohit, Rahul, Kohli, Pandya, Pant and Dhoni.

Their captions were stupid, to say the least. Since we all know how our team has performed in world cup 2019, you may draw your own conclusions.

Rohit: Hitman-Flopman

Rahul: Finally no show

Virat: Virat  (Major) Failure

Pandya: False Diamond

Pant: Irresponsible

Dhoni: Failed in doing the Impossible

Kartik: Wasted Chances

For any cricket tournament, India is a significant market as Indians are absolutely fanatic about Cricket. Star Sports has the feed in Hindi, Tamil, Telugu, Kannada, Bangla, Marathi for the Indian market, besides English. The unfortunate side effect of major Indian support is that in the second semi-final between England and Australia, there are many empty seats at Birmingham. This is because initially it was expected that India will play the semi-final in Birmingham and many places were booked by Indians. They, for obvious reasons, have not turned up today!

As I write this, England was cruising to a comfortable victory against Australia! (They have won) So finally, the champion will be a team who has never won the world cup before! Your prediction for the final? Mine is England!

 

 

 

 

EV Conundrum!

 

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I am back to my favourite topic, Electric Vehicles or EV! A couple of days back there was a meeting called by NITI Ayog to discuss and decide EV policy for two-wheelers, in India. I am going to write only about the Indian scenario. My observation is that the electric four-vehicle of similar specification as the IC engine costs almost double the price. Plus per charge range of these vehicles is about 110 km. The specs are not good enough for the car to be used for out of station travel. With these limitations, it is going to be challenging to sell such vehicles. But in two-wheelers, I have observed that the price of EV’s is comparable with IC engine version. Distance travelled using two-wheelers is much less compared to four-wheelers. In India, parking two-wheelers at home is manageable compared to four-wheelers.

There are many angles to this issues. First and foremost is the fuel. With limited petroleum product reserves, there is bound to be a tough situation for the whole world if no action is taken, we will have difficulties. Add to this a new dimension; the US has threatened India to stop buying oil from Iran or else! If the US is so much worried about the whole world vis a vis Iran, then they should sell Oil to India at the same price as sold by Iran and that too in Rupees! But the US can get away with anything in diplomacy.

Petroleum product based fuels are adding to pollution is a known fact. The whole world is trying to reduce pollution by tightening the pollution norms, but apparently, there are limitations of investments to achieve the goals. Again the US has opted out of the body which is trying to track pollution world over. Again, it is the act of a bully.

All the nations are trying to reduce pollution in their cities and India is also trying its best. NITI Ayog meeting was held for the same purpose. Four-wheelers are still miles away from reaching the balance between the price targets and the cost. As four-wheelers will be expensive, their sales will not match current sales volumes at a price expected today. The second most crucial aspect in India is the challenge of charging the car batteries. Majority of the cars in India are parked in public places. Many of them are parked on roads and streets. How to provide a facility to charge batteries for such vehicles? Do we provide charging points on roads like we have parking meters? I don’t think that is a practical way of doing it. Another issue is that fast charging techniques are coming up but are still not good enough. With such limitations, NITI Ayog is trying to put pressure on the two-wheeler segment.

As already discussed, EV’s in this segment will have a comparable price, and because of lesser parking issues, charging the batteries using home electrical outlets may be possible. Charging is manageable; costs are manageable, and the number of these vehicles produced is very high. The number of two and three-wheelers manufactured in the latest financial year is 30 million plus. Total of fuel used by these vehicles is massive.  If totally converted to EVs, there can be a significant impact on pollution.

There are two groups in this segment. First and the main is the group of established manufacturers like Honda, Hero and Bajaj. They are already developing EVs. The second segment is the startups who are in the process of developing EVs. They have no hangups and are trying to support the government. But the established ones have the issue of scaling up. NITI Ayog is insisting that by 2025, majority two-wheelers manufactured should be EV’s. The Giants have a vast experience in manufacturing and can visualise or foresee the issues. Startups really don’t have manufacturing expertise and experience. They probably do not understand the meaning of manufacturing 2.5 million vehicles a month.

Now here is a complicated situation. Established manufacturers have to keep on producing IC Engine vehicles and ramp up EV production. Tremendous efforts and money will be needed. Startups may know the EV technology but do not have the wherewithal to manufacture one hundred thousand vehicles a month. Selling these numbers without the right experience is going to be very tough. What about funding? They are solely dependent on financing by VCs. Today I read an article about VCs trying to go away from electric vehicle manufacturers, in China, as there are too many variables. These startups will never get bank funding. Don’t forget that even Tesla is still a VC funded company! They are already facing production bottlenecks, and their sales are going down!

Will Lithium producers make a cartel like the petroleum cartel? It is a million dollar question. India does not have Lithium reserves, but China has done brilliantly. They have taken controlling shares in many mines across the globe. Till foreseeable future, it looks like the Lithium, and to some extent, Cobalt is going to be the key elements. Their control will be the key to success.

https://www.mordorintelligence.com/industry-reports/india-lithium-ion-battery-market

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The cost of the battery pack was the US $1000/ kW-hr in 2010. In the year 2016, it came down $273. At this rate, the EV’s will become affordable over a period. By 2020 it is expected to be sub $200/. By 2026 the price is projected to be $100/. But till that time it is going to be a tricky question about change over. Those who can afford will buy the EV’s, but the mass production models will take some time to become affordable. In the countries, where parking of cars is an issue, it is difficult to predict what the solution will be.

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One pertinent point discussed by NITI Ayog was that if the pollution goes out of hand, then the courts will intervene. Once that happens then, the discussion will be between manufacturers and the courts. NITI Ayog suggested that some policy decisions need to be taken while interested parties are involved in the debate; it will enable both sides to come to an excellent resolution.

It is more of a chicken and egg situation. It is known that EVs are good for pollution management. On one side, nobody even knows which startups will even survive five years hence. Hence there is no point in putting your money on them. But the existing giants have their issues. They need to run their current business, which has its unique problems. They have to simultaneously scale down and scale up for old and new business. Hence they have shown their apprehension with the year 2025. How will they come out of this conundrum is anybody’s guess.

Are Electric buses the real solution for pollution control and to take people away from personal vehicles?

Startups, Venture and Angel Investors!

I am venturing into an area where even angels are afraid to tread! For a long time, I have felt lost with the terms mentioned in the title. To my understanding as an oldie, anyone starting a new business is a start-up. Investopedia definition of a startup is below:

A startup is a young company that is just beginning to develop. Startups are usually small and initially financed and operated by a handful of founders or one individual. These companies offer a product or service that is not currently being provided elsewhere in the market, or that the founders believe is being offered in an inferior manner. 

If we go by the strict definition of startups then the names like Uber, Airbnb, Zomato, Oyo and their likes come to mind. These companies have provided a service or a facility which was never offered before. These facilities became possible because of the internet and IT. I wont call Tesla a startup because they are providing a variant of an existing product; that variant is no doubt a game changer as it will change and push the Petroleum economy. But the car itself is not a game changer. 

 

Unicorn1I read a news item today which said that Delhivery a startup has become a Unicorn company. Unicorn is a mythical animal depicted from thousands of years and appears unique; maybe that is the reason this name Unicorn, a unique company. Unicorn company is defined as a company whose valuation as per markets is One billion (One thousand million) US $, i.e. Rs Seven thousand crores. As a semi-retired person nearing 70, I feel out of depth to read such figures. But for records, all my life I have run a business (a dirty secret- a software business) and had consulting assignments. In both my activities, I have dealt with companies from a couple of billion dollars to nearly 40 billion dollars. So, these numbers don’t scare me, but personally these days I go to an ATM to withdraw money for myself, I am a small man.  

Many of these Unicorn companies have been based on the internet, and IT technologies but some of them are doing the work of brick and mortar things as mere mortals do. Here is a table that I got on the net and made me start thinking. 

US $ Million  Revenue 2018 Funding   Valuation  R/F  R/V  F/V 
BYJU  219  784  4000  0.28  0.055  0.196 
Swiggy  72  1500  3300  0.048  0.022  0.455 
Zomato  47  653  2500  0.072  0.019  0.26 
PayTM  51  2200  10000  0.023  0.005  0.22 
Oyo  400  1600  5000  0.25  0.08  0.32 
Policy Bazar  62  35  1000  1.77  0.062  0.035 
Udaan  4  285  1000  0.014  0.004  0.285 
Freshworks  14.5  249  1500  0.058  0.010  0.166 
Delhivery  15  365  1500  0.041  0.010  0.243 

 I will briefly mention what they do.  

  • BYJU is in online training– revenue from students 
  • Swiggy and Zomato are restaurant food delivery companies- revenue from the restaurants whose food they pick up and deliver. Tie up with restaurants and menu details is unique 
  • PayTM is a wallet plus allied things company
  • Oyo- helps book hotel rooms and takes money from hotels– this is unique 
  • Policy Bazar- helps you buy many policies online- commission on the sale 
  • Udaan is like Flipkart and sales products online 
  • Freshworks offers sales and support solutions 
  • DelhiveryPhysically delivers goods from place A to place B and has warehousing facilities.  

To me except Oyo, Swiggy and Zomato others do not fit the strictest of the definition. Are other companies providing products and services that did not exist before? No, still they are called startups! By this definition then, like other companies, my company was also a startup and faced the same problems as these companies are facing today. The only difference is that some experts in the world thinks that they are doing something extraordinary!  

As usual, my mind started whirring, and I have questions! What is so unique in becoming a company which some experts” feel is doing fantastic work; they have invested large sums of money in them. For an oldtimer like me what matters is how much I am selling and what is the profit that I make out of the business!  Is the business sustainable over a period of time?

I will introduce two more terms now for better understanding. 

Venture capital firms are investment companies that operate only to handle investments in business ventures that may be considered high risk. 

An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.  

Now that we are through with definitions, tables, please help me solve my queries. When the companies are creating variants of existing available services and products, how do they become startups? These companies are supposedly creating products and services which are not existing. So how do investors and angels analyse them, study them and invest considerable sums in them? Uber concept never existed, Airbnb is a new concept; so in these two cases, the investors seemed to do more right than wrong.  

I have read that more than 90% of startups fail. What could be the reason? The reasons for failures are the same as the reasons for any failed businesses. These are 

  • Lack of focus
  • Lack of motivation 
  • Too much pride and ego; that you were a smart techie does not mean that you can create and run business 
  • Taking advice from wrong people (including advisors brought in by investors) 
  • Lack of general and specific domain knowledge in life finance, operations and marketing 
  • Raising too much money too soon. 
  • Lacking good mentorship  

From what I understand about the world of business, you need experience, maturity. How will young guns have this? Recently I read some story about a 15-year-old who has done something great in creating a platform for short story writers. He has two thousand hits to his short stories! Come on, its not two million hits. I also happen to be a blogger, and I know what hits are and how difficult it is to get them.

Similarly, how can 25 years old be know all? He may be brilliant both in his techie side and convincing the investors about his ideas about which others don’t know much, anyway. How do dollars get converted into a sustainable running company? 

The table above shows all the figures in million US dollars. It shows revenue, money pumped in and valuation! The revenue is tiny when compared to the money invested. Who does the valuation? What is the significance of the appraisal? I will tell you something about valuation. How can an unproven company, with unproven management, product or services with 4/15/14 million dollars have 1.5 billion dollars valuation?  Do investors not understand these things? But since private money is involved, who cares?  Is this gambling, horse racing equivalent?

Apple was the first company whose valuation reached one trillion (I can’t count zeroes) US dollars. But once the US-China trade war started, it appeared that Apple may have problems. Immediately its valuation has come down, now Microsoft is numero uno! Apple valuation with tons of money and great products and with proven track records can come down. The companies listed in the table above are both brick and mortar companies and IT companies with nothing proven. Their valuation is going up and up and up! Any logic? 

Friends I will introduce you to more things. What people called in olden days as an investment, is now called burn rate. These companies burn money, it’s not yours anyway. Then there are serial entrepreneurs a la serial killers! They create startups, burn money (a % goes to own pockets), take the company to a level and start looking for larger companies for merger and acquisition! Someone decides and declares them more valuable. So promoters, investors, angels all make money as a new set of people replaces the old team. The show goes on. Nobody keeps track of what happens to such companies. Since bank funds and financial institution money is not involved nobody cares. No Nirav Modis and Mallyas are created. Start next company and go through the same cycle, make a million or two. The cycle goes on.

The end result of all this is that “Startup Culture starts in your country. The startup language is a new language which most don’t understand and I am sure you have still a lot of questions on the subject discussed, even after you have read this piece!

 

 

 

 

 

 

Pulwama-War or Peace?

War1

                 जंग तो खुद ही एक मसला है, जंग क्‍या मसअलोंका हल देगी? 

                 आग और खून आज बक्‍शेगी, भूक और एहतीयाज कल देगी। 

                        इसलिए ऐ शरीफ इन्सानों, जंग टलती रहे तो बेहतर है। 

                  आप और हम सभी के आंगन में, शमा जलती रहे तो बेहतर है।

These are the lyrics of a poem by Sahir Ludhiyanvi, the famous poet and lyricist. These lines aptly fit the stand-off between India and Pakistan after the Pulwama incident. Pakistan has been following the policy of thousand small cuts against India and has succeeded. In between these small terrorist attacks, they have made significant attacks like Pathankot in 2016 and the recent one at Pulwama. With the latest attack, the whole Indian nation came together, and the atmosphere in India became very tense. Some print media newspapers, web newspapers and TV stations started making jingoistic statements. The frenzy led to people making statements like, “Let’s teach the enemy a lesson!” It is easy to get swerved, but the Indian government remained steadfast in their stand and said that they were studying the matter and would take appropriate action at the right time.

The poem brings reason to our thinking in such tough situations. The gist of the poem is in the first line. “When the war itself is an issue, how can we use war to resolve other issues.” Hence, the poet says, gentlemen try and avoid war! It is better if we have the Candles burning in our courtyards! The candles burning signifies peace.  Let us not burn candles for martyrs.

What does war do? In recent times we had one in Kargil and before that 1971 war which gave birth to Bangla Desh. Pakistan had been morally hurt due to the 1971 war where ninety thousand of its soldiers were required to surrender to the Indian army. Unfortunately, none of the Pakistani leaders had the mentality of trying for peace. Bhutto was suave but was a hawk who wanted one thousand years of war with India. Zia Ul Haque was a religious fanatic and gave birth to the thought of troubling India under the garb of religion. Kafirs must be punished was his theory. Musharaff was equally terrible with a hawkish mentality like Bhutto.

Sine the 1971 war, India has always offered to discuss and resolve the issues but Pakistan all the time wanted to take the Kashmir problem on the global forums; India has always said that it is a bilateral problem. Pakistan has all the time had a so-called democracy in which the government was controlled by ISI and the military; successive governments were in denial about the terrorism problem.

Various Indian governments tried peaceful negotiations, including a visit by Modi to wish Nawaz Sharif on his birthday. When Musharraf was the prime minister, cricket match diplomacy was attempted, but results have been continued terrorist attacks. What is the solution to this? War? No way. Jingoistic sabre rattling by social media, TV anchors is not a solution.  They only vitiate already tense atmosphere. The anchors and their brethren have crossed the LOC many times in discussions; they have bombed the bases and won the wars in their dreams. I understand that TV anchors have a job like you and me. But they shout, “We don’t want condemnation, but we want blood, enemy blood!” These folks think that it is like moving around on a film set with a toy gun and kill the enemy, Rambo style! Red paint on the chest and all! It is like playing soldier-soldier! In war, somebody’s brother or father or son dies. We should not forget that it’s a human being like you and me that dies, whether he is Indian or a Pakistani is secondary. Villages and towns on the borders are also damaged, people get killed.

It is excellent for TRP’s with simulated atom bombs blowing the mushroom cloud. But do these anchors know how many people died in the two atomic bombs dropped on Hiroshima and Nagasaki? It is estimated that approximately One hundred and fifty thousand people died in Hiroshima and about seventy thousand people died in Nagasaki! Are we prepared to take the human losses on this scale? With more powerful bombs and a much larger population than 75 years ago, the number of deaths is unimaginable, if the bombs are dropped today.

The link below is a link for an interview in Indian Express. IE team interviewed Gautam Bambawale who was the High Commissioner of India in Pakistan in 2016/2017 and was in China in 2018, post-Doklam controversy. As per the current practice anchors and politicians may not believe some of the facts shared by Gautam. Style these days is to ask for proof. Gautam, by the way, is a Puneite, and his parents lived in Chaturshringi area.

https://indianexpress.com/article/india/one-surgical-or-aerial-strike-may-not-force-pak-to-stop-aiding-terror-but-we-have-raised-the-costs-gautam-bambawale-5618709/

After every incident, there are a lot of discussions in the government agencies, within them and with each other. These discussions are held under the leadership of the head of the government. Armed Forces are consulted for preparedness and options. External affairs ministry starts dialogues with the different international governments to explain India’s thinking and possible action. These friends are requested to support India openly as well as in the bodies like the United Nations. Coordinating with other governments is a real tough and confidential work that takes place in the background. Mr Bambawale has said in the interview that after Pathankot some action was imminent.  (it was known only to a very few people on the need to know basis) The ministry of External affairs had advised him to be prepared to ensure that all embassy staff was safe by locking down in a safe place. Lockdown was essential as the reactions within Pakistan could not be predicted.

Blood for blood is a slogan good for TRP. What terrorists do can never be justified. But in the conventional war, thousands of soldiers from both sides can die! Let us not forget that Pakistanis are also human beings like you and me. Their powerless and hence unreasonable government’s acts, cannot be replied with a full-fledged war. What India did post Pulwama was to show Pakistan that now it means business. It hit the terrorist camps deep inside Pakistan territory! When India made a land-based surgical strike after Pathankot attack, Pakistan went into denial. But this time they tried to react with an air attack, which led to combat and they lost an F 16 fighter, and we lost MIG 21. Indian pilot Abhinandan was captured after he bailed out in Pakistan territory. Under international pressure, Pakistan released him in a couple of days to win a few brownie points.

Mr Bambawale has said in his interview, “With the (surgical strikes) for the first time in 2016, and now again in 2019, what we have indicated is that the people of India have had it up to their necks in suffering from terrorist activities. Also, we have indicated — and the government can take credit for the bold and brave decision — that if Pakistan does not control terrorists, then we will go and strike them inside Pakistan. That is what has changed. A lot of people are describing it as a new template that has been brought to the table. I agree with that assessment. It is no one’s case that one surgical strike, or one aerial strike, would force Pakistan to stop aiding and abetting terrorism. But we have increased and raised the costs for them to do this.”

Our brilliant opposition members in politics seem to have mentally become Pakistani supporters. One of the leaders said in an interview that Pulwama mastermind was Mr Modi. This clip was continuously being shown on Pakistan TV. Some opposition leaders initially made statements that we are together with the government. But later they congratulated the air force for the strike. Such attacks are approved by the head of government was conveniently forgotten. Then they started challenging the attack itself and said where is the body count. It seems that opposition expects that, after a surprise attack some Indians will go to the location and take the body count. Another leader also said the same thing. We will support the air force, but we will never help the Prime Minister. The raising of severe doubts about Indian State and its actions using the Air Force was the height of stupidity. The meaning of what they said was that the Air Force was in connivance with the government to cook a story of the air strike. Pakistanis must have been laughing; they must have said we don’t need Chinese or US support, our Indian friends are supporting our cause.

Mr Bambawale’s interview gives you a deep insight into how the crisis is handled. I sincerely wish and hope that for once the opposition leaders will stop talking in a frenzy as if they were Pakistani supporters. But in spite of opposition, our government has handled the situation well especially on the international stage. Propaganda made in other countries is putting pressure on Pakistan to act against the terrorist camps and the outfits.

war2

“One surgical or aerial strike may not force Pak to stop aiding terror. But we have raised the costs”. One sentence summarises Gautam Bambawale’s interview.  The idiom “One Swallow does not make a summer” perfectly fits the situation. India has finally changed its policy which will make Pakistan think about continuing with its current strategy of supporting terrorism. Individual terrorist attacks may continue for some time, but audacious attacks like Pathankot and Pulwama may not happen again because they know that India is going to hit back discretely, at their own will.

To conclude, Rajwardhan Rathore, Indian Minister,  has summed up the situation in cricketing parlance! He said, “Now in the terrorism game, India is now doing batting also. All these days we were just fielding!”