Hi, [image] The Department of Management Studies, IIT Madras proudly presents its annual B-School fest, Samanvay. Celebrating synergy, that connects all living creatures and the Samanvay in the universe since its evolution from big bang,…
The Department of Management Studies, IIT Madras proudly presents its annual B-School fest, Samanvay. Celebrating synergy, that connects all living creatures and the Samanvay in the universe since its evolution from big bang, is core to our B-feast. But this year Samanvay is about something else too, it's about having fun seriously. Fun is an integral part of DoMS culture. We believe in having fun while doing serious things and that's the modus operandi at DoMS. What could be the better way than to celebrate this spirit with plethora of events where there is something for everyone?
Taking off today, 11th January, till the 13th of January, Samanvay '08 promises to be a mega-event with Mr. Gurcharan Das invited as the Chief Guest. Mr. Mark W. Vannette, Operations Manager, EDC-India, Caterpillar Inc. and Mr. B. Manivannan, Zonal Manager South zone- LIC, will also grace this inauguration.
As India Inc. is taking on the world with M&As; (Tata Motors's Land Rover winning bid is the latest proof of the growing appetite), the implications of these deals should be understood thoroughly. Hence, Samanvay '08 will host a panel discussion on "The Great Indian Takeover" with eminent personalities from industry and academics.
With the rise of rupee and depreciation of the dollar, many companies are feeling the heat. So what's the effect of this going to be on Indian firms? Know more about the love-hate relationship of the India Rupee and the Dollar in a speech by Prof. P.C Narayan, Professor of Finance & Control at IIM Bangalore
As the importance of management education is increasing, now is the time to look at some of the myths and the realities associated with it. A second panel discussion will focus on "Management Education in India: Are there dreams and are we pursuing them?" with Directors from ISB, MDI, XLRI and industry representatives.
In addition to these we have events that test you comprehensively on each and every function and aspect of management.
Apart from these regular events, Samanvay this time hosts a very special event "Outbound at Dawn". It will be challenging corporate, media and student teams from all over to team games within the pristine wilderness of IIT Madras. So strategize and think quick to win as you watch beautiful mother nature and her creations watching you intently. The corporate edition, which took off today, has already generated waves. More on it in some time. Wait for the media and student edition for the next 2 days.
Samanvay will close off on 13th Jan with a valedictory from guests like Mr. V. N. Vittal, Former Central Vigilance Commissioner and Mr. T.S. Krishnamurthy, Former Chief Election Commissioner.
We invite you all to have a look at all of this at Samanvay '08, Department of Management Studies, Indian Institute of Technology, Madras. However, we would rather have you rush here to celebrate this great spirit of synergy and fun at Samanvay '08.
Samanvay 2008, the B-fest of DoMS, IIT Madras started off on a high note with the inauguration of the event and the keynote talk by the chief guest Mr. Gurcharan Das. Though he has held esteemed positions in many organizations, he is best known as the author of the book India Unbound and as a feature columnist in the Sunday Times of India.
Mr. Gurcharan Das talked about the new emerging India - the opportunities and the challenges that lie ahead of it in the 21st century. Although India still has a long way to go, he was hopeful that India will find its glory once again. He started off by describing the basic qualities of good CEOs. He stressed on how important it was to be humble, and at the same time be determined and ambitious. Though it may sound like a paradox, if one thinks about it, it is a very rare combination but one which will ensure success.
He then talked about the story of Indias growth and explained the factors which contributed to this rapid rise. Some of the important factors include the increase in GDP growth, slow down in population growth, rise in literacy levels, rise of the middle class and decline in the poverty rate. The rising investment and productivity levels also contributed a lot to this growth. When the middle class will form 50% of the total population, there will be a tipping point of sorts as far as the politico-economic situation of the country is concerned.
One important thing to remember is that even though the story of a countrys growth is common, the model for India has been unique. The drivers of growth in India have been different compared to other countries. While the growth of SE Asian countries was based mainly on export, manufacturing and investment, India has a strong domestic consumption and its strength lies in the service industry. He explained that the world
needs another big consuming economy and India can nicely slip into that role. The benefits of a domestic-led model are obvious. It has insulated the country from the volatility in the global markets. However, according to some, India seems to have skipped the industrial revolution and has jumped directly from the agricultural age to the information age.
There are many reasons for Indias success. A few of them include having a strong list of globally competitive and competent companies. Some of them include Reliance, Ranbaxy, Infosys, Tata Motors, Bharti, ICICI etc. These are companies which other countries would die for. Also the vibrant private sector space has led to the decrease in the number of bad loans to less than even 2% while China has around 20% bad loans.
On the other hand, however he said that the public space is not fully developed. Although we have a dynamic democracy and a free, lively media and press, poor governance is still a serious problem. This included not only the corruption in the government, but also apathy in the education and health sectors. One out of every four teachers does not show up, and out of those who show up one out of two doesnt teach. The same is the situation in hospitals. The government companies and institutions unfortunately still run on rishvat and sifarish rather than growth and excellence. He also said that there is a problem with the way populist subsidies are announced and implemented. Populist subsidies in themselves are not a problem if the money actually gets to the right people. Currently there is also a lack of money to put into infrastructure development. China invests 6 times more than India into infrastructure. This is an area where India lacks China by a large margin and India will have to quickly address this issue in order to become a world-class economy.
Another interesting development which has happened in the country in the last 3 decades was the relation between the public institutions and growth in the country. Thirty years ago, India had an enviable bureaucracy, judiciary and a police system. But the growth was very slow. Now the growth has accelerated to a better level while the institutions have eroded in value. So an important question which needs to be asked is whether India is rising despite the State and what possibly can be done about it. One more important question to answer would be what then explains Indias economic success? One reason could be that even slow reforms do add up. Once the middle class forms a considerable part of the population, the reforms are also likely to speed up. Another important factor is the liberalization of the young minds. He explained with a story from his book as to how even a small boy in a tea-stall in a village aspires to become rich and famous like Bill Gates. This decolonization of the mind, he said, will go a long way in helping India reach the peak. Also losing the inhibitions of using a foreign language like English will definitely contribute in a global economy where English has become the language of trade and of business.
Mr. Das stressed that for every country there is a specific sector which contributes to a major part of the growth and becomes a source of competitive advantage over other countries. For Britain it was textiles, for India it is the knowledge economy.
Looking forward, the expected growth rate will be around 7-8% because he felt that democracy will not permit more than 8% growth. Coupled with a 1.5% popln. growth, India will reach a per capita income equal to that of US by 2066. The economy is on autopilot and it will require an event on the scale of a nuclear war to stop the engine. The big story of the 21st century is not 9/11 or terrorism but the rise of India and China in the
global scene. The Theory of Convergence will further ensure the bridging of the gap. A major reason why this convergence hasnt happened in the last 50 years and is happening now is globalization. Economies of developed and developing countries are now linked.
He also talked about the demographic dividend and the doubling of the labour force in the next 20 years. This coupled with higher savings and investment rates will translate into higher GDP growth. This demographic advantage will ensure that Indias growth will be more long term than that of China.
Again reverting to the topic of the importance of the middle class, he said that by 2040, the middle class will form 50% of the population. This will ensure that the political power centres in the country will start listening to this huge and powerful group of people and thus there will be a change in governance patterns. While looking at the factors which contribute to high growth, it was also important to list out those factors which could stunt the growth of India in the coming years. Some of them are fiscal deficit, weak infrastructure, bad governance etc. He said that India desperately needed a second Green Revolution. Other sectors which need a lot of improvement include the power sector and labour.
So the bottom line is that the Indian prosperity is on autopilot and it would require nothing less than an Act of God to stop the juggernaut. The government sector cannot be ignored. Governance reform will take its time but can be expected to speed up. Human capital will continue to expand based on private initiative and will play a major role in driving the economy.
To do justice with this topic DoMS arranged for a congregation of the best brains. Leading and directing the course of the discussion as a chairperson was R. Ramaraj, Ex-CEO of Sify, who is now with Sequoia Capital with Venture partner/mentor. Eminent industry bigwigs who contributed with invaluable wisdom included Mr. K. Ramakrishnan, Executive Director & Head of Investment Banking at Spark Capital Advisors (India) Pvt. Ltd.; Mr. B. Natraj, previously with KPMG in HR and Personnel Management and now gracing the position of Director - Corporate with the Sanmar Group; Mr. Manish Jain, Vice President Investment Banking, Atherstone Capital (Asia) Limited) and Prof. Thillai Rajan A, professor of Finance at DoMS IIT Madras, whos also a Fellow from IIM Bangalore.
Mr.. R. Ramaraj kicked of the panel discussion by emphasizing that M&As; had taken off. That is because companies are viewing their way of looking, scouting and approaching an opportunity. While the weakening of a once powerful dollar continued, India along with China has been powering the M&A; juggernaut by the virtue of their involvement in 50% of them.
While giving his own example, he said that in 1999 at the height of the dot-com-bubble Sify acquired a company valued at Rs 1 crore at Rs 500 crore. This decision resulted in its market capitalization rising by a billion US dollars on the NASDAQ and went upto $ 11.5 billion. This was when such deals caught the imagination of the market. Today such a decision wouldnt be a sound financial move. However, companies many times small are gobbling up bigger ones. Such steps need creative finance. After starting so, Mr. R. Ramaraj set the direction for the discussion by raising questions like whether it would be possible to carry on M&As; in the face of liquidity crises and country risk, the importance of due diligence and what makes or break an M&A.;
Mr. K. Ramakrishnan took the baton from there, starting off on the types of M&As.; He said that there were 3 types of M&As;: domestic, cross-border inbound and cross-border outbound. These M&As; were generating a frenzy in the market. This story was not new. It all started off in the early 1990s when the first major reforms were instituted. The government abolished draconian laws, rules and regulations such as the Industrial Development Act and the MRTP Act. Second to help the M&A; cause was the commercialization of financial systems. Finally, the last barrage of the M&A; dam was opened when the government began its divestment exercise. All such decisions made the Indian market attractive. As a result not only domestic firms but foreign companies also started taking an interest in acquiring Indian company. Now we are witnessing Indian companies scouting for foreign corporations. That is because initially finance was a problem, but it is not now. Another factor leading to such quantities of M&As; were the forward and backward integration decision of Indian companies such as RIL.
Mr.. Manish Jain added that M&As; were also strongly driven by loads of cash and strong balance sheets that companies today possessed.
Prof. Thillai Rajan then chipped in with figures from a research that said that between 1980-2000 M&As; were not very successful. Comparing them to marriages, he jokingly said that M&As; were like marriages the relatives were the ones who enjoyed, them being the sellers and investment bank and confused the grooms, these being the buyers. He attributed the success of M&As; to the strategy of companies wanting to diversify as well as focus on single areas. However, M&As; today tend to centre around companies of the same industry. Giving the example of GE, he added companies had actually turned themselves into well-oiled M&A; machines, developing core competencies. A marked feature of M&As; nowadays is the structuring of the deals. Cash deals are now far and few as a purchasing firm pays up in cash only when convinced about the success of the step. Equity payment is more of a norm as that spreads the risk between the two companies. In this context, Mr. R. Ramaraj added that M&As; were also done for boosting egos. However, with such logic half of the deals dont succeed.
Mr. K. Ramakrishnan said that apart from such reasons a company could resort to an M&A; because there could be business reasons and pressure from the market. It could also be done to acquire technology, to acquire people or to acquire capacity.
Mr. B Nataraj said that a reason for smaller companies acquiring larger ones was because the bigger ones were not profitable and the acquisition would get you its customers. An acquisition could also cut your costs. It could also be done for regulatory reasons. Getting into the methods of valuation, he said that there were multiple ways to do it, one of the most popular being the PE multiple and that of EBITDA. He said that for any M&A; there could be two types of buyers, strategic and PE. The PE players are more active now, have lots of money and look for short-term gains and exit. But the strategic investor has long-term goals. These goals have an influence on M&As.;
Mr. R. Ramaraj then expounded on the factors that drove valuation. They were thematic drivers, premium and the time to market. Also, valuations for different sectors would be different. They would be influenced by factors as diverse as the geographical location and how expensive it would be to replace an asset.
Carrying forward on the same topic, Prof. Thillai Rajan said that valuations also depend on M&As; success. The average premium paid in M&As; is about 30% more than the market. So if you pay around 25% more then you have a chance of success at the M&A.; But if this figure crashes the boundary of 40% then the M&A; could actually cripple the organization. So it would be a good idea to buy private companies as their premiums are not known and you can negotiate on the price. However, an M&As; success also depended on the synergy achieved.
Speaking forth on such tactics, Mr. B. Natraj said that M&A; market negotiations could be compared to a fish market. One should try to be the first mover to gain an advantage. As a seller you could first up state an obscenely high price and as a buyer ridiculously low price. This would help you negotiate. Again going back to the factors that drove the success of an M&A; he mentioned things such as valuation, price, and human factors such as attitudes between promoters as well as those of the employees of the company being acquired. He maintained that it were the first 100 days that were important to the success of an M&A;, liking it to a marriage, alike Prof. Thillai Rajan, saying that one should be firm about the goals to achieve and the path to take. One should also be sensitive to cultural integration issues.
After such an enlightening discussion, the speakers opened the floor for Q&A.; The first question asked was how did investment banks complete acrimonious deals. Mr. K. Ramakrishnan answered that by saying that investment banks come to know in the first 45-60 days the future of an M&A; from the buyers and the sellers attitudes. Putting a dose of humour, he said that this was how investment bankers earned and they worked hard at deals to get them completed in spite of signs signalling otherwise. But he said that a company experienced at an M&A; would know how to deal with a negative potential target. In this regard, Mr.. Manish Jain said that one should leave with a handshake if the acrimony is arising out of the egoistical ambitions of the potential buyer.
Answering another participant who wanted to know whether valuations were different for hostile and friendly takeovers, Mr. K. Ramakrishnan said that certainly they were different. In case of a hostile takeover you need to excite people and buy hostility so valuations were higher.
To a student quizzing about the high rate of 50% failure in M&As;, Mr. R. Ramaraj said that it would be because as a deal got through its associated costs may have changed along with things such as circumstances, execution, culture and attitude.
When a participant asked if the deal size matters in the success of a deal, Mr. B. Natraj replied that the size doesnt. Its factors such as the continuance of the CEO or his or her absence as it was the original CEOs vision that drove the M&A; exercise. This was the case with DailmerChrysler.
A question posed asked that with more and more PE investments pouring into India how long would the high company valuations last. Accepting that valuations had indeed been stretched in Indian M&As;, Mr. K. Ramakrishnan said that investors are now expecting more and more and that is driving up the valuations.
After such a session that shed light on M&As;, it was time to bid adieu to the insightful speakers. Prof. L.S.Ganesh thanked each speaker for sparing time to come to grace Samanvay 08 and thanked them by presenting them with mementos. The last event of Day 2 at Samanvay 08 was then capped with a Corporate Dinner where the students and participants had further opportunities to interact with the speakers one-on-one.
There is an article in "The Hindu" today on Samanvay.
Jyotika, a student and Goodwill Foundation initiative, endeavors to bring light in
the lives of visually impaired girls. Department of Management Studies, IIT
Madras, organized a Jyotika Event during Samanvay 08 to create awareness
among students. The program started with a very touching video manifesting the
lives of visually impaired. Shivani, the coordinator from DoMS, then welcomed
the participants (visually impaired students) from Goodwill Foundation.
Goodwill Foundation works towards the welfare of visually impaired women and
trains them in Carnatic music, Computers, Handicrafts etc. The participants from
Goodwill Foundation then won the hearts of audience with their song
performances. The audience present in house packed MRC (Media Resource
Center, Central Library) were so moved, they even started clapping to the tune of
the songs. In the end Prof. L.S. Ganesh handed over the contribution money to
the foundation as a token of appreciation, which would be used for the higher
education of the Goodwill Foundation students. Prof. Ganesh expressed deep
satisfaction over the students initiative and stressed on the fact that more such
social initiative should be taken by students in MBA institutons all over the
You too can do your share of help. For more information on Jyotika and Goodwill
Foundation visit here
Jyotika-Lets spread the light!!