Sticky Inflation In India - Quick Question

This may be a novice economics observation but I am curious to know if the current monetary tightening in India is going to solve the problem of inflation. It is oft-repeated that prices have risen because of supply side issues. The logic of monetary tightening is that it would lower demand, lowering pressure on price. However, if it is supply side constraint, demand may slide down but supply would be further lowered. This would lead to sticky inflation even as growth (proxy for demand) expectation gradually decreases, as we are witnessing today.

There is probably no magic wand, but India need to work on the structurally improving supply by improving infrastructure and eliminating delays and inefficiencies in the system. With government muddled in one crisis (read scam) after another, reform process has come to a screeching halt. 

Corruption in India - Quick Question

This question may be quite irrelevant, however I am curious to know if the level of corruption has systematically  gone up (versus say 20 years ago, and not just in terms of quantum of amounts involved ) or is it more visible these days because of greater media scrutiny? I am inclined to believe that it is the latter however the former appears equally likely. 

Number of Higher Education Institutes in India (Colleges and Universities)

The detailed breakup of higher education institutes (Colleges + Universities) in India (as of December 31, 2010) is given below

Google has quietly changed the background color of sponsored ads (top of page) . It now appears to be closely merged with organic ads making it easy to confuse it with the top organic result.  No doubt, this would bring in more  clicks to the search giant. To be sure the background color is not white and the segment says that it is Ad, but the new color scheme makes it easier to miss it. Check for yourselves

Google+ Invites

Logged in this morning to find out that I had access to Google+. I am excited and a little scared at the same time. Already adding people in circles (On facebook I only accepted invites). With facebook I know I can shut it out any time (actually don't log in frequently).However with Google+ I think it is going to be tough. I am always on gmail and with +  link right on top ribbon, it is convenient and tempting to sneak a peak (maybe even share).

The interface is neat (very, infact) and google has done a great job at interlinking its other services (already shared items from Picasa and Reader). Will be interesting to see, how Google link- in third party apps (Big draw on Facebook) which would increase its utility value to people. If it will and do it well, I think it will become a serious competitor to FB. If I was with FB, I would already be thinking of advancing the IPO.

PS: Just deleted my Orkut account (the only online social network I was active on at any time)



 

Is this the beginning of the end for Facebook?

Was watching a TV series based on mythology (Dwarkadheesh - running on Imagine TV) which set me thinking. Most of the villians in Indian Mythology initially started out as good people and through powers granted by God became greatly successful. However they eventually met 'Hamartia' (http://ancienthistory.about.com/od/drama/g/Hamartia.htm) when they lost track and became villains instead. They were eventually brought down by powerful miracles or avatars which otherwise seemed innocuous to the all powerful villain.

The situation is similar to modern large successful corporations. When these become very successful they tend to lose sight of what made them great. Often innovations which initially look innocuous bring these giants and this happens as these companies stop being good and become villains. Take large companies which become virtual monopolies as an example. Their profiteering leaves space for new smaller companies to innovate and lure away wary customers. Was wondering if hubris has set in for facebook as well and would it lead to Hamartia. Constant wielding of power by this virtual social monopoly has left many people disenchanted (case in point the new facial recognition feature) and were only too willing for to switch to an alternative. The answer may be negative in this case but they better watch out.

Groupon IPO Analysis

Much has been written about the $420 million loss reported by Groupon in their pre IPO filing. While one would have liked to see a positive number already, frankly, it is tough for a company which grew at 2241% last year (from ~$30 million in 2009 to ~$713 million in revenues in 2010) and revenues in Q1  -2011 are already over 644 million (vs 44 million in Q1 2010)

Off the 420 million loss, roughly half is acquisition related, non recurring, one time loss. Balance costs includes cost of about 242 million in Online marketing primarily to acquire subscription customers (like you and me) who subscribe to their daily coupons. Much of this is also likely to reduce in proportion once the growth rates fall to less than 100%.  (they already have over 83 million subscribers across 43 countries)

Similarly, G&A costs as a proportion of revenue would also likely, go down as it gains scale in the new markets that it is establishing itself in.

What is interesting in their filing is that they have netted off these expenses and shown a non-gaap measure called Adjusted Consolidated Segment Operating Income (adjusted CSOI). Various financial reporters and experts have panned them for this, accusing them of trying to rewrite acconting rules or trying to mislead investors.

On the contrary, I believe that Groupon is justified in this as 1) this is normal practice to show non-gaap measures to remove effect of special circumstances and show how numbers would be like in steady state and 2) it is really meant for the benefit of experienced investors and equity analysts who can use this information to build their future projection. The adjustments too are clearly marked and the filing clearly explains as to why the expenses being adjusted are not normal runrate expenses.

Now, just annualizing Q1 revenues puts them in revenue runrate of $2.6 billion a year. However given their growth rate, I suspect that they can easily end up in the range of $4-5 billion for the year 2011 or more. At these levels the asking valuation of $20 billion does look attractive.

What remains to be seen is how grabbing an early lead in number of subscribers, leads to a sustainable competitive advantage (with all the clones gunning for the same pie)

Sania Mirza in finals of French Open

Sania Mirza just reached the finals of the Fresh Open in the womens doubles category along with Vesnina defeating Huber and Raymond

PPP in Education

It has been reported that government wants to expand PPP in education (and healthcare) sectors in the 12th Five year plan. While increased focus and allocations are welcome, government must introspect what has happened to existing schemes. The ICT@Schools scheme is one of the most successful schemes to date with several thousand of schools being enabled with IT labs, lower teacher absenteeism and better academic performance due to participation by companies such as NIIT, Educomp, Everonn etc. However, lately these companies are staying away from such tenders as the scheme is marred due to excessive delay in payments by state governments. While these private players put in upfront capital to create infrastructure and take servicing responsibilities the least they can expect is timely payments. The average receivables/payment cycle for most of the companies is over a year with some states not paying for even longer durations leading to expensive capital being stuck in these contracts. In the last 12-18 months none of the large players has taken up new schools contracts. Even though some new players have emerged the pace is no where near what it used to be over the first half of the 11th plan.

Similarly, despite much fanfare the PPP scheme for model schools is floundering. Top areas for improvement for these PPP schemes are 1) tendering process b) timely payments c) recognizing that the private sector's main motivation is creating shareholder value

One excellent scheme that is doing well is the one for vocational skills. National Skills Development Corporation is a fantastic structure for encouraging private sector capacity creation. It has already given soft loans to over 30 projects including to Everonn, which aims to train 15 Mn people over 10 years. The aim of NSDC is to train 150 million people by year 2022 vs current total capacity of less than 5 million per year. NSDC's target is part of overall target of the government of creating 500 million skilled people by the year 2022. NSDC provides primarily soft loans to private companies with no further interference. No doubt, some of these  ventures would fail to achieve target capacity but NSDC would achieve large numbers at fraction of the cost otherwise required.

Everonn- NSDC Deal Analysis

Everonn recently announced a deal with NSDC to train 15 million people over the next 10 years. While one must congratulate them for being ambitious, there are a few things that we note




1. Reading most media reports leaves you thinking that NSDC will pay for the training. Incorrect! NSDC is not going to pay for the training; it is only providing low cost funding, as soft loans (and equity) to create capacity. The 15 million number is based on a 10 year business plan, which is largely an excel exercise at this stage. This is not a 15,000 cr contract with NSDC as reported in the media.

What must be noted that Everonn trained about 2000 people on vocational skills last year and aims to scale this up to 2.5 lacs in FY12 itself. Pretty steep climb in my view. Especially given that not too many people have been able to scale up vocational training, NIIT and Aptech being exceptions. And NIIT, over 30 years has only scaled up to training 5 lac/year.

2. Everonn is targeting an average fee of Rs 9000 per student. Though it sounds low, the propensity to pay (even this low amount) for training in the target population is likely to be a major challenge

3. 15 million means over 10 years implies that in the 10th year, they would be training at least 2-3 million. Given that India makes 30 million babies a year, this is 7-10% of the annual incremental population, implying 10% of population being trained by one company. Given that they are targeting service sector skills only, the implied share of target segment is huge

4. They hope to make profits in the first year despite a steep ramp up. Unlikely, given that initially the sales and marketing costs are going to be very high



That said, the fact that they can call themselves a government (or at least a semi government) organization is a huge positive and would give them credibility in the market. What remains to be seen is whether this advantage, comes with any baggage as well.

Anna Hazare Praises Narendra Modi

Don't understand the fuss about Anna's praise of Modi driving development in Gujarat. Per Gandhi, one must separate the man (or woman) from his (her) actions. This usually applies in reverse (ie for bad actions). However, fact is that there is development in the state run by Modi, and he is widely seen as the man responsible for it. So what is wrong in praising a good result achieved by a person?

April 2, 2011 - What a day! What a fantastic day

Saturday, April 2, 2011. The day would forever be etched in Indian psyche. it is the day India won the cricket world cup for the second time, after a gap of 28 years. It was same day in 1983 that kapil's devils had done the country proud. this one is equally special

Gmail Motion

Have you tried the new Gmail Motion yet!

Google's this years April Fool prank, clearly it fails to fool you. Nice idea but execution is not that great. Best pranks leave you thinking that this is possible and then make you realize how fooling you were to believe so. As soon as I hit the landing page of Gmail.com I knew that this is an April fools prank. That apart the videos and stories are incredible and appear like a kids prank rather than a prank targeted at majority gmail users.

Ricky Ponting steps down as Australia Captain

Cricket World Cup 2011 performance took its first big toll today with Ricky Ponting stepping from his position as Captain of Australian Cricket Team. With this decision, he has perhaps avoided an early end to his career as otherwise, there is a chance that he may have been dropped from the team itself.

By voluntarily stepping down (as alleged by him) he has hit another master stroke following his ton in the quarterfinals. But it remains to be seen if he can rebuild on this

Budget 2011-12 Spending on Education Sector: Details

Click for larger image

Investing in Formal Education In India?

Investing in Formal Education In India? My thoughts on risk!

As an investor in the education space, I sometimes ask other investors who are investing in Formal education space in the country, whether they have built in risk of regulation clamping down on the popular "innovative structures"  (aka services and real estate companies attached to institutes) and almost without exception they look at me with disdain. They clearly see no risk (or some who do, many would not know how to model it in their valuation and simply believe in the greater fool theory) . Or they get opinion from a advisor/lawyer who makes a living out of advising companies to take this route, sidestepping regulation.

It turns out it was silly of me to expect them to see this risk. Many of these foreign investors, who operate out of the country take recourse to these innovative structures (well silly me again! these are in fact quite standard) to operate out of the country through their advisory arms, which are set up as independent companies, apparently to give investment advise (to themselves!)

Sorry guys (and girls) the joke is on me!

Should Microfinance be regulated? And the role of Media!

As part of my daily routine I checkout VCCircle, and generally, the quality of its articles is good (certainly way better than majority of print media). But I think this particular post reeks of hypocrisy.

Lets replace, the Micro Finance sector with the media sector. You would agree that role of Media is to inform objectively. I am sure that many in the media industry sensationalize news at the least, not to mention a few, that fabricate their own. Many would say that the media sector has a huge social obligation, including online.


I would like to ask Shahad and others in the media industry who are not happy with high salaries in microfinance,  how would they view regulation on salaries in the media industry. I suppose owners would be happy. Let me put it differently, would they agree to a cap on profits on this sector. Maybe even, be mandated to become 'not for profit' like education sector is in the country. We all know how being 'not for profit' has helped in educating the masses in India.

What Say?

ODI World Cup 2011 - Opening Ceremony

Saw portions of the the opening ceremony for the ODI World Cup 2011. Coming on the back of spectacular opening ceremonies in India, for the commonwealth games and in China, for the Asian games, the entertainment value of the ceremony itself was a low.

Perhaps, the real story lies elsewhere. For a  nation, where cricket is religion, getting a taste of the biggest event in the sport and the overflowing enthusiasm were the real highlights of the event. Unlike India and China where the events were showcased up as proxies for nation's coming of age, there was no hoopla about the organization. The enthusiasm is rightly focussed on sport and it shows (from all reports in the media). Bangladesh take on co-hosts India (where the biggest news/buzz is the lack of buzz about the ODI World cup) in the opening tie, it is a chance to showcase that they belong at this stage

The Medici Effect: On Innovation

On Innovation

Innovations are most commonly found at intersections. If innovation is chance driven, combining two unrelated subjects, exponentially increases the chance of new innovative associations (which makes for radical innovation rather than incremental innovation)

How to increase chance of innovation by leveraging intersections?

1. Consciously combine unrelated concepts
2. Work with people with diverse experiences

Effective Brainstorming

Contrary to popular thinking, 'N' people brainstorming together come up with lesser number of ideas than 'N' people thinking individually. This happens due to 'blocking' (In groups, peoples' short term associations get blocked by others)


Source: The Medici Effect

FT MBA Ranking- IIM-A Ranked 11th and ISB ranked 13th

Indian B Schools are making it big at the world stage. IIM-A has been ranked 11th and ISB has been ranked 13th in the global survey of leading B Schools. What is fantastic is that ISB is only 10 years old institute (when it figured in the top 20 it was only 6 years old) and IIM-A's PGPX program (for which the ranking applied) is only 4 years old.

While there are numerous areas where these schools can improve, one cannot doubt that these schools do attract quality students and in turn they provide superb learning environment including world class faculty.

Maybe an Indian school in top 10 next year. Cheers to that!