The Curious Case Of Manipal University!

Manipal University has inducted Mohandas Pai to help turn itself into a global business of scale. Only time will tell whether Mr Pai (former CFO of once revered Infosys) would be able to do that at Manipal only time will tell. However there are more than a few things that I am amused as well as curious about.

First the company (for profit) that is being talked about is Manipal Universal Learning (MUL) and not Manipal University (MU)(not for profit trust) so its amusing to find the two names being used inter changeably in common and business media.  Another curious thing and partly amusing is that the valuation of MUL (in every media report)  is still one billion dollars. I have been hearing about this for the past 4 years and it is still the same. During the period, Educomp rose from $ 0.5 billion in terms of market cap to over $2 billion in valuation and has come crashing down to less than $0.5 billion despite growing the business to over 5 times . Wonder what MUL has done during the period. But I guess being unlisted has some advantages in preserving valuation

Was reading a recent article on moneycontrol (http://www.moneycontrol.com/news/features/manipal-universitys-new-courseaction_585036-1.html) on Manipal's new course of action. What amuses me is that the very same things (capitation fee, NRI quotas, profit in education) that are derided elsewhere are very conveniently made to sound like panacea for the education sector. May be they are, I am not passing any value judgement however I am amused at the contrast of views expressed with such ease.

To be sure, for-profit companies in India still cannot legally (atlease not directly) run formal education institutes. Even MUL mostly owns universities outside of India (50% of the business on last count) . Of the remaining majority comes from running learning centers for Manipal Sikkim University (legal on paper but not sure if it is in the spirit of the law).

Also given the deficit of corporate governance in India's education sector wonder if MUL would gain more from Mohandas's clean image thanks to Infosys or Mohandas's image would be affected. I am curious if he would gain anything from speaking to a certain JJ Irani about his recent experiences at at the helm of  a listed  education company, that was increasingly being touted to be the next big thing.

JJ Irani Resigns as Chairman of Everonn

JJ Irani, who was roped in by the company to improve its image in terms of corporate governance, has resigned from the Board following allegations of graft against the MD.

Its a huge blow to the company. The stock is stuck today at the 20% lower circuit with no buyers. 

Everonn MD arrested by CBI on graft charges?

NDTV and WSJ reported that MD of Everonn, P Kishore has been arrested by CBI in an alleged case of bribery and tax evasion. This brings into sharp focus the corporate governance practices(or lack of it) at Indian companies at a time when corruption is a hot topic around the country and Investors are likely to jump ship at slightest hint of any malpractice. 

Everonn has been consistently performing well in the recent past in terms of its financial performance and had improved its image with induction of J J Irani as non-executive chairman of the Board. If true, these reports are a huge blow to that effort by the company. 

Google Motorola Deal

Google has agreed to acquire Motorola Mobility Holdings Inc (MMI) for over 12 billion dollars. This comes on the heels of Google losing its bid to acquire Nortel's 6000 patents which were sold to a consortium of its competitors for $4.5 billion.  Deal amount of 12 billion for Motorola's potentially 25,000 patents seems to be a great deal for Google. The operating company, with close to run rate of over 12 billion (with consensus 13.5 at billion dollars for the year 2011) in annual revenues, is virtually free.

This is a great deal for MMI's share holders as they got more than 60% premium to the the closing price prior to deal announcement.

What I suspect however, is that Google will spin this out in a couple of years, post it has had a chance to seal rights to these patents and bought these off MMI. Google is not a hardware company and should remain that.  

So why did US Treasury yields drop post the ratings downgrade?

So if US treasuries are not risk free, then why are the yields falling and there continues to be a huge demand for US government debt?

The answer is that it is not about absolute but about relative levels of risk. The perception (or reality) is that if the US government is risky, then lending to any other government is perhaps riskier. And the difference (in perceived risk) just became even more pronounced.

What is probably going to happen is that US domestic funds would continue to buy treasuries (as they would have a tough time trusting any other country) even though investors from outside of US (and their respective central banks) would start to pull out of reduce incremental exposure to US debt.

US Downgrade and its Implications?

S&P downgraded United States this week confirming what the world already knew that lending to the United States is not entirely risk free. One does not need to be an economics PHD from Harvard or have the seat of power in Wall Street, to know that one cannot keep taking debt forever to finance excess spending over one's earnings. While the United States may not default, at least technically because it can inflate away its debt by printing money, the resulting loss in value of the dollar would essentially mean a default to the lender.

The fact that Moody's and Fitch have not downgraded their credit rating has no meaning (weren't these the ones, including S&P, which were merrily rating stacks of sub prime junk mortgages as Triple A and when the bubble burst testifying that the rating was merely their opinion and investors were essentially foolish in believing them). Confidence has been shaken and that is enough to strike fear in the hearts of the investors.

Now, in the last few years during each recession, the risk averse investors took shelter in US treasuries. Where will they park their money now? Gold is one easy choice. Emerging markets anyone?

Aptech Is Up For Sale?

CNBC reported today that Aptech may be up for sale, and that its promoters may be eyeing partial or complete exit.  Rakesh Jhunjunwala, often dubbed India's Buffet, holds over 32% in the company and stands to make a decent return over his investment of 6 years. At its current price of 135.80, the company has a market cap of Rs 6.62 billion (Rs 662 Crore). However, I believe that any deal would be tough and here is why:

Aptech, which acquired MAAC last year, to increase its leadership in the multimedia training business in India, derives bulk of its valuation from its investment in China (BJB Career Education) where it holds about 22 percent stake. BJB had filed for a US listing but plans were deferred due to market conditions. It was also rumored that BJB's recent performance (or lack of it) and material difference in numbers on translation of accounts from statutory to US GAAP before filing may have been the real reasons the listing did not go through.

Which is what makes any deal very difficult. Even if a private equity or strategic investor were to believe that it can drive the India business of Aptech (which would be difficult, as it faces tough competition from market leader NIIT and a string of other new players with deep pockets, including Pearson (JV with Educomp) and Everonn), it would not have any control on the destiny of the China investment except hope to cash out, as and when the IPO happens. A portfolio investor can take such a bet but not a private equity or strategic investor which wants control. 

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.