Comments on: Doing business for market capitalisation? http://www.subramoney.com/2009/12/2753/ Personal Finance Sat, 11 Feb 2012 05:07:42 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: CA Sukumaran http://www.subramoney.com/2009/12/2753/comment-page-1/#comment-2069 CA Sukumaran Tue, 08 Dec 2009 02:41:22 +0000 http://www.subramoney.com/?p=2753#comment-2069 I agree with Subra and Mr. R Acharya! If you are a small or a low profile entrepreneur your VC can take you for a ride. A VC is normally a highly qualified bachha very good in ppt and very poor in business sense. So taking a company like MTR for a ride is nothing new. Most VCs are merchant bankers in a new clothing and looking for fees - and as quick an exit as possible. They will not support you during the downtimes and will actually push you over, if you are not careful. Reliance profits are true - the amc must be making money, but profitability would be a joke as of now at least. With zero entry load a big subsidy is also lost...so making money (sensible money if you have invested Rs. 500 crores) should mean about Rs. 120 crores PAT. This looks difficult, that is all. I agree with Subra and Mr. R Acharya! If you are a small or a low profile entrepreneur your VC can take you for a ride. A VC is normally a highly qualified bachha very good in ppt and very poor in business sense. So taking a company like MTR for a ride is nothing new. Most VCs are merchant bankers in a new clothing and looking for fees – and as quick an exit as possible. They will not support you during the downtimes and will actually push you over, if you are not careful. Reliance profits are true – the amc must be making money, but profitability would be a joke as of now at least. With zero entry load a big subsidy is also lost…so making money (sensible money if you have invested Rs. 500 crores) should mean about Rs. 120 crores PAT. This looks difficult, that is all.

]]> By: Raghupathi Acharya http://www.subramoney.com/2009/12/2753/comment-page-1/#comment-2066 Raghupathi Acharya Mon, 07 Dec 2009 16:55:22 +0000 http://www.subramoney.com/?p=2753#comment-2066 I think in case of Subhiksha, it is the ICICI Venture which has to blamed. In its greed to profit from market capitalization, ICICI Venture forced Subramaniam to change his strategy as a cost effective retailer to expand rapidly all around the country, without regard to profitability. I have observed many such cases where in P/E funds putting pressure of the promoters to expand rapidly so that they can exit qat a profit through IPO/sell out. Another case of such nature is of MTR Foods. MTR Foods was known for 'quality ready to eat' south indian food. When JP Morgan took a equity stake in the company, and brought its own professional money managers in to the company, who took a dubious step of entering in to north indian food, which was not the forte of MTR Foods. And it was a disaster. Company soon started losing money. Luckily for the promoter of MTR Food, JP Morgan sold its stake along with that of promoter - at a huge premium- to an Italian Company. But for this, MTR too would have faced lot of financial difficulties, after burning so much cash on unrelated line of business....at the behest of P/E investor. I think in case of Subhiksha, it is the ICICI Venture which has to blamed. In its greed to profit from market capitalization, ICICI Venture forced Subramaniam to change his strategy as a cost effective retailer to expand rapidly all around the country, without regard to profitability. I have observed many such cases where in P/E funds putting pressure of the promoters to expand rapidly so that they can exit qat a profit through IPO/sell out. Another case of such nature is of MTR Foods. MTR Foods was known for ‘quality ready to eat’ south indian food. When JP Morgan took a equity stake in the company, and brought its own professional money managers in to the company, who took a dubious step of entering in to north indian food, which was not the forte of MTR Foods. And it was a disaster. Company soon started losing money. Luckily for the promoter of MTR Food, JP Morgan sold its stake along with that of promoter – at a huge premium- to an Italian Company. But for this, MTR too would have faced lot of financial difficulties, after burning so much cash on unrelated line of business….at the behest of P/E investor.

]]> By: NP http://www.subramoney.com/2009/12/2753/comment-page-1/#comment-2065 NP Mon, 07 Dec 2009 13:03:17 +0000 http://www.subramoney.com/?p=2753#comment-2065 I agree with article on the whole. The basic premise is a very valid point - managing businesses for market capital. As rightly pointed out, market capital is a function of profit. And profit is a function of business efficiency and strategy. However, I disagree that ADAG Mutual Fund business is not generating cash. Reliance MF is probably top 2 (#1 ?) in Amount of money being managed - with a good mix of equity & debt funds. Money management, world over, is a highly profitable business, once a scale is obtained. Fixed Costs remain fairly fixed, despite (big) increase in funds being managed. HDFC Chairman Deepak Parekh as said recently that HDFC AMC (2nd largest?) is a highly profitable, cash generating business for him. I don't see why Reliance may not be one.. Reliance manages INR 100000+ Crores. Even accounting for a middling 1.5% expenses (avg of equity+debt funds cost per year) , the Reliance MF generates 1500 Crores cash. I did not include expenses, but in any case, this should be good cash generator. I agree with article on the whole. The basic premise is a very valid point – managing businesses for market capital. As rightly pointed out, market capital is a function of profit. And profit is a function of business efficiency and strategy.

However, I disagree that ADAG Mutual Fund business is not generating cash. Reliance MF is probably top 2 (#1 ?) in Amount of money being managed – with a good mix of equity & debt funds. Money management, world over, is a highly profitable business, once a scale is obtained. Fixed Costs remain fairly fixed, despite (big) increase in funds being managed. HDFC Chairman Deepak Parekh as said recently that HDFC AMC (2nd largest?) is a highly profitable, cash generating business for him. I don’t see why Reliance may not be one..

Reliance manages INR 100000+ Crores. Even accounting for a middling 1.5% expenses (avg of equity+debt funds cost per year) , the Reliance MF generates 1500 Crores cash. I did not include expenses, but in any case, this should be good cash generator.

]]> By: Praveen http://www.subramoney.com/2009/12/2753/comment-page-1/#comment-2062 Praveen Mon, 07 Dec 2009 07:25:01 +0000 http://www.subramoney.com/?p=2753#comment-2062 Repercussion of unplanned/over leveraging http://business.in.com/article/breakpoint/a-dry-white-season/6662/1 Repercussion of unplanned/over leveraging
http://business.in.com/article/breakpoint/a-dry-white-season/6662/1

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