A friend was investing in a company which was listed about 2-3 years back, and he was about to invest Rs. 20 crores. Not a small sum and he just chatted up with me.

He mentioned and asked me whether I knew the company. Sadly,  I did know and did not know anything good about them.

So I suggested a meeting with 2-3 vendors of the company.

They had such scathing things about the company that both of us were stunned – needless to say, he backed out, and the investee company still does not know what hit them in the solar plexus!

Why I brought this up is to see the Wipro-Subhiksha-Icici Venture deal.

The level of research done by Mr. Premji’s team leaves a LOT to be desired. Vendors, employees, ex employees, friends, bankers, landlords, suppliers, were all willing to speak, scream and shout against Subhiksha. The media in its wisdom of course had not done any stories (Sriram did a story recently in ET, but that was a summary) on Subhiksha…

If only Mr. Premji’s team had asked about Vishwapriya (by the way this company is still collecting money from depositors), Intel (Mr. Nirmal Jain of India infoline bought over that company and was left with a bitter taste), SEBI, MCA, Indian Banks, Bombay Stock exchange, etc. all had enough data about this group.

I see the difference as – a guy putting in his own money (my friend was putting about 3 crores of his own money and was syndicating 17 crs. from other friends)..HE gets more careful. However when you are doing a job and think you have a target you work differently. If Mr. Premji had said..’I have appointed you in Jan…how come you have not identified even one investment till July…’..it would have been embarrassing for the investment team. Also on the face of it Subhiksha had everything going for it – however it is difficult to believe that the independent board did not know about it. The question is two fold – did the board do enough due diligence to be on the board? For example if a person is on the board of a company and draws about Rs. 40 lakhs as a remuneration, why can he not spend some of his OWN money and do an audit of some part of the organisation?

Mr. Premji of course has done the right thing – of appointing a professional manager to handle the money. Fairly obviously that team has not done its due diligence well enough before investing.

Did Mr. Premji commit the same mistake as a small investor? A small investor says “IRDA/ SEBI has approved this scheme, so it has to be good”. This is of course nonsense, and we should know that. Mr. Premji is not a small man. He is the most respected businessman India has produced, humble, simple and enormously successful. He has created more entrepreneurs for India than many other companies. However if his team took the view ‘If Icici has done the deal, it has to be a good deal’. Of course it was a good deal. Good for Icici..nor for Mr. Premji.

Mr. Premji should get closer to the investing, or index his investments and sleep peacefully….:-)

Moral of the story for the retail investor: Bank employees owe their loyalty to the bank – which is paying them their salary. If they can shortchange Mr. Premji of Wipro…..you and I better be careful. Very careful.

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  1. Hi Subra,

    Will the investment in SKS from Mr. Murthy and family fall under the same bracket as Wipro-Subhiksha ?

    My personal experience with subhiksha was, the stores were always shabby and under-stocked in each category. They had single or at most 2 brands for each product category like toothpaste,tea, detergent powder etc… So unless one was a user of those specific brands it was not easy to shop with them and meant visiting another store for just the monthly grocery purchase.

    The wipro executives probably didn’t thought it fit to experience the shopping in Subhiksha themselves.

    Regards
    Raja

  2. Not sure how this came about, subrabhai. what I know of the team is quite thorough. yet this. and yet- satyam, lest we forget smoke signals in its past.

  3. Dr Mohammed Ali Khan

    So people spending other people’s money tend not to be as careful as they are spending their own money.
    It’s a old chestnut..
    Something to remember, especially in these times, when most of the leading ‘economists’ are clamoring for government stimulus. They all want to spend tax-payers money on projects which have no commercial value, like- bridges-to-nowhere and not pausing to think as to what is the value of it.

  4. Anon,

    thorough, ha ha! How many vendors, how many landlords, how many ex employees did they even contact? It is easy to see some stupid excel sheet produced by the company and the EXITING shareholders (in this case Icici Ventures) and multiply by a fancy p/e ratio.

    Skill lies in knowing whom to ask, what questions to ask, what language to speak….and believe me many people were more than willing to speak.

    Like in the case I mentioned, my friend travelled to 3 cities to speak to existing and past vendors. He spoke to people who had a mandate to do a cut paste of other ideas, he spoke to ex employees, he spoke to a solicitor who had acted AGAINST them. Speaking to me opened up one more window…that is what a VC or an Investment manager does. Speaking to people chosen by management is easy, right?

  5. @shrinivas,
    Yes, must be. But someone’s peanuts’ lost story could be a life lesson for others.


    Mahesh

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