3 all time favorites

“Character cannot be summoned at the moment of crisis if it has been squandered by years of compromise and rationalization. The only testing ground for the heroic is the mundane. The only preparation for that one profound decision which can change a life, or even a nation, is those hundreds of half-conscious, self-defining, seemingly insignificant decisions made in private. Habit is the daily battleground of character.” ~ Dan Coats

“Nothing splendid has ever been achieved except by those who dared believe that something inside them was superior to circumstance.” ~ Bruce Barton

“It is not the critic who counts, nor the man who points out how the strong man stumbled, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena; whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes short again and again; who knows the great enthusiasms, the great devotions, and spends himself in a worthy cause; Who, at the best, knows in the end the triumph of high achievement; and who, at the worst, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat.” ~ President Theodore Roosevelt

India economics - June 2012

Id like to begin with a line from some singer's song that says: This happens only in india..

Policy paralysis, interest rate cycle at its peak, a seven year-low on full year GDP, slowing growth impacting govt revenues, inflexible on govt expenditure, subsidies (oil, fertilizer), fiscal deficit being at ~ - 4.5% of GDP (and that is without including the off balance sheet items), waning global risk appetite, declining forex reserves, tight domestic liquidity, current account deficit, scams, corruption, fiscal mismanagement.

Action

The dictionary definition of an action is - the fact or process of doing something, typically to achieve an aim. For me action is when you do something, not decide to do something. It involves bravery. It involves the unknown most of the times. It involves in taking the pain to make that step. It involves taking a risk. It involves uncertainty. But mostly it involves - a step forward. Act. 

B1 - Perspective

There are people dying to throw/push you down. They want to steal from you, cheat you, deceit you, scorn you, ensure you fail – you name the nasty things, they want to do all of it. They want to cut corners with you despite the fact that you have done your job well. They want to take you down. Your angry, irritated, frustrated. This life in Mumbai, this terrible traffic, this fucked up lifestyle, sedentary, tiresome, struggle-some. Is it worth it? For every 1 good person there are 5 nasty ones, who want to put you down. What should you do?

Fight, scream for your rights, go to court, or atleast threaten to go to court, protest, morcha, strike! If your somebody as strong willed as Anna Hazare your voice is heard, but then again he is an exception; if you’re a big guy with connections all over the place; a reasonable chance that you will be heard, but if your a common man like me in this struggle-some life, you have to find ways to threaten X company’s reputation, pretentiously make noise, pretend as if you can run their reputation, maybe the company will listen, maybe they wont. But you do stand a little less than 50% chance. But if you are my house help, you don’t stand a chance. Unfortunate for him, and I say it with all my heart, he was not as lucky as me to be born to a struggling middle class family where he could be educated. You think he will be able to make a difference. He works extremely hard to earn his bread butter, not to say that, you and I and the big guy with the connections doesn’t, we all do. But he invests his body and mind, and his returns are significantly disproportionally to ours.

What should be done? This bastardly act of people all around who want to put you down, teaches you one of two things. Join the crowd and do the same else stand up tall. If you stand up tall, it requires balls of steel. There is only and only misery and suffering all around you. People around you will make fun of you; your life will be terribly difficult because you chose to walk a lone journey of sticking to your morals and not joining the crowd. Your very own loved ones will not understand you. Not because they don’t want to. They want to. But how can they, they aren’t looking at the world they way you are.

Imagine this. Your one family traveling going from place X to place Y. The car has place for 5 of which all 5 are occupied. Despite the journey being the same, the same car, each one see’s a different view. The driver see’s cars coming head on from the other side of the road, the person seated behind him, is able to see a glimpse of the same car passing by. Same car. Same place. Everything is the same. Just a timing mismatch. The driver see’s it in a different perspective only 1 second before the person behind him. Both are never on the same page. One saw it earlier. One saw it latter. One saw the full car, one maybe saw half the car. This is true in the case of humans as well. Parents have experienced their life, and maybe have been at the same place where their child is today. They want to explain the child their wisdom their learning’s, and they try to. However, the child is the person who was sitting behind in the car. How can he understand that there is a car passing by? Only when he has a direct experience of it, he will be able to respect what you were saying to it. Till then it means nothing to him.

Explosive growth lies ahead - Indian DTH market

The DTH industry has grown to ~35m TV HHs (households) in merely 6 years; there has been double digit YOY growth. The gross DTH subscribers are likely to grow to ~90m TV HHs by FY 2016.  

In my opinion based on conservative estimates such as: 2% growth in ARPU’s YOY and a 70% active DTH subscriber base, the industry is likely to be a ~$3 billion industry by FY 16 from ~$0.9 billion in FY11, ~ 4x increase in 5 years.

Margin pressures for the DTH industry are likely to intensify; investment and innovation key for the long-term health of the industry. The industry will continue to suck in cash for existing players, owing to the constant need for investment in technology and customer acquisition. The industry needs to continuously invest in distribution (enabling proximity between the subscriber, box sales and recharge) and new technology (3D). Structural shift toward digitization will drive DTH. DTH is the fastest growing segment in the cable and satellite (C & S) space. The digital policy set by the government augurs favorably for the industry growth as subscribers continue to grow.

Phases likely to be witnessed by the industry in my view:
1. Growing the subscriber base
2. HD, 3D, VAS to drive ARPU’s
3. Triple play (television, internet and telephony)   

The industry currently is somewhere in the middle of Phase 1 and 2, where the subscriber base has grown and the wave of HD/VAS has begun and is growing. Triple play will be a game changer. Cash flow streams: Consumer subscriptions and advertising revenues (home shopping could emerge as well). The industry is likely to witness consolidation in the next few years with strong players emerging as it will be difficult to sustain the high number of operators based on cost structures.

The key risks continue to remain the regulatory uncertainty on taxes and restrictions on pricing (steep taxation and license fees), shortage of infrastructure (transponders), high cost of content, intensifying DTH competition, improving financial health of cable companies, consolidation in the cable space and competition from cable operators (where compliance is still poor and under-declaration high).

The drivers continue to be large number of households (HHs) with low TV penetration (Indian TV market is the second-largest in the world with ~120m pay TV HHs), rising disposable incomes, shift in consumption habits, increasing urbanization (urban population in India is expected to grow to 650m by 2035 from 350m in 2010), favorable regulatory changes and YOY growth in sale of LCD TV, Plasma TV, LED TV, 3D (India sells around 13 to 14 million televisions per year).

ARPU’s will continue to rise on the HD/3D/VAS wave that gains traction, operating expense will continue to pressurize margins (owing to ongoing investment needs), operators will start to witness breakevens on a EBITDA/FCF/PAT level and the larger market players will witness modest to growing ROE over the coming years.

SAC/ARPUs have stabilized at 8-10x for global companies while it remains high at ~16x for Dish TV. SAC/ARPU expense will gradually decline to the global average in India (owing to an increase in ARPU’s, SAC is likely to remain at the same level) over the coming years. Infrastructure sharing (to draw a parallel; passive infrastructure sharing in telecom) may become a key theme going forward. While HD/3D/VAS is likely to boost ARPU’s, future growth also hinges on continued improvement in ground-level execution, talent and regulation.


Cues from the global DTH markets

Asia is already the world’s biggest pay-TV region – with almost 363 million homes connected, Asia is racing ahead of the world’s other major regions (Closest follower is North America, with about 121 million homes). Most global DTH markets (USA, UK, Singapore, Japan, Korea, Australia, Malaysia and Hongkong) have a monopoly or duopoly market structure, given the heavy investments that the business requires.

India is the only market in the world with ‘content in-exclusivity’ and a six-player market; making it unique. Investment in content is at its optimal in markets such as Australia, Japan and Singapore, and growing in markets such as Malaysia and Korea, where pay-TV operators are investing in self-produced content and relevant turnaround channels to retain competitive advantage. However, content investment is poor in the largest markets, China and India. Currently in Indonesia, DTH platforms are helping boost pay-TV penetration from a very low base and in Korea, Japan and Singapore; IPTV platforms have contributed new growth to saturated marketplaces.

Developing market DTH operators trade at EV/EBITDA of 14 - 18x while developed market DTH operators trade at EV/EBITDA of 7 - 10x.

The Reliance Buyback

January 18, 2012: Reliance Industries Limited (RIL), the largest company in India, announced a possible buyback that created excitement and interest causing a ~5% rally in the stock on the same day. This buyback may emerge amongst Corp India's largest buybacks. The previous buyback undertaken by RIL was in Dec 2004 and was close to ~Rs.150 crores. The buyback was meager compared to its share capital. However, the move instilled confidence and send a strong signal. Years later, 2012, we see the adage: history repeats itself. RIL's March 31, 2011 financials state share capital plus reserves at ~ Rs 1,46,000 crores. It will be interesting to see the kind of share repurchase RIL engages in. The signal is crystal clear: Management believe the stock is undervalued. And given their cash reserves this is a smart move. Besides being a strong and definite statement to the market, it can prove to be a great sentiment shift. Will brokers start to issue buy calls? What will be the size of the buyback program? Stay tuned :)

Achilles' heel - networking

Achilles' heal is a metaphor for a fatal weakness in spite of overall strength.

The importance of having a good network can be best described when a graduate student from a reputed B school comes back to his home country in search of a job owing to the challenging global economic uncertainty with the pressure of repaying an education loan. By networking, i don't mean knowing friends/colleagues his age or +/- 5 years in the industry, but knowing decision makers. Finding a job that matches your profile, interest, skills, and package is a daunting task. I would like to call the lack of networking as Achilles' heal.