Sunday, October 28, 2007

Valuation - what to do?

Valuation is an intrinsic part of any negotiation. Even though we possibly look at in terms of financial transactions, every transaction has the inherent question "What is the value of the service/product" that is being offered.

Valuation is subjective, yes very much. The logic for that is pretty simple, ice to an eskimo is not very valuable. So what is being sold?

First the cash flows:

1) For a BOT, PPA or license, the essential valuation metric is the good old discounted cash flow. The DCF is one of the elegant logical construct that can be used, t'rows cash flows are less than today's cash flows, so once the cash flows are determined, there is nothing much to determine other than the discount rate. Cost of Debt currently is 11.75%(before the PLR cut), even if you assume the impact of leverage ot be minimal then the cost of equity would be > 11.75% ( assuming the firm is not out to destroy value to the shareholders - a fair assumption). So depending on the assumed levarage and the model of cash flows to firm or equity and wacc or cost of equity you are there.

2) The problem of valuation of an going concern is unique:
-The first PE question, what multiple? How do the ratio's compare to that of the industry. As a rule, higher the ROE higher the P/E, higher the earnings growth expected higher the P/E , higher the ROCE, higher the P/E. The question is simply, if firm getting superior returns out of the capital? The key issue becomes interpretation - getting the ratio's right will come in the advanced stage of the business, but during its initial build out phase the ratios will be skewed, both because of the lack of focus there or more likely management disdain/discomfort.

-Industry Analysis: OOh la la, all those consultants cannot help you take a decision here. As my boss loves to say, India it is all about getting the asset up. Once the asset is up you cannot stop it. But if somone where to look at the landscape in terms of a framework: cats dogs & what not - you will most likely come across the same. More importanly, the lack of availability of data (and incorrect data to be precise) kills the end purpose of an analysis

-holy grail: promoter premium. The uniquely indian animal called a promoter. He runs the company (sometimes strategy sometimes everything) and believes he needs a premium. ( the investor would want a discount for precisely the same reasons). Depending on the market most of the deals swing on this aspect quite significantly.

These three simple constructs actually muddle the concept of p/e that its almost imposible to decide on the right metric for everyone, so there is endless negotiation on this. All in all choose your methodology and its implementation carefully.

Perils of being s celebrity

To be or not to be a celebrity? Chiranjeevi must be cursing his luck with his family. Its been a roller coaster for him after the wide spread acclaim that his son's first movie has received. He must have been thinking, "Life's fucking good". Tho' his reverie has been short lived with the publicity that his daughter has received, he hopefully will get out of this stronger. (Yeah that one's from a fan)

His daughter must of have seen enough of his movies to take up the "Challenge" against the "Master" to show everyone who was "Gang Leader". Of course Chiru has been left thinking "Alluda Mazaka"

In the era of TV scrutiny, probably any love story would have gotten its time on the channels, but the way the issue was tossed up across media left a poor taste in the mouth. I dont know (IDK) and I dont care (IDC) about what happened in the Chiranjeevi family, but a father having to apologize to his daughter publicly just for being a celebrity is some thing that I can live without. Chiranjeevi has to maintain his image, he is the king of Telugu Cinema. If he were to to been allowing the girl her choice, he would have be railed as leading youngsters astray (the end consequence of the actual couple's life would be irrelevant). Its got to be understood that Chiranjeevi would be a political force to reckon with if he were to join politics.
And now that he has not given a free reign to his daughter, he is still railed as being not supportive of individuality. (I am of course assuming that the death threat issue is just that an issue, but a theoretical one. If there is proof of a death threat he should be put in jail shouldnt he?).

So the end result, Chiru knows he is damned if he did and would be damned if he dint. So he dint allow the alliance, and cut a sorry figure. So much for the king of the masses.

Service levels fall in mumbai restaurants

Case 1: Out of the blue, we place an order for a dish, it promptly gets forgotten. Desserts orders are taken when the stocks don't exist and worse the bill is overstated in spite of getting it changed twice.

Case 2: Masala Mantar: There seem to be a lot of waiters around, but the drinks and the snacks take an eternity to come. Desserts are out long before the orders are placed. (Waiters dont bother to check before the orders are placed).

These are just two of the instances over the past 6 months in Mumbai. I am not a stickler for service, as long as the basic hings are in order. Most of the waiters are just taught to be polite, which they are, but wtf is the use of the politeness if it does not solve the end result?

The standard stuff?
1) Confirm from the chef what is available before giving the menu to the customer
2) Confirm the full order once it has been placed. I can still understand if there is some communication problem, but you certainly cant miss dishes totally)
3) Change the menu cards atleast once in 2-3 months, its wierd that you see a mangled dirty menu card for months
4) The communication training to the employees should be to ensure that the customers needs are looked after. Its ok, if you tell the customer something is not available at the first instant (even though some customers can go crazy at this).
5) Understand that the customer's time is paramount, the value not only comes form the good food but also providing a great package for the time spent
6) Overstating a bill? Thats almost a joke, you hardly would make a grand a bill, and is hardly worth the reputation loss it would cause.

Polite is good, but not good enough, especially when you consider the 1500/head that most of the restaurants end up costing :D

Monday, October 22, 2007

Religion - the importance under natural selection

Why has religion remained with humans through evolution. As human beings understand logic the need for superstition should have no place and all would need is a sound rational world. We do not understand a lot of things (for example an average buyer of choclate would rarely know how the choclate is actually manufactured) but are comfortable living with it, infact the number of things that interest most of us would belong to a specific subset.

Why then is there a need for religion, to ascribe to a superior force the actualities of a normal life? And what is the reason that every civilization or clan has had some form of religion or the other? What are the end consequences of religion? A set of rules, is it that the rules are required for humans to survive? The set of common principles across religions seem to be

at the macro level

1) Subscribe to a God
2) Believe that your God is better than the God of others

at the micro level ...

1) Monogamy
2) Do not covet the belongings of others ( yes yes women included )
3) Do not engage in adultery
4) Women have an "impurity" cycle (yes, even the religion of the divine mother hinduism has degenerated into this)
5) Do not indulge in excesses ( yeah you can read that as too much sex)

Excesses are to control resources, imagine a few rampaging groups of viruses consuming everything that they see around themselves, humanity could do that if there we no control mechanisms. The idea of monogamy ( or even if you consider polygamy as in Islam) you are still restricted the number of partners. The key being that once a 'pact' of marriage has been signed then it becomes the automatic responsibility to propagate the species, this is achieved throught the medium of security. What if this rule were broken? Theoretically nothing should matter, if we take the average gender ratio to be 1:1 across all ages of the population then mating 1 on 1 should not matter. But what if everybody wants to mate with only the best specimen? What would that do the average specimen? Sooner or later it would lead towards tremendous conflict where in the average specimen would try and decimate the better specimen. ( Note average is purely for chances of mating ). Now if you want to ensure that entire species were to propagate as quickly (in an age where average life expectancy was in low double digits this was paramount) you need a sound next generation of the species,to create which the current generation has to kept together. Bring
in religion here you are on.

The question then is- what if there is an automatic mechanism to take care of children or if you were to alter the needs of women to enjoy motherhood and children the need of being taken care off, lets say every child that is born is reared under a common soceity which would take care of all its needs, then where would religion be? A very silly or very difficult question depending on which side or you are.

My god vs your god? Does mankind have a single evolutionary root? Or are there different channels of evolution ( have to read on this), already i know that homo sapien and the neanderthal had different roots. Could it be that each wanted to protect and propagate his own species ( assuming you can take them as being unique ) and hence the need of his set of rules ( and hence his rule giver, his god) being superior?

Human beings have the highest consciousness (atleas till now) among all the species, assuming all conflict is removed from the soceity we move as a single unit, where all resources are shared equally (yes everyone looks the same has the same intelligence, all genetic engineering ( dunno if that is possible and the genes for conflict are removed) would humans survive till the planet does? Or is conflict the best way for natural selection?

Han humans design themselves?

Sunday, October 21, 2007

Facebook.. definitely better than linked in, orkut not even close

Quite late at this game. But here goes.

Facebook is quite remarkable, simply. It combines the standard features of a social networking website and the means of keeping the user engaged. The interaction happens at multiple levles, you have the apps that can keep you busy forever and the helpful updates on what your friends are doing (orkut is trying to copy this feature). Possibly the only reason the Indian community will stick to orkut for sometime is because orkut is easier to load on the servers, whereas facebook is noticeably heavier. With speeds being a problem it could take some time to catch up.

From the social websites I use, Facebook is easily the most user friendly, and there is no reason (as mentioned sometime ago in all the debates) it should migrate the audience of linked in et all. If I can stay in touch, network and connect personally then why not?

It would be interesting to see which of the desi sites would get inspired from facebook, maybe something from the TV18 stable ( they are leagues ahead in terms of tech adaptability).

Of course I am in love wiht the blitz app :D

Building Organizational Loyalty

Morgan Stanley lays of employees after the loss that it sustained. The layoffs come at the time when the entire street is reeling under the problems on the debt side, courtesy the sub prime crisis.

The concept is pretty simple: most of the investment banks have very large debt portfolio's, these debt portfolios are rolled over from time to time. But in times of crisis there are no buyers for these portfolios and then the value of the assets becomes close to zuk. This is what happens, boom.

What has happened with this round of crises is that MS has decided that people have to be laid of off. When there was run of good results quarter after quarter the person who took the good name was Mr Mack ( yeah the MS savior), but this time when the going gets bad the hit goes on 300 bankers. The bonus I hope gets pruned this year. "We are cutting down costs", and there the markets are happy.

What about the poor employees? Well they are cogs that are not important enough? The markets have not called for the head of the guys who ran up the loss in the first place or collecting the money from the bonuses paid out last year ( Investment banks pay upto 40% of revenue as bonuses ).

Most employees in the current environment are used to being laid off. The job marked is primed too, they will find jobs in no time. But if an organization claims high moral standards as MS does, is this the way to go?

Citizen Reporting... the white drums

Citizen reporting has started in India. In the land of media, this is probably the first step towards democratization. Why is media important in a democracy? It brings accountability to the polity. Media if channelized properly is the one tool which can really make the other parts of the democracy work at its optimal pace.

Is citizen journalism sustainable? And what about its own accountability? You cant really have anyone reporting a story and then vanishing into thin air while leaving the population at large to bear the consequences. Yes, Citizen journalism could be the product of an idealistic journalist who wants to bring the news to its grass roots level. But that idea can truly take place if the medium of communication is shifted to a local language, else this idea would be another opportunity for the english speaking audience to have a disproportionate mind share of news.

Next question: What is the business model of the website? :D

Sunday, October 14, 2007

Indian interest rates - they have to go down

Imagine a situation.

House A: The head of the household buys more than he sells. But his household is fast becoming one of the best places to give money to, because they are very productive. Because of rising incomes there was a lot of cash, so the head decided to suck out the cash. Now he has lots of money himself. His money gets added because he buys other currencies so that his exports are competitive.

House B: This household primarily invests. And they have a lot of money which cannot be employed productively within their own assets. So money is cheap. They figure they can easily borrow cheap money from within their household and invest it in the best asset of house A. This is what they do.

House A - India, House B - (basket of $ currencies). $ is cheap and gives low returns, Re is costly and gives higher returns, people want rupees, so rupee will appreciate against dollar. Now if you want to stop that there is only one solution, decrease interest rates. Monetary policy different from that of the fed will be useful only in a few cases, time of join them. Ease out the investment climate that should cool the inflation worries.

Of course the RBI is trying its best, but as Connery says in "The Rock", you also need the prom queen.

Exit, stage left.

Religion - Part 2, is God needed?

God probably is a concept that has run its time. There are tremendous amounts of complex interactions that take place in nature and we are even after spectacular successes, far away from complete understanding it all. But we definitely are well on our way to nullify many of the superstitions that have evolved over centuries. But is now the time to get over the ultimate superstition? The concept of God ( one who sits under the tree types)?

Practically speaking, God has served a useful purpose in the advancement of civilization ( but as i usually say, we can never vouch that we are better off being civilized ), a concept of a God who will punish you in your after life provides a sort of stability mechanism which stops the society from going into chaos (again dunno, whether that would be good or bad). But purely on a practical basis, the reward/punishment of religion's god has probably run its course. Why, because we simply have too much information that cannot be ignored and hence force us to live in a social environment, with clear understanding (hopefully based on choice) of our roles.

But what about a spiritual basis? That life could have a higher purpose and a belief in God would deliver you to the purpose? What about all the saints in the Hindu fold ? Probably they realized that human life is just a link the chain and there is supposed to be no higher purpose than that. Once when you have realized it, you probably attain peace and nirvana and that happiness is the consciousness that everyone ought to reach. But this process can be put in the frame of the individual rather than tying it up in a group environment considering a religious basis.

Religion still probably is the greatest tool in the process of mass hypnotization, but if you collectively deny the use of a under the tree god you possibly reduce the need for religion.

Yeah yeah, i hear you laughing.

Thursday, October 04, 2007

Religion - Part 1

Religion -The ultimate utopia, that which unites you, gives you the strength to survive, takes you beyond the realm of normal existense, liberates you, energizes you.

Religion - ultimate weapon of the state, can remove choice, will suppress your free will through a set of dogmas and a social acceptability and mechanism for control, straight from divinity itself.

The rise of nations till the advent of technology marked the rise of religions, atleast history looks at them through that lens. The Mongol khans, christian Brit & Spaniards, the Bushist Middle Kingdom and so on. Religion as has often been said is the uniting factor that is brandished by the state to brainwash the common populace into converging to 'single' way of thinking. A state tool cannot be ambiguous, hence you have competition among religions.

That era is possibly coming to the end because the fundamental premise for the success of religion is exceptional uncertainity which breeds strong faith. But in a distorted sort of the life, the hectic pace of the present has left us pursuing a unambiguous dream, of mobility and acceptability. This is the new religion.

The age of uniformity

What is common to the teenager in L.A, the teenager in Japan and that teenager (yeah the guy with the bag over his shoulder ) in mumbai? A lot actually, they probably wear tommy, listen to music on an ipod, debate the right/wrong of the war in Iraq ( yeah at least i want to dream that they might be discussing that because i don't) and are thinking about building exactly similar lives. So, this is the new globalized era - whats new? And of course I am an idiot to compress complex cultural explosions in a few lines.

But then, how far can i be? This is the new India, you have young people who are looking to conquer the world having been brought up on dreams. All of them have put in significant effort to get on the path to utopia, and you will find the utopia could be remarkably similar. Its a gross over simplification, like I always tend to find that south indian engineers remarkably have similar topics of interests ( the actual pool of interests would be mind boggling, but the broad way of thinking) and you find more and more people moving to small multiplex movies. The movies itself are good, but look around you, you will find a similar kind of audience. Of course this trend goes on a give you almost a choke, the kind of similarity you find among the crowd of south Bombay.

What we are seeing is homogenization of culture, remarkable purely because of the rapidity with which it is taking over the country. India could end up being the land of the liberals, because there is nothing else to look to. Even though the craze for Advaita might mike it cool someday, till then the phrases of philosophical texts might go into oblivion, making way for talk about the next episode of lost or the next news event or the next environmental problem.

If everybody is the same, what would be the cost of competition? Not much, it would eventually be like running on a treadmill, you can run all you want but you aint getting nowhere. The average intelligence would go down ( well the individuals could be well rounded because of the more information available, but if were to purely look at it in terms how we would stack up against the early 20th century populace), the systems and the processes would take care of the intelligence part. Eventually the population might even start looking the same ( thats not difficult either with genetic modifications), sex would be free ( yeah thats an important part of why societies are structured in the way they are, the primary motive of any society is self preservation & propagation )

Welcome to the brave new world.