Deregulation of Oil prices: Yet another Endeavor!

The rising prices of petrol and diesel have always been a concern for consumers, oil marketing companies as well as the Ministry of Petroleum & Natural Gas (MOP&NG). To politicians, these prices may only be a matter of gaining or losing reputation, however for the consumer a price hike means having to revamp his entire household budget. The state-owned oil marketing companies (OMCs) are the worst hit; their bottomlines have been severely dented as a repercussion of selling the commodity at government regulated prices. The centre, therefore, is considering options of bringing in much needed reforms in the oil sector by executing partial deregulation of the oil prices.

In 2002, a similar proposal was being discussed upon, wherein, an attempt was made to dismantle the administered pricing mechanism in the oil sector. However, the reform collapsed in 2004 as a result of the government’s intervention to check the activities of the OMCs – who were diverting the burden of the surging crude prices to the consumers.
This time around, MOP&NG has prepared a draft Cabinet note on deregulating the price of petrol and diesel. According to the proposal, oil marketing public sector undertakings (PSU OMCs) like Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited will be given the leeway to fix the rates of petrol and diesel till the price of crude stays below USD 75 per barrel. Once the price goes overboard, the government would intervene to protect the consumer’s interest. The Ministry has already secured support from Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, who agrees to the proposal of linking the price of these two products to the price of crude oil in the international market.

This reform becomes very imperative for the PSU OMCs, which are bearing losses to the tune of USD 28 million per day on sale of petrol, diesel, LPG (liquefied petroleum gas) and kerosene. Currently, the government is offsetting the losses being incurred by these Oil PSUs through a three-pronged complex compensation mechanism. More than one-third of the loss is being compensated through the sale of oil bonds to oil marketing public sector undertakings, while another one-third is met through the sale of crude oil by state-owned oil and gas explorers like the Oil and Natural Gas Corporation and GAIL India Ltd. at a discounted rate to state-owned oil retailers. The remaining loss is covered by the periodic rise in retail prices of petroleum products as allowed by the government.

The bleeding has to stop not only from the Public sector end, but also from the Private sector end. For long, private companies like Reliance Industries and Essar Oil have been urging the government to provide them with a level-playing field as far as the prices are concerned. Since there is a lack of subsidy provided to them, the two companies have closed down their retail outlets.

Analysing the current scenario where the crude price is hovering around USD 50-60 per barrel, it is the right time to bring in partial deregulation. If the reform gets implemented, the price of the petrol will surge by USD 0.04 per litre and the price of the diesel will slump by USD 0.006 per litre. With the same government being re-elected, the oil sector can hope for some sort of deregulations which increases neither the financial burden of oil marketing companies nor the pressure on the poorer sections of the society.

The Success Story of an Indian Conglomerate – The RPG Group

It is quite a remarkable fact that a few diverse Indian empires like the Tatas, Thapars, Birlas and the Goenkas laid down the genesis of the India Inc. in the ancient British era. These corporations have survived through the lows and highs of the precarious economic conditions over the decades due to the business acumen of their leaders and the timely managerial decisions that they have taken. These conglomerates have massive businesses today as they have been monitoring the pulse of the Indian Industrial sector since decades ago. Today, these Groups represent India on a global platform which is a matter of prestige for the country. The journey was definitely not a runaway for these empires and the same was the case for the RPG Group. The chronicle of the same would be worth focusing on.

The RPG Group was initiated by Ramdutt Goenka in the early 1900’s as an agent and money lender in the banking, textiles, jute and tea sectors. The Group got a real thrust in 1979 when major proportion of business was inherited by Rama Prasad Goenka – one of the successors of Ramdutt Goenka. The former took control of the business through the companies Phillips Carbon Black, Asian Cables, Agarpara Jute and Murphy India. Harsh Goenka and Sanjiv Goenka – RPG’s successors took the business altogether to a different level after the retirement of RPG. They continued the acquisition and the JV legacy and leveraged their managerial expertise and the astute business sense which was and is deep rooted in the Goenkas.

Over the years, the duo made several acquisitions and JVs domestically and well as internationally which have augmented growth of the group to a large extent. The strategy of expansion through acquisition has played an instrumental role in the robust income statements that the group is reporting. Harsh and Sanjiv have taken timely decisions at a time when the conditions were favourable for their business. Once they had a sizeable chunk of various businesses, they decided to consolidate their businesses as it was hampering their growth. They struck the right chord when they decided to concentrate on their core businesses and exit from the non core businesses. Currently, RPG Enterprises has operations in eight sectors with power transmission, tyres, transmission equipment, IT as its core sectors and retail, carbon black, entertainment and speciality sectors as its diversified sectors.

Today, RPG Enterprises is recognised as one of India’s largest and respected diversified industrial conglomerates. The Group is reporting revenues of nearly USD 2.72 billion from USD 790 million in 1979. The sustained growth the group has shown is the one which any business enterprise in the modern age would like to emulate today.

The Inorganic Route – A Strategy for Expansion

India’s brand equity in the international market has been substantiated with overseas business expansions of Indian conglomerates like the RPG Group, Thapar Group and Bharti Group. Historically, these conglomerates have emphasised on overseas JVs, mergers and acquisitions for diversification purposes. Their success stories have been talked in volumes at seminars and also served as perfect case studies of successful business ventures of Indian companies abroad.

One such interesting story is the success of the Thapar Group with special focus on the Gautam Thapar promoted Avantha Group. The two arms of the Avantha Group – Crompton Greaves and Global Green are the only companies of the Group that have ventured overseas. The foresight and vision of Gautam Thapar converged with the business acumen of S.M. Trehan – Member of the Avantha Leadership Team and Vineet Chhabra - Group CEO acted as a catalyst for augmenting revenues and brand penetration for the Group companies overseas as well as domestically. It is understood that this group’s success overseas was attributed due to timely decision making, planning and proficient execution.

However, the noteworthy fact is that Crompton Greaves, the major revenue reaper for the Group, was actually a loss making company in mid 2000s. Crompton Greaves and Global Green ventured into the European and the US markets in 2005 at a time when the macro economic conditions were favourable for the transformer business and horticulture consumer products. The two companies made a series of acquisitions of companies like Pauwels, Ganz, Microsol, Societe Nouvelle de Maintenance de Transformateurs and Intergarden which were loss making but had a strong brand presence in different European and US markets. These timely strategic acquisitions by the stalwarts helped the companies expand their global footprint and increase brand presence. It also helped them leverage the acquired company’s customer network, technological expertise, manufacturing facilities in different geographical locations and gave access to their product lines.

These strategic decisions have increased the group’s revenues manifold in addition to the brand presence that it enjoys today. The group’s overall revenues in FY08 exceeded USD 8.2 billion, with the majority derived from the Avantha group, which contributed USD 6,773.7 million in FY08. The modus operandi for overseas expansion through acquisitions has turned the tables around for the Avantha Group. This is another group which is flourishing in the overseas markets and which is known for the managerial decisions taken by its leader. The Group has certainly witnessed a successful turnaround which is amongst a very few in India.

A Magnetic field around the Telecom Companies

At a time when most of the sectors are reeling under the recessionary pressure around the globe, there are very few industries which seem to be sustaining their growth in comparison to others. One amongst very few sectors is the telecom industry which has stood apart from the other industries amidst the global economic meltdown. The sector has witnessed robust growth due to the nature of the products made available by the companies which have been witnessing increasing demand y-o-y.

Indian telecom sector too, has been growing at a brisk rate during a period when most of the companies in the world are filing under Chapter 11. India added 113.26 million new customers in 2008 which is the largest globally. The revenue from India's telecom industry is projected to reach USD 43 billion in 2009-10 and USD 54 billion in 2012 from USD 31 billion in 2008.

Owing to the sustained upbeat progress, the companies in this arena have been open to sponsoring sports in particular, cricket, rugby and football for many teams in the countries like India, South Africa, England and Australia. The corporates undertake this as a part of exercising brand visibility, building on the customer loyalty and an avenue to earn revenues. This trend has been followed by many Telecom companies round the globe and it has assumed tremendous velocity since recent times. 

Since companies in many sectors are cash strapped, even the sporting associations and teams have been focusing on tapping the telecom companies for sponsorships. Sporting events too, since recent times, have attracted and given out huge bucks which make it a win – win situation at both the ends.

Since the past two years, Indian sport, especially cricket, has been attracting sponsorship from many telecom companies. Cricket is considered as a religion in India and the hype that it has created since recent years coupled with the acceptance of the game among the masses has attracted many companies to invest in this big extravaganza. Cricket is a valued proposition of business for many and this business potential is being tapped by the telecom companies at a much quicker rate. The trend is witnessing an upswing since the return on investment for these companies is huge. 

The outlook of this sector seems to be bullish in India and is forecasted to remain buoyant during the bleak period and even in the years to follow. It is a ray of hope of lucrative business opportunities for the telecom companies in this precarious scenario and the trend will remain persistent or may even go further in the years to come.

The Indian Logistics Sector – A Bright Future Prospect

The Logistics sector has been touted as a lucrative sector; however, the sector is still in its nascent stage in India. Despite having robust potential, logistics has not blossomed to its capability due to the fragmented set-up, lack of awareness amongst investors and inadequate measures by the government. Logistics primarily involves transportation, warehousing, order processing, inventory control, and material handling activities of goods and services. India currently spends around 13 percent of its GDP on logistics; this is higher than the US (10 percent), Europe (11 percent) and Japan (10 percent).
Though the industry has not witnessed the pinnacle, the recent figures seem strong and promising. In addition, the Indian logistics industry, expected to grow annually year-on-year at the rate of 15 to 20 percent, is projected to garner revenues of approximately USD 385 billion by 2015. Market share of organised logistics players is also expected to double to approximately 12 percent during the same period. The Indian logistics market is expected to reach a value of USD 125 billion by 2010, increasing from approximately USD 100 billion in 2007.

IT and Logistics

IT is considered as the backbone of the logistics industry. The integration between technology and logistics becomes a key for successful planning and transportation of goods from suppliers to consumers. The IT elements employed in the Indian logistics industry are Track and Trace, Warehouse Management System (WMS), Transportation Management System (TMS), ERP and Scanner implementation, Automatic Conveyor Belt system, and Scan-based Auto Sorting tables and process. Global players such as SAP, Oracle, SSA Global, Manhattan, and i2 technologies presently supply IT infrastructure to logistics companies. The IT expenditure in the logistics industry is currently pegged at USD 83.17 million and is destined to reach approximately USD 207.94 million within the next five years with a CAGR of 20-22 percent.

Investments and Logistics

India’s logistics sector had, so far, remained unorganised and devoid of investor interest. This continuous trend has started making a shift towards attracting investor interest. The sector attracted investments worth around USD 4.82 billion in the first half of 2008 which outclassed investments in other sectors including aviation, metals and mining and consumer durables. The contrasting change in the volume of investments is due to major development in an important factor, viz; organised logistics, which comprises of about six percent of the total logistics market, and is rising at 15 to 20 percent per year. Despite the economic slowdown, the organised market is expected to rise to 12 percent in a very short period.

The FDI cap has been lowered to 49 percent in the industry; however, the sector is still seeing a flurry of deals involving foreign players; for example, the DRS Group, a cargo transportation firm, received an investment of almost USD 22.5 million for approximately 25 percent stake from the PE arm of Kotak Mahindra Bank in 2007 to build and operate around six warehouses in the southern region of India. In a similar deal in 2007, First Flight Couriers Ltd. received funding of around USD 27 million from Temasek Holdings for a 27.7 percent stake, which the courier company utilised for expansion of its aviation and warehousing businesses.

Outsourcing and Logistics

Approximately 50 percent of Indian companies are now outsourcing logistics services such as supply chain management and contract warehousing up from a mere 10-15 percent reported at the start of the decade. At present, outsourced logistics accounts for only one-third of the total logistics market in India. The potential for growth is therefore considerable, opening a horizon of opportunities for the major logistics players to either enter the Indian market or step up their operations in the country. In addition, strong FDI inflows in the automotive, capital goods, electronics, retail and telecom market will lead to increased market opportunities for providers of third-party logistics in India which are growing at over 25 percent.

Major Logistics Players in India



The Path Ahead

The future prospects appear to be very bright for this sector. On the IT front, there are innovations in the pipeline waiting to be deployed. Some of them include Warehouse Control System (WCS), Standard Interfaces (EDI standards) for B2B transactions, Web Services, Radio frequency Identification (RFID), and Telematics.
Approximately 110 logistics parks spread over approximately 3,500 acres at an estimated cost of USD 1 billion are expected to be operational in the near future. Further, an estimated 45 million sq. ft. of warehousing space with an investment of USD 500 million is expected to be developed by various logistics companies by 2012. Centres like Haldia, Falta, 24 Pargana, Dankuni, Kharagpur, Bantala and Durgapur are expected to witness substantial logistics activities in the near future.

The Conglomerate of two Obsessions in India

Cricket, a gentlemen’s game till the inauguration of the Indian Premier League, has changed its ways and means after the latter. The ardent lovers and the stalwarts of the game would have never envisaged that cricket will form a part of the ongoing extravaganza. After the IPL, Cricket and Bollywood have further strengthened relationships by intertwining to the business of sports. The amount of Bollywood influence on the game has substantially increased, thus, changing the very temperament of the game.

Since the inception of the IPL, there has been an influx of a lot of Bollywood celebrities in the game – either for business or marketing purposes. Bollywood biggies like Akshay Kumar, Hrithik Roshan and Katrina Kaif were roped in as official faces for Delhi Daredevils, Mumbai Indians and Royal Bangalore Challengers respectively. Realising the business potential in the game, people from Bollywood fraternity like Shah Rukh Khan, Juhi Chawla and Preity Zinta acquired franchisees of the teams in the IPL. Recently, Shilpa Shetty also acquired a stake in Rajasthan Royals. There are a lot of ad campaigns where the people from the two industries have come together to endorse a brand. Brands endorsed by Cricketers and Bollywood stars get an extra edge over other products due to the face value and snob appeal among the masses.

The conglomerate has reaped benefits on the monetary front in an immense way. The hype that Cricket and Bollywood has created for IPL has spread around the world and has attracted huge bucks. Players have been bought for staggering amounts; marketing has been done in a lavish manner and the cheer girls make up for the glamour quotient. A flavour of Bollywood has now been merged with the game of Cricket, thus diluting its persona.

However, one would feel that amidst the enormous business that this conglomerate has tapped and the revenues that it has garnered, the game has lost its charm – the charm which was there a few years ago. Though it is a revolution in the game from the business aspect, the lovers and the observers of the game would feel that the game is not a game anymore. It has turned out to be a valued proposition for business for many from the two industries.

Can we bring in the New Dawn?

Mumbai again has been made the epicentre for the devastating terror attacks on a much higher scale and intensity this time. A group of directionless and brainwashed cowards have made another proficient attempt to bring iconic structures down to ground zero. Mumbaikars have started rising from the ashes but are we goin to keep ourselves lying down this time as well??This time around, there are 5 parametres in the agenda to be discussed: Security, Complacency, Infrastrucutre, Sacrifice and POLITICIANS.

It happened and how!!

A group of terrorists entered Mumbai with an intention to create panic and chaos in the Financial capital. They were found loitering around like free jockeys on CST and even made it very easily through the coast alongside the Gateway of India. The question here to be asked is: Where was the security?? Why do we keep taking outside infilteration lightly inspite of repeated attacks?? Why does the dust settle down quickly each time after a hype is created??What is the Home Ministry doing??What are the politicians doing??

We have lost superlative officers like ATS Chief Late Mr. Hemant Karkare, ACP late Mr. Ashok Kamte, Encounter Specialist late Mr. Vijay Salaskar alongwith constables. The infrastructure that is provided to the Police is absolutely unmatched to that of the terrorists. The Police is not well equipped with the essentials like latest ammunition, bullet proof jackets and head gear. How can we expect them to combat the terrorists??Losing them is the price that we have paid for obsolete infrastructure.

Hats off to the NSG Commandos that assumed the role of a shield in the skirmish with the militants. They battled it out day in and day out at the Taj, Oberoi and the Nariman house to make sure that we are out of harm's way at our places. They made sure that maximum number of hostages were rescued in the faceoff war. Can we let their dedication and sacrifice go in vain?? Can we let their names get lost in the books of history??

According to the IB sources, the Home Ministry and the Chief Minister were informed about the preparations of a possible terror attack in the Financial capital. Light was thrown on the fact that the militants had something in the inventory through the sea routes. The information was sent across 15 days prior to the incident. We should be ashamed of ourselves of having elected bureaucrats that are incapable of taking decisions at the very moment and who only understand monetary language. We have elected such hypocrits who do not heed the word India and who land up at the terror place at the very end and take away all the credit. They are the wimps in the society who only can make people fight on a commual backdrop. Should we remain stunned in reaction to this complacency??

Innocent people have met with an untimely death. Mumbaikars have lost their near and dear ones. This is a consequence of the lack of adequate security and untimely measures by the politicians who reveal in media that ''their heart reaches out to the affected'' but, who internally are only thinking about their position and the future elections. This situation could have been contrasting IF timely action was taken by the concerned authorities. Each and every politician in the line of fire should be disgracefully confiscated from the political system. Let the efficient lot take guard and march the country ahead and we should strongly second it.

I am trying to spread a word of awakening and motivation to the masses through my effort in the campaign post 26/11. If we would have lost our loved ones, would we still have killed our scruples?? Do we want another attack to happen?? Do we still want to remain in a precarious and an oblivious situation?? Let us bring in a revolution NOW. We will not let our thoughts remain grounded this time. We as the future of our country will not let the intergrity of our country be tarnished anymore. I appeal to everyone to take a step forward and revolutionise the dirty political system. We will make sure that we vote with mind and not heart. Please vote keeping in mind the long term and the well being of our society. Let us contribute some amount of our earnings for bettering the infrastructure of those people who deliver selfless service and who are at the country's aid each time in security crisis - The Security Personnel.

I, as a Mumbaikar, is out to bring radical changes in the enviroment. I will not be able to bring a revolution in the society alone, hence, i want the masses to come forward and spread the work of awakening around to maximum people. Guys, this is the time to rise and shine and rise from the ashes!!!Please feel free to post your comments and suggestions.