Here's how to create long term shareholder wealth - The 5 Minute WrapUp by Equitymaster
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Here's how to create long term shareholder wealth

Mar 26, 2011

In this issue:
» A global energy crisis could be upon us soon
» Has RBI done enough, or not at all?
» Is 2011 the next 1991 in terms of reforms?
» Bonuses for bankers - Rewards for results, or lack thereof?
» ...and more!

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 Chart of the day
Branding started off as a way to tell one person's cattle from another's. A hot iron mark would be placed on a cattle's hide, helping the owner identify his animal. But, from being restricted to fields and grazing grounds, brands have now crossed all boundaries. The 'iron mark' has been replaced by a 'logo' which is easily recogised. Be it a half eaten apple (Apple), a tick mark (Nike) or the golden arches (McDonalds).

But, the question is, do we have an Indian brand that has crossed borders, making a mark on the global landscape?

Well, it's not just one company that has done this. But rather, 28 listed ones, totaling 90 companies overall. Their operations span from salt to steel. And from IT to tea. If you haven't guessed, we are talking about our very own Tata Group of companies. It has made a quantum leap into the list of the world's top 50 brands. The company's brand value is currently US$ 16 bn, ranking No. 50 on the global list.

Source: BrandFinance, Global 500 List - 2011
*Numbers indicate ranking

The group has an over 100% appreciation in brand value over the past 3 years, jumping 50 places in overall rankings. Key subsidiaries including Tata Motors, TCS, Tata Steel etc, have been regular wealth creators. High profile, cross border acquisitions of JLR and Corus have also added value.

A few of the major reasons for the Tatas becoming a globally recognised brand, are its management strengths, and high corporate governance standards. It has constantly rewarded shareholders either through dividends. Or through capital appreciation, by investing in profitable projects. It has shown the zeal to enter new ventures, as soon as it sees a market opportunity. The Tata Group, has truly become an Indian MNC. And a major contributor to our nation's wealth and progress.

We wish that other companies also take a leaf out of Tata's book and make a strong mark globally.

Which other Indian brands do you think can make it big over the next three years? Post your comments or share your views on our facebook page.

What are the alternatives to oil is not a new question. But, as time passes, not answering the question poses a bigger threat to the world. A recently published report by HSBC writes "Energy resources are scarce. Even if demand doesn't increase, there could be as little as 49 years of oil left." This is a scary thought.

We have other sources for energy like natural gas, coal etc. Nuclear, solar, wind energies are options as well. But none of them can completely replace oil. There are several reasons for this. For example, natural gas is geographically concentrated. Plus its transportation is an issue. Coal is expected to last for the next 176 years only and pollution is an issue. There are major safety concerns with regards to nuclear energy. And the recent nuclear crisis in Japan is a vibrant example for this. Wind and solar energy certainly can't meet the existing demand for energy. These sources are not very efficient currently.

The crises in Libya and oil prices going above US$ 100 barrel are putting a big question towards energy security. So the time has come to look beyond oil. Else sooner versus later, a global energy crisis will be upon us.

Inflation is a word that all governments and economies dread. For it stifles growth, reduces purchasing power and create havoc for governments in terms of framing monetary policies. However, not all inflation is bad. For instance, inflation in reasonable doses can help companies boost profit margins by lowering real labor costs as a percentage of product costs. But a surge in inflation creates problems.

After recovering from the global financial crisis, India has been feeling the heat of rising inflation for quite some time now. A major propellant has been rising food prices and although monsoons last season were good, food prices have continued to remain high on account of rising demand and wastages. Oil prices have also been rising. For the time being the government is not raising prices at the retail level for fear that it would fuel inflation further. But the downside is that the rising subsidies on fuel are straining the government's balance sheet. RBI has been steadily raising interest rates but so far it does not seem to have done much in bringing inflation down within the desired levels. The government is indeed in a quandary and it will be interesting to see how it intends to solve this difficult issue.

India is in a situation similar to that in 1991. "And the government is as committed to reforms as it was then." These are the words of our Prime Minister, Dr. Manmohan Singh. He has assured business houses and leaders that the government is committed to economic reforms. These are much needed to steer the country into the next phase of growth. These reforms are targeted to make the economy more competitive on the global stage. As per Dr. Singh, these reforms would also help in curbing corruption as they would put in place a self-checking vigilance system and help in curbing discretionary powers. In lines with this, he stated that the only way the reforms could be put in place would be to allow the Parliament to function smoothly. He also emphasized that the Goods and Services Tax (GST) system would be operational by 2012.

These words of the PM are welcome in the current scenario. However, people of the country are now looking at how soon these words are converted to action. The people, especially the industrialists, are no longer content with words but are looking forward to seeing the implementation of these promises. And if reforms are as progressive and radical as those made in 1991, then they would definitely be a welcome boost for the growth of the economy.

The developed world is still coming out of one of the worst financial crisis that it has seen. The crisis was majorly a result of faulty policies and practices followed by banks and governments alike. However, the banks appear to be completely oblivious to this fact that they were responsible for this. They have gone back to the practice of rewarding their top management with fat bonuses. In recent times, most investment banks and hedge funds have rewarded huge bonuses to their CEOs. While rewarding the management is not a bad thing provided the management has delivered the results. However, the current practice of rewarding seems to be missing out on the result aspect. The results are not commensurate to the rewards. The recent crisis was a stark reminder to all that returns and rewards need to be aligned to each other. Unfortunately, the banks are unwilling to learn from their mistakes and want to continue making more of them.

After a continuous losing streak over the past two weeks amidst tensions in Middle East and Japan, finally global stock markets shrugged off the bad news and managed to register healthy gains for the week. The US stock markets witnessed healthy gains (up 3.1%) due strong earnings reported by the heavyweights coupled with signs of an expected pickup in economic growth. As far as the Indian Stock Market is concerned, the BSE Sensex registered a gain of close to 1,000 points (up 5.2%), during the week due to rising fund flows and improved global cues. However, with the crude prices and inflation overhang remaining high it is interesting to see whether the market is able to carry forward the gains on to the next week.

After losing heavily during the past two weeks even Japan posted a strong comeback by registering a gain of 3.6%. However, stock markets from Brazil and China registered modest gains of 1.3%.

Source: Yahoo Finance

 Weekend investing mantra
"If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them." - Peter Lynch

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13 Responses to "Here's how to create long term shareholder wealth"


Mar 26, 2011

Tatas have shown that you can create wealth without compromising the corporate governance and business eithics (unlike Ambanis).

Dr. Manmohan Singh has lost his credibility completely and people no longer believe in his empty promises. His govt has been ridden by one corruption scandal after another, with epic proportions. Either Manmohan Singh himself is also involved or he is just a puppet PM with strings being pulled by someone else. Either way it is bad for the country. I only hope India does not degenerate into lawless state like middle eastern or North African countries.


Shome suvra chakraborty

Mar 26, 2011

Learning and growing perspectives of the employees,business process perspectives, customer perspectives, financial perspectives(EVA,ROI etc) are to be linked with strategic planning and budget implementation.



Mar 26, 2011

Aditya Birla Group

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