»5 Minute Wrap Up by Equitymaster

On This Day - 1 NOVEMBER 2016
Evaluating Managers: Ratan Tata or Cyrus Mistry?

In this issue:
» Which State Tops the Ease of Doing Business Rankings?
» When China Sneezes India Catches a Cold!
» ...and more!
00:00
Kunal Thanvi, Research analyst

Your typical jungle scene always includes a herd of elephants. Moving together is a strategy to keep predators at a bay.

However, every group has weak and vulnerable members.

This reminds me of a scene on the Discovery Channel. A group of lions detected a vulnerable member of an elephant herd...

They circled their prey. The attack was tactful: on the spine of the ageing elephant.

The whole lion pride enjoyed a meal. And once they'd had their fill, hyenas came in for the leftovers.

The organised strategy helps the lion. It's what makes him king of the jungle.

Mr Seng Hock Tan, CEO of Aegis Group in Singapore evaluates management quality in terms of lions and hyenas.

Lions and hyenas are both super predators. Comparisons are inevitable. However, certain differences make one superior to the other.

Lions have their pride in hunting i.e. they typically hunt together in a group.

They go after a bigger game; more food for everybody.

Despite their kingly status within the jungle hierarchy, there is no single dominant leader within a lion pride. Males have equal status, as do females.

Hyenas hunt in groups only when the prey is easy. After an easy kill, they disband.

Status within the heard is important to hyenas. The higher the rank, the more respect from the cackle.

But they do not build a team under a leader except when it immediately benefits them. Loyalty is weak. If a hyena becomes wounded or weak, the troop abandons that hyena.

The hyena recognises the lion's status. As the hyena's only natural predator, the lion commands the hyena's respect.

Mr Tan draws an analogy between these two predators and different management styles.

He argues that a lion manager is capable of building 100-story skyscrapers. Whereas, a hyena manger can only manage five stories.

Investing in a team and sustainable infrastructure takes a lot of time. A hyena manager does not have the patience for this. The hyena manager is better equipped to enrich himself by repeating the short cycle of building and selling five-story buildings.

Lion Manager Hyena Manager
Committed to ethical and moral values Has little interest in ethics and morals
Thinks long term and maintains a long-term focus Thinks short term
Does not take shortcuts Just wants to win the game
Thirsty for knowledge and learning Has little interest in knowledge and learning
Supports partners and alliances A survivor and an opportunist; work mostly alone
Treats employees as partners Treats employees as expenses
Admires perseverance Admires tactics, resourcefulness, and guile

As Tan says, 'The hyena manager is therefore an opportunistic trader, not an all-season builder of a lasting structure.'

Over the years, Equitymaster has used various tools to evaluate management quality.

Every manager will have some lion and some hyena characteristics.

The thrust has always been to find good businesses run by intelligent and honest managers who are more lion than hyena.

We've seen many good business models go for a toss when hyena managers try to scale up operations. These managers lack the teamwork, know-how, and patience to build the necessary institutional structure and culture.

But this is the groundwork needed to survive and grow sustainably, and its why companies run by lions become multi-baggers.

The India Letter team likes easy-to-understand businesses run by lions. They would never recommend a company without first meeting its management. And when they do, they always ask this question: Who are your business heroes? The answer can reveal whether they're talking to a lion or a hyena.

In the ongoing Tata fiasco, there has been a lot of discussion about the better manager. Interestingly, it has divided people in two groups.

One side judges Cyrus Mistry a better manager and the other retains Tata.

Even though both have some lion and some hyena characteristics. How do we judge them?

We keep it simple. The best criteria to judge, is by asking, 'Who is the better capital allocator'?

Who you think is a better manager, Cyrus Mistry or Ratan Tata? Let us know your comments or post them on Equitymaster Club.

03:45 Chart of the Day

In a surprising bit of news, the states of Andhra Pradesh and Telangana have topped the 'Ease of Doing Business Reforms Ranking 2015-16.' This annual ranking is conducted by the Department of Industrial Policy and Promotion (DIPP) and the World Bank. Gujarat has lost its top spot.

As reported in Livemint, the government has expressed satisfaction with the cooperation it has received from various state governments. Last year, only seven states implemented more than 50% of the reforms proposed. This year, 17 have done so. Last year, not a single state implemented more than 75% of reforms, this year, 16 have done so.

The ranking was based on six key reform areas: single-window systems, tax reforms, construction permits, environment and labour reforms, inspection reforms, and commercial disputes and paper-less courts. Clearly, India's states are rising to the challenge.

Gujarat Loses its Top Spot to AP and Telangana


In today's premium edition (subscription required) of The 5 Minute WrapUp, Rahul Shah discusses India's performance in the World Bank's 'Doing Business rankings. India's rank has improved by only one from 131 to 130 this year. But what does it mean exactly? Read it below...

04:20

We came across an interesting article in Livemint recently. India's dependence on China for technology-heavy imports has been rising sharply. There's a lot of noise about boycotting imported Chinese goods, the reality is quite different.

There's no data available to determine if the social media campaign of the boycott had any impact on Chinese imports. However, there is enough data to show that the two economies are entwined in a far deeper way than ever before. China is India's largest trading partner. If India were to try to reduce its dependence of Chinese imports, we would have to pay a steep price.

In purchasing power parity terms (at constant 2011 prices), China has already surpassed the US as the largest economy of the world. Thus, a shock to the Chinese economy will have serious spillover effects on other economies, especially India.

China is the leading market for many commodities, especially metals. Even a change in expectations about the Chinese economy has an immediate impact on global commodity markets. As a nation highly dependent on commodity imports, India is undoubtedly impacted by these moves.

Even moves in the Chinese currency carries a lot of weight these days. In August 2015, when China devalued its currency, global equity markets tanked. One month after the devaluation, China's equity benchmark was down around 20% and India's was down by around 10%.

But it's not all bad news. A Chinese slowdown can create opportunities for India. For example, we can try to replace China as the factory of the world, at least in some sectors. We also benefit from a fall in commodity prices. However, China's influence on the global economy is enormous and this is something that the cheerleaders of the Chinese boycott will find hard to digest.

Vivek Kaul has penned in enlightening piece on this development in the Diary titled "A Small Thought Experiment on Made in China".

04:35

The media, be it print, social or web has been abuzz about the ouster of Cyrus Mistry as the Tata group chairman with Ratan Tata being appointed as the chairman for the interim. On the whole, the media seemed surprised at this sudden decision. With both the teams seeking legal counsel, there will be enough fodder in the Tata-Mistry saga to write about. What really happened there? What is the truth? Vivek Kaul has an interesting take on these recent turn of events in a recent the Diary entry titled "Why Tata Fired Mistry".

04:45

After opening the day flat, the Indian stock markets moved above the dotted line. At the time of writing the BSE-Sensex was trading higher by about 90 points (up 0.3%), while the NSE Nifty was trading higher by 40 points (up 0.5%). Sectoral indices were trading mixed with metal stocks leading the gains.

04:55 Today's Investing Mantra

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll so things differently." - Warren Buffett

DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407