Indian Engineering Services Outsourcing to treble by 2012-13

A recent CRISIL Research study on the Outsourcing industry has concluded that Engineering Services Outsourcing (ESO), an area that encompasses outsourcing of engineering services largely involved with operations linked to the pre-manufacturing stage (designing, prototyping etc.) and analysing data points for process improvement, is poised to be the next big opportunity in the Indian outsourcing services industry.

The Indian IT and ITeS sectors which are currently beset with challenges in the form of global economic uncertainty, rupee volatility, wage inflation, high attrition and commoditisation of services - all resulting in lower margins - need to move towards knowledge driven, value-added services such as ESO and analytics offering better billing rates and protecting margins. Mr. Manoj Mohta, Head, CRISIL Research, explained: "India's strength in the engineering domain, adaptability to new emerging opportunities, and the advantage of India's vast skilled talent pool considered on par with other competing nations such as China, Brazil, Mexico, Russia, Israel and Eastern Europe, augur well for Engineering Services which we estimate will grow at a compounded rate of 26 per cent and post revenues aggregating about USD 7.5 billion by 2012-13.

As a result, India's share of the global offshore engineering spend is expected to increase to 25 per cent from the current 19 per cent." With the IT-ITeS sectors witnessing a focus towards convergence and clients increasingly preferring to outsource multiple processes to a single vendor, Tier-1 Indian IT service players are now offering to be a single stop service provider of services ranging from IT services to ITeS and more recently, engineering services.

Commenting on the profitability of ESO, Mr. Mohta observed, "ESO is an attractive investment proposition as margins are significantly higher than those in traditional IT outsourcing services. This is despite the high cost associated with experienced engineering personnel possessing intricate knowledge of the domain and client's processes. The complexities involved in the ESO business are an entry barrier for new entities ensuring higher client stickiness and ability to extract value pricing."

With cost economics playing a major role in outsourcing of product designs and upgrades, and Indian ESO players favourably placed to take advantage of the same, CRISIL Research has concluded that the Indian ESO industry will be a highly cost effective, compelling reason for multinational companies to outsource their engineering services operations, making India the design services hub of the world.

Optimizing Corporate Portfolio Management (CPM)

As Indian companies continue to emerge and gain prominence on the world stage, those companies who outperform will be those who make better resource allocation decisions. Companies that do this consistently over time will lead their industries. It is time for corporates to optimize their Portfolio Management for competetive advantage and outperformance.

"Optimizing Corporate Portfolio Management", authored by Anand Sanwal, is a useful book whose main premise is that where an organization allocates its resources is what truly drives it strategy and financial returns. So while company leaders issue strategy in presentations or in speeches, this is really not what creates strategy - it is where money gets spent that determines this.

Anand explains, "Let's take a very simple example of a company which has $100 to invest and whose leadership says that their main strategy is to focus on customer loyalty. However, when you look at where they invest their money, you see that $75 is spent on customer acquisition and $25 is spent on initiatives focused on customer loyalty. So even though the stated strategy is customer loyalty, the true strategy is one of acquiring new customers if you look at the resource allocation."

The book offers a practical methodology to bring this powerful discipline to your organization. The book is targeted at any organization struggling to figure out how to better allocate resources - this is every company and any sub-organization within a company, e.g., Information Technology (IT), marketing, R&D, sales, operations, product groups, etc who manage discretionary resources.

The book can be used to help general managers decide which product they should invest in or which country/region deserves more investment versus another. It advocates treating all investments as part of a portfolio whose risk and reward must be balanced - similar to the way a person tries to manage their money as a portfolio of investments.

The focus of the book is not on describing why CPM is important but in showing people how to implement a CPM strategy. It also features case studies of successful companies deploying this discipline including AmEx, Cisco, HP, TransUnion and the State of Oregon. The case studies demonstrate that the CPM discipline can be used across organization of all types, across industries and also across for profit and not for profit (government) organizations.

Anand beleives that the complexity of decision-making cannot be boiled down into two dimensions or some overly simplistic framework. Decisions within organizations require using data and are much more complex. CPM understands this complexity and is about providing a way to make better decisions in a more holistic, complete way.

Anand holds a degree in finance and accounting from the Wharton School of Business and a degree in chemical engineering from the University of Pennsylvania. He is currently handling the American Express’ CPM effort which spans the entire organization and captures over $4 billion of per annum discretionary investment spend. He is infact also the holder of a CPM patent.

So "Optimizing Corporate Portfolio Management" is a book from the horse's mouth and is a pragmatic approach on how to link capital allocation to strategic planning. Anand's approach to enterprise portfolio management is lucid for a beginner, practical for a practioner, and provides a lot of insights for the experts of CPM.

Do You Have the Big Idea?

The Big Idea by Stephen D Strauss is an amazing read. It profiles dozens of creators who have gone ahead with launching their own innovation like remote control, Viagra, Tupperware, Barbie dolls, etc.

One of the profiles was on CocaCola. Coke is the no.1 brand in the world.Back in 1985, after facing tremendous competition from Pepsi, Coke took a bold and considered decision. It changed the formulation of its 100 year old flagship product.

No, it was not just a knee jerk reaction to competition from Pepsi and because Pepsi was winning all the taste tests. Coke carried out an elaborate $4 Million research and after the R&D team brewed a new formula that beat Pepsi handsomely, the Coke management launched the new Coke. During the launch, the Coke President thundered, "It's the surest move ever made".

New Coke bombed. And two months later, Coke was wise enough to reintroduce the Old Coke.

What were the mistakes that Coke made? One, people liked the new coke but the interview process did not expose them to the fact that the Old Coke would no longer be available.

Two, Coke estimated that only 10-12% Cola drinkers would be upset. But this 10-12% was sufficient to stir mass discontent!

Three, such a big brand has immense ownership. To the point that it is being owned by the public rather than the management! You can't tamper with their whims and fancies. It's similar to our Indian cricketers!! They are owned by the people rather than themselves. Look what Sachin has to face despite being a legend like that.

We digress. The Coke story does not end here. No heads rolled despite the massive mistake/blunder by the top management. No, it's not the lack of accountability. In fact the blunder helped Coke to understand their customers better and reinforced their brand in a powerful manner. Also the fact that the top management took responsibility for the mistake and rectified it fast, within two months!!

My takeaways? Always lookout for improvement. You may take a bad decision. But if you accept your mistakes and make corrections, the blunder would make you stronger.

Back to some real gems from the book which teaches us to innovate- and grow richer.

1. Think of things that never were and ask, "Why Not?"
2. The power of One: You can make a difference.
3. Keep it Simple, Stupid. (KISS)
4. First is Best.
5. Try, Try again.
6. Risky business brings out the best in you. It is more exciting, crazy, fun, exasperating, rewarding, frightening and challenging.
7. Synergy is necessary. 1+1 = 11!!

The book ends with Goethe's couplet: Whatever you can do, or dream you can, begin it. Boldness has genius, power and magic in it.

.

Reviews, Tips, Calculators with an Indian perspective.

Indian Tax Laws: Frequently asked questions

Like it or not, one has to pay taxes. The irony is that even when we get less than what we deserve, we have to pay more than what we ought to! Moreover, when you actually prod yourselves to do your taxes, the tedious calculations and the jargon makes you go numb. Even Albert Einstein sighed, “(on filing for tax returns). This is too difficult for a mathematician. It takes a philosopher.” Help is at hand. Click here and you get all your questions answered by a tax expert who doesn’t want to be named.

But I am waiting for the day when a range of services like filing taxes online will become available in India and taxes will no longer be one of the hardest things to do. I dream of a one stop service for all our tax situations. I think that submitting our tax returns electronically is faster and more convenient than paper filing.

There is a need for a web site like this. Any takers?

Reviews, Tips, Calculators with an Indian perspective.

Significance of Internet Social Media

Rajiv Dingra has an informative and useful presentation on the significance of Internet social media for traditional companies. Rajiv discusses Web Advertising and Technology(WAT) on his blog and chronicles the rapid changes taking place on the web and the interactive advertising space.

Reviews, Tips, Calculators with an Indian perspective.

Picking Stocks by Industry or Sector Analysis: Real Estate/Infrastructure

One of the questions to my earler post was how to pick stocks? It is allright to say that, " You can start with identifying a list of 10-15 companies out of 3-5 sectors which you know or which interests you. You can keep a tab on their management team, financials and future outlook and over a period of time, you will be able to take a call on them."

But I guess, it's good in theory. How about doing an analysis of a sector and then take a look at some stocks of that sector. Let's take a look at the Real Estate/Infrastructure sector which is so much in the news.

So when we do an industry analysis, what are the things we look at? Companies producing similar products are subset of an Industry/Sector. For example, National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company (TPC) Ltd. etc. belong to the Power Sector/Industry of India. It is very important to see how the industry to which the company belongs is faring. Specifics like effect of Government policy, future demand of its products etc. need to be checked. At times prospects of an industry may change drastically by any alterations in business environment. For instance, devaluation of rupee may brighten prospects of all export oriented companies. Investment analysts call this as Industry Analysis.

To start with, let's look at some macro facts and observations about the industry.

• The Tenth Five Year Plan has estimated a shortfall of 22.4 million dwelling units in the country. According to one estimate, over the next 10 to 15 years 80 to 90 million housing units will have to be constructed.
• The investment required for constructing these dwelling units and for providing related infrastructure during this period will be of the order of $666 billion to $ 888 billion at roughly $33 billion to $44 billion per year ($ 1 billion = Rs 4,400 crore).
• There is a steady growth in Housing Finance sector of approx.30 % over last four years.
  The rate of interest for housing finance has become reasonable and affordable which has resulted into more credit offtake and subsequent maturing of the housing industry. Even though there is an increase, the rates are still reasonable to my mind after factoring in the tax benefits.
• Fiscal benefits provided by the Government of India have encouraged the end users and investors alike.
• Income of the urban buyer has grown substantially.
• There is tremendous scope and growth in the Infrastructure Development.
• Foreign investment by way of FDI has been approved.
• Emergence of professional builders in the market with proper accounting standards.Emergence of rating systems for building projects.
• The high growth of the real estate sector has led a lager financial institution to launch a dedicated real estate fund. These funds are simultaneously enticing large institutional investors as well as High Net worth Individual (HNIs) to expand their portfolio.
• The award of ultra mega power projects and privatisation of airports demonstrates a committment at the highest level. So the momentum to build up roads, ports and urban infrastructure is building up for sure.
• The JawaharLal Nehru Mational Urban Renewal Mission (JNNURM) initiative in 63 cities and urban transport projects will also drive up Investments in Infrastructure. Water Supply projects and sewerage projects would be part of the JNNURM.

So what do you think about the future of Infrastructure stocks in India? Ready to take a call?

There are three major stocks in the Infrastructure sector which is worth talking about. 1. Nagarjuna Construction (NJCC) 2. IVRCL and 3. HCC

Remember, do not go by the order book size alone, which is what many people do without understanding the intricacies. We need to understand the execution period of the order book, and the kind of margins that the company would make, given the kind of raw material prices at which it has booked these orders.

Even though it may look daunting, a lil bit of research helps you in understanding the stocks as well as improving your general knowledge.

Reviews, Tips, Calculators with an Indian perspective.

Letting Out Some Nice Ideas

An engineer working towards his Masters degree in Business Administration, Anand has an amazing range of ideas to share. His blog, Nice Ideas is his way of letting out a few things he wanted to tell.

The blog has an amazing array of topics covered. Right from funny pictures, hilarious and creative stories, Anand also points out to some creative way of spamming in MyBlogLog community.

Anand also has a blog on Internet Business Strategies which talks about the Internet and the possibilities of marketing it right. Anand is currently busy with making a new website for technology blogs. It is called TechMein.com

But he promises to be back on Nice Ideas. He has so many 'Nice Ideas' to share with you all...



Reviews, Tips, Calculators with an Indian perspective.

Review of a Unit Linked Insurance Policy in India

Unit linked insurance plans (ULIP) is a bestseller today. Life Insurance companies are falling over each other to introduce and market their ULIPs. Backed by aggressive selling by agents and the booming stock market, the sales figures they have notched up is mind blowing.

Birla SunLife Insurance has introduced Supreme Life, again a ULIP. Visit their site and they have the following superior benefits to talk about:

The plan is a unit linked non participating plan. It offers a choice of 6 investment fund options to invest your premiums into, depending on your risk profile. Additionally you have the flexibility to allocate the premiums (including top ups) in varying proportions into the different funds to create your own fund option. The opportunity to top up your Fund Value whenever you have additional savings. High liquidity in the form of partial withdrawals and surrender benefitsA choice of 2 death benefits to opt from based on the benefits you would like your nominees to receive. An Accidental Total Permanent Disability benefit in the event of Total Permanent Disability (TPD) caused by accident, injury or illness.

I was interested in the charges for which the details are as under:

Premium Allocation charge (as a percentage of Policy Premium (excluding underwriting extra, Top-up premium) is 5% for the first year and 2% from 2nd year onwards.

The Premium Allocation Charge on Top up and Underwriting Extra (if any) is 2%.

Other charges are: The Mortality Charge of the Life Insurance Coverage , Fund Management Charge not exceeding 1.5 % per annum of the Fund Value, Policy Administration Charges for the Life Insurance Coverage, a Sum Assured charge, Surrender charges(applicable in case of surrenders only)

So take a decision on buying a ULIP after you get the entire information from your advisor.

HDFC Prudence Fund

Yesterday I wrote about my MF decisions and talked about SBI's Magnum Global.

I wanted a hybrid fund which invests largely in stocks but has some fixed income securities which can protects your capital in hostile conditions.

HDFC prudence fitted the bill perfectly with a 23.3 % returns since it's launch in 1994. It's better than some equity funds!!

My purchase price for the fund was Rs 109.325 as against the NAV of Rs 106.919. So I pay Rs 220.12 as the fee to HDFC for handling my money(Rs 10000 p.m.)

Value Research rates HDFC Prudence as a five star fund on the basis of it's consistent performance. Hopefully my trust bears rich fruits. And I'll be happy with a 15% CAGR. Errr..., I remind myself that "Expectations reduce joy", and time to be unemotional....

Mutual fund selections

I have selected four Mutual Fund schemes out of the 600 odd MF schemes in the country. Infact it was motivated in parts by reading Value Research, by the booklet AMFI promptly sent to me, by my friend and the attractive returns being posted by the MFs.

I have gone for the "Diversified Equity" and one "hybrid" MFs with aggressive growth targets and my selections are as under: SBI Magnum Global, HDFC Prudence Growth, Sundaram Select and Reliance Vision. I have taken the SIP route to even out the market volatility and have opted for four different dates in a month for the SIP to be debited. I will be investing Rs X for the next 12 months and then review my MF decision.

SBI Magnum Global was launched in 1994 and has given an impressive performance of approx. 100% growth over last one year. The returns % age since launch is 16%. It is an aggressive equity fund and aims at moving from one hot area to another nimbly and staying where the quickest growth lies.

Sanjay Sinha is the fund manager. Value research MFI has to say the following for the fund: This fund has been the greatest beneficiary of the mid cap rally. Be ready to take a lot of risk here. Don't be surprised if you get only small and mid cap stocks in your portfolio.

Though the NAV of the fund is Rs 38.83, the purchase price for me was Rs 39.70. So for the Rs 10000 I invested I was given 251.889 units and the market value stands at Rs 9780.85. So Rs 219.15 goes into my entry load, the amount I pay them upfront for managing my funds.

Time for the fund managers to take over and really deserve that money(load for me, carrot for them). I wish them luck, though it's in my own self interest!

The other three funds will be reviewed one by one later.

Unique Insurance Plan

Here's a unique Insurance plan from LIC ( a pleasant surprise!!). It's called Jeevan Saral and it lives upto its name, for sure.

You simply decide the amount you are ready to pay every month. LIC will insure you for 250 times that amount, regardless of your age ( between 18 and 50, of course). And if you have any qualms about paying monthly, you can opt for quarterly, halfyearly or annual payments too.

The Maturity Sum Assured depends on the age at entry of the life to be assured and is payable on survival to the end of the policy term. It also offers the flexibility of term and a lot of liquidity by way of partial surrender of policy whenever you require some urgent money.

For benefit details and an illustration too, go to LIC.

SBI Q2 Results

India's largest lender, State Bank of India, on Saturday posted a bigger than expected 2.6 percent fall in quarterly earnings but margins improved as loans yielded higher returns.

SBI, with access to cheap savings bank accounts through its more than 9,000 branches, said operating profit rose 24.7 percent to 24.73 billion rupees in line with the rest of the banking industry.

State-controlled SBI said profit in July-September, its fiscal second quarter, fell to 11.84 billion rupees from 12.15 billion rupees a year earlier, missing a forecast of 11.9 billion rupees in a Reuters poll of 10 analysts.

In the last year second quarter, SBI's net profit was boosted by the 6.5 billion rupees benefit from tax write-backs and absence of tax provisions.

Most banks have posted strong earnings growth in the July-September quarter due to loans growth as individuals borrowed to buy homes and cars, and corporates borrowed to expand capacities.

Banking sector's loans grew 31 percent in the July-September quarter, but the central bank has raised the short term rates 75 basis points this year in three phases to contain inflationary pressures.

The expectation that rates may not be raised further due to the Federal Reserve holding its rates, led to a fall in yields in the last quarter boosting the bond yields which added to banks' profits.

ICICI Bank, SBI's smaller rival, posted a 30 percent rise in July-September earnings, and the New York-listed HDFC Bank, reported a 32 percent rise in net profit earlier this month.

Analysts are expected to revise up their banking sector earnings estimates for the year to March 2007, if the central bank leaves interest rates unchanged during its meeting on Tuesday.

SBI, which employs around 200,000 staff, said its net interest margin grew to 3.32 percent in the September quarter, compared with 3.13 percent in the same period a year ago, as it increased lending rates during the quarter.

Net interest income for the quarter rose 8.07 percent to 38.99 billion rupees, from 36.08 billion rupees a year earlier.

Its net bad loans fell to 1.67 percent in July-September, from 2.27 percent a year earlier.

Shares in SBI rose 41.4 percent in the quarter, outpacing a 17 percent gain in the BSE's main index and a 39 percent gain in the banking sector benchmark.

ICICI Q2 Results

ICICI Bank has declared its second quarter results. ICICI Bank's Q2 net profit up 30% at Rs 755 crore from Rs 580.05 crore. Its Net Interest Income (NII) was up 47% at Rs 1,577 crore from Rs 1,070 crore. The bank's retail assets were up by 57%, deposits were up 57%, YoY. Tthe bank's CASA ratio has improved to 23% and the fee income has grown by 62% .

ICICI has changed the banking scene in India over the last few years. We expect robust credit growth this year too. About 69% of the Bank's assets are contributed by the retail bank about 10% of the assets are contributed by the international bank and the balance by the domestic corporate bank with about 7% coming from the rural and agricultural business.

Looking at credit to GDP ratio in India it is indeed quite low. When you compare consumer credit to GDP in India for a country of our size is just about 10-12%. So there is a crying need for credit to fund consumption, to fund infrastructure, to fund a whole lot of capital expenditure and therefore one would expect a robust credit growth in the current year across the banking segment.

Way to go, ICICI!

HDFC Q2 Results

Housing Development Finance Corporation Ltd (HDFC) has reported a 23 per cent growth in net profit for the quarter ended September 30, 2006.

Net profit for the quarter stood at Rs 368 crore, against Rs 298.9 crore in the corresponding year-ago quarter. The net profit for the fiscal half-year ended September 30 amounted to Rs 664.84 crore, a rise of 22 per cent year-on-year.

The net interest margin for the quarter has been maintained at 2.16 per cent, Mr Keki Mistry, Managing Director, HDFC, said.

On real estate prices, Mr Mistry said that there had been some correction in prices in certain pockets of the country. But there was still demand for home loans. "The middle-income segment is driving the home loan growth. There is genuine demand from end-users as affordability has increased," said Mr Mistry

HDFC's total income for the second quarter increased to Rs 1,456 crore (Rs 1,048 crore), a growth of 39 per cent. Total expenditure rose by 48.6 per cent to Rs 982 crore for the quarter (Rs 660 crore). Of this, interest and other charges amounted to Rs 914 crore (Rs 607 crore). Gross profit (after interest and before depreciation and taxation) rose by 23 per cent to Rs 470.11 crore (Rs 382.83 crore).

Loan approvals for the first six months of the fiscal amounted to Rs 14,729 crore, growing 28 per cent over Rs 11,543 crore in the corresponding period last year. Loan disbursements during the same period increased by 27 per cent to Rs 11,280 crore (Rs 8,910 crore).

Income from interest on loans for the half year grew to Rs 2,218 crore (Rs 1,603 crore).

The housing loan portfolio (including loans outstanding, deposits and investments in preference shares and debentures for financing real estate related projects) as on September 30, 2006, amounted to Rs 51,332 crore, an increase of 25 per cent over a year ago.

HDFC's capital adequacy ratio stood at 13.5 per cent of the risk weighted assets against the minimum requirement of 12 per cent.

GRASIM, The Aditya Birla group company

Grasim, the flagship Company of the Aditya Birla Group, has posted excellent results for the quarter ended 30t

h

September, 2006 on the back of superior performance from both its key businesses, viz., Cement and Viscose Staple Fibre (VSF). Turnover, Gross Profit and Net Profit have recorded a significant growth. Cement and VSF businesses continued to be the major business drivers.

Consolidated revenues at Rs.3,184 crores (Rs.2,344 crores) reflected an increase of 36%. Net Profit soared by 109% at Rs.418 crores (Rs.200 crores), in spite of a substantially higher provision for tax expense, which was up by 201% at Rs.207 crores (Rs.69 crores).

The three major factors that spurred performance are:

Firstly, growth in volumes; secondly, higher realisations; and thirdly, savings in operating costs resulting from ongoing modernization efforts, up-gradation of plants and energy optimization