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Are Great Indian Companies Fallible-VRK100-21092009

Are Great Indian Companies Fallible-VRK100-21092009

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This is a review of "How The Mighty Fall And Why Some Companies Never Give In" written by Jim Collins and published by Random House Business Books. This review is made with reference to the chances of Great Indian Companies falling like how the mighty American Companies have bitten the dust in the last two decades. The reviews picks up three companies, ITC, Bharti Airtel and Larsen & Toubro and analyses how these companies have made blunders and whether these companies will survive in the long run. This review is made by Rama Krishna Vadlamudi, MUMBAI, India, and the author can be contacted at vrk_100@yahoo.co.in.
This is a review of "How The Mighty Fall And Why Some Companies Never Give In" written by Jim Collins and published by Random House Business Books. This review is made with reference to the chances of Great Indian Companies falling like how the mighty American Companies have bitten the dust in the last two decades. The reviews picks up three companies, ITC, Bharti Airtel and Larsen & Toubro and analyses how these companies have made blunders and whether these companies will survive in the long run. This review is made by Rama Krishna Vadlamudi, MUMBAI, India, and the author can be contacted at vrk_100@yahoo.co.in.

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Published by: RamaKrishna Vadlamudi on Sep 23, 2009
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Rama Krishna Vadlamudi, Mumbai. September 21, 2009.vrk_100@yahoo.co.in
 
Page 1 of 5
Rama Krishna Vadlamudi vrk_100@yahoo.co.in MUMBAI 
 
September 21st, 2009 
 
This article reviews a recent book written book by Jim Collins, namely, “How The Mighty Fall And Why Some Companies Never Give In.” The review is with reference to the possibility of Great Indian Companies falling like the way the mighty American companies have bitten the dust.
 
 
Rama Krishna Vadlamudi, Mumbai. September 21, 2009.vrk_100@yahoo.co.in
 
Page 2 of 5
Hi, everybody!A recent thought that struck me very powerfully is
:“Are great Indian companies fallible?”
What are the chances of great Indian companies failing in their efforts to scale upor sustain their past record? Are there any chinks in their armour?Jim Collins, the author of a seminal book
Good to Great 
on 11 Americancompanies, has come out with a new book: “How the Mighty Fall and Why SomeCompanies Never Give In.” In his well-researched book, he answers somequestions on why great companies fail, can anyone detect early signs ofweakness or can they reverse the course. The new book, of course, is written inthe context of American companies.He argues that there are five stages of decline for great companies:
o
Hubris born of success
o
Undisciplined pursuit of more
o
Denial of risk and peril
o
Grasping for salvation
o
Capitulation to irrelevance or deathAfter going through the book, I was just wondering whether great Indiancompanies, like, Infosys, Reliance Industries, SBI, ITC or Bharti Airtel for thatmatter, have got any cracks in their big reputation or business processes/models.No one can deny the fact that many Indian companies have acquittedthemselves well to the changed economic environment in India in the last 15years or so. As an observer of Indian economy for several years, there are manyinstances when I feel uncomfortable or queasy about what these companiesventure out into.Let me recount a few such instances:
Larse & Toubro:
The company, in March 2008, reported a possible loss of Rs200 crore due to commodity hedging by one of its foreign subsidiary (LTIFZE). Itwas obvious that this was due to pure ‘speculation’ by the managers in theirforeign exchange operations. Many a time, hedging is a euphemism forspeculation. It was no wonder that a great stock like L & T had fallen by 14 percent on the day the news was posted by the company on stock exchanges.By the way, I’m not aware of any measures taken by the company to avoid suchmistakes in future. A cursory glance at their Annual Report 2007-08 did notreveal any info about what kind of new risk management framework was set up
 
 
Rama Krishna Vadlamudi, Mumbai. September 21, 2009.vrk_100@yahoo.co.in
 
Page 3 of 5
by the company with a view to avoiding the kind of commodity hedging losses thecompany suffered in December 2007 through its foreign subsidiaries; exceptmaking some routine and general statements. Surely, the measures wererevealed to institutional investors. The circumstances or ‘Black Swan’ events(huge volatility in commodity prices, etc) under which the company made theselosses was understandable. However, the company could have been moretransparent about its operations and risk management policies.Again some eight months back, the company as part of its treasury operationsbought equity shares of erstwhile Satyam Computers with an intention to make aquick buck. When the latter’s share price tanked after the massive Satyam fraud,L & T again bought more of the same shares justifying its gamble as a ‘strategic’decision – whatever they mean by that. One could argue that now the price ofMahindra Satyam has gone up to three-digit figures, L & T’s decision is visionary.But the post-facto rise in stock price of Satyam Computers does not validate thebad decision made by greedy and speculative financial managers of L & T.It’s not my intention to discount the great business model pursued avidly byLarsen & Toubro. My point is investors, especially big institutions, need toconstantly question the management about their Risk Management policies.
ITC
: The company has been burning cash, for a few years, in its non-cigaretteFMCG business. However, it’s yet to reap any benefits from this segment. Thecompany pleases the investors by saying: “It’s brand building.” A few monthsback, its chairman, in a leading business channel, boasts that their brands willserve the investors “for
two hundred, three hundred years 
.” Investors need to bewary of such absolute statements by top people. Its paper division is capital-intensive, hotels division is not doing any great things (of course, due to theharsh business environment) and most of its profits are from its cigarette division – its cash cow. As a conglomerate, the company has been using its cash flowsfrom cigarette division to build other businesses and diversify out of cigarettes.There’s nothing wrong with that. All good or great companies do that. But,investors would like to know the payoff periods from its other loss-making orpedestrian profit-making divisions. It’s good to know that its agri-commoditiesbusiness is doing well now.
Bharti Airtel
: The company wants to acquire MTN of South Africa in a complexprocess. May be, Peter Lynch would dub such diversification as ‘
diworseification 
.’It’s significant that the stock price of Bharti Airtel is not going anywhere for a longtime. Companies, usually, are not good at utilizing their cash surpluses in aproper way. The company will be better off if it concentrates more on customerservice, which is quite ordinary. Their emotional visual and print ads appeal to lotof potential customers. However, the experience of existing customers is lessappealing. Is there any connection between the quality of the company’scustomer service and the falling ARPUs?

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