Rama Krishna Vadlamudi, Mumbai. September 21, email@example.com
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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.
: 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.
: The company wants to acquire MTN of South Africa in a complexprocess. May be, Peter Lynch would dub such diversification as ‘
.’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?