Of two ‘G’s & two ‘R’s?

The Most Revolutionary Concept In Education PLANMAN CHE CENTRE FOR HIGHER EDUCATION, Supported by IIPM India’s Leading B-School

The RIL-RPL merger would lead to the making of one of world’s largest refineries; but is long term growth guaranteed sans shareholders’ smiles?

There’s one ‘G’ that defines short-term prosperity – Gain, but there’s another that pronounces long-term sustainability – Growth! And what’s most critical in the whole kaleidoscope of strategy is the co-existence of the two, a company can’t survive or even trivially dare to make it to the big league! For a change, even in these painfully obstreperous times, where one only hears of bailouts and bankruptcies, Mukesh-led Reliance Industries Ltd. (RIL), India’s largest company with an Mcap of Rs.1.9 trillion, and Reliance Petroleum Ltd. with Rs.333 billion in Mcap are together forecasted to report net profit figures of Rs.161 billion – that’s laudable considering many negative estimates that have flown into the market of late. And if that was not enough good news, both entities have announced a merger (effective April 1, 2009) that is in total alignment with the business strategy that RIL has been implementing for the past three decades. Operationally, this move makes sense as even in the past, the company has done well to allow new entities (that were used to initiate new petrochemical projects) of the Reliance Group to merge with RIL, post the initial gestation period. This gives space to the parent to hedge itself against many risks involved with ‘new’ projects.

“This merger is a significant step in our goal to be among the largest global corporations,” optimistically declared Mukesh Ambani, CMD, RIL. This move, besides serving its financials well, would enable RIL to get counted amongst the world’s top 10 refining non-PSUs, with a total capacity of 1.24 million barrels per day. RIL which has 70% stake in RPL, would buy Chevron’s 5% holding in RPL for Rs.13.50 billion, as a part of the deal. The merger is a tax neutral one, thereby enabling both companies to retain their tax benefits. The merged-entity aims to derive various operational & financial synergies from various joint operations like crude sourcing, product placement, supply chain optimisation et al. “RIL expects the merger to provide synergies in crude procurement and product placement,” says Deepak Pareek, Analyst, Angel Broking. At the same time, he warns, “We believe that synergies are likely to be lower as the companies would be sharing facilities.” The deal involves a RIL & RPL share-swap agreement at a ratio 1:16. In order to buy back RPL, Ambani will be issuing 69.2 million new shares of RIL to RPL shareholders. The merged entity would thus have a large pool of 3.7 million shareholders; and this would lead to the rise in RIL’s equity capital to Rs.16.43 billion. But the situation doesn’t seem to pleasing for ordinary shareholders as the current move has resulted in a heartrending evaporation of Rs.68 billion of shareholder equity. Also, not much could be done to avoid the whopping erosion of Rs.67.52 billion in combined Mcap! “The merger definitely leads to RIL becoming a larger player in the global refinery market, but the small investors in the group are being made the scapegoat in the process with their money being turn to dust,” avers N. Wadhwa, MD, SKI Capital.

Yes, cash flow will get stronger post-merger (by $1.5-$1.8 billion), but does prosperity mean paying no heed to petty shareholders? Considering how deep has the principle of shareholder wealth maximisation been embedded in the group, one question gets raised at the end of the day. The merger looks good, in terms of balance sheet affairs, but is big brother trying to redefine the very foundation on which Reliance grew (i.e. Growth@shareholders)? (Ah! That’s a new G there!)

Ratan Lal Bhagat

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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If size matters, they’re small. If an agency’s recall matters, they’ve happily renamed themselves (twice!!!) in the last ten years!

The Most Revolutionary Concept In Education PLANMAN CHE CENTRE FOR HIGHER EDUCATION, Supported by IIPM India’s Leading B-School

If HR is the most important division to manage creative people, they’ve deliberately done without it for most of their existence! Seriously, what are they thinking? Neha Saraiya takes a rollicking trip inside the innovative chaos called Ignitee (yes!)

“The total size of advertising industry presently is Rs 20,000 crore, out of which the online industry is just Rs 1000 crore,” says an effervescent Atul Hegde, CEO, Ignitee, as he shares the pain of being a relatively smaller fish in the ad-pond. First things first. Their name is pronounced ‘Ignite’ despite the extra ‘e’ trailing the blazer. Hegde spun it off on me that the extra ‘e’ was to differentiate the name (No, I haven’t bought this one yet).

Coming to the more serious affairs on the corporate front, it is true that size is the biggest constraint for ad agencies, and that too in the online arena in India, which is in stark contrast to the international scenario where the online spend is around 25% as compared to the overall marketing spend; though it is also true that the current global turmoil has forced many companies to increase their spend in the online medium because of its cost effectiveness and measurability. Ignitee, with its competencies firmly placed within the online ad space, is well positioned to exploit the current trends. Ignitee was one of the pioneers to introduce the radically innovative concept of “double click” in the online space. That was the beginning of the agency which, within a span of nine years, has ended up being a quasi-one-stop-shop for digital ad requirements of corporate India. And today, as CEO Atul reveals, “The slowdown is actually acting as a catalyst for us. Last year, while we grew at around 30-35%, this year, we expect 45% growth with annual billings of Rs 125 crores.”

Interestingly, the agency, which is owned by Euro RSCG, actually started off as a nondescript agency under the brand name of Media Turf in 2000. Strangely, the agency was renamed Connecturf after a few years of operations. And if that wasn’t enough water that had already flown under the bridge, the agency was again renamed Ignitee this year. My consternation aside, Atul has an answer to the mysterious ways of Benjamin Button, “Rebranding helps in many ways, as it really rejuvenates the brand and creates a buzz in the market. Moreover, we needed a platform to take off. But rebranding cannot be superficial like a name change or logo change. Thus, we did six-seven months of internal research and added a lot more of services before actually going for it.” (No, I haven’t bought even this one completely yet!). Atul justifies further, “Initially, we were very strong on technology; but what we were lacking was a brand. Thus the agency restructured and rebranded itself last year.” However, being one of the early starters, most of the talent in Ignitee was either homegrown or had been associated with the agency in some form or the other.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
Detail of all IIPM branches
1500-plus IIPM students placed across the country with 44 bagging international offers
IIPM set to beat economic slowdown
IIPM Admission Detail
IIPM INTERNATIONAL - NEW DELHI, GURGAON & NOIDA
IIPM - Admission Procedure
IIPM, GURGAON
IIPM : EXECUTIVE EDUCATION