Wednesday, February 6, 2019

Indian Telecom Sector - Neither here nor there

Some food for thought
"Baseball is like a poker game. Nobody wants to quit when he's losing; nobody wants you to quit when you're ahead."
—Jackie Robinson (American Athlete, 1919-1972)
Word for the day
Rigmarole (n)
An elaborate or complicated procedure. For example, to go through the rigmarole of a formal dinner.
First thought this morning

Indian Telecom Sector - Neither here nor there
As an investor, I find the Indian telecom sector quite intriguing. Despite, being one of the fastest growing sectors in past 10-12years, it has not rewarded the investors adequately.
Founded in mid 19th century by British, presently with 1.2bn subscribers, Indian telecom sector is the second largest telecom network in the world. In past 12years, the number of wireless subscribers has grown 7x and data users have grown 58x.
Over last one decade the sector has seen a large number of marginal players exiting the market after suffering huge losses. Some large players have consolidated their operations to survive.
Despite ~18% CAGR rise in number of users during past 12years, the revenue has grown ~5% CAGR. While the debt has increased ~19% CAGR from Rs325bn at end of FY07 to Rs2.5trn at the end of FY18.
It is pertinent to note that the quality of Indian telecom network is considered to be one of the poorest amongst leading economies. The capex in telecom infrastructure per subscriber by operators is also one of the lowest.
Untitled.png
While it is for the management students, research scholars and financial experts to study the phenomenon in detail, as of now, I can just say the following two things:
(a)   Blaming the disrupter (Reliance JIO) for all that ails Indian telecom sector would be inappropriate.
(b)   There is no case for investing in any of the 4 listed telecom operators. These are neither "sunrise" businesses, nor dividend yielding utilities.

Tuesday, February 5, 2019

Missing the Big Picture

Some food for thought
"I'm not concerned with your liking or disliking me... All I ask is that you respect me as a human being."
—Jackie Robinson (American Athlete, 1919-1972)
Word for the day
Gibble-gabble (n)
Senseless chatter.
 
First thought this morning
Last weekend I had an opportunity to attend an engagement "event" function in New Delhi. The event at a popular five star hotel was managed by a high end event management company.
For a foggy and chilly Delhi evening, settings of the event were perfect. In a well heated banquet hall, there was plenty of alcohol and winner of a TV realty singing show live singing romantic songs from 1960s Bollywood movies.
The parents of the couple to be engaged were around 50yrs of age, and so were most "elder" attendees. Over half the attendees were young people in their 20s or early 30s. They all appeared well educated (MBAs and/or Engineers). In that sense the event reflected metropolitan demographic characteristics of the country.
Despite belonging to traditionally conservative community, a majority of women attendees were dressed in modern robes; mostly glittering evening gowns of European style. In that sense traces of Anushka, Pryianka and Isha were too conspicuous.
Bride to be, in mid 20s was very beautiful and charming girl. An MBA from a prominent institute in Delhi, she has been working with top global consulting firms for past 3yrs.
Groom to be was a decent looking guy, with a graduation degree from Delhi University and some diploma course in management. He works with his father on family business of import and all India distribution of some household items.
All in the party was going fine, till 9PM, when suddenly a famous mainstream Bollywood singer joined the singers on stage and increased the temperature many notches with his peppy film numbers. Music suddenly became unbearably loud. Voice boosting instruments, adequate for a rock show in large stadium, were placed in a small closed hall meant for 250 people. You can just imagine the consequences. Everyone talked but no could hear.
This was the time something terrible began to happen. The fathers of the prospective couple started to meet the attendees. Girl's father was carrying two large bags, one containing envelopes (around 150) containing currency notes and the other containing jewelry boxes (around 75) containing gold coins. The boy's father would take him to his relative one by one, and he would mechanically pull out an envelope and hand it over each such relative. In some cases (about 75), he would handover an envelope and a jewelry box. All this happened very mechanically. The girl's father maintained a poker face throughout the whole exercise. The boy's father did not consider it even appropriate to introduce the recipients of envelope and/or box to the girl's father. All those young MBAs and Engineers mechanically accepted the envelope without any hesitation and did not even bother thanking the giver.
My young daughters, who had never witnessed anything like this earlier, asked me "what is this happening?" Feeling loss of words, I could just say, this is the fine you pay in India for giving birth to a girl child. Both of them immediately vowed that they would never marry! With pungent sour taste in out mouth, we could not wait for the food to be served and came home.
Though it was not something new to me, but the brutality with which it was executed by the young, well educated metropolitan families certainly shook my confidence in future of India. I have also decided, for the first time in my life, to meet some of the people who have killed their daughters in the womb and listen to their side of story.
 
Missing the Big Picture
The "interim budget" for FY20, presented by the acting finance minister last Friday, has already been analyzed threadbare by financial analysts, economists, tax consultants, management consultants, investment advisors, political parties, and studio experts. While the comments of political leaders are mostly on the expected party lines, most others have seen the budget as stimulus for (a) falling private consumption and (b) struggling housing sector.
Despite, emphatic defense by the acting finance minister, very few have bought the authenticity of the budget statistics, insofar as (i) fiscal and revenue deficit; (ii) public expenditure; (iii) disinvestment receipts and (iv) payment of subsidies and refunds is concerned.
The fact that the government announced steep upward revision in the denominator (GDP) for FY17 and FY18 just a day before the budget and decided not to present the annual Economic Survey that contains detailed statistics on national accounts and other sector, naturally raises some suspicion.
Remember that the market watches the key statistics like budget deficit only as in relative terms as percentage of GDP. Raising the GDP estimates sharply by 110bps (FY17) and 50bps (FY18) adds more than Rs2trn to the denominator. The numerators like Fiscal Deficit, obviously look moderate after this exercise.
But that is not the point, as this is not unprecedented. The past governments have used this often to their advantage.
The point is that the market analysts have mostly focused on the tax concessions to marginal tax payers and incentives to rich for buying "additional" residential properties; whereas economists and bankers have either commended the fiscal discipline or doubted the sustainability of it.
Most budget commentaries have been tentative about the sustainability and impact of the proposal to unconditionally give Rs6000/yr in cash to small and marginal farmers. The equity analysts have viewed Rs500/month dole as a major boost to private consumption and have recommended buying agri input, agri equipment, auto, hair oil, chocolate and toothpaste stocks; whereas economists and bankers have seen this as fiscal challenge that should prevent monetary easing in near term.
Almost all analysts and commentators have chosen to totally ignore the Vision 2030 presented as part of the budget speech; perhaps since no budgetary allocations have been specifically made towards the 10 point agenda.
To conclude my budget review, I would like to say two things:
(a)   The baby steps taken towards the Universal Basic Income and wider social security through this budget are transformative. Given the context of elections, these might be hasty and politically motivated. Nonetheless, these two proposals shall eventually prove to be watershed in the fiscal policy and social welfare paradigm of the country. I believe that in next one decade almost all social security and welfare schemes like MNREGA, Old Age Pension Scheme, & various Subsidized insurance Schemes etc. shall be subsumed in these proposals as these would evolve into a truly Universal Basic Income Scheme.
(b)   The 10 point agenda is indeed visionary and must find place in manifestos of most political parties. If the future governments, regardless of their constitution and form, could execute this agenda in next 10yrs, we can actually expect to find ourselves amongst the best in world.
 
10 point development program for next decade
1.    To build physical as well as social infrastructure for a $10trn economy and to provide ease of living through next generation infrastructure of roads, railways, ports, urban transport, gas & electric transmission, inland waterways, quality educational system.
2.    To create a Digital India reaching every sector of the economy, every corner of the country and impacting the life of all Indians.
3.    To make India a pollution free nation with green Mother Earth and blue skies. India to drive on Electric Vehicles, and Renewable becoming a major source of energy supply.
4.    To expand rural industrialization using modern digital technologies to generate massive employment. This will be built upon the Make in India approach to develop grass-roots level clusters, structures and mechanisms encompassing the MSMEs, village industries and start-ups spread in every nook and corner of the country.
5.    To clean rivers, with safe drinking water to all Indians, sustaining and nourishing life and efficient use of water in irrigation using micro-irrigation techniques.
6.    Besides, Sagarmala, to develop other inland waterways faster.
7.    To become the launch-pad of satellites for the World and placing an Indian astronaut into space by 2022.
8.    To make India self-sufficient in food, exporting to the world to meet their food needs and producing food in the most organic way.
9.    To make India healthy, by providing a distress free health care and a functional and comprehensive wellness system for all.
10.  To make India Minimum Government Maximum Governance nation.
In case you are still enthusiastic about the boost to private consumption due to massive tax concessions to middle class of India, you may consider incorporating the following two tables in your notes: