Kya aap paanchvi pass se tez hai?

Literally translated into english, it means 'are you brighter than a 5th standard (grade) kid? Let me rephrase that question for you....do you want to buy a lottery ticket? Confused? Here's the explanation.....This program from 'Star Plus' is yet another reality show where people call in or send SMSs to participate. This is to a special number that charges s special price (usually 5 times the regular call/SMS charges), the revenue from which is split between the telecom operator and the television channel. Sony's 'Indian Idol 3' reportedly brought in excess of 70 million votes. That meant Rs. 35 crore in SMS revenue alone. Taking out revenue sharing between telecom operators and 50% of the net proceeds as the sponsoring telecom operator's (Airtel) share, that still left Sony with atleast Rs.10 crore. No wonder Hussain and Mini Mathur kept asking us to vote repeatedly!!

Anyway, back to 'Kya aap...?', Star Plus is the pioneer of SMS voting/participation when it started KBC. They surely are going to make lots of money with this show as well. They keep the entry question so simple that it tempts even the most resistant critic. For example, the latest question for which call-in lines are still open as I write this post, which of the following capital cities is on the sea coast - Hyderabad, ____ (forgot the option) or Chennai. Choose your pick. For such a question, surely there'll be thousands of SMSes. In such a case, there's a very low probability of selection of a candidate. Something like one in a lakh or a million. So, how different is a lottery ticket from this now??

JLR Effect: The inevitable happens to Tata Motors

Tata Motors (TM), which agreed to acquire Jaguar-Land Rover (JLR) combine from Ford Motor Company for $2.3 billion, was downgraded today by Crisil. This was inevitable. TTM already had a huge drain in the form of the Nano, and now it bought a bigger one in JLR. It plans to raise over $4 billion in additional capital, most of it debt, to fund these projects. That would surely hurt the balance sheet. If all that figure is in debt, then @5% interest rates, it'll reduce the net income of the company by almost half. That means, lower EPS. That means, lower share price. With this kind of risk, investors don't give a good PE multiple. That finally results in the stock getting hammered on the bourses.

Here's the TM stock price chart after the JLR deal was announced. Not a spectacular fall (on 27th March) as the news was already priced in during the run-up to the announcement, but a fall nevertheless.


A one year chart in comparison with the Nifty.

A one year price chart. No great rallies in the stock even when the Nifty touched new all-time highs every other day during the course. Currently, it is above a crucial support level (620).


The JLR deal is the biggest challenge TM has undertaken in its lifetime so far, definitely bigger than when it plunged into the passenger car market in 1998 with the Indica. As the TM management talks, it is not looking at 3-4 quarters, but 3-4 decades, by when, India (and China) is expected to be a sufficiently large market for such cars, and Tata wants TM to be the Ford Motor Co. of India. Tata know it'll be difficult for it to develop such brands. Hence, this acquisition. Hmm, a really long-term thinking.

Tata Group: A tale of two acquisitions

Well, a short take on them actually. But, here's the news first. Tata Motors acquires Jaguar and Land Rover. This is another big acquisition for a Tata group company. The figure of $2.3 billion may not be as big as $11 billion (approximately) that Tata Steel spent to buy corus. Remember that Jaguar has the capacity to drain resources. A case in point is Ford spending over $10 billion in all (including the purchase price of about $2.5 billion), to try to rejuvinate them. So, $2.3 billion is just the acquisition cost. The cost of turning around the company is certain to go higher. Tata Motors (and the group as a whole) may be well funded. But, can they afford to spend something like Ford did. Ford, itself being a deep-pocketed company, is finding it tough to run the companies. May be because of tough conditions at home, Ford is disposing-off its non core assets even though they are no longer making losses.

There are some similarities in the two Tata deals. Both the targets are based in the UK. Both are highly leveraged deals. Both are struggling legacy companies of the erstwhile famed British manufacturing sector. But the similarities end there. Tata Steel, which eventually paid a higher price for Corus in the bidding war with the Brazilian company, CSN, had a near-perfect timing with the deal. They saw the future that steel prices knew only one direction from now on - northwards. They were not wrong but that couldn't have been the only reason. With the industry getting consolidated and big M&As becoming the norm, they probably felt threatened they may be the next acquisition target of Mittal Steel(Arcelor Mittal now). In order to survive, they needed size of operations to be in their favor. With the industry consolidated, steel producers have pricing power which had eluded them so far. Hence this daring acquisition which was many times the size of Tata Steel itself. But, steel is a commodity at the end of the day. Buyers don't necessarily go by which brand of steel they buy. Big buyers like the automobile industry may look at the sustainability and quality of suppliers. That would have been easier for Tata Steel to convince Corus' buyers. With steel prices going through the roof, the going has not been that difficult for Tata Steel. But Jaguar and Land Rover are brands. Big ones at that. Moreover, they sell at retail level. So, it'll be a lot more difficult for Tata Motors to convince its customers. It is easier for Tata Steel to convince XYZ Manufacturing Co. to buy Corus steel than for Tata Motors to convince the same company's executives to buy Jaguars or Land Rovers. Consumers associate brands with a certain image. They pay premiums for brands that give them the feeling of royalty. JLR are certainly in that exclusive club. But, right now, that may have taken a small beating. Or atleast till the time the consumers come to terms with it. Dealers of the brands, who ew-ed at the thought of the deal going in Tata's favor in the initial stages of bidding, are now welcoming it. They may not have any other option but to welcome the deal. But buyers do. If they feel a Jaguar or a Land Rover doesn't give them the kind of image they want, they may easily go for a BMW or a Merc. Tata Motors executives know that. They have said that they don't intend to interfere with the plans these two companies currently have. That their management has freedom to implement them. There may be spill-over benefits to Tata Motors like technology-transfer. Tata Motors may not have had the best technology used in its cars. With JLR deal, they can now certainly say so.

A big question that only time will tell is, when a pioneer like Ford struggled to turn them around, can Tata Motors achieve that?