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Wednesday, May 28, 2008

Way to build Financial future: RPOWER BONUS ISSUE

A unique opportunity is just a few days ahead but to grab it we haveto apply our sense. As per our past experience in stock market, we hadbeen seeing that if bonus is 1:1 than price is reduced to 50%, ifbonus is 1:2 than price is reduced to 33%. So on the same pattern, inrel power 3:5 bonus, price should be reduced to 5/8x100=62.5%, but itis not so in case of Rel Power. Dear all in all historical bonusexcept in Rel power, this bonus ratio is applied to Total Shares ofcompany Including Promoter. Anyone can check in bonus history that ifbonus is 1:1, than on ex date total shares of company become double soprice adjusted to 50%.Take a example that if a company have 100 crore share, price of eachis 1000, so total market capital of company is 100x1000=1,00,000 (1lack ) crore. Suppose bonus is issued 1:1 ratio than on ex date in themarket total shares are 200 crore, if we apply our sense than it isdefinitely not possible that with same price 200x1000= 2,00,000 (2lack crore) just over one night, So on ex date price will be 500 andmarket capital is same 200x500=1,00,000 (1 lack) crore. Onlydifference is that before bonus company has liability of 100 croreshare of face value 10 each, so total face value(called as Paid upcapital) is 100x10=1000 crore. If company announce bonus of 1:1, thanface value (paid up capital) 200x10=2000 crore. Dividend is given onface value, if company announce dividend of 20% before bonus, thancompany liability is 1000x20/100=200 crore dividend, And if companyannounce same dividens after bonus company has liability of2000x20/100=400 crore.So practically after bonus total market capital of company remain same but total face value is increased proportionally and we get moredividend if announced after bonus. Now come to Rel power. Here total share are 226 crore before bonus(anyone can check at NSE site). So paid up capital is 226x10(facevalue)=2260 crore . Bonus is 3:5 for non-promoter only(which arehaving only 22.8 crore share out of 226 crore), so after bonus totalshare are not 226x8/5=361.6 crore but 203.2 crore(promoter) + 22.8(nonpromoter) + 22.8x3/5(=13.68)(bonus) = 239.7 crore total. Plz gothrough 25.02.08 Rel Power NSE announcement on second page 17th line,that paid up equity shares are increase to 239.7 crore.So, before bonus and after bonus company capital should be same(if nobig fall in market on ex date). Currently Rel power is quoting around400, so total market capital is 226 crore x 400=90,400 crore. Afterbonus total share are 239.7 crore, so keeping the same market capitalreduced price is 90,400/239.7=377 which in other way 400x226/239.7=377. Here scene is that Only 10% non promoter are given bonus and out of10% non promoter, if we leave FII, DII etc general public( retailinvestor, HNI )are 4.28%. And this 4.28% common public is unable todigest this opportunity that how 400x5=2000 can be 377x8=3016 just infew days. Did anyone see that FII, DII(MF) are crying on this issue,they are waiting for the opportunity when this common public willrelease their bonus share (which they are unable to digest) on ex dateat lower price and they will grab it. Dear investor compare the priceon the basis of total market capital before and after bonus. Some bigfish will try to low the price on and after ex date to compel smallinvestor to release their stake. Many are creating panic in marketthat ex bonus price will be around 300 or even less Than think in waythat 239.7 crore x 300=71,910 crore market capital. Did Anil announcebonus that company which was of 90,000 crore would become of 70,000

crore.

Believe on him he will take care for that but u all have tokeep patience for some time. Controlling price is also in public hand, if we all don't sell on ex date how price will come down, than onlyFII and DII will left and they are enough sensing the situation.If u all can wait for three-six month than price will come around 500as project progress happen than imagine 400x5=2000 will be 500x8=4000,100% return in around 4 month. So don't think of selling but digestthe opportunity with sense(total market capital of company before andafter bonus). Best of luck.

 


Monday, May 26, 2008

The rising story

Come March and its time to track the performance of top companies. There have been reports of brisk sales growth and improved margins for the quarter ended March 2008. This year's results have cashed in on domestic market growth, wider product portfolios in regulated market and boost in contract research and manufacturing. Indian companies have around 1.5 percent market share by value and around 12-14 percent by volume, as India exports large quantity of API and low cost generic formulations.

According to Ranjit Kapadia, Head Research (PCG) Prabhudas Lilladher, financial year (FY) 08 belonged to Glenmark Pharma, as it exhibited all round development and growth on all fronts. The company posted a consolidated net Profit After Tax (PAT) of Rs 218.96 crore for the quarter ended March 2008. Main factor that attributed to the growth of this company is the 144 percent growth in the US market and 66 percent growth in global sales of active pharmaceutical ingredients (APIs). GlaxoSmithKline posted a net profit before tax growth of 12 percent compared to previous quarter, while net sales have grown by 5.3 percent on a comparable basis. It can be noticed during the quarter that there was a growth of priority products by nine percent. However, the sales of price controlled products have been impacted by excise drops that are being passed on and consequent price adjustment made due to these changes.

With a backing of strong export thrust and increased domestic sales, Cipla posted a 43 percent growth in the net profit for the quarter ended March 08. Exports that contribute to about 59 percent of Cipla's sales in the quarter saw 23 percent growth, whereas domestic sales on the expanded base saw 13 percent growth. The company's net profit increased by 42.7 percent to Rs 179.5 crore from Rs 125.7 crore during the corresponding quarter in the previous year. Cipla also reported 19.5 percent rise in net sales to Rs 1,112 crore for the last quarter against Rs 938.5 crore reported during the same quarter in the previous year.

Other company that saw a steady rise is Hikal. It saw an increase of 29 percent in sales as the sales for the year ended 31st March 2008 were at Rs 301 crore as compared to Rs 234 crore in the previous year. The profit after tax also increased as it was at Rs 49.8 crore as compared to Rs 33.8 crore in the previous year in spite of appreciation of Rupee. Jai Hiremath, Vice Chairman and Managing Director, Hikal, said that it is for the first time that the sales in pharma business have surpassed the crop protection business. He added that efforts on restructuring of Marsing is on track and on a consolidated basis, the turnover was Rs 461 crore as compared to Rs 428 crore last year and PAT was Rs 48.9 crore as compared to Rs 26 crore in the previous year.

Zydus Cadila also posed an impressive result for the year ended March 08. It registered an increase of 27 percent, a total operating income of Rs 2,325 crore from last year. The net operating profit for the same period is up by 23 percent at Rs 254 crore. The main factor that had led to this growth is the 72 percent growth in formulation exports, 13 percent growth in domestic branded formulation business and 131 percent growth in animal health business.

In the limelight

Nicholas Piramal India Limited (NPIL) who had projected a growth at 16 percent in the current fiscal year. Total operating income on consolidated basis for the quarter ended 31 March 2008 was up by 19 percent to Rs 7.7 billion over Q4 FY 07. Operating profit increased by 139.9 percent to Rs 2.0 billion. Net profit for the quarter was up by 141.7 percent to Rs 1.3 billion. During the quarter, NPIL's domestic branded formulations business reported strong growth of 17.9 percent, with revenues of Rs 3.1 billion. The company's domestic business has thus registered an aggregate growth of 15 percent during the last three quarters of FY 2008. The company's custom manufacturing (CMG) revenues grew 15.3 percent to Rs 3.9 billion during Q4 FY 2008. Custom manufacturing revenues from facilities in India grew during Q4 FY 2008 by 224 percent to Rs 736 million, compared to Rs 227 million in Q4 FY2007.

Over the last six years, Ajanta Pharma has registered compounded annual growth rate (CAGR) of 26 percent in sales and 45 percent in profits. Ajanta Pharma also saw increase in its consolidated net profit by 49 percent to Rs 21.88 crore as compared to previous year's Rs 14.66 crore. Its consolidated income has also grown by 19 percent to Rs 317.48 crore compared to previous year's Rs 267.31. For the quarter ended 31st March, 2008, total income stood at Rs 87.28 crore against last year's Rs 80.10 crore, while net profit increased by 14.84 percent to Rs 8.75 crore against Rs 7.62 crore of last year.

Alembic reported net sales for the year ended March 31, 2008 at Rs 1,027 crore that is up 42 percent compared to Rs 722 crore in the previous year. The net profit for the year ended March 31, 2008 rose by 59 percent to Rs 112 crore, as against Rs 71 crore posted in last fiscal. Sales for the fourth quarter stood at Rs 268 crore, a growth of 58 percent as compared to Rs 169 crore in the corresponding quarter of the previous year. The company reported a net profit of Rs 15.34 crore for the quarter ended March 31, 2008, a jump of 39 percent as against Rs 11.05 crore posted in the same period of last fiscal. The company's efforts in the last few quarters to break into regulated markets have started yielding results. The company's annual sales to regulated markets was Rs 189.02 crore against 49.87 crore in last fiscal, while quarterly sales were Rs 71.72 crore against last year's Rs 11.25 crore.

Some pharma companies showcased a decent performance one of which is Plethico Pharma Ltd (PPL). It reported a decent performance during the last quarter for the year ended December 2007. This year, PPL changed its year ending from September 30 to Dec 31. Therefore FY 07 would be a 15-month period. Its top line grew by 48.1 percent y-o-y to Rs 1203.2 million during the quarter ended December 2007. On a cumulative basis for 15M FY 07, total revenue increased by 35.3 percent y-o-y to Rs 5554.4 million. For the quarter ended December 2007, PPL reported Earnings Before Depreciation, Interest, Taxes and Amortization (EBDITA) growth of 45.3 percent y-o-y to Rs 344.2 million compared to Rs 236.9 million in corresponding quarter last year. For 15 M FY 07, EBDITA growth stood at 32.1 percent y-o-y to Rs 1628.0 million. However, PPL's overall EBDITA margin for the period declined by 110 basis points to 28.8 percent. PPL recorded 51.9 percent y-o-y growth at net profit level to Rs 299.8 million during the quarter ended December 2007 and 49.7 percent y-o-y growth to Rs 1583.3 million for 15 M FY07.

Though comparatively, this quarter has been fruitful for most pharmacos, there are some who had to face setbacks. Hyderabad based Suven Life Sciences saw a 33 percent fall in the net profit to Rs 1.94 crore in the fourth quarter for the year ended March 2008 compared to Rs 2.91 crore last year. However, although there is a decrease in net profit, revenues had increased 22.67 percent to Rs 35.16 crore ie Rs 28.66 crore. Rupee appreciation is one factor that has affected revenues.

Roadblocks

Recent changes in regulatory framework to report market losses due to currency fluctuations and derivative trading has led to forex losses. Moreover, the rupee has weakened against the dollar by 1.8 percent during the quarter and this has led companies to make provisions for currency fluctuations and translation losses. Kapadia says, "The government's move to bring more products under price control could adversely affect sales and profitability of pharma. The rise in rupee against the dollar can reduce export revenues and would affect sales and profitability of exporting companies."

Pharma trends

The current analysis of results shows that pharma companies who have posted good results have fared very well in domestic and unregulated markets. One place that saw a downfall was in the exports. Only few companies like Cipla gained from exports. Gains from exports were comparatively less, mainly due to rupee appreciation. Many companies have hived of their R&D units so as to transfer expenses related to R&D to the new entity. "As R&D expenses were eligible for 150 percent weighted average deduction, the main company will not be able to claim this deduction. However, due to other tax benefits, tax liability is not likely to increase. Hence, profitability of these companies is likely to improve. Most of the R&D companies are likely to report losses in the initial years due to lack of recurring income. The companies will have to depend on milestone payments on licensing molecules," says Kapadia.

Current results are very satisfying for almost all, but one thing that comes to our mind is how will companies be utilising funds and profits for their benefit. Most companies will be utilising it for expansion and investment in R&D. Kapadia points out that most companies are expanding their activities in Special Economic Zones (SEZ) as after FY 2010, Export Oriented Unit (EOU) benefits will not be available to the companies. On the acquisition front, most recent acquisitions have been done overseas. The likely financing route for overseas acquisition is through American Depository Receipt (ADR)/Global Depositary Receipt (GDR) or Foreign Currency Convertible Bond (FCCB). For the fund requirement for the domestic market, preferential allotment of shares and Initial Public Offering (IPO) are the most preferred routes.

Looking to the future

With a view for expansion and creating a mark the Indian pharmacos are looking at developing countries where regulations are not very stringent and margins are better than in the domestic market. Companies can also introduce branded generics in some of these markets. Therefore, Japan is the new destination as the Japanese government encourages the use of generic products.

Kapadia avers, "The domestic market is likely to grow by 13-15 percent unless the government brings more products under price control. Pharmacos are likely to face competition in US market due to the economic slowdown and severe competition among generic products." He predicts, "The sharing of 180-days exclusivity period by more than one company will also put pressure on prices. Moreover, authorised generics will also limit profitability of generic players in this. The opening of Japanese pharma market is likely to offer good opportunity for the Indian pharma companies."




Sunday, May 25, 2008

Intraday Market Technicals for 26th May

Both Nifty & Sensex has become very weak at these levels. The trend for fresh buying positions will continue if the markets continue to trade beyond 4982 & 16776. There are chances that Nifty & Sensex may open 35 - 36 points down & 127 - 128 points down. There are chances of an intraday movement of around 235 points & 855 points in Nifty & Sensex respectively.

If the markets sustain above 5023 & 16927 levels, then they will try to touch 5100 & 17204 levels.

On the other hand, market has a weak support at 4905 & 16499 because the markets may further fall down to 4863 & 16348 levels from this point due to panic selling & profit booking which can act as a strong support.

Derivatives Calls

Futures

Sell Nifty June' 08 Futures below 4932.00 levels with a target of 4861.00 & with a stoploss/ average above 4968.00.

Sell IVRCL Infra. June' 08 Futures below 411.00 levels with a target of 390.00 & with a stoploss/ average above 422.00.

Long Term Delivery Calls

We strongly recommend a buy on Hindustan Copper at current levels with a long-term target of 711.00.

We strongly recommend a buy on Kirloskar Brothers at current levels with a long-term target of 475.00.

Medium Term Delivery Calls

Buy Suzlon if it sustains above 301.00 levels with a medium-term target of 351.00 & with a stoploss/ average below 276.00.

Short Term Delivery Calls


Buy Bharti Airtel if it sustains above 844.00 levels with a short-term target of 893.00 & with a stoploss/ average below 819.00.

Buy Marksans Pharma if it sustains above 21.60 levels with a short-term target of 23.25 & with a stoploss/ average below 20.75.
 
Thank you for your consideration. We look forward to on ongoing relationship.


Wednesday, May 21, 2008

Intraday Market Technicals for 22nd May

Both Nifty & Sensex has become a bit weak at these levels. The trend for fresh buying positions will continue if the markets continue to trade beyond 5100 & 17192. There are chances that Nifty & Sensex may open 17 - 18 points down & 50 - 51 points down. There are chances of an intraday movement of around 170 points & 500 points in Nifty & Sensex respectively.

If the markets sustain above 5152 & 17343 levels, then they will try to touch 5187 & 17444 levels.

On the other hand, market has a weak support at 5065 & 17092 because the markets may further fall down to 5013 & 16941 levels from this point due to panic selling & profit booking which can act as a strong support.

Derivatives Calls

Futures

Buy Nifty May' 08 Futures above 5147.00 levels with a target of 5219.00 & with a stoploss/ average below 5111.00.

Buy Birla Jute May' 08 Futures above 226.00 levels with a target of 239.00 & with a stoploss/ average below 219.50.

Long Term Delivery Calls

We strongly recommend a buy on Reliance Inds. at current levels with a long-term target of 3458.00.

We strongly recommend a buy on United Spirits at current levels with a long-term target of 5433.00.

Medium Term Delivery Calls

Buy Himalya Intl. if it sustains above 26.25 levels with a medium-term target of 30.40 & with a stoploss/ average below 24.15.

Short Term Delivery Calls


Buy Ispat Inds. if it sustains above 34.50 levels with a short-term target of 36.45 & with a stoploss/ average below 33.50.

Buy RNRL if it sustains above 114.50 levels with a short-term target of 120.90 & with a stoploss/ average below 111.30.

Tuesday, May 20, 2008

Lotus India plans global stock fund

MUMBAI, May 20 (Reuters) - Lotus India Asset Management plans to launch an equity fund that will invest at least a fourth of its assets in units of overseas mutual funds, the firm said in an offer document filed with the market regulator on Tuesday.

Lotus India Global Opportunities Fund will allocate at least 65 percent of its assets to Indian stocks and 25 percent to 35 percent to overseas funds. It can also invest up to a tenth of the assets in debt and money market instruments, the firm said.

The fund house, a joint venture between Fullerton Fund Management, a unit of Singapore's state investor Temasek Holdings [TEM.UL], and London-based Sabre Capital Worldwide, has identified Fullerton Global Equities Fund to invest overseas.

Lotus joins more than a dozen Indian firms who are trying to take advantage of relaxed norms and offer diversification to domestic investors who have so far tended to stick to local stocks, which have boomed in the past five years, and bonds.

India had 18 internationally-invested funds managing about 105 billion rupees at the end of February, nearly five times the amount they held a year ago, when there were only two such funds, data from fund tracker ICRA showed.

The trigger has been more liberal norms set by India in 2006/07 allowing local fund firms to invest freely in global stocks and gradual increase in the cap to $7 billion now.

For a chronology on the key dates and developments that have led to a slew of globally-invested fund launches in the country, double click on [ID:nBOM140293]. (Reporting by Nishant Kumar; editing by Ramya Venugopal)




Wednesday, May 14, 2008

DSPML Opportunities Fund: Hold


K. Venkatasubramanian

Investors can continue to hold the units of DSPML Opportunities Fund, considering its long term track record in delivering steady returns. The fund is one of the few "Opportunities" funds with a five-year track record. The fund invests predominantly in large cap stocks with a well diversified sector-exposure, which may stand it in good stead in turbulent markets.

Suitability: Though "opportunities" funds are usually well suited to aggressive investors because they tend to take concentrated sector exposures, DSP ML Opportunities doesn't presently fit into this description. The fund's current portfolio is diversified across a large number of sectors and stocks which suggests that it may be able to deliver returns that are similar to those offered by a diversified equity fund.

Existing investors who want continued exposure to large-cap stocks and returns matching its benchmark – the Nifty in terms of returns can retain the units of the fund.

Performance and strategy: DSPML Opportunities' current portfolio features as many as 88 stocks across 29 sectors, making it one of the most diversified funds within the equity category. The fund has tended to take limited exposures to individual stocks.

Except Reliance Industries, all stocks including top 10 holdings take up exposures of less than four percent. This means that the portfolio weight in relation to its benchmark would be much lower in many stocks.

The fund's five year returns vis-À-vis Nifty have been very good (52 percent versus 40.7 percent). But its three year and last one year returns have been the more or less the same as the Nifty.

The fund is a large-cap (>Rs 7,500 crore) oriented fund with over 75 percent invested in this segment. This means that blips or negative earnings surprises, that are less likely in the case of large-caps, may make it better placed compared to a fund that has sizeable small/midcap exposures.

In terms of sector exposures, also concentration is lowered even in hot themes such as capital goods and banks. In the past year, exposures to software and telecom services was very high — the two sectors that underperformed markets. This may explain in part the underperformance of the fund vis-À-vis the Nifty.


Tuesday, May 6, 2008

Lenovo and Infosys: An overview of two pioneering companies and the business environments in which they were created

The following overview was written by Ted Chan in 2008 as part of my masters program at the MIT Sloan School of Management and was edited by Victoria Slingerland. If it is of use to you, I would appreciate a comment or e-mail. Please use all appropriate academic citations. I would enjoy a further dialog on the topic if you are interested.

Lenovo and Infosys: Two pioneering companies and the business environments in which they were created
By Theodore (Ted) Chan
MIT Sloan School of Management

Introduction

Infosys, an Indian-based information technology and consulting firm, and Lenovo , a leading Chinese personal computer manufacturer, are remarkable companies with unique organizational structures and cultures. These characteristics allowed them to overcome challenges posed by the business climate of their countries while leveraging some of the distinct advantages. This paper describes their development in the context of their business and financing environments, and provides comparison and analysis with regards to the challenges they faced.

Overview of Infosys

Infosys was founded in 1981 and is led by now world-renowned CEO Narayana Murthy in Pune, India. The company had one unique characteristic from the beginning. Murthy established a culture of ethical behavior at Infosys that included running a highly transparent organization and not giving into the corruption that was rife in India at this time. In 2005, India scored a very poor 2.9 out of 10 on Transparency International's corruption index and this is after what was considered to be substantial progress following the 1991 governmental reforms. Infosys gained a leading reputation as an ethical Indian company, which greatly aided its business with international firms. During this period in the 1980s, when Infosys laid much of its cultural and reputational groundwork, its growth was actually relatively slow. In 1991, after ten years in operation, its revenues were about 50 million rupees, or less than $2 million USD. (Abdelal et al. 2007, Nanda and Delong, 2002)

India provided many challenges for an emerging business with its corrupt, bureaucratic government and lack of infrastructure; however, it also offered one major competitive advantage in low-cost skilled labor. For instance, in 1994, programmers and systems analysts in India cost less than 1/10th the cost of hiring one of those resources in the US, Japan, Germany or France. (Abdelal et al. 2007, Nanda and Delong, 2002)

It was the fiscal reform early in the 1990s that allowed growth to take off at Infosys. In 1991, India was trying to overcome a severe fiscal crisis and made major reforms that were highly beneficial for businesses. The reforms of 1991 made it possible to open foreign offices, improved capital markets, and created new opportunities. It also helped to reduce the effect of the corrupt bureaucracies that hindered doing business in India. This also marked a period of intensified competition, with many multi-national corporations choosing to compete in the Indian market or setup low-cost development centers. Infosys paid its employees in the top 10 to 15% of the salary ranges, ensuring they could compete for top talent and continue to provide a product that would be considered high quality. It also was one of the first Indian firms to offer a stock-option plan. Infosys also invested heavily in a new facility that cost 130 million rupees in 1993, nearly their entire revenue for that year (95 million rupees in 1992, and 145 million in 1993). (Nanda and Delong, 2002; Kummerle, 2003)

Infosys continued to be a leader in corporate ethics and transparency in India. It was the first Indian company to use US GAAP accounting standards and meet the ISO 9001 software quality standard, along with publishing a number of audits, disclosures and reports that had not historically been part of the Indian way of doing business. (Kummerle, 2000)

Thanks in great part to the 1991 reforms, Infosys went public in India in 1993. Prior to this point, they had very little financing. As a service business, they were typically cash flow positive and had only four moderate size loans prior to the IPO. The firm rapidly took off and revenues nearly doubled in 1994 to 301 million rupees. (Kummerle, 2003) After several years of sustained growth, Infosys went public in 1999 in the US on the NASDAQ stock exchange. By the end of 2007, it employed over 88,000 employees with revenues over $3.1 billion USD and a market cap of over $30 billion USD. (Wikipedia, Yahoo Finance) It is interesting to compare these two liquidity events to the course Lenovo had to take with the less sophisticated financial markets in China.

Overview of Lenovo / Legend

The story of the company now known as Lenovo is a parable that fits well with the transformation of the Chinese economy. Founded in November 1984 in Beijing, two important developments coincided with its roots: the reform of Science and Technology System and the rise of new non-governmental science and technology enterprises in their district in Beijing.

While Infosys was a private enterprise, Lenovo had state involvement from the beginning in the form of the Institute of Computing Technology ("ICT"). What is interesting is that Lenovo's development often seemed in spite of opposition from the state, which provided advantages to Lenovo's state owned competitor, Great Wall. The reform of the Science and Technology system in China meant that the ICT's funding was to be cut at a rate of 20% starting in 1985. Facing this uncertainty, the institute saw new enterprises being set up by research institutes to profit from technology businesses, including computing. As such, the new company was set up as an "institute run enterprise" and called Institute of Computing Technology (ICT Co.) With little chance of direct funding for the company, the eleven initial founders resourcefully raised 200,000 RMB that was loaned to the ICT, which then placed it on its balance sheet and loaned it to the company to provide the startup capital. ICT also provided office space, utilities, and key access to administrators within the government. A major break occurred early in the life of ICT Co. with the first project being a paid contract with CAS; the 700,000 yuan earned gave the company much needed capital. (Lu, 2000; Chen et al., 2001)

ICT Co. used this capital to pursue its first product, a Chinese word processing add-on card for the IBM PC. The product was an instant success, rapidly winning more than 50% of the market share for word processing add-on cards. This accounted for nearly 1/3rd of the company's revenue. ICT Co. became Legend some time during this period and continued to create computing products. The 27 new profitable technology products between 1985 and 1988 accounted for approximately 80% of sales. Legend's growth was rapid. Excluding Hong Kong Legend, employees went from 44 in 1985 to over 630 in 1991. During this time, sales revenues grew to 680 million RMB from 3 million in 1985. This growth permitted a reciprocal relationship with the ICT; the company paid off the initial 200,000 RMB loan, with an additional 3,650,000 payment over the first three years, and 1,200,000 per year thereafter. (Lu, 2000; Chen et al., 2001)

In 1987, ICT partnered with Daw, a small Hong Kong company to create Hong Kong Legend Technology Co. This operation grew rapidly, reaching $11.74 million by the end of 1988, which provided capital to purchase a manufacturer, QDI. Prior to the relationship in Hong Kong, Legend had not manufactured computer systems as they lacked the permits to do so in mainland China. Getting into manufacturing was initially a challenge for Legend, but they were able to overcome it and gain market share in motherboards. Sales grew from 30,000 motherboards in 1990 to 5 million in 1995. In Hong Kong Dollars, this growth was from $78 million HKD to nearly $2.5 billion HKD, a remarkable rate over a five year span. They went public in Hong Kong in 1993, raising $220 million HKD. Hong Kong, then still a British colony, provided the mechanism for internationalization, along with the primary source of financing for Legend to approach both the domestic and later the international market. (Lu, 2000; Chen et al., 2001)

On the PC front, the Chinese market saw a significant change in 1992 brought on by a Memorandum of Understanding signed between the US and China. This lowered import tariffs from 35% to 15% and removed many quotas and licenses for goods coming into China such as computers. It also improved foreign intellectual property rights. Legend had to decide whether to continue to manufacture its own PCs. At the time, Legend was struggling to meet its sales goals, and its operations management was somewhat inefficient, with an inventory turnover of 1.7, compared to 5 to 6 turns for its competitors. Re-organization in 1994 helped solve the issue. With a leaner, more focused sales force, and a strong new general manager, Yang Yuanqing, Legend improved turnover to 7x by 1995. They also captured 5.7% of the market that year, which was second to only Compaq and AST. (Lu, 2000; Chen et al., 2001)

In 1996, Legend seized on the fact that the foreign industry players were releasing products in China 4 to 5 months behind overseas launches, while charging higher prices due to the import tariff. Legend cut its own prices by 30% and used a first to market strategy with their new technologies, essentially offering the hottest new technologies at a lower price. As Infosys had found their local knowledge important, Legend's understanding of the competitive landscape in China was a key advantage. In 1997, Legend captured the #1 spot in the Chinese market in desktop PCs with this strategy, gaining a 9.4% market share. Meanwhile, Legend also began to differentiate its products more based on meeting local needs. (Lu, 2000; Chen et al., 2001)

Distribution remained an important part of the business as well, as Legend continued to sell products made by Hewlett Packard, Toshiba and Sun. This distribution ability was an important company asset following the 1992 Memorandum of Understanding. Legend's local knowledge was an advantage over joint ventures or lower quality mainland distributors that other foreign entrants had to rely on. (Lu, 2000; Chen et al., 2001)

Legend became Lenovo in 2004 and set its 2005 revenue goal at $10 billion US, a lofty target. Key to achieving this would be their Internet strategy. China has the most Internet users in the entire world, nearly 172 million users by late 2007. In 2000, however, only 1.4% of the Chinese population (16.9 million people) was on the web (double the number from six months prior). Lenovo set about being a key provider to these users. Their Tian Xi product launched in 1999, which was especially geared towards getting lower knowledge users on the web quickly and easily. As with other initiatives, Lenovo was successful in continuing to grow as the Internet emerged in China. Dr. Charles Zhang, the CEO of Sohu.com, indicated that China surpassed the US as the world's largest Internet user in 2006. (Forbes, 2006; Danwei, 2007)

Lenovo acquired IBM personal computing division in 2007 with funding from Texas Pacific Group and two other US private equity firms. This gave Lenovo one of the world's leading brands for marketing its PCs. As of 2007, Lenovo was approximately 40% owned by public share holders, 42% owned by Legend Holdings (65% of which is owned by the Chinese government, 8% by IBM and 10% by Texas Pacific). (Wikipedia, IBM Website)

Analysis of the Environments that Created the Two

Both Infosys and Lenovo are leading global companies forged in the unique economic environments that their nations' emerging economies presented. Legend is an interesting case as it combines some of the advantages and disadvantages of state ownership and participation. While many of their resources to start the company, including the intellectual property, came from the CAS, the government was also restrictive in issuing the necessary permits. Meanwhile, Infosys faced an environment where the government was largely a barrier in the form of corruption and bureaucracy. Their ability to overcome this by using a completely ethical framework turned into a major asset in winning business in the future with foreign companies.
Both Infosys and Lenovo navigated difficult financing environments with a combination of skill in the form of building cash flow positive businesses and early breaks that supplied them with precious capital. While both had initial public offerings in 1993, it is interesting to note Infosys had its IPO in Bombay and then later in the US, while Lenovo had its in Hong Kong, and to date has not listed on the Chinese exchange. This is indicative of how behind China's financial system has historically been. Only recently has listing in China been considered a palatable alternative to more developed foreign exchanges.

Both utilized important cultural knowledge in order to navigate the business environments of their nations, an advantage over foreign multi-national companies that attempted to enter the market. This was especially important as, right around the same time in 1992, both companies faced increased competition from foreign companies due to changes in governmental regulations and policies. Both Infosys and Lenovo leveraged their cultural knowledge to stay at the head of the market despite intense competition.

Conclusion

Infosys and Legend/Lenovo were both uniquely entrepreneurial firms that used effective strategies and organizational designs to navigate the tricky business and financing environments of their countries. At the same time, they leveraged low production costs, strong local knowledge of distribution and the ability to cut through bureaucracy that held back many competitors. While they share some characteristics, this paper has also discussed some of the differences between them and the business environments in their respective nations. These include the funding environment, the ease of doing business internationally and the macroeconomic environments. Overall, both are remarkable companies with stories that are intrinsically tied to the business environments in which they were created.


Sunday, May 4, 2008

Nifty has resistance at 5300 levels




B G Shirsat / Mumbai May 3, 2008



The Nifty moved between the support and resistance levels and closed with gains of 63 points (1.81 per cent) due to fresh buying in automobile, banks, realty and technology stocks.

The index made an intra-day high of 5298.85, and according to Ashish Shroff, technical analyst at Ambit Capital, it has a strong resistance at 5300-5350.

The activity in Nifty options suggests that Nifty has a strong resistance around 5,300, 5400 and 5,500 levels, and healthy support near the 5000 levels.

Heavy call writing took place at the 5300 (OI up 32.3 per cent), 5400 (OI up 62.34 per cent) and 5500 (up 31.7 per cent) strike prices, accompanied with call buying at 5000 (OI up 18.9 per cent) and put writing at 5000 (OI up 18 per cent).

As is known, the option traders act contrary to the market and hence writing of call options indicates resistance and put writing demonstrates support.

According to technical analyst Ashish Shroff, the Nifty gained over two per cent on a week-on-week basis and closed above the 200 DMA (daily moving average).

Markets have moved gradually up, but on low volumes. Even after the Nifty gave a breakout above 5000 and 200 DMA, there has been no follow-up buying, which calls for caution in the near term.

Momentum oscillators reveal negative divergence, which suggests that the rally is overdone for the short term. All indicators are in a sell mode and hence any intra-day or near-term upmove will not last for long.

Analysts expect profit booking to take place next week as the Nifty faces resistance from 5240 to 5280. The short-term trend is down, with a target of 4940. Reversal can only happen above the 5350 levels.



 

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