The IBS Times; 193rd issue; September 2016

CHALLENGES FACED BY THE NEW RBI GOVERNOR BY DIXITA REDDY

The IBS times COVER STORY

THE REVOLUTIONARY TALE OF TESLA

BY JEET PC.

SBI MERGER

MERGE TO TOP

BY UTSAV CHANGOIWALA

JAPAN DEBT PROBLEM

WILL JAPAN LOOSE ANOTHER DECADE?

BY SHILPAM DUBEY

VOLKSWAGEN EMISSION SCANDAL

VOLKSWAGEN: BLUFF

BY SHREYA RANI

FinStreet, IBS Hyderabad

ISSUE NO. 193, SEPTEMBER 2016

What’s Inside

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INTELLIGENCE BEYOND SUCCESS LETTER FROM THE EDITOR

TEAM IBS TIMES ISHAN GUPTA (EDITOR-IN-CHIEF) ROHIT TILLU (MANAGING EDITOR) ABHINAV BANERJEE ANUPAMA KUMARSWAMI

CHESTHA KUMAR EYAMINI N HEMLATA HAJONG JATIN SHARMA PRATEEK PANDEY RANU SARUPRIA SANDHYA ADHAVAN SWARUPA ROY ANTRA BHARATI DEBANJAN PAUL DIXITA REDDY GAGAN KAPOOR JEET PC RADHIKA GUPTA ROHAN BAJAJ SHILPAM DUBEY SHREYA RANI

Dear Readers, Greetings from Team FinStreet.

Thank you everyone who has contributed and made us where we stand today. We look forward to continue our work of making available all the latest happenings round the globe with your gracious support Team FinStreet is proud to present the 193rd edition of The IBS Times.

The energy industry is going through a revolution. With the focus shifting to green energy, the race is on to change the automotive industry as well. To give our viewers a glimpse into this changing environment we bring our COVERSTORY, THE REVOLUTIONARY TALE OF TESLA. Probing further into the subject we bring to you VOLKSWAGEN: BLUFF where we look at the emission scandal that has shaken the company. In M&A we focus on start-ups and SBI in our segments A NEW WAY FOR STARTUP TO EXPAND? and MERGE TO TOP. For Sector research we‘ve published a report on Automotive Industry and the Market Watch, Preparing for the new era will help you understand the movement of market for your future reference. From the investment point of view, this issue also brings to you an exhaustive report on Mahindra & Mahindra by Team Vriddhi Research.

Do make the most out of it and keep enjoying the experience of The IBS TIMES. Your feedbacks and opinions will help us make it better.

Ishan Gupta Team FinStreet

SMRITI PATODIA SNEHA TIBREWAL SRUJANA NAIK UTSAV CHANGOIWALA

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START-UP CONGLOMERATION OR CONSOLIDATION A NEW WAY FOR STARTUP TO EXPAND?

The consolidation refers to the coming up together or joining of several business units or several different companies to form a larger organization. The major reason behind consolidation is to improve operational efficiency either by reducing redundant personnel and processes or addition of more skills and platforms to the current product line. Often this process is associated with mergers and acquisitions and can result in long-term cost savings, but in the short-term can be expensive and complex.

There is a wave of consolidation happening in the startup market right now with more than dozen buyouts of young startups sealed and roughly double the number of deals struck last year. It is kind of a trend for newgeneration companies in the entrepreneurial ecosystem with 28 Mergers and Acquisition (M&A) deals in just 8 months this year.

Fallen valuations have made it easier for the large firms or comparatively big startups for acquiring the weak target companies which are generally sub-optimal businesses, with no substantial capital to expand their business lines.

The funds are drying up and acquiring customers is not an easy job now, which is prompting several niche startups lying mostly in the pre-Series A or even after raising series A round of funding to actively seek buyers.

In what could be considered as a warning alarm and a signal of the scenario that are starring the Indian startup industry right in the face, the Start-up funding has decreased from pre

-Gagan Kapoor

pretty $611 million figure in the Quarter one of the year 2015 to a mere smaller $301 million in the Quarter one of the year 2016 which could be seen as the industry‘s move from the ―hyper-funding‖ phase that it had gone through last year.

Simultaneously, companies in the early growth stage are hitting the bell on the opportunity and are more into acquiring companies for technology, talent, and widening domain knowledge. It also adds up for cutting competition and expanding market reach.

Like While TinyOwl was having issues with its operations, Roadrunnr wasn't doing that well itself considering the highly competitive market and less reward in the delivery services. The decision to acquire TinyOwl was taken as Roadrunnr's delivery service was observed highly dependent on online food ordering startups and decided it was time to leverage this space to its advantage.

Some of the other startup mergers and acquisitions include Snapdeal - Freecharge, Ola - TaxiforSure, CarTrade's - CarWale, PropTiger's - Makaan, Grofers - Spoonjoy, Townrush and My Green Box, MakeMyTrip – MyGola and Foodpanda - Tastykhana.

Let‘s look into the matter why marketing is behaving in this way – Why Consolidation?

The market is nascent and there cannot be enough room for so many companies in the same space. There are companies with great ideas 4

ideas, amazing products but they are not able to raise money due to limited reach, reason being the underinvestment. As already said most deals are struck for want of technological, market research and expansion in the same sector capabilities. Ex:Voonik.com acquired five startups over the last one year for technological capabilities.

Even startups in the seed-stage funding are coming up for this kind of unusual growth.

For example, the unique scrap collection and recycling startup EnCashea is said to be in talks to buy smaller same segment rival Raddiman There‘s also a role investors that is been seen for pushing for merger of portfolio companies in the similar space for cost synergy.

According to Industry experts, a company can save nearly 25% on its operational costs by rationalizing office space. For the same motive Commonfloor‘s Bangalore office was shut down by Quikr after Quikr acquired Commonfloor The startup environment is increasingly coming under immense pressure due to lack of funding and profitability To lead over the competitors, companies are going for M&A with the smaller or struggling competitor or startup in the same market. Ex:- To get ahead of Uber in the taxi-booking app market Ola acquired TaxiForSure in March 2015 for $200 million (Rs 1,200 crore).

Muddles The environment around consolidation has become even more noisy and louder in recent months as fund raising has become a challenge even for the big boys. Indian startups are suddenly finding themselves in a tough spot as category-leading investors such as SoftBank and Tiger seem to have hit the pause button.

While consolidation might be a good option for startups which are looking at fast growth and a better exit, however this has not always made things better for many startups. Take for instance, the startups like Foodpanda, Flipkart, Grofers, Snapdeal are all struggling to turn in profits despite these acquisitions.

There are other challenges ahead for the industries as well, be it concerns around correction in valuations or bubble around ecommerce bursting.

Consolidation is only the next step in the process of evolution of entrepreneurial ecosystem in India. It is also important that investors wisely proportionate the investments in such sectors with the available or visible opportunity. It will force people to innovate in IoT, robotics, fintech etc which are in the backseat right now. There can be cultural differences between the two firms.

5

Writer’s Conclusion Though this correction had started early, People have started to take notice of the decreasing opportunities for small startups now and are saying winter is coming. In my view it was in the process of freezing already, and the winter came in May and June.

So, the environment has started correcting.

There will be a lot of consolidation in overcrowded and overfunded sectors, which is a good thing. The amount of capital coming in will get rationalised with the size of the opportunity, which is very important.

Companies will go in for layoffs, while investors will focus more on business models.

How long it might last is hard to say.

ecommerce, shared economy platforms for more interest towards innovations in IoT, robotics, fintech etc.

Though the actual result of these consolidations can‘t be predicted but with the support of small startups by the Modi Govt. and the acceptance by large firms as an addon to their own self can be beneficial for both the two joining ventures. Let us keep looking forward to the most dynamic and strategy hungry market, what it might get in the next daily news.

We can say that startups are undergoing through a transition state which is a natural cycle for any given process to set in. This kind of transition is similar to the transition from print to internet and then the phase change by mobile in the beginning of this millennium. Similarly, along came the new startups and then the mobile/desktop app culture.

What is visible now (the consolidation of startups in good numbers) is a normal curve.

We have observed that today‘s survivors were the unicorns of 2001 – Google, ebay, Facebook, paypal etc. They braced or modified their processes at the right moment and hence are easily surviving today. Where most startups are just like a carbon copy or pivot idea of some other startup of similar concept, they are the ones which are facing the heat.

It is expected that startups will be facing much more consolidation, particularly in ecom 6

JAPAN DEBT CRISIS WILL JAPAN LOOSE ANOTHER DECADE?

“A debt-fuelled growth has to be necessarily compensated by a slower growth in future” On 9th Feb, Tuesday, one of the biggest single day point crashes in the history shocked the world when the Japan‘s Nikkei 225 index slashed by 5.4%, falling a staggering 918 points in just one day. This was triggered majorly by the collapse of the banking stocks which reacted sharply to an unprecedented decision of Bank of Japan adopting a negative interest rate policy. Japan has still not recovered from the bruises of that crash.

I would not say that the above quoted line forms the essence of the crisis prevailing in Japan, because the crisis is way more complex than that. We need to peep in to the past to be able to comprehend the present and predict future, because history repeats itself and with Japan‘s economy, it certainly does!

-Shilpam Dubey

inflation to 21%. Also, in 1985 with the agreement of Plaza accord by G-5 powers (France, Germany, Japan, UK, and USA), Japan had to artificially lower exchange rate to US dollar, to fillip stagnating USA by helping its exports. However, the stronger Yen adversely affected Japan‘s exports. In order to compensate for lower exports, BOJ extensively started credit expansion and by easing monetary policy again. The resulting 1980s was a period of euphoria, Japan‘s real estate was booming with prices soaring 70 times. Business got huge valuations, stocks surged over 100 times. Nikkei represented 42% of entire stock exchanges in the world.

The economy was literally in multiple bubbles, fueled with conspicuous consumption and mal-investments.

Tracking Japan’s mistakes Japan was devastated after the World War 2, nuclear bomb attack not only destroyed zillions of lives but also killed the productive capacity of Japan. Inflation surged at 317% in 1946. Though, the revival was not easy but Japanese people through their hard-work, savings and innovation made Japan one of the most advanced countries of the world, famously called as ‗Japanese Economic Miracle‘.

In order to boost the economy and increase investors‘ confidence, BOJ adopted loose monetary policies and created huge liquidity in the market which caused steep rise in inflation

In 1989-90, government responded to the crisis by increasing the investments five times to 6%. But, the losses caused by loose monetary policies can‘t be reversed back by tightening them. Much to their chagrin, due to lack of credit bubbles busted, asset markets collapsed, stock markets crashed causing Japan to enter a deflationary stagnation which it couldn‘t emerge out of in two decades. The c 7

crisis worsened due to Asian Financial crisis and in the period 1990s and 2000s Japan was deeply into recession.

Mounting Debts To get out of the recession, in the decade following the bust Japanese government resorted to a series of fiscal stimulus packages, cumulatively borrowing more than 100 trillion Yen. This was the period when Japan‘s public debt to GDP ratio exceeded more than 100%. This was just the beginning of the problem.

In 2008 the recovery was interrupted by the global financial crisis. What worse? , in 2011 Japan was devastated by the ‗Triple Disaster‘ – Earthquake, Tsunami and Fukushima disaster which caused the electricity production to fall by 40% , increasing energy imports and adding to the debts of already indebted economy.

are poor monetary and inevitable too?

fiscal

policies

In order to revive the economy, in 2013 Shinzo Abe launched Abenomics, which consists of ‗three arrows‘Expansionary Fiscal Policy, Aggressive monetary policy, and Growth Strategy. Under fiscal reform government plans to provide a short-term boost to the economy, one of which is wage growth. Government forced the companies to increases the wage of the employees which would increase consumer spending leading to increase in corporate profits. But, in 2014 it also increased VAT from 5% to 8% which negated the effect on consumer spending due to wage growth. The government is in a trap now as to further increase the tax to solve its debt problem or to decrease it to revive the economy from recession. So, the fiscal policies, in the long run don‘t promise to deliver.

Stepping on the same rake, BOJ again left the monetary policy loose and infused liquidity to increase stability in the markets. This has a bad long-term impact and caused the debt to GDP ratio shoot up to more than 200%.

‘Abenomics’ And Interest Rates

The

Epic

Negative

Analyzing its past, it seems that Japan‘s crisis is a result of inevitable natural disasters, Western politics, monetary & fiscal policies.

While the natural disasters are inevitable but are

I would like to recall what I began with. To pull out the economy from deflation BOJ adopted a negative interest rate policy of 0.1%. Negative interest rate increases the cost of holding excess reserves of commercial banks forcing them to pass on to the public.

The aim was to bring liquidity into the econom 8

economy and disperse-off banks‘ excesses.

Along with this, it is also pursuing extensive quantitative easing. The outcome are not surprising since these artificial short-term boosts never prove beneficial in the long run.

Japan grew only by QoQ 0.2% in the second quarter and is still on a deflationary zone with -0.2%, nowhere close to its target of 2% inflation.

reforms. The shrinking labour market due to aging population can be expanded by encouraging more women and foreigner workers. But, these reforms usually take a lot of time to succeed. Till then, let‘s hope for the debt time bomb to be defused before it explodes.

Is there a way out?

Japanese government continues to go for expansionary fiscal and monetary policies even though they always proved to be devastating. But, what is the other option it has? As I said earlier, Japan is the victim of policy paralysis, natural disasters and Western politics.

Again, is the Western politics inevitable?

Apparently not. Over the last year Yen has appreciated by 24% against major currencies.

If it continues to appreciate, it would cause Abenomics to fail. But, the US Treasury and Federal Reserve, consistently discourage Japan to intervene in currency markets, and if they do, US may not approve its Trans-Pacific Parterniship, TTP which is one of the important pillars of Abenomics ―three arrows‖.

The only solution might be the structural reform 9

RAILWAY BUDGET AND GENERAL BUDGET NO SEPARATE RAILWAY BUDGET, A LEGACY AT ITS END

The first separate railway budget was presented for 1925-26, after William Ackwood, in 1924 submitted a report that emphasized the importance of a separate railway budget for the development of rail infrastructure. Fast forward 92 years, the Finance Ministry accepting the Railway Minister Suresh Prabhu‘s proposal of merging the railway budget with the general budget will bring to an end of a 92-year-old practice.

It is another big part of Modi Government‘s reform agenda and it is being said that it is done for the long term interest of the national transporter and the country‘s economy.

However, we have to wait and see what the nation gets from it and whether it is a good idea or not.

Latest Happenings The merger has not been finalized yet and a committee of 5 senior members of the finance ministry has been set up to work out the probabilities for the merger. Once the report is submitted, our Finance Minister Arun Jaitley will take a call on whether to break the century old tradition of submitting a separate railway budget by merging it with the union budget.

-Debanjan Paul

Probable Outcomes The Indian railway is already overburdened with about Rs. 60,000 Cr and it‘s still paying dividends. One thing that‘s for sure is that if the merge happens, the Indian Railway will get rid of the hefty annual dividend that it pays for the gross budgetary support as per the seventh pay commission from the government each year.

The merger of the two budget is very unlikely to create any critical issues and won‘t have any impact on the government‘s budget calculations.

However, this merger move is expected to have political implications as in almost every railway budget, the railway minister particularly in coalition government, addresses his constituency by doling out favours by way of new trains and projects. In the past, railway ministers, saw the rail budget as means to secure a bright political future, for themselves as well for the party.

However, if this merge goes through, this trend is about to end.

How is it going to help?

The railways are in such a bad position that it cannot find money for even salaries or pensions. It looks like an easy solution to hand over the reins to the finance ministry for funding from the union budget. It looks like the finance ministry will clean up the finance of the railways so that the rail ministry can focus on modernization and strengthening of the Railways.

10

Huge investments were made in uneconomical projects which were least necessary due to which the Railways badly needs at least Rs. 483600 Cr to complete the unfinished projects it had launched. Hence merging it with the union budget seems to be a clever proposition taken by Suresh Prabhu.

Voices against scrapping People who are opposing the merge are saying that it would give rise to new problems and the commercial interests of the Railways will be lost as it would be run like any other government department. If we look at the history, a similar crisis arose during the British Raj, which led to the separation of rail budget. It is also being quoted that entrusting the railway planning to the finance ministry is suicidal which basically is reversing the ongoing process of privatization, and bringing back nationalisation.

Moreover, the finance ministry faces same limitations as the railway ministry, if not worse and if proper attention is not paid to the railways, it can lose its importance.

never know, but I want a railway budget so that the national transporter does not fall below the radar. Although the upper middle class and the rich have already stopped travelling by train, our country still has a lower-middle income of around 1.25 billion people. Hence, most people still need the railways, and so do businesses.

Abolishing the railway budget and merging it into the Union Budget will be a step taken backwards and will be a big blow to any attempts of reform. The railways are still the dominant mode of freight transport and there is serious ambition for the expansion of the railway infrastructure. It should be no way slipped out of the public scrutiny at this crucial time, something the railway bureaucracy will welcome. Merging the railway budget into union budget will mean the Railway‘s investment, losses, deficits and inefficiencies will all get lost in the government‘s union budget. The country should know about the health of railways as it is the lifeline of the nation.

Conclusion Like every year, I want a separate rail budget not because I have an interest about the hundreds of new trains starting from places I n 11

MARKETWATCH PREPATING FOR THE NEW ERA

Appointment of Urijit patel as the new RBI Governor had a positive impact on the national stock market. Days before Raghu Ram Rajan stepped down as governor; RBI announced several reforms with the aim of widening india‘s corporate bond market and reduce the risk of bank‘s non-tradable exposures to a particular group. RBI has also made top-rated bonds eligible for borrowing for liquidity needs. RBI also proposed to allow banks to raise capital through masala bonds in the overseas market. The economy is likely to expand 7.6% this year majroily due to monsoon.

FIIs and DIIs bought $6.11 billion and Rs.114.39 crore in the local equity markets so far this calendar year pushing up the Sensex by 9.25%.

-Radhika Gupta & Smriti Patodia

Rupee /USD – Indian rupee depreciated by 12 paisa closing at67.18 against USD. Rupee/Euro stood at 75.18 on August 29, 2016. While Yen stood at 65.62 and Great Britain Pound (GBP) stood at 88.01.

Commodity Market Crude Oil – Crude Oil being the most volatile market dropped by 63 cents, or 1.3%, to settle at $46.35/barrel.

Gold – Gold saw a decline in the month of august. It was last down by $6.80 an ounce at $1,339.40.

Silver - Silver prices traded up +$0.032 (+0.17%) higher to $18.705, with trading range between $18.600 and $18.930.

On monthly basis, in August both Sensex and Nifty — recorded their sixth straight month of gains by rising 401.31 points, or 1.43 per cent, and 147.70 points, or 1.70 per cent, respectively.

Copper - On August 30, copper prices saw a fall for seven consecutive days due to the stronger dollar and higher copper inventory levels in the London Metal Exchange. Major copper producers Freeport-McMoRan (FCX), Glencore (GLNCY), BHP Billiton (BHP), and Rio Tinto (RIO) fell 3.9%, 2.8%, 2.3%, and mae 12

3.5%, respectively. The SPDR S&P Metals & Mining ETF (XME) and the Power shares DB Base Metals (DBB) fell 3.2% and 0.4%.

Forex Market Forex market is a market for trading of currencies. It includes buying and selling of currencies at determined prices. It is the largest market in terms of volume of trading.

Dow Jones Dow Jones is an index of US. The index has been in existence since 1896. There has been a lot fluctuation in the volume as we can see from the chart that for the period of 22nd august to 2nd September there has been a lot of fluctuation.

After the G20 summit Chinese president Xi Jingping and US president Obama met and came out with some conclusions. The confirmed their G20 exchange rate commitments and they will not target exchange rate form competitive purposes.

China decides to continue the change to the market determined exchange rate enhancing two way flexibility. US accept the commitments made by China for the economic reforms. China will also put efforts to strengthen the fundamental role of domestic consumption.

Comparing Indian rupee with USD there is a percentage change of 0.1543 and with GBP, the change is -0.0863. With GBP the change has been negative. comparing JPY and INR the percentage change is -0.26006.

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TURKEY COUP THE TRAGEDY OF TURKEY’S ATTEMPTED COUP 2016

What do we mean by a Coup?

A coup is an illegal attempt to seize power from a government or overthrow those in power by force. It is derived from ―French coup d‘etat‖, which means "blow of state".

Background Turkey has already faced several powerful military coups, intervening in country‘s political system. In 1913 there was an Ottoman coup d‘etat followed by a coup in 1960 and then a military memorandum in 1971.

Also, there was another military coup in 1980 and an alleged military coup in 1993 and a military memorandum in 1997.

Military coup 2016 On 15 July 2016, a coup d‘état was attempted against state institution and Turkish President Recep Tayyip Erdoğan and by a faction within the Turkish Armed Forces. They attempted to conquer several key places in Ankara, Istanbul.

There were chaos and terrifying scenes on the street of Turkey overnight. Guns battles broke out, fighter jets and helicopters were flying over the Turkish capital, Ankara and gunshots heard. Bridges over the Bosphorus strait in Istanbul were obstructed by the military troops. TV stations were raided by the soldiers, the parliament and buildings were set ablaze and series of explosions were heard. It was a violent night which led to numerous death, injuries as well as mass destru

-Antra Bharti

destruction. During the coup mass arrest was followed, more than 6000 people were arrested in the crackdown, which included 2,839 soldiers and 2745 judges were removed from their duties and detained. Over 300 people were killed and more than 2000 were injured.

Who inspired the coup?

President Recep Tayyip Erdoğan accused Fethullah Gülen (a Turkish cleric in exile in Pennsylvania, United States) to be the inspiration behind the coup, he blamed soldiers were linked to Gulen Movement, which is declared as a terrorist organisation by the government of Turkey, under the name FETO. The Turkish government also made a request to The United States to extradite Fethullah Gülen.

Also, the scale of the operation was considerably huge and suggested that it was planned by senior military figures of Army and Air force, and it was unclear if the Navy was also behind it. In a televised statement the group responsible for the coup named themselves the ―Turkish Peace Council‖.

Why did the military attempt the coup?

Turkey government follows decades of discontent with the military over religion. The Army sees itself as a defender of country‘s secularism and democracy, and hence has also intervened in politics earlier. President Erdogan has done everything possible to dismantle country‘s fragile democracy. He ordered the arrest of journalists who criticized him 14

him, and also led to seizure and closure of one of the country‘s largest selling newspaper ―Zaman‖, in order to influence things by his presidential power. The Army always had a long and strained relationship with President‘s Justice and Development Party (AKP), with its roots in Islamism.

The plotters said they had ―done so to preserve democratic order, and that the rule of law must remain a priority‖.

Why it proved to be an unsuccessful one?

There were certain reasons which were held responsible for the failure of the coup.

First, the military was supposed to immediately neutralize the key authorities. A unit of Special Forces was sent to kill or capture the president but failed, as he had already been successfully evacuated, also they didn‘t succeed in capturing the newly elected Prime Minister Binali Yildirim.

However, the military was able to seize infrastructures bridges, government buildings, TV stations and airport.

Second, the military underestimated the power of modern media tools of communication. The military seized the central Turkish TRT television station but failed to consider other sources like Internet based video services (Skype or FaceTime).

Hence, the President took advantage of these sources and gathered his supporters, asking them to take to the streets by broadcasting his location via internet.

Third, the military didn‘t realise the level of support of the country‘s population for existing government and political elites. As Mr Erdogan requested people to come across the roads, the crowd started working collective

collectively, many mosques in Turkey was turned into 24/7 public media centres, as they were equipped with powerful speakers. The speakers were used to make the announcement or broadcast the messages, requesting people to gather. Also the residents were coordinating via different sources of social media and were receiving calls for taking up civil disobediences measures.

He also received support from the opposition.

The Army should have realised ―There is no power higher than the power of the people‖.

Fourth, and a fatal mistake was the lack of coordination of action between the forces.

While making coup announcements none of the senior leaders of the army appeared on television, it was issued only by a faceless‖ Army‖ which claimed to be protecting the legacy of Ataturk.

International affairs

The world supported Turkish government and appealed for calm. Both domestic as well as the international public were against the coup.

As it was carried by only small group of military officials, within hours, the coup was failed, as citizens and police overpowered it.

The attempted coup was a failure and ended in a triumph for the President. The effort to conquer the government was ruined and led to the arrest and disgrace of its instigators hence restoring the order.

However, the cost of the triumph proved to be surprisingly high due to loss of innocent lives, destruction of infrastructure and deep divide between government and military. Hence, regressing towards an unstable and fragile economy.

15

TESLA MOTORS THE REVOLUTIONARY TALE OF TESLA

―History Can Never Be Changed But The Future Can.‖ no matter how fascinating these words are, it‘s quite rare to find a real – life instance to justify these words which is why it took almost 111 years to find one.

Tesla Motors probably shouldn't exist because the last successful American car start-up was founded 111 years ago. It's called Ford. Today Elon Musk, The dynamic CEO of Tesla motors is considered as the face of the company but the truth is way crazier than that. In the dry summer of 2004, a product designer named Malcolm Smith got a call from a hardware guy he used to work with, Martin Eberhard, he invited Smith to come over his place and check out something, when the meeting actually happened Eberhard and his partner, Marc Tarpenning, showed Smith a rough business plan and some rough specifications of a new car they were trying to build. This wasn‘t any car : This was an Electric Car. Smith became sceptical, quizzical and curious. Smith realised that they didn‘t had to reinvent the principles of physics all they just needed was to combine barely available technologies to form a technological breakthrough. Eberhard offered Smith a ride, "Hold the Dashboard," he said as Smith tried reaching for it, Eberhard hit the accelerator. Smith's hand never made it to the dash. Tzero was a two-seater built by AC Propulsion, that could leap from zero to 60 in under 4 seconds. G-forces threw Smith deep into his seat. It was a highly technical vehicle.

No other car gives you 100% torque in an instant, Smith realized, but a highperformance electric ride does. Another realizaz

-Jeet PC

realization: Not all electric cars are slow and boring, even if the auto industry didn't have the will to show otherwise. Smith Became the first of the 20 employees of Eberhard's new car company. His official title: VP (Vehicle Engineering), Tesla Motors. As Eberhard's company started growing, he'd continue to ask his young recruits to touch the dashboard, before throwing them into their seats with the torque of an electric sports car, properly unleashed. This is how Tesla came into the picture. The brainchild of a tiny band of obsessive Silicon Valley engineers Martin Eberhard and Marc Tarpenning who would go on to collaborate with and collide with the young billionaire Elon Musk who now owns 23% of Tesla‘s stock that makes his net worth $11.7 Billion – The ultimate tale of collision.

It all began in 2004, when Elon Musk led the companies $7.5 million Series A financing round and became the company‘s chairman of the board, he then led yet other round of funding to inject $13 million for the development of the Tesla Roadster. Two years later Elon Musk with technology partners raised a whopping $40 million of series C funding. Tesla needed a production unit wherein they could manufacture the entire car minus the power strain. They stepped into a contract with lotus cars, for what actually brought the Tesla Roadster – their first production vehicle in the market making Tesla officially a car company. In 2007, Tesla ran into deep waters, due to dumping a huge amount of money and no potential success.

This resulted into change of leadership where in Ze'ev Drori a high – tech successful entrerep 16

entrepreneur became the CEO and president.

He laid off 10% of the staff and made the company profitable, but couldn‘t really last for more than a year at Tesla. This is when the era of Elon Musk began, succeeding Drori as the CEO, he dumped $70 million of his own money into the company. Between this period Tesla sold 2,250 Roadster which wasn‘t an easy task facing a chunk of criticism from ―Top - Gear‖ – The British car show. The same year Tesla came up with the Model – S with a pricing of $50,000 tagged as the affordable family sedan. – This was the first car Tesla was actually known for. In May 2009, Tesla made a strategy partnership with Daimler AG which acquired a 10% equity stake in Tesla for a reported $50 Million.

(10% of Tesla is worth billions today) During this phase Tesla took a loan of $465 Million for the US department of Energy which the company paid off in 2013, some nine years before the due date. In June 29, 2010 Tesla became the second oldest publicly listed American Automaker behind Ford raising $226 million in its initial public offering. For the next three years Tesla was cruising well both with technology and sales, coming up with Superchargers and model X SUV which earned them profits, but then came the fire in the story. Three Model – S vehicles caught fire due to accidents. No one was seriously injured and the company did quickly address the issues and stated that their cars were safe, but not before its stock and public perception took a hit. Following the third car fire, there stocks dropped more than 20%. Then came 2014, where Tesla‘s stock was called the most shorted stock on NASDAQ being up over 350% and Tesla‘s delivering 28,500 Model S vehicles. Model S became the first electric vehicle to receive ―Motortrend Car of the Year‖ award one of the most coveted awards in

in automobile industry. Tesla then came up with two new models, the model X and DS – Model, D stood for Dual motors for these class of vehicles. Over the years Tesla focussed on innovation where in only four parts of a Tesla model needs regular replacement (they‘re the four tires and two viper blades).

In something that would become a trend for Musk he shared his fear of unregulated AI, ―I think we should be very careful about AI, if I had to guess at what our biggest existential threat would be, it is probably that.‖ Months after this statement he introduced the ‗Autopilot‘ feature. Electric cars brought ‗Range Anxiety‘ an idea that you might drive too far away from a sufficiently powerful charger to make it home, a fear that many would- be electric vehicle buyers would have.

Tesla addressed this with an update that constantly calculated your distance from a supercharger. Branching beyond cars for the first time, Tesla unveiled a new business arm in April 2014 that focussed on ending dependence on grid power and switching instead to solar energy. Tesla then purchased ―Riviera Tool‖, its first presence in the Michigan where the automaker was not allowed to sell vehicles, the company named it ―Tesla Tool and Die‖.

Tesla‘s mission had always been to accelerate the world‘s transition to sustainable energy. In order to achieve this, it is needed to produce electric vehicles in sufficient volume to force change in the automobile industry. With a planned production rate of 500,000 cars per year in the latter half of this decade, Tesla alone will require today‘s entire worldwide production of lithium ion batteries. The Tesla ―Gigafactory‖ was born out of this necessity wi 17

and will supply enough batteries to support the projected vehicle demand. Tesla made a $5 billion bet on growth with Gigafactory which is locked in Sparks, Nevada, and which is expected to begin cell production in 2017.

By 2020, the Gigafactory will reach full capacity and produce more lithium ion batteries annually than were produced worldwide in 2013.

Finally came the unification of the great Elon Musk Empire when Elon Musk‘s Tesla offered to acquire Elon Musk‘s solar panel installation company ―Solar City‖ for $2.6 billion. SolarCity accepted the offer For Tesla, acquiring SolarCity with a promise of greater economies of scale in electrical energy management systems, battery production and marketing, tempered by the near-term challenge of managing a high-risk ramp-up of vehicle production and a merger simultaneously. Everyone despised the deal except the Tesla shareholders, Tesla shares dropped more than 10% the day the deal was n

announced.

Tesla tops Forbes list of top Innovative companies. History will always remember ―Nikolas Tesla‖ a man who had breakthroughs in the production, transmission and application of electric power but someone who was never able to translate his copious inventions into long-term financial success, decades later, his name is associated with a company that has been a big time financial success walking on the paths of disruptive innovation. Indeed history can never be changed but the future can.

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INDUSTRY ANALYSIS AUTOMOTIVE INDUSTRY

-Sneha Tibrewal & Srujana Naik

Automobile Industry the so called Sunrise sector of Indian economy is a symbol of technical excellence by human kind. India is currently the world‘s second largest twowheeler manufacturer. It is one of the fastest growing sectors and India is expected to be the World‘s third largest in the coming years.

It has contributed nearly 10 percent of the country‘s GDP and provides employment to around 25 million people.

The percent market share of each of these segments in 2015-16 is as follows

Industry composition and performance

Two wheeler - The two wheeler segment accounts for the largest market share in terms of volume sales in the automobile segment.

The segment is further divided into two main segments – scooters & motorcycles. The segment registers a sales growth at 3.01 percent during April-March 2016 over AprilMarch 2015. Within the Two Wheelers segment, Scooters grew by 11.79 percent while Motorcycles and Mopeds dropped by () 0.24 percent and (-) 3.32 percent respectively in April-March 2016 over AprilMarch 2015.With the dominance of Hero Motor Corp and Honda which accounts more than 50% of the market, a brief analysis of various companies in this segment in June 2016 is as follows

The automobile industry comprises of the following four segments

The industry has shown a steady growth over the past few years. With current analysis, a total of 23,960,940 vehicles are produced between April-March 2016 which includes passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycle as against 23,358,047 in April-March 2015, registering a marginal growth of 2.58 percent over the same period last year.

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Passenger Vehicles - Passenger vehicle records the second largest market share in automobile segment. There is a strong domestic sales growth for the second consecutive months of the fiscal year with six of the manufacturers posting double digit growth, also the overall segment grew by 7 percent in May at 2,34,087 units. Within the Passenger Vehicles, passenger cars grew by 7.87%, utility vehicles by 6.25% and vans by 3.58% respectively during April-March 2016.

overall segment grew by 1.03 percent in April-March 2016 over the same period last year with a division of passenger carrier sales growing by 2.11 per cent & goods carrier sales declining by (-) 3.62 percent respectively in April-March 2016 over AprilMarch 2015. A few market leaders of this segment are Auto Ltd and Bajaj Auto Ltd, with Mahindra and Mahindra and Piaggio Vehicles in the race.

TOTAL SALES REPORT MAY-2016

Commercial vehicle - The commercial vehicle segment comprises of two sub segments – light commercial vehicles and medium & heavy commercial vehicles. The overall segment registered a growth of 11.51 percent in April-March 2016 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered a growth at 29.91 percent whereas Light Commercial Vehicles grew marginally by 0.30 percent during April-March 2016 over the same period last year. The segment shows mix response of positive and negative growth.

Tata Motors is market leader in commercial vehicle segment with more than 44% in the year 2016.

Three Wheeler - The three wheeler segment comprises of two sub segments namely passenger carrier and goods carrier. The overall

SWOT Analysis Strength • Automotive industry is the emerging market which adds to nations economic growth • Continuous advancement in technology and product innovation • The cost of Labor in Indian market is low in comparison with other developed nations and India has a wide pool of skilled manpower and engineers 20

• Increasing demand for luxury commercial vehicles and VFM(Value for money) vehicles • Big automotive firms like Benz, Volvo etc are building and expanding their manufacturing units in India, hence providing employment and adding to the nation‘s economic growth Weakness • Due to stringent rules and regulations formulated by Indian government the growth rate of Automobile industry is being affected • There is shift from demand to supply market in the industry as customers have various options and alternatives to choose from • Infrastructural setback and less investment in research and development Opportunities • With increase in manufacturing firms, the export of vehicles from India can be increased. As per the recent analysis there is a growth of 1.91% in export year on year • Growth in business with introduction of new technology and environmental friendly vehicles • Due to changing trends and lifestyle the demand for automobile is expected to grow Threats • Automobile industry is one of the most competitive and crowded market there can be difficulties for new entrants to emerge in the market. So this restrain companies from setting up new business in India • Fluctuation in fuel prices

• Industries are making investments in building R&D, providing other facilities because of the fact that mature market is already crowded and hence are investing in emerging markets.

• Increase in the cost of raw materials.

• Financial crisis, Recession Unemployment etc are the economic factors which will shake the automobile industry for a long period of time Effect of 7th pay commission

According to SIAM 6-8% growth can be seen in passenger vehicles. With the announcement of hike in salaries the demand for twowheelers and cars could see a spurt and will boost the fortunes of manufacturers. The price of commodity like steel, aluminum and natural rubber are rising and also the finance rates are high, which will definitely have an impact on the price of vehicles. The average interest rate on car loan is 14-15% and that on commercial vehicles is 17%. This leads to higher cost of ownership. An analyst said ―The 7th pay commission will help the car segment to recover the volumes as 50% of the government employees stay in the rural corners. Also companies like Hero, TVS and Bajaj are also set to benefit from the increased income of government employees‖.

With the above insights it can be said that 7th pay commission will open up an ocean of opportunities for Indian Automotive industry.

With the implementation of GST Law, there will be many changes in the automobile industry.

From tax reduction to standardization, it will also help in import and export. But the future is still hazy because of petroleum industry kept away from the law.

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VOLKSWAGEN EMISSION SCANDAL VOLKSWAGEN: BLUFF

“It takes many good deeds to build a reputation, and only one bad one to lose it.”

-Benjamin Franklin Similar in the case of Volkswagen, only one bad one and its lost all its name and fame earned till date and crashed from a category of volks to hoax. Embroiled in billion dollar scandal. World‘s largest German automaker Volkswagen established on 4th January, 1937,

by German labour front, situated in Wolfsburg Germany. Its parent company is Volkswagen group with annual revenue of €213.3 billion .earlier it was known as gesellschaft zur vorbereitung des deutschen Volkswagens mbH, but then renamed as Volkswagenwerk or ―The people‘s car company‖. The Volkswagen group consists of 12 branches: SKODA, Bentley, Bugatti, Lamborghini, Porsche, Volkswagen commercial vehicles, Scania, MAN, Audi, Volkswagen passenger‘s cars, SEAT, Ducati. It has spread its wings from motorcycles, small cars, luxury vehicles, buses, pick-ups, heavy trucks to manufacturing of large bore diesel engines for marine, turbochargers and machines, chemical reactors, stationary applications and to the area financial services dealing with dealers and customers financing with leasing, banking and insurance, fleet management.

The Volkswagen group comprises of 119 production plants producing 42000 units of vehicles in 20 European countries and 11 countries in Asia, Africa, America with an employee base of 6,10,076 employees worldwide selling in almost 153 countries.

Volkswagen Jetta TDI won award for green car

-Shreya Rani

car of the year in 2009, just because of its clean and admirable diesel engine breaking through all stringent emission check standards with all good performance, fuel efficiency and reasonable pricing. In the empire of Ferdinand piech, control vested in few hands playing on a thumb rule to win at all cost made them escape from all wrong acts till date but this time the Volkswagen empire is actually trap from all side. Destroying the honour of Jetta and 14 other categories of cars sold by Volkswagen Company during the year 2008-2015.

Volkswagen drops down its image from volks to hoax. Around 11 millions of cars worldwide and approx 8.5 million in Europe, 2.4 millions in Germany, 1.2 millions in UK and 5Lakhs in US were fitted with a cheating device called ―defeat device‖ or say a software to cheat the emission standard test and by monitoring air pressure, speed level, engine operations and by the positioning of the steering wheels it can judge the scenario of being scrutinized for the test of dangerous nitrogen oxides (NOx). In a controlled lab test car is kept in a stationary test rig which buzzes the software to shift the car to safety mode, which controls the engine to run below normal power and performance so that it emits less of NOx but when it is on the road its emits almost 40 times above the allowed standard of NOx in US (80 milligrams of NOx per kilometre permitted by euro 6 standard in 2014). This will easily help the car get a clean check and a title of green cars.

Before this wake up scandal, U.S and Europe re 22

regulators have monitored the pollutants NOx and was performed in chassis dynamometers or dynos where car wheels will spin on rollers keeping the car locked up in one place. And an artificial environmental set up is made to let the scientist control variables like wind, temperature, ensuring that they are stimulated to driving sequence but unfortunately the defeat device software can easily detect that they are being subjected to the routine test which switches on the safe mode of the engine.

So, to overcome this drawback in 2011 government decided to measure and test during real world driving session with the help of portable emission measurement system but this technique is very complicated to handle. This new technique illustrates that the car was emitting 7 times more than the actual amount of NOx emitted in the lab test.

And disparity in the results did not actually reflected the cheating but somewhat reflected the gaming played and exploitations of laws by the car makers. This could be easily seen in the sales revenue of only €213 billion.

Whereas, negative Profit after tax amounting to € -1.4 billion and drop down in no of vehicle delivered to customers to 9.931 million.

James Liang, Volkswagen engineer was found guilty in planning conspiracy on emission check and fraud to the customers. A penalty of $5100 to $10000 of dieselgate scandal is to be paid in cash to each of the users who suffer due to diesel emission scandal and around $14.7 billion of compensation is to be distributed in US for the repair and buy back of the effected Volkswagen vehicles.85% of buyback of all cars should be done by June 2019 or else will have to put in even more wef

fund to cover the project. Volkswagen paid $1000 cash to the owners of 2 litre TDI: $500 cash card valid in Volkswagen dealership and $500 prepaid visa card that can be scratched anywhere.

The company CEO Martin Winterkorn had to resign and many engineers were suspended and top executives apologised for this mistake. Volkswagen will pay $14.7 Billion of highest penalty ever for clean air act. And an investment of $2 billion for the next coming 10 year is to be done by Volkswagen for the welfare of the society like public education program, green energy, paying for the public new charging stations.

Jones day an American law firm appointed to perform an internal investigation. According to EPA survey diesel cars are contributing almost 0.1% of NOx. It‘s not only about emission it‘s about the impact of diesel engine on the society. NOx is the killer especially in Europe where three quarters of worlds total diesel are sold. According to the European environment agency people are suffering from premature death due to poor air quality.

Plans for 2025, Volkswagen is planning to be the biggest and one of the best realignment car makers through leading the market of sustainable mobility by launching 30 plus electric cars and expanding their breath in battery technology and autonomous driving competencies. Volkswagen wants to increase its efficiency in all area, regions and brands.

Loss in future sale of diesel car, broken faith in customers and burden of high no of legal cases – can benefit Volkswagen competitors.

It‘s just that Volkswagen is caught through its neck and no game of monopoly can make them win the unfair bluff!!!!

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NEW RBI GOVERNOR CHALLENGES FACED BY THE NEW RBI GOVERNOR

Former Deputy Governor, Urjit Patel often known as a ‗Hawk without a halo‘ has been appointed as the 24th head of Reserve Bank of India. He has formally inducted into office on 6th of September, this year. Patel served as RBI's deputy governor since January 2013 and was in charge of monetary policy.

Serving over 43 months in the Central Bank, Patel isn't a stranger to what the title necessitates. As RBI Governor, however, Patel has inherited a number of unfinished tasks.

When Rajan took the helm in September 2013, the economy was declining at an annualized rate of 2 percent on quarter, consumer prices were soaring 9.8 percent, the rupee was down 16.6 percent from the year earlier, and the current account deficit was estimated at 4 percent of GDP. He now left an economy growing at a rate of 9.6 percent, inflation is down to 5.8 percent, the rupee lost only 4.7 percent from its year-earlier level, and the estimated current account deficit is about 1 percent of GDP. The rupee hit a fourmonth high and bond yields fell one basis point in opening trades on Urjit R. Patel‘s first working day as Reserve Bank of India (RBI) governor. Urjit Patel has taken over at a time when market volatility is at a low and inflation is relatively benign, compared to the start that the last few governors had.

"The job of RBI governor is not only the monetary policy, RBI governor also looks into the regulations of banks, and non banking financing companies.‖ He has to ensure the smooth running of the financial sector.

-Dixita Reddy

From cleaning up bank balance sheets and unclogging credit pipelines to ensuring economic growth, here are the six challenges that lie ahead of the new RBI chief: Inflation Inflation is on the rise with food prices leading the way and oil prices ticking up in the global scenario. In June, Consumer Price Index rose to a 22-month high of 5.77 per cent, above the 5 per cent comfort zone.

The RBI's monetary Policy framework to target inflation is containing the number to less than 4 per cent. Patel who is known to favor low inflation (an inflation hawk) in the economy has this as a major task ahead of him. The new monetary policy agreement explicitly states that RBI‘s task is ―primarily to maintain price stability while keeping in mind the objective of growth‖.

Growth Growth is as much of a challenge as inflation.

Patel will have to heavily focus on growth after the quarterly results reported a 7.1 per cent growth, slowest since April to June Quarter in 2014 where the rate was 6.7 per cent. The government's target is 8 per cent in the year.

"He (Patel) will keep in mind the inflation target and the monetary policy. He will also keep in mind the requirements of growth which is a mandate of the Reserve Bank of India Act," Economic Affairs Secretary Shaktikanta Das said.

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In particular, he has to ensure flow of credit to various sectors of economy, in particular agriculture and the MSME (Micro, Small and Medium Enterprises) sectors," he said.

New monetary policy committee Patel will have to work with a new monetary policy committee. It was a panel which he headed that suggested this new framework in the first place. Although, in effect, Patel shares powers with the monetary policy committee (he has a casting vote only in case of a 3 government appointees-3 RBI members tie), the signals the panel sends will be equally important. Thus, he will need to build consensus at least in the initial period or conflicting signals will tend to confuse the market. This becomes especially important when input prices start rising rapidly and inflation becomes harder to contain. The search for monetary policy committee members is still on.

Interest Rate When Patel chairs his first meeting of the Monetary Policy Committee he will have to decide interest rates from October 4th policy announcement. However, Patel will have to keep in mind to balance interest rate and the need to stimulate growth.

PSU banking reform

India's Public Sector Undertaking Banks needs structural and financial changes and is still an unfinished business. Lending to the industrial sector has ground to a halt in India.

One of the key reasons for that is the Rs 6.3 trillion toxic loan pile-up with Indian banks.

Throughout his regime, former RBI governor Raghuram Rajan introduced a host of out-ofthe-box solutions such as Strategic debt restruct

restructuring (SDR) and Scheme for Sustainable Structuring of Stressed Assets (S4A). Under SDR, banks who have given loans to a corporate borrower gets the right to convert full or part of their loans into equity shares in the company. But these have not chipped away at the bad loan pile.

RBI introduced the S4A Scheme to achieve the twin objective of helping banks deal better with NPA‘s and helping debt-laden infra companies get their projects back on track.

Under this scheme, the company‘s debt will be divided into sustainable and unsustainable.

The banks shall convert the unsustainable debt into equity and sell this stake to a new owner who will have the advantage of running the business with manageable debts.

Asset quality resolution process, problem of NPAs and bad debts pose as prime hurdles of the stressed banking sector. The key question is what can be done to resolve this problem and kick start lending? Persuade banks to take higher haircuts?

Exchange Rates The exchange rate has been volatile for the past couple of years. About $24 billion of foreign deposits leave Indian shores. RBI has covered this by buying dollar forwards, but how it handles volatility will provide clues on Patel‘s approach to other matters.

The challenge Patel will have to come over is to maintain domestic currency at a level between 65 and 70 rupees to the dollar.

Patel‘s choice as the successor to Raghuram Rajan is a vote for continuity and that is what markets and bankers are expecting as the new governor took charge. Will he succeed?

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THE SBI MERGER MERGE TO TOP

Competition is there in every inch of today's world, everybody fights to get to the top. Be it a coming first in class , being the best artist or sportsman to getting a company to the top. It is gone old days where banls felt that there was no competition for them but now time has changed . Everybody has to strategically place themselves so that they have a competitive advantage over them. A healthy competition is always good to get the best out of anything. In this similar case scenario the State Bank Of India(SBI) has played a strategic move where in it has planned to get 5 of its associate banks to merge into itself.

This move can bring SBI to 45th largest Bank in the world on the basis of asset size, Biggest lender in Asia and five times bigger than second largest bank of India which is the ICICI Bank.

The five associate banks are : Bhartiya Mahila Bank, State Bank Of Mysore, State Bank Of Bikaner and Jaipur, State Bank Of Hyderabad and State Bank Of Patiala. This Consolidation would be largest merger in the history of Indian banking industry. This is going to create a banking behemoth making SBI's Asset Book of INR 37 Lakh Crores.

This is one good news for the bank after it has been facing the crisis from the nonperforming assets in the recent years. It was only a year ago when due to higher provisioning for non-performing assets that its profit had slumped by 66% and with this move it has the potential to break through top 50 banks in the world. Arundhati Bhattacharya the mastermind behind this plan has confirmed that the bank will further follow

-Utsav Changoiwala

follow up the merger by the end of this financial year. There had been such mergers happening earlier also where in two branches of State Bank Of India Commercial and International Bank Ltd. merged with the parent bank in 2011, there was another merger that happened in 2010 where 470 branches of State Bank Of Indore and in 2008, State Bank Of Saurashtra were merged into SBI. There is not just merger of associate banks that keeps happening but recently there was also integration of roles and services of 70,000 people and 7,000 branches. These associate banks generally work as a separate bank altogether but SBI is the major holder with holding ranging from 75% to 90% in these banks. When the news of the merger was flooded there was change in the stock prices of these banks, where the associate banks saw a rise in their prices ,SBI's price had shed but later in time it has gained by one-fifth.

The share- swap ratio of these banks will be: • SBI will give 28 shares for every 10 shares of State Bank Of Bikaner and Jaipur • SBI has also decided that for every 10 shares in State Bank Of Mysore, it shall give 22 shares • For every 10 shares in State Bank Of Travancore , SBI is ready to give it 22 shares • SBI will give 4, 42, 31, 510 shares of face of Re. 1 for 100 Crores equity shares in Bhartiya Mahila Bank With this merger taking place SBI willbe able to 26

to dilute 1.7% of outstanding 776.28 Crores Shares.

Benefits that this merger has to give is way more than just reaching in top like it will increase the companies contribution to the GDP of the country by INR 10 Lakh Crores, it will strengthen the capital base of both merged and merging banks helping it accumulate funds to compete with other private sector banks in the market, the market share of the firm will also increase by 5% post the merger, customers will also receive the benefits of the merger as it is said that the there are chances of a cut in the interest by SBI of 0.5% to 1% to its customers, various other administration costs that were being borne separately by each banks will be reduced and other repetitve costs will also come down. Its a good deal for its shareholders asthey are bound to recieve good return for their investment.

Crores a month. The revenue which could have been used for providing better services to its customer is being blocked for this merger.The immediate negative impact that SBI might have to face would be the pension liability provisions , Harmonisation of accounting policies for bad loans recognitions, over and above these issues SBI is going to have a tough time in integrating the manpower and restructuring the job profiles.

This merger may bring in few challenges for the company but on the macro point of veiw it will be beneficial for the company as well as the country. Will the Non - Performing Assets or the Bad loans of associate banks aggreviate SBI's NPA crisis or the benefit of capital base will compensate it?

Though there are so many benefits from this merger , SBI's employees were not satisfied and feared that their stake might be in trouble due to which the company had to face many staff union protest to which the company has well said that these protest has happened in the past and like then they would talk with staff and come up with solution that is acceptable by both the company and the staff.

There is a fear for the customers of these smaller, community or regional market focussed associate banks of SBI as they might feel discomfort in dealing with a larger, more impersonal lender and there could be chances that with the size of their accounts it will be considered comparatively marginal and may be given least importance. The company has also expected that post merger there might be an increase in employee cost by INR 23 crores 27

VRIDDHI RESEARCH MAHINDRA & MAHINDRA

Company Description M&M operates in nine segments— automotive, which involves sales of automobiles, spare parts and related services, farm equipment, which involves tractors, spare parts and related services, financial services, which consists of services related to financing, leasing and hire purchase of automobiles and tractors, steel trading & processing, which consists of trading and processing of steel, infrastructure, which consists of operating of commercial complexes, project management and development, hospitality, which involves sale of timeshare, IT services, which involves services rendered for information technology (IT) and telecom, Systech, which consists of automotive components and other related products and services, and Others, which consists of logistics, after‐market, two wheelers and investment.

The company has ventured into the M&HCV space through a JV with Navistar, US. It also acquired majority (70%) stake in Korea‐based Ssangyong in 2011 to become a global player.

Mahindra & Mahindra‘s (M&M)* 1QFY17 EBITDA of INR14.9bn (up 11% YoY) came 4% above Street‘s estimates.

Key highlights: • Tractor industry growth forecast raised to mid‐teens, to continue to outperform industry • UV demand hit by higher discounting by peers and diesel vehicle sales banin Delhi

-Nirav

• In pickups, demand outlook is improving given higher rural linkages • Bulk of capex directed towards new products and regulatory compliance (BS‐VI norms), adequate capacity in place to meet growth for next 2‐3 years Strong volumes drive tractor margins

Revenue at INR105bn up 11% YoY. EBITDA margin at 14.1%. Farm equipment EBIT margin stood at 18.8% (up 120bps YoY), led by operating leverage benefits (tractor volumes up 20% YoY). Automotive margin declined ~240bps YoY to 7.8% impacted by expiry of excise benefits (200bps) and lower margins from new launches due to higher amortisation cost.

Volume outlook: Tractor/CVs can surprise Better than expected Rabi crop and above expected monsoon should lead to strong demand for tractors and small commercial vehicles. However, the recent slowdown in sales of UV models remains a concern. In FY18 roll out of petrol engine variants will provide cushion and clarity will also emerge on the diesel vehicles ban.

Looking at the technical, with RSI at near about 27 and MACD at 0, it gives us the right opportunity to buy the stock at this level with a short term target of 1456.

With competitors launching new vehicles and the recent diesel vehicles ban in the NCR has hit the company hard but the recent upside in the rainfall will help boost the rural demand of tractors which will uplift the sales and sasasw 28

improve margins of the company.

The analyst would like to give a BUY call for Mahindra & Mahindra.

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FINANCIAL TRIVIA Henry Ford astonished the world in 1914 by offering a $5 per day wage ($120 today), which more than doubled the rate of most of his workers.

The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs

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Reliability and Responsibility for sources of data for the articles vests with the respective authors. Please feel free to drop in your suggestions or any feedback at editor.ibstimes@gmail.com Š IBS Times – FinStreet, The Official Capital Markets Club of IBS Hyderabad.

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