Kingfisher Airlines surviving on “cash and carry” mode
While Bharat Petroleum Corp Ltd (BPCL) has come down heavily on Kingfisher Airlines on pending dues for jet fuel, repayments to various other entities for services has been an important issue with the airline over the past several months and it is running all its services on a “cash and carry” basis.
 
In a recent hearing on the jet fuel dues at the Bombay High Court, BPCL demanded a substantial amount to be given as the repayment of dues, against the monthly payment of Rs10 crore offered by the airline. Kingfisher owes BPCL around Rs314. 32 crore. Meanwhile, Kingfisher Airlines alleged that BPCL had not honoured the 90-day grace period granted by the Indian government to all airlines.
 
Kingfisher owes a total of Rs940 crore to state- run oil companies, including Rs37.40 crore to Indian Oil Corporation (IOC), Rs598.80 crore to Hindustan Petroleum Corporation Ltd (HPCL) and Rs314.30 crore to BPCL.
 
Along with BPCL, IOC too had put the airline on the “cash and carry” mode since February 2009. Similarly, the Airport Authority of India (AAI) had also disallowed any further credit to Kingfisher in July 2009 and had put all services to the airline on the same mode.
 
In the court proceedings held yesterday at the Bombay High Court, the BPCL lawyer argued, “They (Kingfisher) put us on “cash-and-carry” just a few minutes before planes were due to take off at various airports.”
 
Both BPCL and Kingfisher Airlines refused to comment on the matter since it is subjudice.
 
Last month, Kingfisher Airlines had to face a strike by its ground handling staff, reportedly for non-payment of ground handling fees at the Delhi Airport. However, the spokesperson said, “It was an issue between the staff at of the previous ground handling agency Kingfisher had, and the new ground handling agency that we have hired now. We have asked them to settle the issue in the labour court.”

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Consumers bitter over butter shortage
Consumers across India are increasingly perturbed as they are unable to abundantly butter their toast, thanks to the unprecedented shortage of butter for the past two months fuelled by unrestrained exports to foreign countries

Your toast is no longer delicious because butter is utterly non-existent in various parts of the country.
 
The prices of dairy products—especially butter and cheese—have risen sharply over the past couple of weeks because of countrywide shortage of milk. Many big and small retail stores around Mumbai city have not received butter stocks since August.
 
Talking to Moneylife, Shirish Virkar, deputy commissioner, Dairy Dvelopment Board of Maharashtra said, “It is true that several states like Maharashtra, West Bengal, Gujarat and Madhya Pradesh are facing shortage of dairy products like ghee, cheese and butter to a larger extent. In Maharashtra the situation is not that acute compared to other states.”
 
Irony is that, India dairy giant Amul has been exporting its products to the US and Middle East to meet huge demand for Indian butter and cheese, while Indian cities are reeling under a severe shortage. The government has also failed to keep a check on the export of butter and other milk products to foreign countries.
 
Blaming it on dairy giant Amul, Virkar said, “Around 80% of butter supply in India is done by Amul. It has been more than two months since Amul ran out of butter stock in Maharashtra and several other states in India. This is because there has been some shortage in production of dairy products in Amul in the last couple of months, thanks to the delayed monsoon. This has decreased the yield of milk by over 35%, thereby bringing down butter production in the country.”
 
When asked to comment on the issue, Srinivas Tuma, area sales officer (Mumbai Division) of Amul said, “I agree that there is paucity of butter across India. This is due to shortage of milk production which is likely to continue till Diwali.”
 
BB Bhandari, general manager (Marketing) of Warana said, “The production of table butter of our company is down 80% this year. We have been able to recover production by 20% since August. Earlier, our daily supply of butter was around 2.5 tonnes per day but now, it is only 400 kg. As milk production is gradually recovering after the monsoons, we are hoping the production of butter to normalise after Diwali.”
 
Ajay Gangwani of Vaibhav Concerns, a Mumbai-based butter distributor said, “There has been a shortage of butter in Mumbai for last six months. I have stopped supplying table butter of all leading brands since then.”  
 
Pritam Shah, managing director of Pune-based Gowardhan Dairy said, “The situation of milk production is improving in India. Also there has been a steadily increase in butter stocks since August.”
Vidyut Kumar Ta with inputs from Pallabika Ganguly, Aditya Kshirsagar, Amritha Pillay [email protected]

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Brand Conscious

Gitanjali Gems has just announced that it has undertaken a major brand valuation exercise for the valuation of its top four brands, namely, Gili, Nakshatra, D’damas and Asmi. The evaluation was done by Brand Finance, a UK-based firm specialising in marketing and brand valuation. Together, these four brands have been valued at a whopping Rs1,502 crore. How should we interpret this data?

Companies are known to have a penchant for glorifying brand values and brandishing them in front of customers and shareholders. This exercise might make some sense to the company management, but the relevance for its shareholders is questionable. Gitanjali Gems Limited is the latest to have undertaken what is essentially an exercise in futility.
 
Apparently, Gitanjali’s motive behind this exercise was to identify the demand drivers for its brands and further enhance value through improvements in brand operations. The company is gearing towards improving the brand value, not just sales. It aims to multiply the brand value by 1.5 to 2 times by 2011-2012. No doubt that some of these brands are household names in India, but their ability to create value for the shareholders is highly suspect. A look at the last year’s financial results of the company points to the true picture. Gitanjali had a pre-tax profit of Rs158.45 crore which includes profits from its both branded and non-branded sales. That profit comes to 10.5% of the brand value—not very high from what a long-term return from safe financial assets would fetch. Besides, the company’s return on assets stood at a measly 3.25%. Return on capital employed is just 5.83%. If the company’s return on its brands is anything to go by, there is nothing to boast about. Its sales growth over the past few quarters has been erratic at best.
 
A company may score high in all brand surveys, but what matters most is whether this translates into returns. Brands themselves don’t create shareholder value, only financial returns do. In the end, brands signify nothing more than familiarity and name recognition. They have little to do with the earnings and cash flows of the company, which ultimately drive the market value higher. Product familiarity among consumers has no significance on financial returns for investors. The Gitanjali Gems exercise in brand valuation merely underlines this phenomenon. Its brands command recognition due to the company’s heavy promotional and advertisement activities. The impact on the earnings however is not that significant. The fact is, brand valuations by managements are often an exercise in narcissism.

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