Targets EBIDTA margin of 7.5%-8% in the current fiscal
Shopper's Stop, whose net profit rose 197% quarter-on-quarter in the March 2010 quarter to Rs16.43crore, claims to have developed a recession-proof model. Last year, (FY09-10), its EBIDTA (earnings before interest, depreciation and tax) margin was 7.3% and the company expects to increase it to 7.5% -8% in the current fiscal.
The company is targeting to increase its same-store sales growth from the current level of 16% and also ramp up margins. It has brought down its operating cost by 280 basis points and expects to see a further reduction in response to a slew of cost-control measures initiated in the previous fiscal. Moneylife had earlier reported on how the company is controlling its expenses. (see: http://www.moneylife.in/article/4/3222.html).
"We are yet to see the full benefit of our measures to control operating costs. We saw some impact in the last quarter, and we should be able to see its full impact in the current fiscal. We are targeting an EBIDTA (margin) of between 7.5% -8% (in the current fiscal)," said Govind Shrikhande , executive director and CEO of Shopper's Stop.
The company, however, expects manpower costs to increase, as it is giving a lot of incentives to its employees. The company is adding new stores, but mostly on a revenue-share model, which will help reduce costs by 20-30 basis points. Mr Shrikhande said 12 out of the 18 new stores that will be opened in the next 30 months would operate on a revenue-share basis. The remaining stores will operate on a pure rental basis, but at 15%-20% lower rentals than the current rates.
"A combination of all these measures has made our model much more recession proof and we will be able to see good profitability, irrespective of the market conditions," said Mr Shrikhande.
JM and Reliance are denying any deal, but is nothing really brewing between the two?
A media report that multi-billionaire Mukesh Ambani was in talks to acquire a majority stake in JM Financial Asset Management Pvt Ltd, saw the stock of its sister company, JM Financial Limited, blossom and soar a massive 15%-20% in early trades. Especially since the paper also said that the asset management company was being valued at 8% of assets (Rs685 crore), which is almost twice the going rate. The paper did acknowledge that both parties had termed their queries "speculative", however, when Moneylife checked with both sides, they were emphatic in their denial. As media people know, there is a significant difference between terming something as "speculative' (it means that it is still in the realm of possibility) and denying it outright.
So are the Reliance sources and the Kampanis (we spoke both to chairman Nimesh Kampani and his son Vishal Kampani) just being coy until they hammer out something? According to Vishal, “We have not held talks or discussions with any party to sell our fund. It is an important business unit for us and we will continue to grow it.” The Reliance sources, who didn't want to be quoted, were equally emphatic.
But again, can it be smoke without any fire? After all, the JM Financial group has an extremely close relationship with Reliance Industries. Remember how chairman Nimesh Kampani had to stay out of the country for nearly a year because of a default by Nagarjuna Finance, where he was a director? It was common knowledge, then, that the late Y Rajasekhara Reddy, chief minister of Andhra Pradesh, was gunning for Kampani as a way to hit at Reliance. A blog called www.ambanibrotherfight.blogspot.com had even claimed that the genesis of that issue was Nimesh Kampani's investment in Eenadu newspapers, which it claims was on behalf of Reliance's Mukesh Ambani. The case, documented in detail by Moneylife, exemplified the stunning display of political power by a chief minister and the inability of the central government, even at the highest level, to rein him in.
While the truth of that story will never be known (the blog is now dormant, but this story has not been removed or ever denied), the fact is that Mr Kampani has a close relationship with Reliance and paid a huge price for it. Apart from the trauma suffered by him and his family, he also had to stay away from his substantial business in India for an entire year. Given the background, a big investment by Reliance Industries in JM Mutual fund, that too at an extremely high valuation, is not as fanciful as the denials by the two parties would indicate.
Does it mean that Reliance is not buying into the mutual fund business, but elsewhere? Or is it looking at a "strategic investment" rather than a majority investment? Only time will tell. At the moment however, both parties to the potential deal are denying it and the Kampanis insist they are not in talks with “any party”.
Having said that, it is also true that the Mukesh Ambani side of Reliance has shown no previous appetite to manage funds, especially when the returns on pure asset management are shrinking, while the red-tape surrounding the business and its operations is increasing everyday. JM Mutual Fund, which has assets under management of Rs8,569 crore, is not making money and many of its funds have a fairly poor performance record, as frequently reported by Moneylife.
Nine telecom companies, including Bharti Airtel Ltd, Vodafone Essar Ltd and Reliance Communications Ltd and state run MTNL and BSNL paid Rs67,719 crore to the Indian government as third-generation (3G) spectrum fees.
Bharti Airtel paid the highest Rs12,295.46 crore for 3G spectrum (radio waves) in 13 circles. Vodafone, which won nine circles, paid Rs11,617.86 crore. BSNL also paid Rs10,186.56 crore for the radio waves across India, except in Delhi and Mumbai.
Anil Ambani group company Reliance Communications deposited Rs8,585.04 crore. The company has secured spectrum in 13 circles including in Delhi and Mumbai.
MTNL, which offers telecom services only in two circles of Delhi and Mumbai, paid Rs6,564 crore for the 3G spectrum.
Initially, the government had planned to collect Rs35,000 crore from the sale of spectrum for 3G and broadband and wireless access (BWA) services put together. But with nearly Rs33,000 crore coming in as extra from 3G spectrum auction alone, the government is aiming to reduce its fiscal deficit to around 5% of GDP from the estimated 5.5% in the current financial year. The situation may further improve with collection from BWA spectrum, auction for which is currently going on.
All the successful bidders would be getting the spectrum in September after it is vacated by the Defence forces. 3G services will offer subscribers high-speed data services on mobile phones, which they would be able to avail of by the first quarter of next year.
All the private telecom companies, except BSNL and MTNL, had participated in the 3G auction process, which went on for 34 days and ended on 19th May. Due to intense competition, no single player could secure the airwaves throughout the nation.
BSNL and MTNL were given spectrum nearly a year ago on the condition that they would be paying the amount equivalent to the final bid.
Among other private operators, Idea Cellular, Tatas, Aircel and STel have also paid their respective bid amount to the Department of Telecom (DoT).
On Monday, Bharti Airtel shares ended 0.5% up at Rs262 while Reliance Communications shares declined by 1.8% at Rs144 on the Bombay Stock Exchange. The benchmark Sensex closed 0.5% higher at 16,944 points.