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3G Plans and 3G Market Potential in India- Reality Different than Predictions

Why 3G will Never take off in India

Read on for a completely different view on Why 3G market and its potential in India is not so good as it is made out to be.

The fundamental problem is that many products are created to be sold, not used- Yanagi Japanese Designer[1]

Are you one of those people who believe that 3G may be a bit low today in India but is going to take of really big time in the near future ? Huge amount of data consuming public is imminent because you see so many people with smartphones around ? May have heard telecom companies paid a bomb to get 3G spectrum and govt for a change made a lot of money . Surely you think that telecom companies are not stupid to overpay for spectrum and hence in a country of around 600 million active connections they are going to milk money by 3G data usage by public.

Unfortunately this is not going to happen in even near future. The a seemingly simple consensus view – 3G will take off really big in India, it just needs a bit of time say 2-5 more years– just as it happened in developed countries.

What I am saying is that 3G will not take off as per predictions of almost all analysts and telecom companies. It will remain a fringe/negligible percentage of overall telecom users in future (maximum % of active users may not go beyond 10% even in next decade because 4G/LTE/BWA may be adopted and 3G almost skipped).  The only way 3G usage can shoot up is when some company can make a phone with User Interface which is even simpler and delightful than iOS of Apple(and all of its copycats) and of course price it   below Rs. 5000/7000 or $130 (unlocked of course).

Read on for a completely different view on why 3G will not take off as per almost everybody’s expectation. I promise your time in reading will be well utilized.  Why 3G and 4G will NEVER take off in India Why 3G and 4G will NEVER take off in India.

Read the rest of this entry

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Shoppers Stop Analysis – Investors in for a Low Return over long term– Guaranteed !!

(NSE 532638 | SHOPERSTOP)
Shopper’s Stop Analysis and Future Expected Returns (Investors Stop???)

Here is kind of analysis which I guarantee that you would have never read or heard anywhere else on Shoppers Stop (Organized Retail), its future growth potential limits and the expected return from point of view of equity investor in Shoppers Stop or Pantaloons or Trent (Westside).

For a better read download this Shopper’s Stop   and Data Shopper’s Stopwith data in it :

Please read the below analysis and always keep in mind the following 4 simple facts:
• Indians on an average spend close to 60% of their expenditure on FOOD.
• Organized Retail have just 1% or even less share of FOOD sales in India.
• Indians spend around 10%-11% only on clothes, beauty products and footwear.
• Almost 80%-90% of sales of Shoppers Stop or Pantaloons or Trent (Westside) are clothes , beauty , accessories and footwear products and less than 10%-15% comes from food sales and that too comes from great brands of food (Nestle-Maggi , Cold Drinks , Biscuits ,Milk products ,etc which are razor thin margin business)or commodities which are again almost zero margin products.

With the above thoughts firmly in mind here goes my analysis.

With Organized Retail currently being around 6-7% of total retail sales I am predicting that in next decade or two it will not reach even close to 18-20% of total retail sales and I’ll back it up with logic.

This prediction is completely opposite (downright negative if you want to say) compared to every single projection available in India and abroad by any institution on future of Organized Retail. The prevailing wisdom is Organized Retail will soon by 2015 or so (add 1-2 years more if you like) capture almost 15%-18% of total retail sales in India and in the process the companies like Shoppers Stop or Pantaloons or Trent (Westside) are great buys even at P/E of 35+. Again I have not seen sell ratings on any of these companies except one by Nirmal Bang. Rest all are positive on this sector as a whole factoring in years of future growth at a return on capital which is at least twice of what these companies have shown in last decade of phenomenal growth when in fact for 4-6 years credit was as cheap as air.

The consultants , analysts , investment bankers and investors may have got it all wrong in trying to figure out how much expansion can the Organized Retail logically have in India given India’s unique expenditure pattern , infrastructure , real estate and electricity situation which is completely different from anywhere in the world .

This happens because a typical person who is consultant/analyst working in a company which brings out studies on growth potential of Indian retail may have say a package of minimum 12/15 lakhs per annum and his spending is less than 10% on food but he buys jeans at Rs. 4000, shirts at 2000 ,shoes at Rs. 5000 , perfumes at 3000 , LED TV at 50000 and some furniture at 25000 from the mall and he just cannot connect with how real India spends money on even though the data is right infront of his eyes.

These guys’ brains just short circuit and use System 1 (part of type of thinking of brain which uses shortcuts to make things easy) as opposed to System 2 (which is purely rational and calculative) as explained brilliantly by Daniel Kahneman in his amazing book http://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374275637

Infact there would actually be a complete limit on how much Organized Retail can ever grow and capture the total retail expenditure in India (My guess is around from 6-7% today to 18-22% in coming 2 decades and that’s being too positive)
Read more for completely different way to look at Shoppers Stop !

Would you invest in this Company ?? (Indian Bankers love it)

Here is a tricky and tough(if you can call it with these terms) question for you regarding investing in a particular stock –Will you invest your money to buy stocks of a company whose performance summary is following :

  • Talking about consistency it has made consistent losses(Negative Net Profit) for last 7 years with losses increasing from Rs.16 crores to 1600 Crores.
  • The cumulative total Net Profit it has made is grand sum of Rs.2 crores on a cumulative 3 year sales of Rs.105 Crores in years 2002-2004.
  • Total cumulative losses for last 7 years are equal to almost Rs. 5248 crores ONLY.
  •  It has NEVER been a free cash flow company in its entire history of existence and its almost impossible that it will have a free cash flow in the coming near future.
  • It has a negative net worth for last 3 years and almost sure to have negative net worth in coming 2 years at least.
  • It has NOT paid a dividend till date (don’t start to argue that it is behaving like Microsoft, Google or Berkshire) not because it was investing the profit for greater return in business but purely because it just CANNOT pay dividends.
  • It is unable to pay back and manage even its working capital to an extent that it has changed working capital limits to working capital term loan(in plain English not enough money to pay you now ,come back after some years).
  • Forget working capital it is even unable to pay interest on the loans taken and hence it converted interest on loans from banks funded interest term loan repayable in 9 years including 2 years moratorium (plain English I am bankrupt to an extent I cannot even pay interest even in next two years, and banks happily said YESSS. Try saying to ICICI or SBI that you cannot pay EMI on your home loan because of some emergency in your family for say 6 months or so and see the fun!!!!They will first grab your collar, then your neck, then your house and then they will start talking!!!)
  • After being unable to pay money due on time and amazingly ‘requesting’ and getting banks to postpone paying up, the company has in fact been able to secure even more debt from the same bankers.(Try doing that with your car loan or house loan where after you default on payment of even miniscule amount or just a small delay– you are going to be kicked out of office of any bank where you go for loan almost forever or charged a rate which would be absurd).
  • Forget paying someone whom you owe money to, the company has gone a step further in NOT paying the TDS (worth 422 crores) and service tax for such a long term(greater than 6 months) that auditor had to mention it in Annual report . (You poor salary earning individual , you do not have a choice , you get the money only after the govt had its cut through the company. Alas the govt can also be fooled by companies like that who take your money and keep using it for as long as possible. )
  • A company which actually tried to raise more money than its whole market cap via GDR. Can you believe the ambitions and positive outlook of the company??(Of course you guessed it right what would have happened to GDR )
  • The company is so asset starved that security includes intangibles like the Brand name of company(Word secured has a different meaning for these bankers who have lent money).
  • Its a company (not a bank) where its Chairman says “realistic estimation of total assets both quoted and unquoted (carried in the Balance Sheet at cost) would exceed Rs 12,000 crores but the market value of the company is around 1/10th of the estimate by the Chairman.(So either market is stupider by 10 times and Chairman is wiser by 10 times or vice-versa ).
  • It is perhaps the only company which in its annual reports shows performance comparison to NSE and BSE by showing the ‘Volume’ of shares traded. Yes that’s volumes of share traded and NOT the price because if it shows the price then it would look ‘interesting’ to the say the least.   Read further to know about this “Great” company

Organized Retailing in India – A critical analysis

Organized Retail will NOT be as successful and profitable in India as is projected by Everybody

Now that is a very bold(someone will say stupid) prediction to make when everyone sees 100s of malls seemingly springing up every corner of town and full of thousands of shopping hungry people .

I have not come across any article on net which even remotely says that Organized Retail in India will NOT really be that successful as it is generally predicted to be. In fact after FDI in multibrand retail has been increased to 51% not one article came in any prominent newspaper which said that  the Walmarts , Tescos of the world may not succeed in India . Everyone just automatically does following conclusion from some facts –

  • India Growing country ( 7-8% + GDP growth)
  • Has young population and a huge middle class who are earning a lot
  • Organizedretail is just about 5%
    •  Directly implying that when Organized Retail becomes at least 15% there will be so  many players who will make tons of money .

But I doubt anybody really has thought that may be India’s Organized retail will at least for coming 2 decades will NOT have a penetration level as it is made out to be . Even if  penetration level does go up considerably still it will NOT be profitable enough for the players/investors in the market .

Business Consultants if they read this post are not going to like my thoughts at all. But I am writing this mainly warning to the prospective foreign retailers who plan to be entering India in coming months and years in the hope of growing profitably based on ONE SIDED ppts/docs given by the so called retail experts/consultants from India. I hope I am proven wrong in coming decade or two.

Read complete analysis on why Indian Organized Retail Does NOT have a Rosy future

Fitch Ratings comparison India and Iceland Ratings in 2006 and 2011 (Unbelivable)

Came across Fitch ratings on India in 2006
http://www.rediff.com/money/2006/jan/18fitch.htm
Rating of India — BB+
Highlights (Heading of arcticle was Fitch warns India on mounting debt/GDP ratio)
Despite rapid economic growth of 8.1 per cent in the first half of this fiscal, global credit rating agency Fitch has warned India’s “weak public finances” will constrain higher growth in medium term.

The international rating agency also forecast a current account deficit of 1.6 per cent of GDP for 2005-06

n a latest report, Fitch was of the view that changing household savings behaviour, coupled with rising private sector demand for investor funds, suggest that in absence of a fiscal correction higher growth in India was going to become increasingly dependent on external financing.

“We do not believe that India’s public debt dynamics are explosive. Nonetheless, the fact that the debt/GDP ratio has continued to edge up to over 85 per cent even as growth has accelerated to 7-8 per cent indicates that India is unlikely to simply outgrow its debt burden,” Rawkins said.

Iceland Rating by Fitch in same year .

The long-term foreign and local currency IDRs are affirmed at ‘AA-’ (AA minus) and ‘AAA’ respectively. The country ceiling is also affirmed at ‘AA’ and the short-term foreign currency rating at ‘F1+’.
Thus, credit growth of over 30% per annum continues unabated, the current account deficit expanded to 15% of GDP in 2005 and net external debt has climbed to well over 400% of current external receipts.

Private consumption and investment have been slow to respond to policy tightening and the current account deficit will breach 20% of GDP this year, up from 16% in 2005, driving gross external debt up to some 360% of GDP,

Fitch acknowledges that net external debt ratios are lower on account of a rapid build up of financial assets abroad, but says that at 357% of current external receipts in 2005 Iceland remains the most heavily indebted of any Fitch-rated sovereign.

Infact at the height of borrowing binge the Debt to GDP was almost 10 times . Can you believe that


Of course after the rating India has had almost 7-8% growth per year for last 6 years and Iceland got bankrupt, bailed out by IMF and countries are still suing Iceland for recovery of dues, Negative GDP growth for 3 years –all within one and half years of being rated AA by Fitch .

Of course that does not mean that Fitch has improved itself .
Even today
Iceland Rating — BB+ (
India Rating — ‘BBB-‘ (avg India GDP growth over last 10 years — 7+% with forex reserves in excess of $300 billion )

Iceland had to take a loan of $10 Billion from IMF and other countries which was almost equal to its GDP to be bailed out . Can you imagine if India had to do that ?? Who will provide almost $900 billion to India ?? or indeed a case where this might happen ??

How on earth is Fitch rating ??
This just confirms my immense hatred towards all the rating agencies
Is that a joke for god’s Sake ??

My prediction is that even after 100 countries go bankrupt which will keep on proving Fitch is wrong still they will keep on rating just like they have done above .

Anybody who invests or uses any kind of official rating by these institutions is sure to dig his own grave