Inter linkage between Finance and HR

Both the finance and HR are considered as services to the main business. The main business people are mostly from the Sales and Operations side. No wonder, almost all the great companies have people from Sales or Operations as CEO. My favourites are

1. Tim Cook - Operations
2. Jack Ma - Sales

There are numerous examples of the same. However, no one has become as successful CEO without the support of good support functions. Finance and HR are the prime among them.

Though both of them seems to be separate in terms of specialisation, they are quite similar at the top level. Consider the basic framework of HR - BSC (Balance Score Card).

Almost all the KPI in the lower levels are evaluated on the basis of their financial implications. 

Famous Quotes of someone who departed

Vinod kumar ji was very close and I have spent substantial amount of time with of late, recently. Today, he passed away due to brain Haemorrhage and multiple failures, theron

But some of his words, still resonate deep in my mind

1. Wife is like a helmet. Always wear this stuff on the top. Else you are going to suffer both financially and personally. 
2. When we are crystal clear about something, then its better to be quick on discussions.
3. Have a mentor. His mentor told him never to tinker with master roll and stores
4. Family is first. Ultimately, this is what you will realize when you reach to 60. 
5. Always have peace of mind. Let other people earn for you while you enjoy your work. Invest in Equities. Look around for right time and right people for advice. Money doesn't grow on trees but in businesses. 

Whenever he used to be happy, he used to say "Chai Chalegi" and then we used to enjoy good conversations. 

Hydro power - Risk Assesment

When I was competing for the NEFC (National Energy Finance Competition) at University of Texas, one of the key aspect, which I focused on was about - How to Quantify the risk?

An objective modeling of risk in terms of putting $value to the risk and the probability of that risk is normally, what expert financial planners do. However, the variation across industries is so much that it is literally impossible for an outsider to do such an objective modeling in an unbiased manner. The problem with outsiders is that they get biased with the DPR, Social Risk Assessment reports, which are prepared for say a consulting company as a specific assignment for that project. 

Conflicts of Interests

There are inherent conflicts of interests in the DPR's and the other reports as they are being paid by the developer and which developer will not want an aggressive assessment of his project

How to quantify the parameters

First of all, bucketing of risk has to be done. For hydro, risks are classified as under

1. Financial risk - sponsor or lender need to have access to patient capital
2. Construction risk - EPC contractor need to have the relevant experience
3. Equipment Risk - Similar to BTG in Thermal, Turbine and Generator selection plays a big role in reducing other risks during construction as well as during operations
4. Environmental & Social risk - Issues such as resettlement or impact on communities are key once we enter into the real mud with the shovel
5. Regulatory - Regulations related to Construction (labor cess etc) can have deep impact on cost matrix
6. Political risk - Local political stability and the liaison with the political setup becomes important if we are operating with unstable provincial governments
7. Technical Risk - Important for big projects

Hydro projects have be executed in-situ and all local stakeholders automatically become party to the development. 

Technical Risk

For smaller project such <5-10 a="" any="" aspect="" becomes="" bigger="" complexity="" div="" evaluation="" for="" if="" is="" it="" key="" mw="" nbsp="" need="" no="" normally="" of="" project.="" project="" risk.="" river="" run="" technical="" the="" there="" tunnel="">

What if the the tunnel has to be changed due to hard rock or if the there is some hidden geological crack found in between such as the famous Serei Nala in Rohtang tunnel changed its course during the construction of tunnel phase. 

Who bears Which Risk

Since, Hydro projects have to be executed in-situ, surprises keep on popping, every now and then. At times, it is very difficult to draw a line between who bears which risk. Consider the case

1. Equipment Suppliers says he want higher rating of the bridges, on the way, to send their equipment
2. Power Transmission Company says they are back on schedule to connect the evacuation Point

Senseless Market

With a PE of 24, the market is continuously overpriced, but what surprises me more is the innings duration. Normally markets are about an "Perceived Absurd" level for 1-2 years, but we have already crossed that 2 year of sweet period.

I am still wondering - When will the market crash? Markets can stay stupid for long

Personally, there is no entry place in the market above a PE of 20. So, wait and watch. I will wait for 7500, to make myself a contender, for long positions.

Till then, wait for ............................

DMART IPO - Why I believe that analysts are wrong ?

This reminds me of the INOX IPO, with lot of similarities, which was also managed by a lot including Edelweiss Financial Services

I am surprised how fast people forget things

Net proceeds from D-Mart IPO will be used towards

1080Cr

1. repayment or prepayment of a portion of loans
2. Redemption or earlier redemption of Non-Convertible Debentures (NCDs)

366 Cr for

3. Construction and purchase of fit outs for new stores

350 Cr

4. General corporate purposes.

Good part = There is no OFS, and everything goes to the entity

Bad Part = the existing common stock is overpriced

My sniffing nose

1.      This dude, Damani want to sell equity, but never sold even part of the equity before this. That too, when this guy was well entrenched in financial world. Am I missing something here??

2.      Presence only in Gujarat / Maharashtra – Though good for focus but show me the potential for growth of same model outside these states as these states are already saturated.

3.      Cluster approach – Good for initial part, but will be really hard to replicate, where will the growth come from

4.      Never closed any outlet due to lack of profitability – Are you crazy? Are you really running business successfully? I seriously want to see the store wise numbers.

5.      Location+Infra – Densely populated area + Ownership / long term lease. There lies the problem, how are they amortizing costs, accounting of the cost of acquisition of real estate. I have to read between the lines of those depreciation / amortization numbers

More than 90% of their stores are owned and less than 10% leased

Their sales per sq ft is 

Dmart =22

Reliance = 15k

Future = 7.5

The analyst are going crazy about this, but wait, they perhaps don't know the predominant formats of these companies

Dmart stores are very small, compared to even Reliance

Point is they are paying higher CAPEX also, which analysts are perhaps ignoring

Lets look the numbers

Consolidated financial performance (in INR crore)
	FY2012	FY2013	FY2014	FY2015	FY2016
Total revenue	2,222.4	3,355.1	4,702.3	6,457.7	8,606.1
Total expenses	2,134.0	3,214.2	4,457.4	6,134.3	8,113.9
Profit after tax	60.4	93.9	161.4	211.7	321.2
Profit margin (%)	2.7	2.8	3.4	3.3	3.7

Revenue = 2200 in 2012

8600 in 2016

That implies = 400% in 4 year, crazy,

That too on a model when they claim  - “Location+Infra – Densely populated area + Ownership / long term lease”

It seems there is something wrong here, only one of them can be correct, either the revenue or the model

Adding to this, profit of 321 cr on 8600, I have done retail before, expressdwarka.com and it was literally asset free retail,

I can tell on face of it, 321/8600, seems like a blatant lie with 4% net margin on “Ownership Model”

(based on my experience of running the asset like expressdwarka, achieving even 3% is challenging)

Even if we trust the numbers, the PE is not justified with ROE of 20% in last 3 years

Priced at pe of 52.6 will take 1800 cr

FY 2016 , EPS = 5.7

Future Retail

PE = 30

Mar ' 16	Mar ' 15	Mar ' 14	Jun ' 11	Jun ' 10
Per share ratios
Adjusted EPS (Rs)	0.27	-0.63	-1.20	3.53	6.01
Adjusted cash EPS (Rs)	13.05	11.74	16.26	10.27	13.86
Reported EPS (Rs)	0.27	1.79	0.12	3.53	8.71

With a share price of 254, the current EPS, has increased due to payouts (which management manages) in last year. I strongly believe even Future Retail is overvalued, 

Conclusion

I have nothing against the business model and it sounds like a good company. But I have deep apprehensions about the numbers. Somehow the operating model and numbers are not matching

Buy / Sell - May be buy till 500-800, hold till 1000-1200, and then sell

Update 

Last time, I was whining about the share price of INR 1000 for this company. This company crossed INR 1200 today. I have my fingers still crossed.

Update
This stock crossed 1500, what is this ? Are people crazy to give this valuation ? 

Sindhi Dryfruits, Lajpat Nagar and Black Money

I said - "I want bill for full amount of 5700", he said "Sahab 5% VAT extra lagega". I said " Nahi ji bill chaiye"

Everyone stared at me as if I am doing a crime, by asking for bill.

That was Sindhi Dry Fruits, Lajpat Nagar.

Not only this shop, there are many other shops, which display promptly, "5% Extra for VAT for Card Payment".

Where are the Tax inspectors ?? Deep investigations needed.

Guesstimate 

Average Invoice at Sindhi Dry Fruits = 5000 (based on experience)
Avg. no of orders per counter = 1 per 3 mins = 20 per hour
Total orders per hour for 3 counters = 60 orders per hour
Total sales per day = (6+4*.5 for lean) = 8*60*5000 = 24 lacs per day = 7.2 cr per month = 84 Cr per year

VAT Tax avoided = 5%*.8*84 (80% transaction w/o tax) = 3 Cr
IT Tax Avoided = 8 Cr (assuming margins of 30%)
Total Tax loss to the Nation = 11 Cr


That is just one shop in Lajpat Nagar. There are 1000 other which use similar tactics and that too openly. We can do another guesstimate with data like mega, big, small and footpath shops etc.

But ultimately, Lajpat Nagar itself leads to a loss of around 500-1000 Cr to the nation. This is very much in Delhi, right under the nose of the all investigating agencies.

Where is the gap in enforcement? Is it intentional or just a miss??

5 biggest regret people have before they die

There is a very thought provoking book, I plan to read

https://www.amazon.com/Top-Five-Regrets-Dying-Transformed/dp/140194065X/

The Top Five Regrets of the Dying: A Life Transformed by the Dearly Departing

It is really soul searching. I would perhaps like to list them myself

1.       I wish I pursued my dreams and aspirations, and not the life others expected of me

a.       Sometimes, I look back and think that I could have better pursued my dream of entrepreneurship, long back. There was no need to waste so many years, just trying to prove myself

2.       I wish I didn’t work so hard

a.       Being ambitious is perhaps a curse on life, if it overshadows me. I felt that when I was in US and was alone

b.      I made some career  decisions, where I had to ignore my family

3.       I wish I had the courage to express my feelings and speak my mind

a.       I could not resist the fear of confrontations mostly from my better half as I don’t want to destroy peace of my life

b.      I could have spoken more courageously against some of the decisions, to which I have submissively agreed, especially regarding parents and child

4.       I wish I had stayed in touch with my friends

a.       Yes, that is perhaps one of the biggest regrets

b.      I didn’t get chance to meet face to face to my closest friends for long Vishnu, navin, rajiv and many others, its horrible, if things go on like this

5.       I wish I had let myself be happier

a.       I often got confused between happiness and many other things in life

b.      Perhaps the burden of so many aims, aspirations and images, overshadowed it

Can I live without regret, Yes

1.      Vacate Space, empty mind and de-clutter life

a.       Actually with minor adjustments, things can perhaps tough in the beginning but the space will increase the degree of happiness for sure

b.      I don’t need so much money to live happily.

2.     I will avoid Procrastinate regarding

a.      Ideal and obedient child and life partner

b.     Ideal career

1.