RETURN TO NORMALCY & THE OMICRON THREAT
In search of the new normal
Although many people are making predictions about the end of the pandemic, chances of going back to the pre-pandemic world look slim. Only time will tell whether COVID-19 can be eradicated or we will have to learn to live with it. In fact, as you read this, a new variant named Omicron is spreading swiftly across the world.
The pandemic has resulted in a host of changes in the business world. With remote work gaining more popularity, greater importance is being given to employee well-being. On the other hand, the growing adoption of digital business models has accelerated digital transformation across sectors. Amid all, it has become more important for organisations to nurture new leadership skills and create a skilled and efficient workforce in order to stay relevant in the new normal.
While the adoption of these seemingly ‘soft’ skills is being witnessed across the board, its importance is a tad bit more for companies that were ravaged by the pandemic. Nevertheless, the entire situation has paved the way for larger and stronger players to increase their market share. It has also reinforced the principle that the success of a company largely depends on its ability to adapt.
In focus: Jubilant FoodWorks
One of the largest food-service companies in India, Jubilant FoodWorks holds the exclusive rights to develop and operate the Domino’s Pizza brand in India, Sri Lanka, Bangladesh and Nepal. It also holds exclusive rights for the Dunkin’ Donuts brand in India. Jubilant has a presence in the Chinese cuisine segment through its in-house brand ‘Hong’s Kitchen’ and has recently added biryani to its portfolio by launching the ‘Ekdum!’ brand. As of September 2021, the company operated 1,435 Domino’s Pizza restaurants across 307 cities in India.
Jubilant intends to be a food-tech powerhouse, as evident from the launch of its analytics and insights division in FY21. The division works with product and engineering teams to strengthen the company’s digital capabilities. Besides, it is looking to invest in technologies to improve customer and employee experience and reduce inefficiencies in its supply chain and store operations. Given that the company already operates on a comparatively large scale, the ongoing digital transformation is likely to add to its moat. Further, being a cash-rich company, it has been able to diversify its business into adjacent verticals to keep up the growth momentum.
Despite the rise of aggregators, a majority of Domino’s online sales are generated on its own platform, with its app being downloaded at a staggering rate. This enables the company to gain more insight into customers’ behaviour, thereby paving its way for better decision-making. Besides, its loyalty program for Domino’s, which is in the pilot stages in select markets, is another positive. Thus, even though the company was hard hit by the pandemic, it has worked its way through it to emerge stronger.
CLEAN ENERGY & POLLUTION CONTROL
As India is on its way to increasing its energy share from renewable resources, clean energy initiatives are gaining prominence like never before
Home to 22 out of 30 most polluted cities in the world, India is the third-largest emitter of CO2. Since the country is on the path of urbanisation and industrialisation, there has been a continuous increase in the demand for power and consequently, the consumption of solid fuels, such as coal. In 2015, under the Paris Agreement for 2021– 2030, India committed to reducing its carbon emissions by 33–35 per cent by 2030 from its 2005 levels. Besides, it has planned to achieve 40 per cent of its energy share from non-fossil fuels. India is now on its way to achieving the target.
In the COP26 UN Climate Change Conference in November 2021, Prime Minister Modi promised to increase the energy share from renewable resources to 50 per cent by 2030 as against the present 40 per cent and achieve net-zero carbon emissions by 2070.
Quite understandably, given all these, India’s clean-energy initiatives have been getting more funding as compared to coal-powered projects. In addition to renewable energy, the focus has also been given to companies providing environmental solutions, such as water-waste treatment to reduce water pollution.
In focus: IEX (Indian Energy Exchange)
With a current market share of 95 per cent, the country’s first and largest power-exchange company brings together the buyers and sellers of electricity on an automated trading platform. This platform is used for renewable-energy certificates, energy saving certificates and the physical delivery of electricity. In turn, the company charges transaction fees for using its platform. Besides power, the company also owns and operates a gas exchange, called IGX, which is the first natural gas-trading exchange in the country.
The government’s vision of increasing the share of natural gas in the total energy basket from 6 per cent currently to 15 per cent by 2030 is likely to increase gas consumption and trading. Besides, the existing capacity of the gas pipeline (18,000 km) will double in the next two years. In the renewable energy certificate segment, IEX has a market share of more than 75 per cent. The growing demand for renewable energy is likely to result in an increase in the trading of the same on its platforms. Unlike other companies that stand to benefit from the shift towards clean energy, IEX does not require high capex to expand its operations and has no credit risk.
The volume of power trading on IEX’s platform has grown at a CAGR of 32 per cent since its inception in 2009. This implies the growing acceptance and demand for power trading in India. At present, in developed economies, power trading through the exchange is pegged at 30–80 per cent, while that of India is just 6 per cent, which leaves enough headroom for growth in future.
A pair of private hands
The government looks determined to pursue its divestment road map in 2022. This will unlock value in many PSUs.
Anil Agarwal, Chairman of Vedanta, once quipped, “Government has no business to be in business.” Echoing a similar sentiment, finance minister Nirmala Sitharaman, during her 2021 budget speech, stated that CPSEs (centre public-sector enterprises) in all but four strategic sectors would be eventually privatised. She also announced that the initial public offering of Life Insurance Corporation of India (LIC) would be completed in FY22.
The government seems to be confident about pulling off five-six privatisations in FY22. And finally, after a gap of 19 years, the government started its privatisation drive with the sale of Air India to the Tata Group in October 2021. The proposed stake sale of other companies, including IDBI Bank, BPCL, Shipping Corporation, Container Corporation, BEML, Pawan Hans and NINL are in various stages of completion.
Despite facing opposition from PSU employees, the government is likely to continue with its privatisation drive, owing to the tremendous benefits of unlocking capital (which can be deployed elsewhere) and greater efficiency brought about by the private sector. Perhaps, this reason has also encouraged the stock markets, with the BSE CPSU and BSE PSU indices having returned 34.7 per cent and 43.6 per cent, respectively, in 2021 (as of December 20, 2021) as against the Sensex’s 22.5 per cent.
In focus: Container Corporation of India
Container Corporation of India (CONCOR) provides container transportation through railways. Incorporated in 1988, the company commenced its operations in 1989 by taking over seven in land container depots (ICDs) from Indian Railways. Operating under the aegis of the Ministry of Railways, it has two divisions – EXIM (export-import) and domestic. CONCOR is a market leader with the largest network of 60 terminals, including six pure EXIM terminals, 34 combined container terminals and 17 pure domestic terminals. In FY21, the company managed 36.43 lakh TEUs (twenty-foot equivalent units; a measure of volume in units of twenty-footlong containers).
CONCOR’s FY21 market share in the EXIM segment and the domestic segment stood at 64.8 per cent and 77.4 per cent, respectively. Although revenue from rail freight dominates its revenue mix (contributed 76.9 per cent to FY21 revenue), the company is trying to provide end-to-end logistics solutions to its customers by expanding its business in all segments of the transport value chain. So, over the years, it has strengthened its presence in the management of ports, air-cargo complexes and cold chains with the aim to reduce customers’ logistics costs.
Despite stiff competition from road transporters and private container transporters, CONCOR is well-positioned to maintain a high market share. Its initiatives such as running double-stack trains, establishing private freight terminals, multi-modal logistic parks on domestic freight container networks, venturing into distribution logistics and other services have not only kept competitors at bay but also augmented margins. This PSU seems all set to seize the expanding opportunity in the logistics sector.
CHINAS PLUS ONE
Outside the dragon’s lair
With multinational firms reducing their focus on China and investing across other Asian countries, India stands to benefit
Accounting for about 30 per cent of the global manufacturing output, China has emerged as the manufacturing hub of the world over the last few decades on the back of a good business ecosystem and low labour costs. However, a host of factors, including an increase in labour costs from an initial $0.6 per hour to $4.8 per hour in 2015, a stringent business environment and huge compliance costs, have now cast a shadow on this favourable situation in China. Against this backdrop, multinational companies have come up with the ‘China Plus One’ strategy to diversify their businesses into other Asian countries, such as India, Bangladesh, Vietnam, Thailand, Malaysia and many more.
The strategy intends to make the global supply chain more efficient. As per a survey conducted by UBS, around 20–30 per cent of manufacturing activities may leave China and India is the primary candidate to capitalise on the situation, owing to low labour costs, a friendly business environment and government incentives.
In a bid to attract foreign investments, the Indian government has provided various incentives to many industries. For example, the PLI scheme for the steel sector is expected to bring investments of ₹40,000 crore. As revealed by companies from various sectors such as textile, pharmaceuticals, steel and speciality chemicals, the ‘China Plus One’ strategy acts as a major growth catalyst. Experts have also stated that this will ultimately result in an increase in employment opportunities. Prudent government policies and macroeconomic tailwinds have put India on a solid growth trajectory.
In focus: Aarti Industries
Involved in manufacturing speciality chemicals and pharmaceuticals, Aarti Industries has over 200 products and serves 400 customers worldwide. Of its 20 manufacturing plants, 15 plants manufacture speciality chemicals and five plants manufacture pharmaceuticals. The company is one of the top three global players for Nitro Chloro Benzene (NCB) and Di-chloro Benzenes (DCB). It has backward integration for most of its APIs.
Continue reading your story on the app
Continue reading your story in the magazine
Cancel Your Beliefs
Unlike other stock recommendation services, Value Research Stock Advisor will return your money if you are not satisfied. Why do we do that?
Will A Merger Create Wealth For You? Here's How To Tell
The announcement of the merger between HDFC and HDFC Bank and a slew of other mergers and acquisitions in recent times have put spotlight on this space. In this cover story, we explain to you why mergers and acquisitions happen, how key M&As in the past have fared and how you can evaluate a merger. After reading this story, you will be able to understand the complexity of this process and decide what to do should your portfolio stock goes through a similar event.
Cold War II & Your Wealth
The second phase of the Cold War between the democratic and the authoritarian blocs will result in elevated inflation. Here’s how to protect your wealth.
The oil problem
Why have we not been able to solve it yet?
‘The litmus test for any M&A is long-term accretion to earnings and ROE'
NEELESH SURANA CIO, Mirae Asset Investment Managers (India) Pvt. Ltd.
Mitigating climate change
Reducing dependence on fossil fuels is the need of the hour but the world seems to be moving in the opposite direction
Busting Popular Macroeconomic Myths
Are rising rates bad for the market and is high inflation bad for quality stocks?
War And The Economy
The impact of the Russia-Ukraine war on the world economy
Your Investment Options In The Life-Insurance Space
As the LIC IPO approaches, here's how the three listed life insurers compare with each other
What you must know about LIC
LIC's IPO may hit the Street soon. Here are some facts and figures that will help you assess this insurance behemoth.
Legacy: The Importance of Family Unity
Leading any business is tough. Leading a family business can be considerably more difficult. Family business leaders have to deal with relationships and emotions that simply are not present in an ordinary business set-up. And this is in addition to the normal stresses of running a company. Under these circumstances, establishing or continuing a legacy for generations to come can seem like an impossible dream, says Trevor Dickinson.
What are the marketing trends that will define 2022 for Africa? We asked some of the top CMOs – all women from a cross-section of industries – for their sterling views.
The Power of 2
Conventional wisdom says that starting a fast-growth business with your spouse is too risky, too intense, too fraught with potential drama. But these couples have turned their partnerships into their superpowers.
Virus. Vaccines. And Vacillations
Vaccine mandates... and why everyone is talking about it.
All You Need Is Love
What I learned about creativity from working with the Beatles
All You Need Is LOVE
What I learned about creativity from working with the Beatles
How to Go Public While Taking Care of Your People
"Chieh Huang started an e-commerce company in his garage and took it public in eight years. At every step, he prioritized his workers. His dream is to show future generations a “different way to do business.”
When to Launch Something Illegal
Some business ideas are good enough to change the law. But you may never know unless you build it first.
What to Do With ‘No'
“Never take no for an answer,” people say. But is that really true? We asked six founders: How do you know when to keep pushing and when to move on?
The Never-Ending Launch
"Entrepreneurship is a marathon with no finish line. Are you exhausted? Henry Rose founder Michelle Pfeiffer knows exactly how you feel."