| Microsoft investors push for chairman Gates to step down |
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Three of the top 20 investors in Microsoft Corp are lobbying the board to press for Bill Gates to step down as chairman of the software company he co- founded 38 years ago, according to people familiar with matter. While Microsoft Chief Executive Steve Ballmer has been under pressure for years to improve the company's performance and share price, this appears to be the first time that major shareholders are taking aim at Gates, one of the most respected and influential figures in technology. A representative for Microsoft declined to comment on Tuesday. There is no indication that Microsoft's board would heed the wishes of the three investors, who collectively hold alittle five per cent of the company's stock, according to the sources. They requested the identity of the investors be kept anonymous because the discussions were private. Gates owns about 4.5 per cent of the $ 277- billion company and is its largest individual shareholder. The three investors are concerned that Gates' role as chairman effectively blocks the adoption of new strategies and would limit the power of a new chief executive to make substantial changes. In particular, they point to Gates' role on the special committee searching for Ballmer's successor. They are also worried that Gates — who spends most of his time on his philanthropic foundation —wields power out of proportion to his declining shareholding. Gates, who owned 49 per cent of Microsoft before it went public in 1986, sells about 80 million Microsoft shares a year under a pre- set plan, which if continued would leave him with no financial stake in the company by 2018. He lowered his profile at Microsoft after he handed the CEO role to Ballmer in 2000, giving up his day- to- day work there in 2008 to focus on the $38- billion Bill & Melinda Gates Foundation. In August, Ballmer said he would retire within 12 months, amid pressure from activist fund manager ValueAct Capital Management. Microsoft is looking for a new CEO, though its board has said Ballmer's strategy will go forward. He has focused on making devices, such as the Surface tablet and Xbox gaming console, and turning key software into services provided over the Internet. Some investors say a new chief should not be bound by that strategy. News that some investors The investors are concerned that Gates' role effectively blocks the adoption of new strategies |
| Corporate social responsibilty & the arts: Out of sight could mean out of mind |
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New Delhi, 2 October If the government keeps art and culture out of the notified corporate social responsibility ( CSR) activities under the Companies Act, a lot of corporate support that goes into patronising Indian heritage might not come. Other claimants to the kitty see these sectors as a competition. The ministry of corporate affairs under the draft rules has not included art, culture and sports in CSR. This would bring the norms in direct conflict with the guidelines of the department of public enterprises (DPE) that govern some of the country's biggest companies such as Coal India and Oil and Natural Gas Corporation ( ONGC). Companies are sponsors of big budget sports and cultural shows though some of them include it in their promotional budget, not CSR. "We consider development work in the social sector as real CSR and art and culture should not be part of it," said an executive in a private sector energy company, who did not want to be named. There is no compulsory spending on CSR except for public sector companies, for whom it is mandatory under DPE guidelines. But with section 135 of the Companies Act making it mandatory for companies to spend two per cent of their threeyear average of profit before taxes on CSR, at stake would be a kitty of ₹ 20,000- 25,000 crore. Under schedule VII, there are nine notified activities (see box) counted as CSR though a10th one of " such other matters as maybe prescribed" also figures in the list. The government has invited feedback on the draft CSR rules latest by October 7. Public sector undertakings support art and culture activities as part of corporate social responsibility based on the National Voluntary Guidelines and policy of DPE. According to Laura Donovan, head, Partners in Change, a CSR advocacy group, the government's reading of CSR is flawed. " Most of the things that figure in the list have nothing to do with CSR." Donovan said art and culture had a right to be there as part of philanthropy but it had nothing to do with CSR and responsible business. Non- government institutions that depend on CSR funding for development works in social sector are, however, divided on the issue. Nilesh Nalvaya, coordinator for HelpAge India, said though getting funds for senior citizens was difficult, the kitty was big enough for art, culture and sports to be included. "Less than half of the CSR funds are used. So, I do not see anything wrong in including these in CSR," he said. DPE also had its share of doubt on including the arts in CSR. ONGC had raised concerns with DPE, eventually leading to their inclusion in 2010 guidelines. DPE, however, refrained from including sports. " If needed, companies can involve in arts and cultural activities according to DPE guidelines. I believe it is required for the uplift of various art forms in the country," said Coal India director ( personnel) RMohandas. The broad nature of the arts, that sees programmes related to festivals such as Ram Lila and Durga Puja, getting huge corporate support, however, opens up scope for misuse. Bina Sheth Lashkari, founder, Doorstep School, said everything gets included in the arts. "Education, by contrast, can not only bring literacy but also deliver a larger vision to children who can decide on their areas of interest — music, art or sports." Doorstep, working in non- formal schooling for 25 years, depends on sponsors such as BP, HSBC, HDFC and Rabo Bank for 45 per cent of their funding. Lashkari said it was difficult to get funding for pre- school education, not even a government priority. For Donovan, however, development programmes have to be driven by the government and CSR funding was " just a drop in the bucket". CSR in social sector development activities are unstructured and not uniform. "These are philanthropic works and there is no track record to show how they have worked. Government support through programmes is more structured." Since India prides on its rich heritage, corporate support is considered important to keep not just folk art forms but also classical art alive, she said. WHATS YOUR CORPORATE SOCIAL RESPONSIBILITY? |Every company having net worth of ₹ 500 cr or more, turnover of ₹ 1,000 cr or more, or a net profit of ₹ 5 cr or more during a financial year required to form a corporate social responsibility committee of the board |Board to ensure the company spends, in every financial year, at least 2% of its average net profit during the three immediately preceding financial years on CSR Companies Act, 2013, lists following as CSR |Eradicating extreme hunger and poverty; |Promotion of education; |Promoting gender equality and empowering women; |Reducing child mortality and improving maternal health; |Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; |Ensuring environmental sustainability; |Employment enhancing vocational skills; |Social business projects; |Contribution to the Prime Ministers National Relief Fund or any other fund set up by the Centre or states for socio- economic development & relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; |Such other matters as may be prescribed |
| Centre hopeful of GST nod at Oct 21 meet |
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New Delhi, 2 October The Union government is pushing states to agree to its proposed Constitution amendment Bill on a goods and services tax (GST) when the Empowered Committee ( EC) of State Finance Ministers meets here on October 21. The finance ministry also wants the EC to expedite work on the GST legislation. Release of Central Sales Tax ( CST) compensation to states is part of the proposed bargain. For 2013- 14, the government had budgeted ₹ 9,000 crore towards compensation to the states for losses on account of reduction in the CST rate but the money is yet to be released. Finance Minister P Chidambaram has told the states they'd get CST compensation only in return for help in taking the Constitution amendment Bill and the GST legislation forward at a fast pace, said a ministry official. Industry is putting pressure on the government to introduce aGST. Though the rollout is not possible during the tenure of the current government, with a general election due in about seven months, Chidambaram is trying for passage of the constitution amendment. It would be a feat, particularly at a time when the UPA government is getting flak for lack of big reforms. Discussion on the constitution amendment tops the agenda for the October 21 meet. The EC will consider a report of a sub- committee of states' officials, set up in the previous meeting on September 19, to reconcile the recommendations of Parliament's standing committee on finance, the revised draft of the Bill and states' views. If it does not propose any major changes that open another can of worms, the Centre will table a Bill in the winter session of Parliament, likely next month. It would have to be passed by a twothird majority in both chambers and then be ratified by the legislatures of at least half the states. The revised draft is broadly in line with the agreement between Centre and states in their January 2013 meeting at Bhubaneswar and recommendations of the standing committee. State finance ministers' panel to decide on latest attempt at harmonising of views on Constitution amendment THE OCTOBER AGENDA CARROT |Release of ₹ 9,000- crore Central Sales Tax compensation to states STICK |Get states to agree to Constitution amendment Bill |Push finance ministers' panel to fast- track work on GST legislation WHY AMEND THE CONSTITUTION? |To give power to states to tax services; to enable the Centre to impose tax beyond manufacturing WHAT NEXT? |Introduce the legislation, which would lay down the design of GST |After Constitution amendment is cleared, the Centre will move this in Parliament; states in Assemblies |
Balance sheets of Indian companies worsened in FY13
KRISHNA KANT
Mumbai, 2 October
It's bitter- sweet time for banks in India. The credit metrics of India Inc worsened in FY13 but the pace of deterioration seems to have slowed down. At the end of March this year, India's top 400 companies owed ₹ 12,37,000 crore to banks and other lenders, up by nearly four times from the level in March 2008.
A majority of the companies came out with their audited balance sheets for FY 13 only recently.
Nearly 75 per cent of total borrowings by India Inc was accounted for by just 28 companies across five sectors –power ( 27.7 per cent), construction &infrastructure, (20.3 per cent), telecom ( 12.4 per cent), metals & mining (10.6 per cent) and textile (3.7 per cent).
There's more. Just five borrowers accounted for a quarter of total borrowings. Bharti Airtel topped the chart with total borrowings of ₹ 71,231 crore at the end of March this year followed by Power Grid Corporation, Jaypee Associates, L& T and Tata Steel. Except Jaypee, which is under pressure from banks to sell assets and repay some of its debt, many big borrowers don't look overstretched thanks to a mix of high internal accruals and high market capitalisation relative to their liability.
(See table)
The analysis is based on sample of 394 non- oil & nonfinancial companies from the BSE 500 index whose comparable finances is available from FY08. These companies accounted for nearly 90 per cent of all listed non- finance and non- oil companies in India.
The good news is that the financial ratios in some of the most indebted sectors such as telecom, construction & infrastructure, and real estate have begun to stabilise. Telecom operators, for instance, increased their borrowings by just seven per cent last year while in infrastructure sectors, borrowings growth fell to 18 per cent from 65 per cent in FY12. These two sectors together accounted for nearly 40 per of borrowings by the companies in our sample.
This has raised the hope of agradual improvement in the financial metrics of top firms in these sectors if the economic growth rebounds from here on. This in turn will improve the asset quality of banks especially the public sector banks.
"Some individual companies are expected to report an improvement in their finances this year and the pace of credit downgrades has also slowed down. But I will keep my fingers crossed and wait for the improvement in India Inc's internal accruals (cash flows) before raising a green flag," says Deep Narayan Mukherjee, director ratings at India Ratings, the domestic rating arm of Fitch Ratings. He expects more bad news if the economic growth continues to worsen.
In the last five years, India Inc's borrowings, adjusted for cash and equivalents on their books, has grown at a compounded annual rate ( CAGR) of 32.7 per cent, much faster then the underlying growth in their revenues and profits, straining balance sheets.
Net sales during the period grew at a CAGR of 16 per while operating profits expanded at an annualised rate of 11.1 per cent per annum. Net profit growth was paltry 3.3 per cent during the period, weighed down by interest and depreciation that grew at the rate of 25.6 per cent and 20.6 per cent during the period.
The result was a sharp rise in leverage ratios and lower debt servicing capability. The debt to equity ratio for our sample of companies increased to 0.75 in FY13 from 0.37 in FY08 while the gearing ratio – borrowings divided by operating profit – jumped to 2.3 in FY13 from less than 1 in FY08. There has been a general deterioration in India Inc's debt servicing capability in the last five years with interest payments rising faster than operating profits.
The ratios are far worse in debt- heavy sectors such as power, infrastructure, metals and telecom among others. Experts don't foresee any significant change in these ratios in the current fiscal either.
"The first quarter results for FY14 and the recent projection don't hint at any improvement in corporate earnings during FY14. There could be some winners from the recent macro- economic developments such as currency depreciation, but a majority of companies will struggle to grow," says Dhananjay Sinha, co- head institutional equity as Emkay Global Financial Services.
The good news is the resilience of some of the top companies in sectors such as IT, FMCG, cement, pharma and automobiles. The continued financial prosperity of companies such as TCS, ITC, Sun Pharma, Tata Motors, UltraTech Cement, MRF, HCL Tech, Dr Reddy Labs, Bajaj Auto, Hindustan Unilever among others has lifted the financial ratios for the entire sample besides providing cushion to investors.
In all, the prosperous members of India Inc are sitting on cash and equivalent of over ₹ 5.1 lakh crore at the end of March this year, up 63 per cent in the last five years. Nearly a third of companies (126 companies) in our sample are debt- free. Coal India remains the biggest cash hoarder, sitting on cash and equivalent of ₹ 61,700 crore, followed by Infosys (₹ 23,571 crore), NMDC (₹ 21,025 crore) and Hindustan Zinc (₹ 19,217crore).
The continued financial difficulty of their weaker peers provide stronger companies with the opportunity to kickstart a process of consolidation that aids the process of recovery. " I expect agreater push toward asset sell- off and divestments by financially stretched companies.
This will help banks recover some of their dues besides freeing- up resources and helping financially stronger companies grow faster," says Sinha.
CAGR (%) Debt Revenues Net Net Gross Mkt Equity Profit Debt Block Cap Ratio
Tata Motors 39.7 35.5 29.8 51.1 29.0 0.7 Havells India 8.8 29.3 - 13.6 1.8 24.5 0.4 Dr Reddy's Labs 17.7 28.4 11.0 13.0 24.7 0.2 MRF 21.7 27.7 11.7 19.8 22.4 0.4 TCS 22.4 22.6 16.5 22.3 31.1 - 0.2 UltraTech Cem. 30.5 21.5 11.2 36.5 39.5 0.2 M& M 22.4 21.1 24.7 29.1 25.3 1.2 Nestle India 18.3 20.9- 237.5 30.3 27.2 0.4 Motherson Sumi 64.8 20.1 61.4 62.5 24.6 1.9 ITC 16.5 19.2 26.8 13.4 25.7 - 0.3 TOP PERFORMERS
CAGR (%) Debt Revenues Net Net Gross Mkt Equity Profit Debt Block Cap Ratio
HCC 23.9 - 240.2 30.1 24.4 - 24.4 16.9 Suzlon Energy 5.9 - 235.6 34.7 22.6 - 42.8 14.6 Lanco Infratech 32.0 - 224.3 70.8 67.1 - 22.0 9.1 Hotel Leela 2.4 - 223.9 21.6 20.1 - 11.1 8.9 Kesoram Industries 13.9 - 197.0 33.6 23.2 - 26.3 8.6 Tata Comm 15.6 - 327.2 32.1 23.3 - 14.6 7.6 Shree Renuka Sugar 61.9 - 235.1 71.2 76.2 - 2.3 5.6 GMR Infra 36.6 - 15.9 74.8 37.2 - 20.9 5.1 GVK Power Infra 38.8 - 219.9 85.0 37.5 - 23.8 4.9 JP Associates 34.2 - 7.4 45.7 40.7 - 11.3 4.9 NOT- SO- GOOD PERFORMERS
Just 28 firms accounted for nearly 75% of total borrowings but financial ratios in some of the most indebted sectors have begun to stabiliseINVESTMENT VS BORROWINGS
The rising gap between the growth in debt and gross block ( Capex) suggests many companies are now borrowing for either working capital or to fund losses. This could make it tough for banks to recover their dues by asset sell- offs
₹ crore Debt* Mkt cap** Debt to equity ratio
Bharti Airtel 71,231.3 1,28,696.3 1.4 Power Grid Corpn 66,525.9 45,834.3 2.5 JP Associates 59,990.5 7,775.6 4.9 Larsen & Toubro 58,252.0 74,020.0 1.7 Tata Steel 55,453.8 26,770.4 1.6
*Net Debt adjusted for cash & equivalent on their books, ** Latest INDIA INC'S BIGGEST BORROWERS
Source: Capitaline Compiled by BS Research Bureau
All BSE- 500 Metal & mining Automobile Power IT - software Construction & infra Capital goods Telecom FMCG Pharma Cement
Revenues Net profit Debt Capex
15.3 3.3 7.4 -3.8
26.6 24.5
19.2 8.3 19.1
17.2 21.1
10.5 12.1 -8.0 15.7
-172.2
17.6 12.5 16.8 12.8 17.1 0.0 32.7 19.0 16.4 10.8 31.0 33.9
43.7
20.3 21.9 18.6
53.4
36.3 -189.8 19.0 13.7 15.2 42.0 25.2 -2.8 17.9 19.1 20.5
CAGR % since FY08
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