Finly February 2020

FEBRUARY 2020

ISSUE NO: 88

US - IRAN CRISIS Sector Analysis

Tobacco Sector

Eco Section Budget 2020

Intriguing Indeed Pink Tax

FINLY| February 2020 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers, Greetings from the editorial team at Finstreet. For the past several years Finly has been informing, engaging, inspiring and entertaining a diverse readership -- including alumni, faculty, staff, and students at KJ SIMSR by presenting an intimate, timely and honest portrait of the key activities and events in the Indian and Global economy.

We are proud to unveil the February edition of our monthly magazine FINLY for the academic year 2019-20.

In this edition, Our Cover Story analyses the US-Iran Crisis, the timeline and the flow of events leading to the crisis. Along with that the writers have analysed the impact of the crisis on the oil prices and the position of India. Next in line, is the Eco Section, which analyses in detail the situation of Indian economy in the run up to the budget and the constraints faced by the Government. In Sector Analysis, the authors inspect the Tobacco sector using Porters 5 forces model, the writers have analysed the Government actions and policies pertaining to the sector. Finally, there is an Analysis of ITC, the largest Cigarettes manufacturing and marketing company of the country, Bharti Airtel. This month's Intriguing Indeed covers Pink Tax. The authors have explored the economic impact of it, the criticism against the tax and the way forward. The winning and runner-up articles from Call for articles are a must read.

We would like to extend our gratitude to Mr. Aachman Vijayvargia, MMS Finance, 2017-19 for his contribution to the Alumni section by sharing his valuable experience at KJ SIMSR and in Industry.

We would like to thank Nikhil Sawant for sharing his internship experience with Helm AG in Germany.

We express our gratitude to Prof. (Dr) Pankaj Trivedi (Course Coordinator, PGDM Core, and Faculty Coordinator, Finstreet) for providing the essential mentoring, support and backing to the Finly team.

We thank all our readers and faculty members for their constant love and support. Your reviews and feedback are much appreciated.

Each edition of FINLY is the outcome of the tireless efforts and dedication of a group of individuals who call themselves Team Finly. We can't thank them enough for their constant support and initiative.

Mohak Shah, MMS - Finance, 2018-2020

Saurav Jain, PGDM Core, 2018-2020

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Team Finly- November 2019 Faculty Incharge

Editor-in-Chief

Editor- FINLY

Mohak Shah

Saurav Jain

Dr.(Prof) Pankaj Trivedi

-Conceptualization & DesignHarsh Dhoka

Rashmi Sharma

Jugal Daiya

-Content Team-

Saurabh Patel

Renita Raphael

Swikar Gupta

Srikant.K

Ayush Shah

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FINLY| JULY 2018 | Finstreet | SIMSR

INDEX

Editorial Team Finly

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02

04 Cover Story

08 Intriguing Indeed 11

Eco Section

13 Sector Analysis

Call for Articles Winner Call for Articles Runner up Alumni Section

Intern Diaries

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24

20

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US – Iran Crisis

Cover Story

Saurabh Patel- PGDM-FS-2019-21 Srikant.k- PGDM-IB-2019-21

U.S.-Iran tensions have evolved into conflict after U.S. military forces killed Qasem Soleimani, the commander of Iran's Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF) and one of Iran's most important military commanders, in a U.S. airstrike in Baghdad on January 3rd, 2020

Who was Qasem Soleimani

was appointed as commander of the IRGC-QF in 1998. Soleimani's success in expanding Iran's regional influence through the IRGC-QF's formation of pro-Iranian militias in several countries has made him a national hero in Iran. The regime afforded him wide publicity inside Iran as an able strategist who combatted Iran's adversaries from the front lines of regional conflicts. Soleimani was widely regarded as one of the most powerful and influential figures in Iran, perhaps second only to Ali Khamenei supreme leader of Iran

The Context for Heightened U.S.-Iran Tensions

Qasem Soleimani was born in March 1957 in Kerman Province (southeast Iran). He joined the IRGC at its inception in 1979, serving in his home province. He participated in postrevolution suppression of Kurdish insurgents in northwestern Iran. He commanded an IRGC unit and then its 41st Sarollah Division during the Iran-Iraq war. The division was deployed back to Soleimani's home province of Kerman after that war and he was tasked with combating drug smugglers. He was still in that position when he

U.S.-Iran relations have been mostly adversarial since the 1979 Islamic Revolution in Iran. U.S. officials and official reports consistently identify Iran's support for militant armed factions in the Middle East region a significant threat to U.S. interests and allies. Attempts to constrain Iran's nuclear program took precedence in U.S. policy after 2002. The United States also has sought to thwart Iran's purchase of new conventional weaponry and development of ballistic missiles. In May 2018, the Trump administration withdrew the United States from the 2015 nuclear agreement (Joint Comprehensive Plan of Action, JCPOA),

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Cover Story

FINLY| February 2020 | Finstreet | SIMSR asserting that the accord did not address the broad range of U.S. concerns about Iranian behavior and would not permanently preclude Iran from developing a nuclear weapon. As the U.S. Administration has pursued its policy of maximum pressure, including imposing sanctions over Iran crude oil import, bilateral tensions have escalated significantly.

on stable oil supplies, to put pressure on the Trump Administration to reduce its sanctions pressure on Iran.

Timeline of USA actions on Iran after Donald Trump make JCPOA against the Iranian government

Ÿ On May 19, 2019, a rocket was fired into the

Ÿ On June 13, 2019, two Saudi tankers in the Gulf

of Oman were attacked and the U.S. government assessed that Iran is responsible for the attacks that occurred in the Gulf of Oman

secure “Green Zone” in Baghdad but it caused no injuries or damage. Iran-backed Iraqi militias were widely suspected of the firing

Ÿ On April 8, 2019, the Administration

designated the Islamic Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organization (FTO), it's the first time that an official military force was designated as an FTO

Ÿ In June 2019, the Houthis, who have been

Ÿ As of May 2, 2019, the Administration ended

Ÿ On June 20, 2019, Iran shot down an American

a U.S. sanctions exception for any country to purchase Iranian oil, aiming to drive Iran's oil exports to “zero”

unmanned aerial surveillance aircraft (RQ-4A Global Hawk Unmanned Aerial Vehicle) near the Strait of Hormuz, claiming it had entered Iranian airspace over the Gulf of Oman

fighting against a Saudi-led Arab coalition that intervened in Yemen against the Houthis in March 2015, claimed responsibility for attacks on an airport in Abha, in southern Saudi Arabia

Ÿ On May 5, 2019, citing reports that Iran or its

allies might be preparing to attack U.S. personnel or installations. The USA issued a travel advisory to its citizen not to visit Iran Ÿ On May 24, 2019, the Trump Administration

announced large military weapon system sales, including sales of precision-guided munitions (PGMs) to Saudi Arabia and the United Arab Emirates (UAE). To put maximum pressure on Iran Ÿ On 3rd January 2020 USA attacked Qasem

Soleimani commander of (IRGCQF)Outside airport in Iraq's capital Baghdad

Iran's Initial Responses to the U.S. Pressure Steps Iran responded to the U.S. maximum pressure campaign in part by demonstrating its ability to harm global commerce and other U.S. interests and to raise concerns about Iran's nuclear activities. Iran might have sought to cause international actors, including those that depend

Ÿ On 14th September Attack on Saudi Energy

Infrastructure shook the USA and its allies The attack results in shut down of a significant portion of Saudi oil production company Aramco Ÿ O n 1 1 t h Ja n u a r y I r a n h a s a d m i t t e d

"unintentionally" shooting down a Ukrainian passenger jet, killing all 176 people on board.

The downing of Ukraine International Airlines flight PS752 came just hours after Iran carried out missile strikes on two airbases housing US forces in Iraq. The strikes were a response to the killing of senior Iranian commander Qasem Soleimani in a US drone strike in Baghdad on 3 January

Impact of Oil prices after killing of Qasem Soleimani Oil prices have jumped by more than $2 a barrel after the assassination of Iran's second most powerful person general Qasem Soleimani, raising the prospect of an escalating crisis in the Middle

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Cover Story

FINLY| February 2020 | Finstreet | SIMSR East that could disrupt the world economy.

International benchmark Brent crude gained $2.42, or 3.6% to trade at $68.67. U.S. West Texas Intermediate gained $1.87, or 3%, to reach $63.05 per barrel its highest level since April 2017. Although the spike in oil prices was short-lived as the USA and Saudi Arabia both assured the world that they will increase the oil production if any disruption in oil supply takes place and Iran also because of the recession in its economy doesn't take an adventurous step to disrupt oil production and supply

India reaction after USA strike India has asked the US and Iran to exercise "restraint" to avoid destabilizing the region after General Qasem Soleimani's death. In a press release, the Ministry of External Affairs noted with concern the increased tensions that could impact peace and stability. India a close ally of both the countries will have to do a tightrope walk. For India the stakes remain high since it already stopped importing Iranian oil because of US sanctions, any further escalation could put India's Chabahar project in jeopardy which could impact India's sea-link communication and energy flows from the region.

The Geographic location advantage of Iran Iran is situated on the Strait of Hormuz. The Strait of Hormuz is one of the world's key maritime chokepoints this narrow seaway connects the Indian Ocean with the Arabian Gulf. The Strait of Hormuz is situated between Iran and UAE. On the north coast lies Iran and on the south coast the United Arab Emirates and Musandam, an exclave of Oman.

The strait is about 90 nautical miles long, with a width varying from about 52 nautical miles to 21 nautical miles. A third of the world's liquefied natural gas and almost 25% of total global oil consumption passes through the strait, making it a highly important strategic location for international trade

Why Iran is Important to India 1. Iran is an important Geostrategic partner of India in West Asia Two factors have played an important role in India's relations with Middle Eastern countries: economics and India's internal politics. The economic factor is centered on the oil trade and remittances from the sizable Indian diaspora in the Middle East. The second factor is India's internal politics concerning to its own large Muslim population. Relations with Middle Eastern countries have often been considered as levers to appease Indian Muslims. The politics of the Middle East are complex and multidimensional. The Saudi Arabia-Turkey rivalry is one of the dimensions. Another dimension is the Saudi Arabia-Iran rivalry. India has close relations with both Saudi Arabia and Iran. However, India is yet to work out a way to balance its ties with Iran on the one hand and Saudi Arabia and the United States on the other. Iran is strategically important for India, but India-Iran relations also need the diplomatic backing and power that India has at the moment put behind growing its relations with Saudi Arabia 2. Oil import from Iran is important to India Iran was the second-largest supplier of crude oil to India, supplying more than 425,000 barrels of oil per day, and consequently, India is one of the largest foreign investors in Iran's oil and gas industry. But in 2018, the 12 billion dollar annual oil trade between India and Iran was halted due to extensive economic sanctions against Iran enforcing by the USA 3. Chabahar port The port of Chabahar is located on the Makran coast of Sistan and Baluchistan Province, next to the Gulf of Oman and at the mouth of Strait of Hormuz. It is the only Iranian port with direct access to the Indian Ocean. Being close to Afghanistan and the Central Asian countries of Turkmenistan, Uzbekistan, it has been termed the "Golden Gate" to these land-locked countries. India is developing this port as it will serve its interest to bypass Pakistan and import it's good to Afghanistan and central Asia via this port also this port has military importance as it is very near to

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FINLY| February 2020 | Finstreet | SIMSR

Cover Story

Gwadar port which is jointly developed and operated by Pakistan and china

other producers around the Persian Gulf could prove vulnerable to cyberattacks that might severely disrupt their operations.

4. International North-South Transport Corridor The International North-South Transport Corridor (INSTC) is a 7,200-km-long multi-mode network of ship, rail, and road route for moving freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia, and Europe. The route primarily involves moving freight from India, Iran, Azerbaijan, and Russia via ship, rail, and road. Iran can play a vital role for Indian businesses to expand in the west and central Asia via Chabahar port and NSTC corridor.

Tankers carrying most of the oil leaving the Persian Gulf region about 18 million barrels a day-as well as giant vessels loaded with liquefied natural gas, must pass through the Strait of Hormuz Iran's coastline covers much of the east side of the gulf, leaving Tehran well placed to harass shipping with small boats, missiles, mines, and other weapons. Last year, Iran seized a number of tankers in the area in an apparent effort to show that if Tehran was not permitted to export its oil, then supplies from other producers in the area were at risk.

Market participants worry that Iran could step up such attacks on shipping, although such a move would be likely to bring a quick response from the United States military forces in the area

Conclusion If millions of barrels a day of oil production were suspended, that would quickly draw down strategic crude oil reserves of the world and send oil prices soaring, although the United States government could seek to calm markets by releasing fuel from it's the Strategic Petroleum Reserve which is largest in world.

A big oil price increase would have a much more modest impact on the United States economy than in the past because of shale oil production, though it will hurt other countries like China and India much more. Iran has other options for retaliating against Washington and its allies. It was clear in September that key Saudi oil installations could be knocked out with missile and drone attacks.

Analyst's reports worry about a similar strike by Iran or a larger version.

Analysts also say the oil installations of Saudi Aramco and

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Intriguing Indeed

Renita Raphael | PGDM CORE | 2019-21

Pink? Must be something related to women!

Yes, pink tax indeed is the invisible cost that women have to pay for products designed and marketed specifically to them, while the generic or male equivalent of the same products is available for less.

The pink tax is a phenomenon that is often attributed as a form of gender-based price discrimination, with the name coming from the observation that many of the affected products are pink. This is not a literal tax, but a broad tendency for products marketed specifically toward women to be more expensive than those marketed for men, despite either gender's choice to purchase either product. In some areas of commerce, women are routinely charged more than men. Two prominent examples are haircuts and dry cleaning. Critics of gender-based pricing call it a “pink tax� because it happens much more often to women.

The study was conducted by the NYC Department of Consumer's Affairs that concluded that women's products are typically more expensive than men's products. The study found that women's products on average cost 7% more than men's equivalents. This discrepancy applies to apparel, toys, and healthcare products, among other things.

In the toy sector, girls' toys cost on average 7% more than boys' toys. The study talked about a side-byside comparison of a Radio Flyer scooter where the

red scooter costs $24.99 and a pink scooter, identical in all ways but color costs $49. In children's apparel, girls' clothes were 4% more expensive than boys'. Men's clothing was 8% less expensive than women's clothes. The largest discrepancy was seen in personal care/hygiene products, where women's products cost 13% more than men's.

Causes of discrepancy in taxes: 1. Product differentiation: Product differentiation can account for a portion of the difference between the prices of men's goods and women's goods.

Products like the Radio Flyer scooter may cost more due to the cost of slightly changing the product. For example, a pink scooter may cost more than a red scooter because it is more expensive to paint a scooter pink than red. Also, such a large difference for this reason of production would be because the red scooters are the larger production for the larger male population, and pink scooters are in the minority, for the female population. This also applies to services like haircuts or dry cleaning.

Oftentimes, women's haircuts cost more than men's because women's haircuts can involve more over time and are more labor-intensive than men's; they need to price haircuts for women higher than for men.

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Intriguing Indeed

FINLY| February 2020 | Finstreet | SIMSR In dry cleaning, men's clothing tends to be more uniform while women's clothing tends to have a lot of variabilities which can make it harder to clean. Clothes pressing machines, normally made for men's clothing, are more difficult to be re-used on women's clothes, which results in the drycleaners resorting to hand-pressing the clothing.

2. Marketing Strategy: While the physical difference between a men's razor and a women's razor is minimal, the difference in marketing those products is large. Women's products need to be packaged and marketed in a different way than the men's products because women emphasize a lot on the look and feel of the products. Marketers have also found that women are generally willing to pay higher prices for goods than men if the goods provide satisfactory results. However, to generate a feeling of purchase in women require costly marketing strategies.

3. Inelastic demand for the product: Inelastic demand is when the buyer's demand does not change as much as the price changes. Some of the women's products are essential products and which they need regularly and can't do without the use of those products. Hence, manufacturers price the products at a high price thus making the women essential products costly.

Economic Impact of the Pink Tax The economic impact of the pink tax is that women have less purchasing power, especially paired with the gender-based pay gap. The wage gap already puts women at a disadvantage when it comes to purchasing power. Women statistically, on average, have less income to spend on goods and services. This fact gives men more money and, ultimately, gives them more buying power. The pink tax further contributes to the economic inequality between men and women. Paying more for goods and services marketed to women while women earn less than men means men hold the majority of the purchasing power in the economy.

Taxes on feminine hygiene products that men don't need further contribute to this discrepancy.

Criticism against Pink Tax The pink tax has received a lot of criticism. On July 8, 2016, a new act – The Pink Tax Repeal Act was introduced to end gender-based price discrimination. The Pink Tax Repeal Act would mandate that any comparable products that are marketed toward men and women must be priced equally. The bill stated that businesses such as tailors, barbers, hairstylists, dry cleaners and laundries would not be permitted to discriminate for "standard services" due to a person's gender or the gender the clothing is intended for, without a valid, prominently placed written justification.

Criticism of the pink tax includes the phenomenon that the idea robs women of choice by sug gesting that women are so easily brainwashed by marketing that they are prevented from choosing the lesser-priced products than the otherwise "identical" male-marketed alternative.

Instead, critics have attributed the pricing disparity to market forces and stated that, if women continue to buy a more expensive pink razor, it is because they see some utility or additional aesthetic that they are willing to pay for.

Way Forward The pink tax is gender-based discrimination and should be looked at by the Government and manufacturers by changing and innovating their products. Some of the suggestions are : 1. The general tax code should be changed so that the products are priced evenly for both men and women.

2. Educate the consumers about the Pink Tax. The more the consumers are educated about the Pink Tax, the less likely they are to buy unfairly priced goods—and more likely we will be able to see the change. Brands like European Wax Center's #AxthePinkTax campaign this April, designed to educate consumers and empower women. Last year, Burger King launched its "Chick Fries" campaign—in which a version of its Chicken Fries

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FINLY| February 2020 | Finstreet | SIMSR

Intriguing Indeed

served in a pink box was more expensive—to raise awareness.

3. Companies can innovate around the consumer and make the products gender-neutral.

Companies should generate something that would appeal to everyone instead of an outdated pink and blue version.

Conclusion Pink Tax as a term is not so widely popular and this term is not only limited to first-world countries but it is widely used and applicable in every country. When GST (Goods and Services Tax) came into being in India, tax on sanitary pads was a whopping 12%. It was only withdrawn in response to multiple protests from activists across the country. Personal care products have been an easy target for price discrimination between women and men consumers. The pink tax is subtle and not illegal, but it's substantial. So, Consumers need to be aware of these hidden taxes and costs and opt for generic versions of the products wherever possible.

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2020

Budget 2020: Reviving the Indian Economy

Eco Section

Swikar Gupta | PGDM-FS | 2019-21

At a stage when the economy has hit rock bottom, with dismal revenue growth, the macroeconomic backdrop of the slowest growth in nominal GDP in at least four decades and the sharpest increase in retail inflation in five-andhalf years besides ongoing tensions in West Asia threatening to set oil prices rising to unsustainable limits, Finance minister Nirmala Sitharaman will present her second budget.

Hence, there is a lot on stake for the FM. She will need to take very precise steps to boost the demand without allowing fiscal deficit to go offtrack.

Although the government has reluctantly agreed to the point that India has a growth problem, it has still not taken any measures which could have a big demand push. The National Democratic Alliance (NDA) government's approach so far has been to take sector-specific, supply-side measures. One big supply push though came in recently in the form of a cut in corporate tax rates to attract investments by technology companies looking for opportunities outside China, amid China's ongoing trade war with the USA. While it expected to see a big shift in investment activity, the numbers are yet to show up.

While the fiscal deficit for 2019-20 has been set at 3.3% of GDP, the Centre had already exceeded the full-year target by around 15% in just eight months. Low direct and indirect tax collections, and the staggering pace of government's

strategic disinvestments, are likely to miss its overoptimistic revenue collection targets in budget 2020 by a fair margin. In fact, the corporate tax rate cuts will further harm the direct tax collections.

The current situation of the economy can be seen as heading towards stagflation, where the Indian economy is facing both high inflation and low growth at the same time. The Indian economy has now faced six consecutive quarters of slowing growth since 2018. Economic growth in the second quarter ending September, the most recent quarter for which data is available, was just 4.5%. The current rise in retail inflation has been attributed mainly to the rise in the prices of vegetables such as onions. Still, the steady rise in wider inflation figures over the last few months amidst falling economic growth has led to fears of stagflation.

Source: tradingeconomics.com

One of the fundamental issues now with demand is that there isn't any. The simplest and quickest way to stimulate demand is by putting more money in the

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Eco Section

FINLY| February2019 2020| |Finstreet Finstreet | SIMSR FINLY| November | SIMSR hands of people. That would entail two things: A cut in personal income-tax rates, and an enhancement in the spending on rural programs.

Right now, while there may a silent majority that believes all is indeed well, there's a vocal minority that believes otherwise. The protests against the CAA may be either a cause or a symptom — but they are a reminder that there is a sense of disquiet in some quarters, including several academic campuses. Presently, a budget that would bring about a paradigm shift isn't going to be easy, amidst this political controversy around the Citizenship (Amendment) Act, and the happenings in Kashmir.

As a lack of demand being the prime culprit of the staggering economy, the Finance Minister in the upcoming budget should put forth the driving factors in order to boost the demand, along with an expansionary fiscal stance that that can revive the economy.

The most important number that determines the entire budget is the expected nominal growth rate, which is the basis for tax projections. When the nominal growth rate is over-estimated, as it was last year, tax officials are given unrealistic targets. They then try to meet these targets through tax demands and raids, creating fear among investors and individuals. Both direct taxes such as income and corporate taxes and indirect taxes such as GST depend on the nominal GDP. There should be a realistic assessment of nominal GDP. The debate about moving from a cash system to an accrual-based system of accounting has long been in the talks. Some experts say that moving to a new system would take 10 years, and no finance minister has had the courage or motivation to do it. Ms. Sitharaman needs to make a beginning, because she, more than any other finance minister in the recent past, has been accused of lack of data transparency. A commitment to better data transparency will not only improve the forecasting and delivery but will also give her greater credibility.

In addition, with the slowdown in GDP growth, India's debt dynamics are now at the risk of being unsustainable. For debt sustainability, the rate of growth of debt must not be faster than the rate of growth of the economy. While debt grows at the interest rate, if the interest rate is higher than the

growth rate of the economy, there is a risk of debt becoming unsustainable, of the debt-to-GDP ratio growing higher every year.

Pertaining to different sectors, the government can take different measures in the upcoming Budget. To cater to the telecom sector, cutting back the obvious charges like license fee and spectrum usage charges will boost the sector. Being a capital-intensive industry, low-interest funding will ease the telecom players. The finance minister can create a roadmap for increased infrastructure spending in India. It is expected that the budget will provide more clarity on the government's five-year long-term plan of Rs 102 lakh crores for infrastructure projects. The government should encourage further spending on small-scale rural infrastructure to kick-start growth.

The government must act to encourage risk-averse banks to fuel credit for consumption growth and ensure timely redressal of cases referred to insolvency courts. Agriculture and allied sectors should remain priority sectors for the government.

The g overnment-backed schemes such as MGNREGA, Mandi reforms, PM-Kisan schemes, etc., would provide relief to farmers as well as benefit rural economy. Government should relook at the FDI in the insurance sector to boost foreign investments. To boost the worst-hit automobile sector, since the government is already stressing on electric mobility, the lowering of and possibly scrapping of import duty on lithium-ion batteries is on top of every automotive company's wish list.

This shall lead to the domestic manufacturing of battery packs and subsequently create avenues for cell manufacturing. Also, there are high expectations for direct tax-related reforms such as an increase in income tax slabs or rebates. This is likely to lead to more disposable income which will, in turn, boost consumption and spending and should benefit sectors like FMCG, Consumer Durables; etc.

A demand stimulus (through tax cuts and increased spends on rural cash-transfer schemes), a focus on real estate, automobile and banking and finance sectors, maybe all that's required to turn the public sentiment for demand. Sure, a demand stimulus may entail higher spending, but the government should be willing to temporarily live with a higher fiscal deficit even as it translates its intent on the divestment front into some ready real cash. If demand does not revive by the end of March 202021 could well go the way of 2019-2020.

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Tobacco Sector and Company Analysis Rashmi Sharma | PGDM-FS | 2019-21 Ayush Shah | PGDM-RM | 2019-21

Sector Analysis

Overview of the Industry Global tobacco market has been witnessing rapid growth in the recent years due to growing demand for innovative products, increasing consumption in emerging & developing nations, rising consumption of smokeless tobacco and surging demand for vapor. Moreover, there is increase in consumption due to changing lifestyle of young population in developing regions owing to increasing employment rate, rising number of international players, rising number of product launches by domestic companies and low cost of products have been driving the market growth. This sector contributes around Rs.11,79,498 crore to Indian economy and employs an estimated 4.57 crore people. Innovative products such as e- cigarettes, hookah and chewing tobacco are impelling the growth of tobacco market. The global cigarettes market was equal to 626.09 billion USD (calculated in retail prices) in 2014. Until 2024, the cigarettes market in the world is forecast to reach 792.52 billion USD (in retail prices), thus increasing at a CAGR of 2.03% per annum for the period 2019-2024. This is a decrease, compared to the growth of about 2.89% per year, registered in 2014-2018.The average global consumption per capita in value terms reached 123.13 USD per capita (in retail prices) in 2014.

In the next five years, it grew at a CAGR of 1.63% per annum. In the medium term (by 2024), the indicator is forecast to speed up its growth and increase at a CAGR of 1.99% per annum.

Legal cigarettes account for only ~10% of tobacco consumed in India due to a punitive and discriminatory taxation and regulatory regime.

India is the 4th largest market for illegal cigarettes in the World; causing a Revenue loss of over 13,000 cr. p.a. to the Exchequer. 42% of adult Indian males consume tobacco. Only 7% of adult Indian males smoke cigarettes as compared to 14% who smoke bidis and 30% who use smokeless tobacco. Annual per capita adult cigarette consumption in India is approx. one-ninth of world average or it can be stated as per capita cigarette consumption is 11% of World average. Although India accounts for over 17% of world population, its share of world cigarette consumption is less than 2%. India has the lowest per capita consumption of Cigarettes in the world – just 89 cigarettes per annum.

Source: ITC Company Annual Report

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Sector Analysis

FINLY| February 2020 | Finstreet | SIMSR Tobacco industry has the wide variety of products based on different categories. By type we have Cigarettes, Cigar, Smoking Tobacco, Smokeless Tobacco, E-Cigarettes and Vapor; By Sub Type we have - Machine Made Cigarettes, Handmade Cigarettes, Machine Made Cigar, Handmade Cigar, Snuff, Chewing Tobacco. The main tobacco producing states include Andhra Pradesh, Telangana, Chhattisgarh, Madhya Pradesh, Assam, West Bengal, Bihar, Uttar Pradesh & Gujarat. Despite accounting for 17% of the world population, tobacco consumption in the form of Cigarettes in India is less than 2% of global consumption. However, India accounts for 84% of the world's consumption of smokeless tobacco.

Source: economictimes.com

Porter's Five-Forces Analysis Competitive Rivalry - High Ÿ Many competing players Ÿ Price competition Ÿ Advertisement for cigarettes is now prohibited in India Threat of New Entrant - Low ŸNew product differentiation is very toughalready cigarettes at different price points , flavors and brand image Ÿ Capital Requirement is very high for a PAN India launching ·Government policy – high tax, no TV/Radio Ads Threat of Substitution - Low ŸHerbal cigarettes were launched but did not become popular ŸNicotine patch is another substitute- but no comparison with cigarettes in terms of popularity and usage

Bargaining Power of Buyer's - Low ŸAddicted customers ŸLow switching cost in terms of price ŸProduct quality is not much important to smokers ŸSmoking has lot of symbolic and emotional values

attached with it.

Bargaining Power of Supplier - Low ŸMany inputs are required but in small amount – paper, tobacco, filter ŸThere are many small scale and unorganized players present in the industry ŸCigarettes companies are big and have direct access to distribution channel and addicted buyers.

Suppliers don't have much control over smokers Government Actions As the implementation of various provisions under COTPA lies mainly with the State Governments, effective enforcement of tobacco control law r e m a i n s a b i g c h a l l e n g e . To s t r e n g t h e n implementation of the tobacco control provisions under COTPA and policies of tobacco control mandated under the WHO FCTC, the Government of the India piloted National Tobacco Control Program (NTCP) in 2007-2008. The program is under implementation in 21 out of 35 States/Union territories in the country. In total, 42 districts are covered by NTCP at present. This was a major leap forward for the tobacco control initiatives in the country as for the first time dedicated funds were made available to implement tobacco control strategies at the central state and sub-state levels. The main components of the NTCP were: National level: ŸEstablishment of tobacco product testing

laboratories, to build regulatory capacity, as mandated under Cigarettes and Other Tobacco Products Act(COTPA), 2003. ŸPublic awareness/mass media campaigns for awareness building and behavior change. ŸMain-streaming the program components as part of the health care delivery mechanism under the National Rural Health Mission framework. ŸMainstream Research and Training on alternate

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Sector Analysis

FINLY| February 2020 | Finstreet | SIMSR major factors hampering the growth of innovative products.

crops and livelihoods in collaboration with other nodal Ministries. Ÿ Monitoring and Evaluation including surveillance e.g. Global Adult Tobacco Survey (GATS) India.

Company Analysis - ITC

State level:

Company Overview

Tobacco control cells with dedicated manpower for effective implementation and monitoring of anti-tobacco laws and initiatives.

ITC was established on August 24, 1910, under the name “Imperial Tobacco Company of India Ltd”. In recognition of the company's multi-business portfolio encompassing a wide range of businesses Cigarettes & Tobacco, Lifestyle Retailing, Foods, Information Technology, Packaging, Paperboards & Specialty Papers, Hotels, Agri-business, Education & Stationery, and Personal Care - the full stops in the company's name were removed effective September 18, 2001. The company now stands rechristened as ITC Ltd.

District level: Ÿ Training of health and social workers, SHGs,

NGOs, school teachers etc. Ÿ Local IEC activities. Ÿ Setting up tobacco cessation facilities. Ÿ School Program. Ÿ Monitoring tobacco control laws.

Future Outlook The cigarettes segment is predicted to hold its dominant position in the market. Amongst the regions, APAC accounts for the largest regional share in the Global Tobacco Market in 2018.

Moreover, America region is also predicted to maintain its dominant position in the market in forecast period. Presence of large number of y o u n g wo r k i n g p o p u l a t i o n , i n c r e a s i n g consumption for innovative products, rising demand for chewing tobacco and increasing penetration of global brands will be major factor backing the growth of tobacco market.

Tobacco issues rarely have price-to-earnings ratios above the market averages. Legal and regulatory risks play a role in keeping valuations at reasonable levels. On balance, the industry is suitable for investors seeking long-term growth and income and willing to assume a moderate degree of risk.

Stocks of companies that have a good record of lifting sales and net profits and dealing with regulators, lawsuits and competitors should be favored. Increasing tax rates on cigarettes along with growing awareness in relation to harmful effects caused by the smoking tobacco will be the

ITC Ltd is one of India's largest private sector companies. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Agri-Business, Branded Apparel, Information Technolog y, Packaging, Packaged Foods & Confectionery, Personal Care, Stationery, Safety Matches, and other FMCG products. ITC is an undisputed market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging, and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Branded Apparel, Packaged Foods & Confectionery, Personal Care and Stationery.

During the year the first six decades of the company's existence was primarily focused on the growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the seventies witnessed the beginning of a corporate transformation that would usher in momentous changes in the life of the company.

Revenue Generation

Source: Company Annual Report

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Sector Analysis

FINLY| February 2020 | Finstreet | SIMSR As shown above, Major revenue for ITC is generated from its Traditional business of Cigarettes 44% of Total Revenue, followed by FMCG business which comprises 26% of total revenue, then followed by Agri-Business 14%, Paperboards 9%, Hotel business 4%, and others 4%.

are trusteeship, transparency, empowerment & accountability, control, and ethical corporate citizenship.

Share Holding Pattern

Revenue from the Tobacco business

Source: Company Annual Report

Source: Company Annual Report

It can be seen that there has been a drastic fall in the sales of cigarettes during the year 2017-18. The reason affecting this fall was increase in illegal smuggling of tobacco due to a cumulative 118% hike in the tax rates since 2012-13. The segment is affected only after the tax hike and a substantial increase in prices.

Corporate Governance ITC Ltd has been one of the frontrunners in India to have put in place a formalized system of Corporate Governance. ITC enjoins the highest standards of ethical and responsible conduct of business to create value for all stakeholders. ITC defines Corporate Governance as a systemic process by which companies are controlled and directed to enhance their wealth-generating capacity. ITC believes that the governance process should make sure that these resources are utilized in a manner that meets the stakeholders' aspirations and the expectations of the society. This belief is reflected in the Company's commitment to contribute to the “triple bottom line�, namely the conservation and development of the nation's economic, social and environmental capital.

The cornerstones of ITC's governance philosophy

It can be seen that Financial Institutions, Insurance Companies, Mutual Funds, and Banks own 39% of the total shareholding, followed by FPI and FII which owns 17%. Foreign Companies own 30% of the shares and Corporate Bodies with 4%. 10% of the total shares are owned by the general public.

Source- Annual Reports

SWOT ANALYSIS StrengthBusiness Portfolio: ITC has six strong and diverse businesses under its name which boasts its total revenue and allows ITC to innovate and explore other business opportunities.

WeaknessesTobacco Products affects the brand image: ITC has made a lot of efforts to improve its corporate image but the fact that ITC has many tobacco products in its portfolio impacts its corporate image.

OpportunitiesStrategic Acquisitions: ITC should continue acquiring potential brands like they have done in the past by acquiring Savlon from Johnson & Johnson and B Natural from Balan Natural Foods.

ThreatsIntensifying Competition in Business: ITC faces competition in its business from companies like Godfrey Phillips and Golden Tobacco.

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Sector Analysis

FINLY| February 2020 | Finstreet | SIMSR

Financial Analysis

and calibrated price actions in its core cigarette business are key catalysts to sustain the growth momentum going ahead.

Source: Company Annual Report

The ideal ratio is 2:1, and the ideal ratio specified by the financial institutions is 1.33 is to 1. ITC's current ratio is 3.07:1 which is higher than the ideal ratio. Compared to the previous year in the current year. The company has improved. This is because the turnover of the company has increased which has led to an increase in inventory and receivables. Also, the company's Bank balance has increased thus contributing to the increase in the current ratio.

Net Profit ratio helps to determine the overall efficiency of the business' operations, furthermore, it is an indicator of how well a company's trading activities are performing.Net Profit ratio is 27.22%, a nearly 2% increase in the ratio has been seen since 2018.

Substantial growth has been seen since 2017.

Return on equity (ROE) is a measure of financial performance. ROE is considered a measure of how effectively management is using a company's assets to create profits. ITC ROE had declined from 2017 to 2018 and then has been nearly the same with minor fluctuations.

Future Outlook ITC does not have any kind of threat from its peers in India as it is the market leader in the cigarettes segment by a huge margin. But there has been a steady decline in the sales for the past two years, though the performance has started improving in the recent quarters but the growth is still slow. Management indicated that performance could have improved but for factors like weakness in overall demand especially in rural markets and wholesale channel and tight market liquidity conditions. Further owing to floods or disruptions in several markets demand was impacted to that extent.

The challenge will be to improve the volume trajectory

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ZOMATO'S APPETITE FOR UBER EATS Kajal Symbiosis Institute of Management Studies, Pune

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Let's retrospect.

From dining at a lavish restaurant to bringing food directly to your dining table, food delivery companies have played a crucial role. There was a time when having meal outside means getting dressed up as an occasion, booking table in advance, visiting restaurants, sometimes queueing up for a table in a busy place, which eventually involved lot of actions.

As smartphones become companion to humans.

There comes a giant wave of food being delivered at your doorstep. This change in culture was led by two Indian unicorns Swiggy and Zomato-the biggest food delivery companies. Zomato was the first entrant in 2008 and market leader in its business operating in more than 100 cities and town. Swiggy being its swift competitor invaded the market in 2014 and offered tough competition to its one and only rival. Seeing the high profitability and also the potential of this business, Uber also involved in transportability entered in 2017 with the aim of using its existing channels to expand its business segment.

The strategy is offered is deep discounts to customers. But soon they realized that Indian customers are only loyal to discounts and had to exit the Indian market-facing continuous losses.

Story now...

On Tuesday, news started pouring therein Zomato had acquired Uber Eats India for a gargantuan sum of $350 Mn. For Uber, this deal makes perfect sense. Despite pumping in an exceedingly lot of cash, they haven't been able to disrupt the market. The commissions are low. Order values are tiny and exist due to acquiring

and retaining customers extravagant promotional offers. And here's the thing. The Uber Eats India business was hemorrhaging cash for a short time now.

In fact, despite contributing only 3% to global orders, the Indian business accounted for 25% of the operational losses (in the worldwide food delivery segment). And since the Uber IPO hasn't exactly set the globe flaming, there's been a great deal of chatter about Uber desirous to sell the food delivery business in India and pursue a path to profitability, therefore, the deal makes a great deal of sense for Uber.

But what's in it for Zomato?

Zomato benefit in acquiring uber eats is large because of market share, its delivery partners and delivery channels. Zomato will redirect all uber eats customers to its own platform. This acquisition will lead Zomato to outrun Swiggy share.

Secondly, Uber eats has a stronger presence in southern India will lead to Zomato penetration in these regions.

Lastly, since Zomato is planning to expand in tier two cities and small towns, the big base of uber eats will be of great assistance. Also, it gives Zomato higher density and will help in faster delivery.

Uber Eats fallout‌ When it comes to Indian food delivery space uber eats has always been the third distant comparison as compared to Zomato and Swiggy, that clock around 2-2.5 million orders every day. On the other hand, UberEats only clocks 2,50,000-3,00,000 orders per day. As for the value of the order, on an average

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UberEats witness $2 per order as compared to $3-4 per order for Swiggy and Zomato.

Uber lacklustre in IPO this may struggle to sustain in the Indian market and relying only on discounts and thus incurring huge losses leads to the exit of its business.

Power Of 2 Established Finally, the combining of two giants into one lead to two rivals in market Zomato v/s Swiggy clearly indicated the struggle of Indian food delivery space. And the most amazing thing here is that Zomato financed the entire deal through stock options without actually foregoing real cash. In return for the Uber Eats business, Zomato is expected to forego about 10% of its ownership.

The whole thing is expected to be valued at about $350 Million. Also, with Uber now becoming a prominent investor in Zomato you can't rule our cross-promotional opportunities. Say, you booked an Uber to JP Nagar 4th Phase at 8 p.m. on a cold windy Friday. Maybe you'll see a promotional offer for Zomato as you exit the cab and think to yourself— "Why not eat out today?�

References https://www.businesstoday.in/current/corporate /zomato-acquires-uber-eats-rs-2485-crore-100employees-uncertainty/story/394253.html https://cowrks.co.in/zomato-in-talks-to-acquireubereats/

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Priority Sector Lending and Inclusive Growth in India

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Subhiksha Kamath Shaheed Sukhdev College of Business Studies The term 'Priority Sector Lending' (PSL) was coined in the year 1972, when Dr. K.S. Krishnaswamy, emphasized on the importance of giving loans to the priority sectors of the economy. Since then, the Reserve bank of India (RBI) controls the flow and direction of credit through the qualitative instrument.

The primary objective of Priority Sector Lending is to ensure that institutional credit flows in the less profitable sectors of the economy. It has always ensured that priority sector lending captures untapped business opportunities among the financially excluded sections of society and thereby leads to a holistic development of the economy. After the nationalization of 20 largest commercial banks, PSL emerged as a major function of the RBI. As per a circular issued by RBI in 2018, Priority Sector comprises of the following categories: Agriculture, Micro, Small and Medium Enterprises, Export Credit, Education, Housing, Social Infrastructure, Renewable Energy, Others. These sectors hold national importance.

The RBI has also given special status to some of the sections as Weaker Sections so as to uplift the backward classes of the society. These are SHG groups, minorities, artisans, farmers, backward classes and many others.

Priority sector lending is meant for the purpose of improving credit availability in the weaker but large sections of the economy. These sectors give employment to a large segment of the population.

Such targets are mandatory for the banks to meet. In case they do not, then banks are required to invest in

Rural Infrastructure Development Fund (RIDF) instituted with National Bank for Agriculture and Rural Development (NABARD) or National Housing Bank (NHB) or Small Industries Development Bank of India (SIDBI) or Micro Units Development Refinance Agency Bank (MUDRA Ltd).

Under this regime, all sectors have seen a steady rise in the amount of loans that the commercial banks have provided. In some cases, it has nearly doubled in money amounts. Therefore, it has helped in uplifting the parts of the economy that are not catered by the market forces. There has been a surge in the living standards of the people who have taken advances under PSL. Public sector banks contribute the majority of the loans although the trend has been positive for other types of banks as well.

There have been significant benefits of such priority sector lending. Government sponsored schemes have shown a positive growth, concentration of sample beneficiaries has reduced amongst the lower income groups, there has been a significant shift from noninstitutional creditors to institutional credit and a definite growth in the exports of the country.

However, all this growth and development is marred by the excessive pressure on the commercial banks that this system exerts.

Most of the sectors included under such set targets include people who have a no/ less capacity of paying back the funds taken as loans. This has led to a low profitability and High Non-Performing Assets in the banks, especially in the public sector. The Government ultimately has to cover the losses thereby widening the fiscal deficit. Another issue is the high amount of direct/indirect costs involved in

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the process of providing priority sector lending to the borrowers. These are funding costs, transaction costs and credit costs.

Additionally, there is a lot of interference by the government when it comes to the targets set under the priority sectors. This makes it difficult for the banks to work properly and has reduced the viability of these institutions. A huge chunk of the loans advanced are also misused. These have been diverted in non-productive activities, family consumption and repayment of old debts. Hence, such loans have poor repayment rates.

With local and national leaders making promises for loan waivers, borrowers (especially farmers) have also been reluctant to pay their loans back. This has annihilated the credit culture amongst the masses.

So, the question to be addressed is what can be done to salvage the banking system of the country? It is extremely necessary for banks to reduce their NPAs. For this, the banks need to:

There should be qualitative targets along with quantitative targets in order to boost commercial bank. Banks should follow the guidelines of RBI in the matters of rate of interest. If the reasons for default are genuine then banks should be more accommodating.

Priority sector lending has led to socio-economic development of the country. Priority sector lending is also considered to be a cornerstone for inclusive growth in the economy. There has been an impressive growth under the wake of priority sector lending. Credit is more easily available in the sectors thereby leading to more investment in the economy.

But the increase is marred by a lot of shortcomings.

There is a need to address these problems as soon as possible so as to increase the efficiency of priority sector lending to the maximum. It is high time that the required actions be taken to salvage the banking system while still maximizing the benefits of priority sector lending.

References

Ÿ Carefully consider compromise settlement

proposal Ÿ Introduction of an internal audit of sanctions

of loans before releasing large averages Ÿ Debt Recovery Tribunal PSL norms should aim to make bankers incentivize the shift to modern methods of farming and change the models of farming. This would reduce the risky loans which is unviable in general. In MSME segments, special emphasis should be focused on 'Micro' and 'Small' units.

There are various non-banking organizations like p r i va t e e q u i t y f u n d s, H o u s i n g F i n a n c e Corporations, NBFCs, microfinance institutions, cooperative banks. These institutions can also be involved in order to ensure deeper penetration in the market.

Innovative financial Mechanisms will help separate the process of manufacture and distribution of financial products. Additionally, there should also be no distinction between cash credits and term loans. The branch managers should be given more powers to make decisions regarding the priority sector loans. Also, the service sector is understaffed in rural areas.

Ÿ Handbook of Statistics on Indian economy, RBI Ÿ PSL Final Report; IIBF Organization Ÿ Problems and Prospects of Priority Sector

Lending, Manjushree S.

Alumni Section

Alumni Section

these two years. These are the same people who will be in managerial positions in the next 10-15 years and this is a definite advantage.

2. Communication Skills – This is one of the most important skills to be developed in these 2 years of MBA. Improving communication skills will not only help you to get better Placements but also help you to grow and prosper in work.

Aachman Vijayvargia MMS 2017-19 Finance “First of all, I would like to express my sincere gratitude for giving me this opportunity to write for Finly. Being a part of Finstreet is one of the most cherished memories of my SIMSR life. This will not be an article where I will be giving advices since I do not feel I am experienced enough to do that. It is more of a description of my approach towards MBA and how it worked for me.”

Here are the key Mantras that I followed to make the most of my MBA Journey: 1. Network with People – In MBA, networking is the most important weapon to leverage upon.

In future you might need to ask favors or seek information. Networking helps here. You have an opportunity to interact with 1440 students in

3. Be thorough in what you do – Understand the logic behind everything you do or intent to do. You should own the task and understand every problem statement and try to find permanent solutions.

Being thorough in what you do will make you dependable and credible. This will in turn help in gaining trust from people around you.

4. Accept Position of Responsibilities – As a manager you should be able to get the work done from your subordinates. These things can be learned and experienced in committees, where you have to guide your juniors and get the work done from them. This gives you a good experience in managing a team and to understand human dynamics.

What about Placements?

Profile, Organization, Package are the 3 criterias one must look at before accepting any job if the location is not a constrain. If any of the above 2 criteria are satisfied, I would suggest you to take that Job. Try to get Summer Placements in companies or profiles which offer immense learning. In summer placements there will be time where an employer

FINLY| February 2020 | Finstreet | SIMSR won't give you any work or task to do, try talking to the supervisor and subordinates and help them in completing their task. In this way you will gain the trust and will get more task/projects.

Alumni Section

My advice to students: Make sure to inculcate smart work habits especially when it comes to prioritizing things.

Effectively utilize these 2 years i.e. learn as much as you can, try to build strong connection with your peers and faculties. Take assignments, projects, internship seriously because this will slowly prepare you to crack final placement interviews and will also help later in your corporate career. Also, I would suggest, don't get disheartened by failures during placement, instead work harder on your weak points, stay positive and never stop believing in yourself.

Remember, these two years in this beautiful campus will be an enriching experience so enjoy each and every moment. The idea is to work in work hours, and have fun in the rest.

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DIARIES

logistics and product & project development.

Internship Diaries

Interview Process: The process for HELM AG is completely based on your CV. If your educational background and experience matches with the profile offered by HELM AG, you will be shortlisted. If required there will be telephonic round based on your CV and might ask questions related to HELM & its business.

Internship Experience:

Nikhil Sawant MMS B 2018-20 Company Overview: HELM is one of the world's major independent chemicals marketing enterprises with more than 100 subsidiaries, sales offices and participations in over 30 countries with worldwide revenue of Euro 7.445 billion. HELM is a family owned business steeped in tradition and able to look back on a history spanning over 115 years.

HELM AG is a multifunctional distribution company specializing in Chemicals, Crop Protection, Active Pharmaceutical Ingredients, Pharmaceuticals and Fertilizers. Expertise of HELM AG lies in marketing, distribution,

International internship opportunity with HELM AG, one of the world's major independent chemical marketing enterprises, unlocked a plethora of learning and growth opportunities for me. As a Business analyst in the Digitalization department, the major area that I was able to focus on was understanding the business closely and accordingly take decisions to improve productivity. By handling the requirements of stakeholders and dealing with clients across the globe I was able to enhance my knowledg e as well as my analytical and interpersonal skills. An interesting thing about interning with HELM AG is that they involve you in multiple projects and give you ownership of the tasks that excite you. A key skill, I acquired through my internship would be to have a pragmatic and result-oriented approach towards the problem in a diligent manner. Overall, I had an unforgettable experience expanding my horizons while making life-long connections.

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Internship Diaries

Piece of Advice: My piece of advice would be to be thorough with HELM & its business, also read about their recent news. During internship period try to get involved in multiple projects as they will give you ample opportunities to explore and learn.

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