3 Ideas To Bring Change In Education At BOP

Why are there not enough good schools catering to economically weaker section of the society? We all know the reasons – There is no financial incentive for an entrepreneur to open a school in area where people cannot pay. Compare this fact to metros and tier-2 towns where hundreds of new schools are coming with fees range of 15K+ / annum. These schools are either run by politicians, real estate guys or well-known companies [no surprises, schools are profitable model specially if you have access to real estate and cheap source of money]

Here are 3 ideas to solve this problems

1.  The Education Fund – This fund is raised from people who look for social return on their investment. This is not donation but an investment that earns zero % interest or very low-interest rate and invested for a long-term (typically 10+ years). The Education Fund invests this money in instruments providing decent returns and since the investment duration is for a long-term, there is some guarantee of return, lets say, it is 10%. This return is used to fund the education of deserving students. Number of students who can benefit is directly proportional to the amount of money that can be raised and rate of return that can be earned on this money. Using technology enabled learning, lets assume that good quality education can be imparted with the cost of around Rs 5K per annum per student. That means, we need around 50K as principle amount deposited for each student. Now someone can ask – why complicate so much. If a person is purely interested in social ROI, why should he care about this complicated model and not just donate 5K every year? For following reasons – 1) It will save you hassles of writing cheque every year. 2) Probably, there is higher chance of finding an investor than a donor 3) The same 50K will impact lives of students for many years – which would otherwise need a solid commitment and discipline for such a long duration.

2. Guru Dakshina – In the age of Gurukuls, students did not get free education. It was kind of loan which students needed to pay back once the education was done. It was called Guru-Dakshina. Similarly, we can have a model where the payback comes when students pass-out and are employed. For few initial years this inflow would be zero [ as someone said, education is a very long-term investment]. After few years, we have a flow of cash, which makes it more self sustainable. 500 passing out students can fund 500 new students. This will also bring accountability on the education system – if we cannot make students employable, in a practical world, we have failed.

3. School in a Box – To bring down the cost of education. With such a large population and so little money, there is no other option but to cut the cost of education. Can good quality education be provided at such a low-cost. Technology and standardization may come to rescue. Lets say we have School in the box concept (phrase borrowed from UNICEF’s) – a completely standardized set of curriculum based on digital media and learning management system. If this can enable us to cut out dependency on good teachers and world-class infrastructure. In such scheme of things, can the cost of opening a new school be brought down? Can we build a good school with Rs 1million instead of Rs 10million.

No new idea comes without a problem. The first idea is not scalable, the second idea is cash flow negative for many initial years and the third idea needs a lot of investment and research to create such a concept. May be, if all the three ideas are applied together, these problems can be nullified. In any case, it is very difficult to say unless a solid research is done by getting on the roads. Hope one day we see these models working.

Education Fund
Education Fund Ecosystem

15 Resources For Intelligent Investing

I remember the amount of time it took to discover resources on investing when I started investing. The problem was further amplified by the analysts’ noise on TV and stock market exuberance in the surrounding. Since I would be taking break from active investing for some time, I thought of putting down some resources for budding value investors. Feedback is always welcome. Here is a list of resources that might give a head-start to young investors –


Books are investor’s best friends if one does not have enough people to talk around about investing.  Spending more time with books would also help you cut your time watching CNBC and stock market levels. There are many interesting books on investing and the more books you read, the more you would want to read. Here are few good books to get started –

1. The Intelligent Investor

The book is written by Benjamin Graham, the teacher of the investing God Warren Buffet. Although Buffet himself does not follow the quantitative framework provided in the book, it is a good book to start primarily to get into value investing school of thought – paying cents for a dollar and understanding Mr. Market.

2. Annual Letters to Shareholder from Mr. Warren Buffet – Berkshire Hathaway

Investing is best done when it is done like business. And nobody understands business better than Mr. Warren Buffet. Every year Mr. Buffet writes letters to Berkshire’s shareholders and each one of these imparts immense wisdom. Must read for anyone who wants to learn investing or learn business. There is also a book covering the lessons from these letters – The Essays of Warren Buffett: Lessons for Corporate America – a quicker read if you don’t want to download each letter and go through details of Berkshire’s businesses.

3. Buffet: The Making of an American Capitalist / The Snowball

Now since we are learning from the writings of the great man, we can also read more about his life from either of these two books – Buffett: The Making of an American Capitalist by Roger Lowenstein or The Snowball: Warren Buffett and the Business of Life by Alice Schroeder. I would recommend both. Continue reading “15 Resources For Intelligent Investing”

Wrong Investments

We often come across literature motivating us to work hard, always believe in oneself and never give up unless we achieve what we are working for. Such stories would then be appended with examples of how successful people have worked hard and achieved success. Working hard is good. But these stories do not tell about 99 others who keep working looking down and fail. Fallacy of silent evidence. It is important to realise that sometimes things are not just meant to be the way you are trying them to be. It might make sense to take a pause, think and decide if it would be good to change tracks and invest on something else.

Working hard is good but not enough. Look at the Opportunity cost. There might be something else you love more – working on something else, playing with your kids, spending time with family etc. Also don’t fall down for “sunk cost fallacy” making you think “I have invested so much time (and money), I cannot let it go down the drain”, even if you are stuck in the dead-end.

Realize early. Move to the right tracks. Sell the dud stocks even if it means booking losses.

[thinking out loud (after making lot of wrong investments)]

Dolby Labs – A Real IP Company

Dolby has similar clout as a brand in Audio technologies as Intel has in PC market. For namesake, there are multiple technology licensing companies (perhaps numbering in thousands), but there are only few who have brand recall like that of Dolby. Other than creating breakthrough technologies, Dolby also makes money and enough of it. For starters, it made more than $700 million dollars for year ending Sept, 2009 with around $250 million profits. That is more than what ARM makes being the number one IP company.

Dolby Labs develops and markets products and technologies related to audio entertainment and are standard in a wide range of entertainment platforms. Dolby’s compression technologies, noise reduction technologies and surround sound are used in DVD players, PC DVD playback software, DTVs, STBs, PMPs, gaming systems, a/v receivers etc. Primarily, it makes money by licensing its technologies to consumer electronics manufacturers and media software vendors. This makes up more than 80% of the total revenue. The remaining part comes from selling products and services to entertainment content producers and distributors.

Licensing revenue can be split into following major chunks – PC market, broadcast market and consumer electronic market and other nascent markets like mobile, gaming and automotive market.

– PC market makes up around 35% mainly driven by the inclusion of Dolby’s technologies in media applications and operation systems. Microsoft is a major customer with almost 10% revenues coming from it. It is also a competitor to Dolby in one way. Dolby Digital and Dolby Digital Plus are the key technologies employed in this segment.

– Consumer electronic market is around 25% [mobile market is treated different from consumer electronics]. Dolby Digital and Dolby Digital Plus are mandatory audio standards for Blue-ray format, so Dolby’s technologies become part of every Blue-ray players. Earlier, it enjoyed the same privilege in DVD players.

– Broadcast market which is mainly about STBs and TVs constitutes around 25%. This segment has shown an exceptional growth benefiting from increased global shipments of set top boxes and digital televisions. Here again Dolby Digital, Dolby Digital Plus and HE-AAC are the major technologies minting money for Dolby.

– Mobile, Gaming, Automotive and Licensing services cover up the remaining pie of the total Licensing revenues. Mobile markets are primarily driven by AAC and HE-AAC technologies, whereas Gaming and Automotive are driven by Dolby Digital, ATRAC and Dolby TrueHD.

Besides licensing revenues, product sales consist of revenue from sales of equipment to cinema operators and broadcasters representing around 15% of total revenue.

Dolby’s current position in these markets offer a decent growth for next few years. The real upside can come from mobile market where it is trying to increase the scope of its technologies. With the increasing processing capabilities of Smartphones and Internet Tablets, there are lot more things that Dolby can do to improve consumer experience. So in short Dolby is well positioned to ride on the success of mobile devices.

Dolby has also introduces many new technologies like Dolby Volume, Dolby Mobile, Dolby Axon and dynamic range image technologies. These technologies will start adding to topline in coming years. In addition, increasing penetration of CE device is developing nations like India and China will increase Dolby’s prospects [Dolby’s licensing deals are based on number of devices sold by the system licensee].

Geographically, Dolby is well diversified as it enjoys more than 65% revenue outside US. The major competitors include companies like DTS, DivX, Fraunhofer Institute, RealNetworks, Sony, SRS Labs and Thomson. The major competitive advantages of Dolby are 1) its brand, 2) its technologies, 3) its close relationships with content producers and distributors and 4) its clout with the standard licensing bodies. Dolby has almost 1600 patents issued and 2000 are pending in multiple countries.

Here come the numbers. Dolby has grown 80% in last three years and maintained profit margins of more than 30% last year. It employs around 1000 employees and with around $720 million dollars revenue and $250 million profit, the productivity is quite high. By Sept, 2009, it had cash and cash equivalent of $450 million dollars. Return on equity is around 20%. The market cap of Dolby is around $7billion.

A company worth keeping a close watch.

Tata Elxsi – Is it just another software services company?

Tata Elxsi is software products and sevices company promoted by much renowned Tata group. It was created as a joint venture between Tata and Elxsi, a maker of mainframe computers and incorporated in 1989 as a hardware manufacturer of computer servers. Elxsi went bust in early 90’s as mainframes went out of fashion. Only the name remained after so many years.

Tata Elxsi has four product divisions – Product Design Services, Industrial Design Division, Visual Computing Labs and System Integration Services. However, it reports revenues as two segments – Software Development Services and System Integration Support & Services. It is not very clear as to which product division fall under what segment but seems that the first two product divisions are reported combined in Software Development Services while System Integration Services and Visual Computing Labs are reported with System Integration Support & Services. Software Development Services form major chunk of the total revenues. [already confused with so many similar sounding divisions/segments?]

Product Design Services division appears to be usual service company operation in software, hardware, systems, vlsi, basically whatever comes in the way. It claims to have domain and technology expertise in VLSI design, embedded software, networking, telecom, multimedia, storage, wireless and high-performance computing. This perhaps cover almost all the domains in electronics Industry. This division completes with lot of Indian companies operating in embedded and VLSI space vying for outsourcing pie from companies operating in electronics space. This division might be constituting more than 80% of the revenues.

Industrial Design Services is somewhat more interesting as it is different from other IT companies. This division provides complete product solutions to clients across multiple industries like FMCG, consumer electronics, transportation etc. This division has worked on many successful product designs including the Pureit water filter and Pond’s for Hindustan Unilever, Horlicks Junior and Women’s Horlicks for GlaxoSmithKline and styling intent and Class A surface development for car makers such as Jaguar, Land Rover and Nissan. As interesting it may sound, but we do not know how much money it really makes and contributes out of the total pie.

Nothing much to take note for System Integration Services where it competes with number of System Integrators (SIs) across the globe. Visual Communication Labs division is interesting with its hand behind special effects and animation in many Indian Movies.

With major chunk of revenues coming from Product Design Services division, the growth is tied to overall growth of embedded and IT industry. The strength lies in the brand name associated with Tata group. This can also bring in work from Tata group companies and companies enjoying close relations with Tata. There is also a possibility that it get merged with TCS, another Tata company and leading IT Services company. However, there has been no signal from any of the companies for this. There is no significant competitive advantage apart from being a Tata group company. Recently company has been showing very bullish signs and have taken the fancy of analysts. Appointing Mr. S Ramadorai, ex-TCS CEO as Chairman has added more fuel to the fire.

It needs to be seen how the company can diversify the business from Product Design Services to other three divisions. Company has already been investing heavily in VCL division. Results are yet to be seen. It would also be interesting if the company gets in product development or IP development in a big way. The space is very crowded and it will be difficult to make a mark but the upside is very high if it gets successful.

Coming to numbers, for year ending March 2010, Tata Elxsi reported revenue of Rs 3.88 billion down from the previous year (Rs 4.19 billion). Net profit was Rs 488 million versus Rs 581 million. Total capital employed was Rs 2.14 billion. That comes to 12.6% Net Profit Margin and 22.8% ROE. The dividend yield has been always good. The market cap had started seeing action 6 months back after being subdued for a long time. Perhaps the time of making obscene money on the stock is gone.

Disclaimer: I hold the stock. I bought it at very low price when it was grossly undervalued. I can sell it anytime I need money or find another opportunity or just feel like doing so.

Apple – Is it the peak?

Apple has touched the market cap of $250 billion. At this stock price, it is only second to Exxon Mobil Corporation across all Industries and first in technology even leaving behind Microsoft. Take any two companies of the following set – HP, Intel, Cisco and Oracle – and the sum of market cap is less than that on Apple. In last one year, the stock price has risen by almost 100%. Investors are upbeat about the future prospects.

There are reasons for being bullish. The phenomenal success of multiple products one after another, a cult-like customer following, multi-million worth of free marketing, iconic status in commoditized consumer electronics Industry and charisma of Steve Jobs – multiple set of conditions existing all together! iPod broke all the records and killed all other alternatives. iPhone broke iPod’s record by selling 1 million devices in just 74 days. iPod took two years to achieve this. Then comes iPad and it takes only half the time what iPhone took. And not to forget the phenomenal success of iTunes and App Store. Macs and Macbooks are also doing fine.

However, it is always difficult to maintain this position. Lot of things can go wrong. What if iPad sales do not keep up this momentum? Android phones are closing in [NPD already claims more Android phones being sold than iPhones in the last quarter]. Steve Jobs is going to retire some day. People will get bored of talking about Apple some day and hence goes free publicity. Competitors, are making products which are almost as good as Apple’s and in some instances at half the prices. In addition, technology Industry is always fraught with sudden changes which can shake the entire ecosystem.

Let us visit some numbers.
Sales ending year 2009 – ~$43 billion.
PAT year ending 2009 – ~$8.2 billion
Total equity year ending 2009 – $31.6 billion
Total market cap (as of today) – ~$250 billion

Rewind back by ten years to year 2000 and check the numbers from Cisco and Microsoft
(source: Wikipedia)

Microsoft’s market cap – ~$586 billion
Cisco’s market cap – ~$350 billion

Let us first discuss Microsoft. Microsoft reported revenue of $22.96 billion for the fiscal ending June 30,2000 with net income of $9.42 billion. Windows 2000 was a hot cake. Microsoft had had line of successful releases and enjoyed monopoly in operating systems (it still does). PC growth rate was terrific which was benefiting both Microsoft and Intel. Microsoft also unveiled .NET platform eying the applications market. MSN network of Internet services was the Internet’s largest network. Analysts were bullish about Microsoft. Nothing could have gone wrong (with Microsoft and the whole Technology Industry).

Coming to Cisco, the darling of Wall Street, was in an even faster lane with a sparkling decade behind it. It acquired numerous companies. One startup company was valued at $7billion in 1999. It recorded revenue of ~$19 billion in year 2000 with an income of #2.67 billion. According to letters to shareholders for year 2000, It held leadership position in 16 of the 17 key markets. An equity analyst noted – “But they [Intel and Microsoft] are in a much more moderate growth phase. The more rapid growth is to interconnect all those computers, and Cisco is the standard bearer for all that interconnection.” People were expecting [dreaming] that Cisco will achieve market cap of $1 trillion.

Coming back to 2010. Both Microsoft and Cisco are alive and leaders, albeit at lower market cap even after 10 years. Relatively Microsoft did better than Cisco perhaps because Cisco’s case was more optimistic in 2000.

Today we see the similar optimism for Apple. What would be the market cap of Apple in year 2020?

Disclaimer: I am a fan of Apple. I own an iPod, an iPhone and a Macbook. But I really dont care if Apple’s share fall 90% from the current level. I do not own the stock.

Opportunities in Agriculture sector

I dont know the exact number but more than 50% of population of out country depend on agriculture for livelihood. The growth rate in Indian agriculture has been abysmally low. May be around 2% of less that that. So although the average earning/purchasing power of Indian people is increasing, its mostly because of other less that 50% of population. This fact can be looked from two angles:

1. Divide between rich and poor will increase leading to social unrest and instability
2. There is immense opportunity in agriculture industry. If, somehow, this “more that 50%” people can be made to earn more and hence spend more, economy can catapult in a healthy way.

So what are the problems to be solved.

Firstly, farmers have very little knowledge. They dont know what crops are suitable for the land they have, how to time the whether, which seeds, fertilizers, pesticides to use, how to sell the yields profitability and how to add value to the crops. Empowering farmers by providing them more information will not only boost farmers income but also improve our crop productivity and hence GDP.

Secondly, there is lack of trading systems for farmers. I agree, mandis exist in local towns and villages but they are largely manipulated by traders. And farmers dont know about commodity exchanges.

Thirdly, rural infrastructure is next to nothing. There are no roads connecting them to cities. Thanks to mobiles, some communication gap is being filled up. Electricity, water supply, hygiene are all missing.

The third problem is largely the responsibility of government but in absence of one (not government but a good one), it is left over to enterprises and NGOs. The problem with enterprises is that they need to see the profitability in avenues. I thing first and second problem do have such avenues. And if some smart people can come up with ideas to resolve the third problem too, it can make the backbone of rural India. “More that 50%” people will get rich and so will people resolving their problem. Remember the market size comprises 500M people. And that is just India.