Jalebi Flying

     Visiting Chandni Chowk is a gastronomic delight for food lovers.  Street food choices available there are known for their well-knownness.  Parathawali Gali,  Chaat Corners, Kachori Wala, Natraj Dahi Balle,  Old Famous Jalebi Wala the list goes on. Last visited the place was on a wintry Sundry afternoon in the third week of January when the redevelopment was in full swing. The mantra of staying home to fight the novel virus is keeping us away from these occasional privileges. Post Corona acquired culinary skills encourage one to try at home whatever one is missing otherwise. I found some home cooked dishes like kebabs, pulao, sambhar taste almost similar to those at regular eateries.

Eating one’s own cooking has a different charm and never spoils the stomach. That reminds what Winston Churchill once said “eating my own words has never given me indigestion”. The newly trained courage and the encouragement from friends made me try jalebis at home. After observing couple of You Tube tutorials and reading literature on the dish, I decided to take the plunge.

The batter was ready, its consistency appeared alright, neither thin nor thick. When I started dropping into the heated oil from the neatly cut small hole of a tightly packed pouch, trying to make circles, it started making its own rounded mini pancake shape.  Finally, I could feel the taste of jalebi but not the kick of having it at a roadside shop. One thing is clear that the batter is not in your control once it starts to dive into the hot oil especially when you happen to be a novice. A couple of attempts will surely give you the requisite experience to get the desired Jalebi shape. But that is not the case with airline industry. Despite acquiring nearly hundred years of experience in running the business of flying machines, commercial aviation industry’s woes see no end. Barring a few carriers across the globe, most of the companies went belly up after running for a few years.

        Aviation industry is always known for its failures than success stories. Even operationally successful companies do not make financial profits. Billionaire investor Warren Buffet once said “Investors have poured their money into airlines and airline manufactures for 100 years with terrible results. It has been a death trap for investors”. His own investments in US Airways in 1989 tuned unexciting. He told shareholders in a 2007 that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” Kitty Hawk, a beach town in North Carolina State witnessed the experimental flight trials by Wright brothers in the early years of last century.

Investors tend to change their views on businesses when new facts and circumstances emerge, especially when the business’s ability to maintain competitive advantage over its peers in order to protect long term profits and market share. Warren’s restraint on the sector changed after 15 years. He tested his luck in the sector in 2016 when the airline sector in US consolidated after several bankruptcies and mergers and emerged as an oligopoly with four airlines namely American Airlines, Delta Air, Southwest Airlines and United Airlines grabbing two thirds of the market share in that country and declaring better numbers year after year. Berkshire Hathaway’s interest in the aviation industry was based on the sector’s overall improved financial performance of these four carriers declaring a combined profit of $22 billion in 2015 attributed to lower fuel prices, better labour relations and higher fees for check-in baggage and more importantly reduced competition due to consolidation. By 2019, Berkshire’s shareholding went up to nearly 10 per cent in these four airlines. Until end 2019, these four airlines were reporting healthy profits.

The pandemic induced lockdown has changed everything. Nearly 17,000 aircraft world over parked at various airports without maintenance and upkeep. By the middle of April this year the situation appeared rather alarming for the entire travel industry. Berkshire offloaded its securities in all these airlines by the end of April fearing a catastrophic impact on the industry.

The airline industry remains on edge at every event, whether an oil price hike due to shortage or war like situation, man-made or natural disasters, nothing to write about when a Black Swan event like the corona pandemic unfolds.

       In India, a lot of private airlines commenced services after permitting them to operate charter and non-scheduled back in 1986 by amending the Air Corporation Act, 1953 and then repealing the very Act from the statute book in 1994 for beginning scheduled services. Those entered the fray were Air Sahara, Damania Airlines, East West Airlines, Modiluft and NEPC airlines in early 90s.  All of them vanished after operating for a few years. Jet and Sahara Airways obtained licenses to operate scheduled services. Jet Airways continued till 2019 and is now at the mercy of competing bidders to take over it in the on-going Corporate Insolvency Resolution Plan under the aegis of a Committee of Creditors constituted by NCLT. Besides Interglobe Aviation (operator of Indigo), and Spice Jet, Jet Airways was one of the very few airline companies raised capital from the public through an Initial Public Offering.

Despite capturing nearly 50 percent of the market share in India, Interglobe reported a net loss of Rs.870 crore for the quarter ending March 2020, exhibiting the devastating impact of the pandemic on the air travel even before the imposition of lockdown. How the first quarter pans out is anybody’s guess.

            While praying for the virus to loose its potency, I will keep on my efforts at perfecting the art of getting jalebi in better shape.

Come on!

The Covid pandemic and the lockdown imposed to contain the virus spread have impacted businesses across the globe.  The degree of impact is largely uneven. Essential goods suppliers, services providers, medical and pharma companies are lucky to escape the hit. Several others are reportedly limping back and no credible news about many other outfits. Who are hit beyond recognition and who are sailing through is based on one's update on the current affairs and guess work. Publicly available information is perhaps insufficient to come to a clear view. The pandemic has caused distortion in the market due to gaps in information available about the business operations of various entities. 

True and fair disclosure of information is a sine qua non especially when a company gets itself listed on stock exchanges as it has statutory and regulatory obligation to furnish material information in a timely manner to the bourses for immediate dissemination to various stakeholders.

In the absence of certainty and predictability, it becomes extremely difficult for businesses to attract capital. Even optimists like Warren Buffet are finding it difficult to come to terms with the impact of the pandemic. This is clear during his virtual annual shareholders meeting he had earlier held. Though he remains bullish on America, his repeated answer “I don’t know” during question answer session and his cautious optimism on the performance of capital markets makes it realistic about the formidable challenges ahead.

Listed entities around the world have been making disclosures regarding the impact of the pandemic, including that on financial condition and on current as well as future operations. Regulators have also encouraged timely reporting as well as complete and accurate disclosure of the impact, as far as possible. 

The heart of good Corporate Governance is transparency, disclosure, accountability and integrity. Market confidence goes up significantly when a company voluntarily complies with the principles of Corporate Governance. Besides the management getting appreciated, company’s market capitalization could fetch fair valuation. In Indian corporate space, Infosys used to set high standards of fair disclosures in 90’s when the disclosure norms were still evolving and the regulatory compulsion on many corporate activities was minimal.

Post lockdown, companies have started to share information pertaining to disruption of operations at their various premises. However, the information furnished so far remained mostly cosmetic, sketchy and for compliance sake. Hardly any inclination is seen to make preliminary disclosure of evaluation of impact on operations, liquidity, profitability and ability to make debt servicing etc. 

SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 mandates every listed company to frame and disclose a ‘Policy on Determination of Materiality of Events’. One of the key considerations is the likely result in significant market reaction. Board of Directors is responsible for undertaking assessment on material events and their likely impact on the company and intimating that to market. There is, however, no enthusiasm on the part of most of the managements of companies to implement disclosure norms in letter and spirit. 

Though there is no such a regulatory obligation to update the market, Anand based Gujarat Co-operative Milk Marketing Federation, the owner of US 5 Billion dollar valued Amul brand, has been on the front foot in sharing their insights from day one on their practical difficulties in collecting milk, supply chain disruptions during the initial lockdown period and percentage of disruptions etc.. Such proactive sharing of information is not seen from the corporate world. Share prices of some prominent companies have been witnessing huge swings without any information available in public domain about their businesses recovering to pre-covid levels. Some have fallen nearly 100 percent and then recovered in V shape as if the pandemic has taken L shape.

Given the reluctance of the companies,  SEBI issued an Advisory in second half of May stipulating that all investors have access to timely, adequate and updated information,…..companies are encouraged to evaluate the impact of the COVID-19 pandemic on their businesses, performance and financials, both qualitatively and quantitatively to the extent possible and disseminate. SEBI further laid down an illustrative list on which companies need to report like estimation of the future impact of COVID-19 on its operations, impact on financial position, profitability, liquidity, ability to service debt, supply chain issues, demands for its products/services etc. It further says at Para 8 of the Advisory dated May 20, 2020 that companies should not resort to selective disclosures, keeping in mind the principles governing disclosures and listing obligations. Besides, they shall revisit, refresh or update its previous disclosures based on the peculiar circumstances of each company.

Government owned unlisted company Air India’s latest announcement that its Board of Directors approved a leave without pay scheme for its permanent employees for a period of six months to two years, extendable to five years is clear communication to understand the impact of the pandemic on the carrier’s state of affairs. This disclosure on the HR policy is indeed a disclosure of material impact issue. Such disclosures are the need of the hour. Newspapers report that private sector banking firms have put in cold storage their recruitment plans and reworking pay packages for existing employees in order to conserve cash. However, no banking company apprised the exchanges about these decisions. The unwillingness could be due to fear of bad news spoiling their image and market sentiment turning against them.

Post lockdown, large number of young professionals working from home have been on a demat account opening spree with various zero brokerage firms indicating their eagerness to enter the capital markets. Making price sensitive information public by publicly listed companies in time would surely help these budding investors take informed investment decisions and avoid risky bets based on speculative tips. 

Let’s hope the nudge from SEBI makes the Boards of listed companies throw light on their true state of affairs in the upcoming quarterly financial disclosures. After corona, glorious past performance is no longer a barometer for future prospects.