|
October, 2004 |
|
|
|||
|
||||
|
Interview |
|
"Nepali carpets have lost
Uniqueness" Bijay
Bahadur Shrestha, one of the top carpet entrepreneurs of Nepal,
has recently been investing heavily in the stocks of public limited
companies in other sectors. Why? Excerpts from an interview: From Carpets to Hotels and to Banks. Could you please give us a brief about your background? How did you get started and how has been your travel like? I completed my MBA from the University of Delhi and after a brief work at an Indian company I stepped into my father’s business here in Nepal. He was a traditional importer of Tibetan wool but the realization of money from the sale of wool was not easy. I thought of venturing into some other wool businesses. First, I started with making yarn from wool. Soon I started manufacturing carpets from the yarn. On that run I happened to meet a German buyer with whose help I was able to exhibit our carpets in a fair in Germany. The uniqueness of Nepali carpets did not go unnoticed and soon carpets got huge success in Europe. But with the subsequent over-commercialization and mechanization of this industry the uniqueness of Nepali carpets was slowly lost. The mechanization of India is far beyond our reach. Whereas I had used only natural vegetable dyes to colour the yarn, other chemical dyes began to get wide use with the increase in the number of players in this business. Because of several such reasons the sales nosedived. I stepped into other business sectors like banking, hotel and hydropower to secure my stay in business. My carpet industry has survived 22 years and I think that is a big achievement in itself. Based on your experience of investing in the shares of public limited companies, what sectors do you find best to invest in? Irrespective of what sector they are in I prefer those companies that have clear long-term plans. Nepali economy is very small where short-term strategies and plans do not work. Moreover, in the short-run a lot of manipulation can take place as the companies’ short-term growth depends merely on the annual reports and statements. I look at the long-term growth trend of the companies before I decide to invest in them. Do you have a system to decide where to invest and where not? How much do you depend on the advice of the securities analysts and the brokers? I decide by looking at the Balance Sheet of the company, its management capability and future prospects. The tendency of the people to invest in banks is growing and this is because the banks have proved themselves a safe sector for investment. They are somehow monitored by the central bank as well. The history also shows that the banks have not disappointed the investors, except Nepal Bank Ltd. While Nepal Bank can be taken as an example to understand that banks necessarily are not the best of places for investment, one should also be cautious that many banks have high level of non performing assets (NPAs). Those banks that show their profitability high cannot be regarded safe places to invest in as long as their liquidity is low. It is said that the members of the Board of Directors who represent the public shareholders are not able to protect the interests of whom they represent. What is your observation on the basis of your experience? A director’s obligation would be that s/he should look at the interests and potential of all the stakeholders impartially. Those who suffer the most during financial crisis are the depositors, in case of the banks. The promoters have not lost money at such times. The story of the Asian financial crisis stands testimony to this. However, the directors have to be vigilant to safeguard the interests of not only the depositors, but also of the shareholders as well as of those in the management without any bias to any stakeholder. The Himalayan Bank has taken this into consideration and thus has been attracting large number of depositors. It is seen that the companies in Nepal float only a small minority of the shares (usually 30%) to the general public. What is the hindrance that discourages them from floating larger share? Some people are of the opinion that the more the public shares the more hassle the AGMs will witness. But the tendency to float of minority shares to the public is much more dependant on the regulation of the government. Why would the companies not tap the opportunity of collecting more funds from the general public if the government allows them to? After all, this would be beneficial to the companies. If they float more shares they do not have to depend more on bank loans and thus they will not have to bear the trouble of paying interests to the banks. But what is more important for the banks is the proper management of the shares. This helps to win public’s trust. India’s TATA Group has been controlling its companies by holding 5% of the shares. As of now the size of the Nepali companies is small and thus government regulation has not been so much of a hurdle for the companies. For larger projects a lot more public financing will be necessary. The bank interest rates are going down and this will encourage the public towards making investments in shares. Why have not you issued shares of your own carpet business to the general public? The cost of the funds then would certainly be much lower than borrowing from the banks. My own capital is more than enough to operate this business. But I am thinking of going to the public for some of the projects that I have been planning to undertake in the future. Why do you think Nepali carpet industry is so dependent on a singular market segment of Germany? Why can’t we develop other markets like Japan, US, India and other geographical markets segments? The main problem is that we are no more manufacturing the quality carpets whose uniqueness had attracted the foreigners very much. Our problem is not the lack of ability to market our products in different countries. Especially with India’s economy booming along with the changing social diagram and taste of the rich Indians, can Nepali carpet industry consider India as a possible market? First of all, India itself has a large production of carpets. Their cost of production is much lower. Our carpets do not appeal to them as they have a different taste. Trying to create a market for Nepali carpets in India is like trying to sell cheese to Chinese people; they hardly eat cheese. Therefore, India cannot be the significant importer of Nepali carpets for quite some time. The carpet industry has recorded a significant decline in exports value in the recent years. Is this trend to continue or do you expect it to be reversed in the near future? Until and unless we get back to manufacturing unique carpets we will not be able to get back to the old glory of this industry. And to do this is not easy. The times have changed. How is the trend in your company’s exports? It is not as it used to be back in the eighties. On the one hand, we were not able to keep on providing uniqueness in our carpets. And next, the business has declined as supply has increased significantly. We have at least sustained the business all these years that have been the worst of times for all business sectors. In the last few years, we have changed our policy altogether because we no longer could continue with our previous trend of manufacturing quality and high value carpets. We are now concentrating on volume rather than on quality. What do you suggest the other carpet exporters to buck the declining trend in the industry? There is not just one way of doing business and there are people who have very good ideas on this matter. But what is very necessary to consider is that we have to focus on what our strength is. Our strength lies in the uniqueness of our carpet. What was your vision when you recently bought a significant stake in the Soaltee Hotel Ltd. despite the visible signs that the tourism sector was being badly affected by the ongoing conflict? Soaltee is already a successful entity. Today, without a successful brand name the business cannot run smoothly. Soaltee has already established itself firmly and it is going to stay healthy for years to come. It is managed very professionally. I joined it (Soaltee) to learn from its management style and to have an association with a successful company that Soaltee is. It has been difficult time for the luxury hotel industry. What will it take to restore the old glory? Definitely it will retain its old glory and it’s just a matter of time. On the international level, tourism industry is always growing and this trend will always be there. So the hotel industry is not going to lose its business in the long-run. Moreover, Kathmandu is a heaven for tourists. Climate is very suitable for all types of tourists and in a few hours flight from here one can get to see the highest mountain in the world or tigers or elephants in their natural habitat. So, Soaltee’s business is to boom again, sooner or later. What do you think about the opportunities for mid category hotels? The story is the same with the middle category hotels as well. When we can go high on tourism all the hotels, irrespective of their sizes, will move together ahead. What sectors are you interested to invest in if the companies from that sector float their shares to the general public? It all depends on how the industrial climate of Nepal is. There are several other promising sectors where investment would prove fruitful. There could be cable cars in different places, or nearby Kathmandu. Or an amusement park, especially for children. Distribution of electricity can be another promising sector. Why should only NEA do this? Why cannot public companies distribute power? For example, if Indian company TATA is going to distribute electricity in Nepal, I would invest in that project without any hesitation. What changes would you suggest in the existing securities exchange rules so that the market would be more vibrant? If there be no restrictions controlling this business, it would make it big in the future. Unlike now, this business should be made very open and easy to deal with. Why not give opportunities to the private sector to run exchanges? This could help check manipulation in this business. The foreigners are required to get permission from the concerned authorities before they can enter Nepal’s stock market. Would they bother to go through this hassle in Nepal when they have ample opportunities elsewhere in the world? You should regulate the market but there should not be any control on it. There should be no restrictions at all in this market. What prompted you to invest in banking as well? And how is the health of the Banking Industry in general in Nepal? I was always fascinated by the idea of joining this sector. There is no such special reason as to why I joined this sector. Talking about its health, this sector has been becoming much more transparent than before. Banking in Nepal has been affected like any other businesses by the different problems besetting the economy. They cannot just remain aloof to the political crisis of the country. Some banks may be able to remain healthier than the others depending on the extent of non-funded business they are into. Standard Chartered Bank has less exposure in funding and thus it is comparatively healthy whereas those like Himalayan Bank, which have a lot of their cash invested in the projects, are not at the best of times. In due course of time such effect will grip all banking entities. Nowadays there is plethora of new Banks in the market. And with the general economic downturn continuing, do you think there will be churning out effect in the near future? It
depends on what kind of management the bank has. With the implementation
of innovative ideas and with the control over the actions of the banks
by professional expertise, all the banks can progress irrespective of
their number. How they will fare is also a question of what extent of
investment they can make. |
|
Cover Story | Editorial | Business News | Political | Economy & Policy | Corporate Focus | Marketing | Book Review | Sectoral | SME Focus | Young Achiever | Legal Side | Stock Taking | Main | Past |
|
Send your feedback to the editor: bizline@mos.com.np |
