MARKET CAPITALIZATION BASED BUSINESS EMPIRES ARE LIKE BIG BALOONS

MARKET CAPITALIZATION BASED BUSINESS EMPIRES ARE LIKE BIG BALOONS

Globally it has been seen and experienced empirically over time, that the Business Empires when stand on being largely dependent on market capitalization valuations and largely leveraging on market capitalization, they remain like Big "Baloons" swelled in size with a lot of air.

The Market Capitalization Value is Notional, it is not intrinsic value most of the times, it is based on speculations and not on the realities many times.

A few years back, not very long ago, I was travelling with the Chairman and the Owner (Majority Share Holder) of an European Corporation. We were traveling together for a number of days, staying in the same hotels and spending lot of times together while working on an operational mission.  Hence we had enough opportunities and time to exchange views and ideas.

They were a family managed group, doing business of about USD 500 million (in turnover) as per records then, were a registered private company operating since 1961, say for 50years when I asked him. They had never gone to any European Stock Exchange for Registration and Public Issue of the shares. Possibly if they would have gone for Public Issue in an EU based Stock Exchange, in my assessment or by assessment of any expert group, may be they would have got about 500 times minimum market capitalized face value of the shares they maintained in their books. I had access to their Book Value, hence saying so. They were a Zero Debt Organization, were operating only with their own money, it was quite peculiar.

I asked the Chairman with whom I was traveling a very simple question as I was quite curious about it like this; " Why have you not gone for a Public Issue even while almost 50years  have passed for your business empire and almost two generations of owners have traveled out ?"

What he answered was like this :

1. He felt (as I felt), may be they could have got 500 times or even 1000 times market capitalization value for their share value in the books ( in fact when I said 500 times, after hearing from him 1000 times, I was under assessing  them ).

2. However, they were not sure, if they would have retained it or not, as the Market Capitalization is a lot of air, which can be punctured by vested interests any time, as a "Baloon" is punctured and the air is gone, the Baloon is just flat.

3. May be some people would have tried to do "take over" of their organization by manipulating or pressuring the market capitalization value, by seeing it lucrative and profitable business for them. They would have been out and not been in this business for 50years.

Dr. V. Kurien's or his Co-Founding Stalwarts' brilliant idea of keeping the Dairy Sector (led by Amul de facto) by large part of it and for many years confined to Co-operative Sector fitted to the above answer that Gentleman, the Chairman of the European Corporation had given me. In the Dr. Kurien led organizations, the owners were primarily the Farmers, largely small farmers. The Security and Continuation of their owned Dairy Business would have been at risks if it would have flourished in any other way than the co-operative structure, where Market Capitalization manipulations do not really work. They work only based on their intrinsic value of share holding.

Dr. Kurien fought tooth and nail ( even if I got some splinters of fire being with his ideas fully and supporting it then, I do not and not at all regret of it ever) while his Protege Miss. Patel tried to dilute this structure by bringing in Producer Companies under the Companies Act, that has primarily helped Private Sector dairies to come into play there after, though has not cut much ice in last 25 years or so since it was started by Miss Patel after Dr. Kurien exited and she took over the National Dairy Board, in India.

The turmoil we see Globally or even in India in the Market Capitalization based business empires, is due to puncturing of the Air Filled Baloons by some entity in the market. It can be well understood not only by Management Professionals, but also by application of little bit of common sense by any one. who would be keen to analyse in whatever ways.

For a change out of the present situation and stress of anxiety existing in the environment with some people ( to be clear, not with me at all, though I have no interest personally in this area ), I thought this note may be little stress buster for the friends, based on some realities and empirically observed scenarios also in the environment both Globally and in India.

About the Author : Dr. Nimain Charan Biswal is a B.Sc.(Agri. Science and Technology), M.B.A. and Ph.D.(Management Area ) by qualifications; and he has 36+ years of work experience in both industrial and development sectors in diversified fields of social importance. He has been educated at Orissa University of Agriculture and Technology (OUAT)-Bhubaneswar, Institute of Rural Management Anand (IRMA) and Gujarat University (with Resource Support of IIM-Ahmedabad). He is further educated at IIM-Calcutta, XLRI-Jamshedpur, Apple Computer Industries and Spar Inc., USA. He has worked for reputed National and International Organizations in Senior/Top Management Capacities at Board level as well as Managing Director and CEO. He is a management expert covering extensive areas from management in industrial sectors, management in agriculture and dairy, development management to management of public systems. He is a prominent professional of India and known Internationally as well. He lives at Mumbai in India.