The Core Report

Good morning, it's Tuesday, the 3rd of September and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.

The Take
Sebi’s chairperson Madhabi Puri Buch is back in the news cycle after the Congress party alleged with seeming evidence that she was earning a fairly substantial income in the form of salary from ICICI Bank, organisations she parted ways with almost a decade ago, despite being a whole time member on the Sebi board.

ICICI Bank came back later in the day yesterday to say they had not paid any salary or granted any ESOPs to Madhabi Puri Buch after her retirement, other than her retiral benefits since she superannuated in October, 2013.

ICICI Bank said Ms Buch received compensation in the form of salary, retiral benefits, bonus and ESOPs, in line with applicable policies. Under the Bank’s ESOP rules, the ESOPs vest over the next few years from the date of allotment.

As per rules existing at the time of her ESOP grant, employees including retired employees had the choice to exercise their ESOPs anytime up to a period of 10 years from the date of vesting.

Am sensing people are going to nitpick further on this but it is quite logical that there had to be a simpler explanation to the allegations made.

The nitpicking will link to whether and if ICICI Bank was given more lenient treatment in its own merger with ICICI Securities, a subsidiary in which ICICI Bank owns around 75%.

Specifically, ICICI Bank did not have to go through a price discovery process, which ICICI Securities shareholders felt they had been shortchanged out of, including Quantum Mutual Fund’s Ajit Dayal who appeared on The Core Report on this specific matter.

I feel the Congress party knew about Ms Buch’s income and the likelihood of it going back to her old stint but found a good opportunity to fling something and bring back some attention to the larger issue of Adani’s cases and the Hindenburg report which had evidently died down.

It does appear that events, including the political back and forth that has ensued are running ahead and faster than perhaps what a former ICICI bank executive, even if somewhat battle hardened in recent years, can stomach, having not been a politician .

And that unfortunately is the price to pay for occupying public office.

Equally unfortunately, this also goes back to the point that the Sebi chairperson has not issued a line by line public disclosure on her income in the last decade and on the manner of her dealings with issues involving the Adani Group.

It is very likely that she has followed the law to a T and recused herself from meetings where there could have been a perceived conflict. But that is conjecture.

Till she makes a clean public statement, she will continue to face repeated allegations, including of the like we saw yesterday.

Some may have a simple response, others may not.

And the only way out is to take the issue head on and not run from it, even if there is a sense of assured protection in keeping silent.

And that brings us to the top stories of the day

India’s longest ever stock market rally continues, enters 13th day

The operational dynamics of the Air India - Vistara merger with fresh insights

Volkswagen says it may close more plants, blaming the move on the tough economic environment in Germany.

Share of Russian crude in India’s oil basket continues to fall

The Bull Run Continues
The Nifty 50 climbed for a 13th consecutive session on Monday, its longest-ever rally, continuing to be powered by rising IT consumer goods companies stocks.

Indices hit a record high.

A potential interest rate cut this month by the Federal Reserve is still keeping markets going and back home, the monsoons have been stronger, even if too strong.

The BSE Sensex closed 194.07 points up to settle at 82,559.84. The index hit an all-time high of 82,725.28 during the intra-day trade.

The Nifty50 closed at 25,278.70, up 42.80 points after hitting an all-time high of 25,333.65 during the intra-day trade on Monday.

Elsewhere, a Securities & Exchange Board of India study showed not surprisingly that investors in public issues sold 54% of shares within a week of listing

This was for the period between April 2021 and December 2023.

Shares of 144 companies were listed during the period to raise 2.13 trillion rupees ($25.39 billion), with three-fourths of these IPOs delivering positive returns, SEBI said.

Oil Holds Below $77, Russian Crude
Oil prices see-sawed as traders weighed a planned production increase from OPEC next month, economic headwinds in China and lower output in Libya, Bloomberg reported.

Brent crude prices were holding just under $77 a barrel after losing more than 2% on Friday.

The Organization of Petroleum Exporting Countries and its allies are due to add 180,000 barrels a day as they gradually restore production that’s been halted since 2022, according to delegates involved in the discussions.

Latest China data revealed factory activity contracting for a fourth month in August even as a residential slump deepened.

China is the world’s largest crude importer

India’s diesel sales also registered a sharp decline last month, Bloomberg reported.

Meanwhile, Business Standard reported that shipments of Russian oil to India declined by 14 per cent in August from July, after a prolific run of three months of near record purchases by Indian refiners, after Russian traders refused to offer higher discounts, according to industry sources and ship tracking data.

Iraq, India's biggest oil supplier prior to Russia's inroads, improved its market share in India at the expense of Russia on the back of lower rates.

Did you know Iraq was India’s biggest oil supplier earlier ?

Anyway, the share of Russian oil in India’s crude basket also dipped by more than three percentage points in August from July at below 40 per cent, according to calculations by Business Standard based on ship tracking data. Iraq's share increased by around 2.4 per cent during the period.

So here’s a quick breakdown of who we import our crude from as of now.

Russia still leads with 40% share, followed by Iraq at 19% and Saudi at 12%.

UAE and maybe you would not have guessed this, United States are both at 9%.

India’s Manufacturing Activity Slows
India's manufacturing activity growth eased to a three-month low in August as demand softened significantly, a HSBC survey showed on Monday.

GDP growth in India slowed to 6.7% last quarter from 7.8% as government spending fell, official data showed on Friday.

The HSBC final India Manufacturing Purchasing Managers' Index , compiled by S&P Global, fell for a second month in August, dropping to 57.5 from July's 58.1 and below a preliminary estimate of 57.9, Reuters reported.

Air India & Vistara
A 92 year old airline will soon merge with a 9-year old one.

That’s how it looks from the outside. What could it be from the inside?

Since most listeners here have likely travelled either Air India or Vistara, I am sure you would like to know more about how the merger will pan out operationally.

What happens to counter staff, supervisory staff, ground crew and of course inflight.

There are some insights now on how this could evolve.

The bottomline is it looks like a 5-6 month active transition period during which I anticipate much consumer angst.

But that will also depend on how well the airlines communicate, particularly as little crises keep erupting or hopefully, in anticipation.

I reached out to Sanjay Lazar, CEO of Avialaz Consultants and long time Air India senior hand running inflight operations and having spent over 32 years in the airline.

I began by asking him how he was seeing the different aspects of airline operations come together and the challenges he foresaw.

INTERVIEW TRANSCRIPT

Sanjay Lazar: It's a momentous, you know, day that last week, day or Thursday, you know, everything went through with the government, and they gave the clearance. Going forward. I see the timetable is, is pretty set in stone, 11th of November, they'll cut off Vistara. 12th of November onwards, you will be on an Air India flight number, but you could be on Vistara metal with Vistara crew and Vistara uniforms and the logo. But it will take about six months for the transition to occur. So when I say transition, there are a couple of things. First, let's look aircraft. Now, gradually all the 320s of on the Air India side will be retrofitted with the three class configuration that Vistara has. That's a Business Premium and an economy. So I think by April, you should see at least 60 or 70 such acre Okay, so that will homogenize the network operations for the domestic The second thing you'll see is the merger of the frequent flyer programs, which have already been announced, but you'll get a big bang launch, maybe in February or March next year, with a new product, with new give it, you know, offerings, which will also include the Tata new products, the Tata, the palette of Tata pro you know, companies, you'll get a lot of benefits. So that's the second, the third part. Now, when you speak of operations, very critical part. And they're going to be a lot of, you know, I won't say slip ups, but they're going to be many a slip between the cup and the lip here, because people are used to a certain standard of service and customer attention in Vistara. And that's for one reason, because, if you've noticed, Vistara has its own counter staff. Air India does not have its own counter staff. Air India dispensed with their own counter staff some years ago when they hived off into Air India, SATs and AIA TSL. So they outsource. So there's a little, I mean, you have your management personnel. There's a little difference. You'll notice the Air India counter staff wear orange, or they wear the red. It's not an air India uniform. It's a SATs uniform. AI SATS uniform. So there's going to be slight difference there. You will see, but I think they're getting sensitised to how Tatas want the customer, front facing staff, to behave. I'd say six months is tops. That you'd see the slight disparity between the two in customer facing. Now ground staff are being absorbed the Vistara ground stuff. Now you know that not all the Vistara staff are making it to Air India, and not all the old Air India staff are making it to this merged company. There's been two VRS programs, and there has been one voluntary separation scheme. There are quite a few people who have not made the cut and been told to go. So you're going to see not all the staff coming in as far as in flight. Now this is going to be the challenge, because everyone has acknowledged, whether you like it or not, that Vistara has a far superior in flight service. It also has a brand new hard product interiors as well as aircraft. So that's going to be the challenge for, you know, the merge carrier. So what's going to happen the Vistara crew are currently going to fly the Vistara aircraft. And the Air India crew are flying they've done what is called a bridge training. So the pilots and the cabin crew started bridge training in June of last year, of this year? Sorry, so June, July, they started bridge training, and they've been doing it progressively. By November, everybody in both the carriers would have done it. What is bridge training? Bridge training effectively synchronises the training standards of one carrier with the other. The terminology you know, SOPs, etc. So you, even though you have one manual, everybody recognizes what is going to be the defining procedure. So that already been set in place. The fourth thing, I believe, is the training academy that they've set up, which has got Sunil Bhaskaran as the head. That's going to be a massive training academy. It's already up and running. And I can see a lot of Singapore Airlines input into this, because soft skills is something that, you know, over the years, Singapore has excelled in. They brought to the Vistara bouquet, and then they made, you know, Vistara a redefined airline. So I think that's where you're going to see a lot of the people that have come in get trained. Now, one very important fact in the in-flight service, almost two and a half 1000 of the old Air India staff have gone. So you're left with less than 500-600-700 cabin crew out of 8000 so effectively, what the takas have done, they've got their own people in or they've recruited fresh people whom they want to train and groom for the future. So it's almost as though they were starting a new Vistara, India. You know, the remaining six, 700 are really seniors who will continue on, of course. But, you know, a drop in the ocean, it's not even 10% so by and large. Is

Govindraj Ethiraj: you're saying they've churned about seven and a half 1000 people already?

Sanjay Lazar: No, I'm saying they've churned two and a half 1000 odd cabin crew and about 4000 odd ground ground staff in both the carriers out. Yes, absolutely. So it's about six 7000 out of the two. Now what is important the entire top management is new. It's purely Tata or Singapore Airlines. Mind you, Singapore Airlines has been watching this from the, you know, from behind the scenes and and a lot of the people put in the plug in the holes are either Singapore Airlines tick mark or from that group of carriers. Or, you know, their adjacencies middle management is 70% new, or 60% new. And the lower rung, they've recruited so many new people. We never had- Air India has never had 8000 cabin crew. We've had 234, today you're going to, you're already at 275, aircraft in the merged four carriers, which are now two, and you looking at going to 500 in the next two years. So you need over 10,000 cabin crew for this, so that the time will come in a year or two where you will see absolutely brand new crew. I mean, I spent 37-38 years there. Let me tell you, I fly today. I don't recognize a soul. So it's absolutely new faces, with new outlook, with completely Tata, Vistara, Singapore Airlines training, that's how it's going to go forward. So there is going to be a little bit of, I'd say, ripples in the water, but I don't see it to be too much of a problem. They will sail through within six months.

Govindraj Ethiraj: Okay, so a couple of questions. So you're saying that the three class configuration is what Air India will also adopt or adapt.

Sanjay Lazar: Absolutely, it's already done. The first few aircraft have already done. Yes, so we will have a premium economy, business class and economy on all the A320 fleet.

Govindraj Ethiraj: But you're saying that today, when at least for the next six months as passengers or flyers book tickets. You could land up in any of these aircraft without knowing whether you're going to land up in any of these aircraft with-

Sanjay Lazar: whether it's an old 320 Well, there are no longer old 320s in the Air India. They're all being moved or refurbished. So understand that, but you could land up very well. You know, booking an Air India on a flight number and on a Vistara aircraft, or book an Air India flight number and end up on an aircraft, but be there, as it made domestically, on the trunk routes, you will get the three class configuration that you can be assured of. The older 320s are now going towards Air India express, Air Asia combined, and they're going to operate them on the secondary routes, or or Gulf routes, or whatever they decide. So it's it's buying

Govindraj Ethiraj: Right. And Vistara had whole bunch of international both west and east, Singapore and Paris Frankfurt. So how do you see those merging, or-

Sanjay Lazar: From the midwinter cycle. Now, because Vistara will sunset by the 11th, 12th of November, I do not see Vistara flights being operated by Air India beyond a month or two after that peak season. So I see maybe till end of Jan. The reason for that is the bookings may already have been done. You know, if you take a Bombay London or a daily London, or a Bombay Delhi, Paris, or whatever, so I don't see more than two or three months for them to operate, they will have to surrender slots or decide which are more lucrative. It does not make sense if Vistara is getting a 60% load factor and India is getting a 75% load factor to operate two flights a day to the same station, you would then operate maybe one larger aircraft. That's about it. So it's going to be rationalised there in the plan, I think you'll really see the emergence of the merged carrier from next summer, the next summer schedule March onwards is when the effective changes will be implemented. You will see the rationalisation of routes where they don't need to duplicate metal, where they don't need to duplicate workforce. Very important, very few people calculated this. But let's say in a city like Paris, Vistara had six flights. Air India had 70 flights. You have a station, station manager for both. You have an airport manager, you have a duty manager, you have a counter support. You have everything replicated in London, where Air India operates, there are 30 flights, and Vistara operates five, six flights a week. You have, you know, at two airports, you have multiple staff, so all that is going to come down. So there's going to be a rationalisation, or staff of operations. Maybe there may be an increase of destinations, which is what I see, they will redeploy some Vistara capacity onto other areas. Vistara was woefully underutilised on the 787 and its utilisation was one of the worst across airlines. But I think with Air India coming into the picture and their pilots. Is, you know, now being able to cross operate, you will see greater utilisation there. So Air India will be able to fill in the gaps in international spaces where it doesn't have a, remember, there is a huge shortage of aircrafts in the market. Boeing has hit a dead, you know, wall. And you know, on the triple seven, on the 737, so Air India is getting hurt there. Air India is not getting enough Airbus in the market because Indigo is just gobbling them up every day. So this Vistara network is going to be hugely important for Air India.

Govindraj Ethiraj: Thank you so much for joining. Me.

Sanjay Lazar: My pleasure. Thank you so much. You.

Volkswagen Shifts Into Reverse
German carmaker Volkswagen on Monday warned it will no longer be able to rule out plant closures in the country saying it could embark on major cost-cutting measures in order to “future-proof” the company.

“The European automotive industry is in a very demanding and serious situation,” Volkswagen Group CEO Oliver Blume said in a statement, reported by Bloomberg.

“The economic environment became even tougher, and new competitors are entering the European market. In addition, Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”

As a result, Volkswagen Group’s chief executive said the company “must now act decisively.”

Volkswagen said that brands within the company would need to undergo a “comprehensive restructuring,” before adding that the current situation means that even plant closures at vehicle production and component sites can no longer be ruled out.

“The situation is extremely tense and cannot be resolved through simple cost-cutting measures,” VW brand CEO Thomas Schäfer said in the statement.

It is not clear at this point what the India impact will be but officials at Volkswagen said two months ago that they were in talks with a potential partner in India who would hold equity.

This would happen under Volkswagen subsidiary Skoda and Skoda India.

VW Group brands in India include Skoda, Volkswagen, Audi, Porsche and Lamborghini.