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Tuesday, July 26, 2011

‘Too Many Rate Hikes will Kill Growth’

The real estate sector has had much to moan about in the last few months due to rising interest rates, dipping sales and largescale agitations over land acquisition. In an interview with 

Partha Ghosh & Ravi Teja Shar ma, KP Singh, the chairman of India's largest real estate company, DLF, says 'India is not proud of this sector' and calls for a new approach to urbanisation, even as he warns that rising interest rates will kill growth. Excerpts: 


How does the rate hike impact the real estate sector? 
The problems per se do not pertain to the real estate sector alone. It is about inflation. Philosophically, there are two views. The 
first is tame inflation but don't lose growth, as at the end of the day growth will create jobs and make it more inclusive. The other is do not allow inflation to cross beyond a certain limit without worrying about growth. I subscribe to the first. My feeling is that at the RBI, they are very conservative and follow a very traditional approach. Their belief is that if you increase interest rate, it will bring down inflation. That is not true. They need to increase the supply side too but it is simpler to increase rates. Too much increase in rates will kill growth, which will lead to a slowdown. 
Why are there so many problems around land acquisitions? 
Land is an emotional subject with 
a farmer in India because it is his only means of income. When a person is dispossessed of his land, there is a reaction and you have to deal with the reaction properly. You just can't deal with the reaction by giving him money. What is missing is rehabilitation measures, like what DLF did when we were buying 3,500 acres in Gurgaon in the 80s. We ensured that whoever wanted to carry on farming was helped to buy more land in nearby areas. The land acquisition policy has to factor in rehabilitation as part of the package and give potential value of land, jobs. If that approach is not taken, there will be resentment. This is what is happening in Noida today. It is a revolution happening in India today. 
Should higher compensation be given for land retrospectively? 
It might become a precedent for other such cases. Sometimes judgements like this could lead to very major issues. Retrospective increase in compensation is not the right way to do it as it could have large implications. We don't want to open the Pandora's box. 
What are the issues with real estate and urbanisation today? 
Real estate is one sector that India is not very proud of. We are 
sitting on the tip of an explosion. There is growth happening, which is resulting into expansion, development of more urban areas. According to a recent McKinsey report, 75% of new jobs are being created in urban areas and there is a large-scale migration of people. Urbanisation is the most important challenge before the country today. 
What should be the approach to urban planning in India? 
In urbanization, you think big because you are thinking decades and centuries ahead. In the 50s, the mindset was 'think small and manage shortages'. After 90s, when reforms set in, GDP went up and it brought in much more pressure for more urbanised centres. We need to change the philosophy but that is not happening. For that to happen, people have to have vision and in my view the young people of the future will start exerting pressure on governments for better living standards.




    When a person is dispossessed of his land, 
    there is a reaction and you have to deal with the reaction properly. You just can't deal with the reaction by giving him money. What is missing is rehabilitation measures, like what DLF did when we were buying 3,500 acres in Gurgaon in the 80s 
KP SINGH 
Chairman, DLF

Tata Tele to Merge CDMA & GSM Ops, Job Cuts Likely

Recast comes 20 days after Bharti announced its revamp plan

The telecom unit of the Tata Group has decided to combine two businesses that provide mobile services using different technologies, raising fears of job cuts in an industry marked by low tariffs and falling profits. In a circular issued on Sunday, Tata Teleservices (TTSL) announced in what it described as the "unification" of two divisions offering services based on CDMA and GSM, two rival technologies. 

"This restructuring may drive efficiencies but could end up making job positions redundant. Our estimate is 15% of the employee strength, which includes employees eased out on the basis of non-performance. CDMA employees will be impacted the most due to this restructuring," a senior TTSL company official said. He spoke on condition of anonymity because of the sensitivity surrounding job cuts.The restructuring comes 20 days after India's largest telco by market capitalisation and revenues, Bharti Airtel, announced its biggest streamlining exercise in a decade to cut flab and drive efficiencies. TTSL operates CDMA business under the brand Tata Indicom while offering GSMbased services under the Tata Docomo brand. NTT Docomo, a Japanese telecom company has a 26% stake in TTSL, that has 11,000 employees. The Tata Group has the remaining 74%. Entrepreneur C Sivasankaran is also a minority shareholder. The Tata Teleservices spokesperson declined comment. 
The internal communication, sent to all employees on Sunday, talks about a unified structure combining GSM and CDMA that collapses all circles under four regional heads: Vineet Bhatia (west & upper north) Mahesh Thampi (east and UP), Yatish Mehrotra (south) and Ajit Chaturvedi (Delhi and Rajasthan). 
They will report to Deepak Gulati, president, who is in charge of mobility nationwide. These four regions will have between them 15 mobility business units, carved out by combining circles, roughly equivalent to a state. 
The heads of two search firm heads, who track the telecom sector, said at least 8,000 job positions across mobile companies will be culled by the end of the year as more companies streamline operations and cut layers to become agile and respond to market dynamics faster. They spoke on condition of anonymity. 
"The telcos are rightsizing the mainstream mobility business due to excessive layers at the top and over staffing 
at the mid and junior level. Certain clusters such as mobile banking, telecom infrastructure companies, valueadded services and specialised 3G business divisions are hiring,'' R Suresh, MD, StantonChase said. 
The possible job cuts at TTSL and a similar exercise by Bharti Airtel could also provide the trigger for parallel moves by rivals, many of whom are confronting similar issues — a high debt burden, slowing growth and high marketing spends amid cutprice tariffs. 
TTSL with close to 93 million subscribers, has the lowest number of active customers among private established operators, according to data from the Telecom Regulatory Authority of India. Less than 
50% of the GSM and CDMA divisions are active. 
Increasingly, telcos are focusing on cost efficiency since tariffs are the lowest in India. Average revenue per user — a key indicator for operational 
income — is also among the lowest in the world. 
Apart from restructuring, mobile phone companies have also started hiking call rates for the first time in three years. Tata TeleServices, which had unleashed a price war with its per-second billing-based GSM offering about two years ago, recently doubled STD call charges for subscribers who have been with them for a year and raised local and national SMS charges by 67% and 25% respectively. Last week, Bharti Airtel increased call tariffs by 20-50% in some regions, a move that may change market dynamics, as it marks the first hike by an incumbent operator in three years. 

Earlier this month, Bharti Airtel undertook a restructuring exercise aimed at cutting costs. The company restructured all businesses into two verticals — one that will sell to individual customers while the other will sell to enterprises and businesses.


Home & auto loans to pinch more as RBI raises key rates 50 bps; corporates frown on move

Subbarao Takes a Giant Leap of Faith, Leaves All Stumped

Reserve Bank of India Governor Duvvuri Subbarao took a leaf out of his predecessor YV Reddy's book to shock investors and industry by raising interest rates double the expected to 'maintain the credibility', but it will blow a hole in household budgets and corporate balance sheets. Funding cost of nearly everything from homes and cars to building roads and utilities will climb. But a demand slowdown may temper future price rises and help sustain a stable economic growth over the long term. YES Bank took the lead in hiking rates, and others said they would follow soon. Stocks and bonds fell, but the rupee rose against the dollar expecting overseas investment in highyielding fixed-income securities. 

Inflation forecast was raised as the flawed pricing of petroleum products, coal and agricultural products could strain government finances and have the potential to worsen inflation. If softening global commodity prices reverse, or the monsoon falls short of requirement, prices could shoot up. 
    There is a need to continue with a 'firm anti-inflationary' stance as there is 'no evidence' of a sharp slowdown in the growth momentum as claimed by industry, said the central bank. Supply bottlenecks also need to be resolved if prices have to cool, it said, pointing to little help from the government in fighting prices. 
"The Reserve Bank of India has sought to give a strong signal to further moderate inflation and check inflationary expectations," said Finance Minister Pranab Mukherjee. "With this policy adjustment, we will be able to get back to a more comfortable inflation situation." 
Subbarao raised the repo rate—the rate at which he lends to banks—for the 11th time, by 50 basis points to 8%. The reverse repo—the rate it pays banks for investing excess funds with it—was raised by the same amount to 7%. The penal rate on lending to banks under the Marginal Standing Facility is up at 9%. Inflation forecast has been raised to 7% with an upward bias and non-food loan growth forecast lowered to 18% from 19%. A basis point is 0.01 percentage point. Economic growth rate is maintained at 8%. Cash reserve requirement and statutory liquidity ratio, however, remain unchanged. 

Low & Behold the High Rates! 

Although the RBI has raised interest rate for the 11th consecutive time starting March 2010, it doesn't mean a higher cost of capital—in real terms 

Savers are earning negative returns: 1-year FD with SBI fetches 9.25%, whereas inflation in June was 9.44%—a negative interest of 0.19% 
Borrowers 
are getting money cheap too: 
Prime borrowers are still getting funds at almost negative real interest rates--SBI's base rate is 9.5% 

Savers are 
subsidising 
borrowers: 
Interest rates need to rise to provide positive inflation adjusted returns to depositors 
Find funds abroad: 
Businessmen are free to borrow from abroad at lower nominal interest rates. Companies borrowed $4.7b abroad in April-May 

RBI's enemy is inflation: 
Reserve Bank's mandate is to fight inflation even if it means sacrificing some growth 
Government 
isn't exactly helping: 
The ballooning public spending and subsidies are nullifying some impact of monetary tightening
INTEREST COSTS ARE NOT HURTING YET :Companies can absorb the increase in cost of capital without worrying about pressure on margins RBI ACTION AFFECTS BOTH INDIVIDUALS & INDUSTRY Home Prices to Fall on Costlier Loans Property prices are expected to correct around 20% following another round of tightening by RBI. Sensex Slumps 353 Points on Rate Hike The Sensex fell the most in more than a month after the rate hike, shedding 353 points to 18,518. Policy Actions Needed to Sustain Growth: RBI 
"It is important to recognise that in the absence of appropriate actions for addressing supply bottlenecks, especially in food and infrastructure, questions about the ability of the economy to sustain the current growth rate without significant inflationary pressures come to the fore," the RBI said in the statement reviewing monetary policy for the June quarter. "The economy's ability to grow rapidly for any length of time without provoking inflation is dependent on implementing policies, with corresponding resource allocations, which will allow the supply of various products and services to keep pace with demand." 
The central bank's move is contrary to market expectations. All the 15 economists and treasurers polled by ET were for a 25-basis-point increase and moderation in tone about future increases. 
Industry, including Ratan Tata, chairman of Tata Sons, was for a pause since economic expansion may stall. But the policy handed out the opposite of it. Inflation as measured by the Wholesale Price Index was 9.44% in June, and it possibly was above 10% given the upward revisions in the past. 
The benchmark BSE Sensex slumped 1.9% to 18,518.22. The yields on 10-year benchmark government bond rose 14 basis points to 8.43%.The rupee closed at 44.18 per dollar against the previous close of 44.39 per dollar. 
"Early corporate results for Q1 of 2011-12 suggest some moderation in margins," said Subbarao. "However, such moderation so far has been modest, implying that pricing power persists." 
Hero Honda's net sales grew 32.3% in the June quarter and net profit rose 14%. Reliance Industries' revenue 
rose 37% and profit climbed 17%. Among lenders, HDFC Bank's net interest income grew 16% and profit after tax advanced 34%. Interest outgo as a proportion of sales for BSE 500 companies fell in FY11 to a three-year low of 10.1%, from above 11% in fiscal 2009, an ET Intelligence Group analysis shows. Corporates are not happy as their borrowing costs will go up as banks raise lending rates. 
"Increase in lending rates is 
inevitable,'' said Deepak Parekh, chairman at Housing Development Finance Corp, the country's biggest mortgage lender. "At HDFC, we will review rates within a month. No institution can absorb a 50-bps rise in rate. It was unexpected. Indian industry is becoming uncompetitive, with high interest rates, high wage cost and rising raw material cost. This will be a big issue." 
Industry has been lobbying for a pause in rates since there is a slackening of demand as captured in the Index of Industrial Production numbers, which the RBI does not trust and has termed 'analytically bewildering'. IIP grew 5.7% in April-May 2011, lower than 10.8% a year earlier, but these numbers have been erratic. Merchandise trade, however, registered strong growth with exports surging 46% in the
June quarter. 
For 2009-10, the advance estimate of GDP growth at market prices from the expenditure side, which came out in February 2010, was 6.8%. That was changed to 7.7% in the revised estimate in May 2010, and again to 9.1% in the quick estimate in February 2011. Initial WPI estimates for were 8.2% and 8.3% for January and February, respectively. Both were raised by 120 basis points later. 
Although the rate hike looks steep, some economists believe it may possibly be the end. "With this move, the RBI has significantly surprised the market with the rapidity and extent of its rate hikes," said Tushar Poddar, economist at Goldman Sachs. "Having burnished its anti-inflation stance, we believe there is little need for the RBI to hike further to enhance its commitment to fighting inflation and keep
ing medium-term expectations anchored." 
Planning Commission Deputy Chairman Montek Singh Ahluwlia said the RBI's policy move was not improper. "You do need to send signals and if the situation improves, he can reverse the position later. It (the decision) is bound to be effective in controlling inflation," he said. 
The next mid-quarter monetary policy review will be on September 16 and quarterly review on October 25.

Govt Must Now Show Will to Act 
Inflation hurts the poor, chokes growth and has to be contained. But is squeezing demand the only means to that end? The RBI does not think so. It would like the government to channel investment, directly or through decisive, clearheaded policy, to increase supply in key sectors such as milk, pulses, vegetables and coal. At the same time, government consumption should be contained, to curb fiscal deficit. If the government does not show sense or the will to act, the RBI has no choice to hike rates further — this is the message from Mint Street. The government should take heed, denationalise coal, invest in rural roads, free up agri marketing, and slash oil, fertiliser and power subsidies. The RBI cannot, need not, battle inflation on its own.

Monday, July 25, 2011

Patni Computer Slips into the Redwith 52-cr Loss

Rise in staff costs, single-digit revenue growth spoil the show for company

Patni Computer Systems, which was acquired by iGate earlier this year, has slipped into the red with a net loss of . 51.5 crore on a consolidated basis for the quarter ended June 2011, on rise in staff costs due to severance pay given to employees and a single-digit growth in revenues over the corresponding quarter of the previous year. In the year-ago period, the company had posted a net profit of . 146.7 crore. 

The company said the group's consolidated revenue for the June 2011 quarter was . 874.6 crore, up from . 815 crore in the corresponding quarter of the previous year. 
On a standalone basis, it said net profit was . 82 crore on revenues of . 547 crore. Shares of Patni fell over 3% to . 322 on the Bombay Stock Exchange on Monday. The results were below expectations, a Mumbai-based equities analyst said. Phaneesh Murthy, CEO & MD, Patni, said: "We expect our results to stabilise in 2012 after all the integration expenses and accounting charges related to the acquisition have evened out." 
Mr Murthy declined to comment further on the results, saying that a clearer picture will emerge when iGate announces its results. The company said it 
added three Fortune 1000 clients during the quarter. 
In May this year, the Nasdaqlisted iGate completed the acquisition of a majority stake in Patni Computers, and announced a new go-to-market brand called 'iGate Patni'. Murthy said: "With the front-end sales already integrated, our joint go-to-market strategy has been responding well among our customers and markets. Our focus is on building a platform for long-term growth and taking both the companies to the best-in-class earnings growth that iGate has been able to achieve over the past three to five years."

Vedanta may Face Investor Ire Over Bonuses to Top 3

Co seeks nod for raising pay packages of Agarwal brothers & CEO Mehta

Billionaire Anil Agarwal may face problems on July 27 when he addresses shareholders at the annual general meeting of his London-listed mining company Vedanta Resources. The UK-based pension fund advisory PIRC and Aviva Investors, a shareholder in Vedanta, have urged members to oppose the resolution that seeks approval to award bonuses to three executives of Vedanta, including chairman Anil Agarwal. The mining major has sought shareholders' nod for raising the total remuneration for Agarwal by 26% to £1.7 million. The company has also proposed to increase deputy executive chairman Navin Agarwal's pay by 39% to about £1.4 million and chief executive Mahendra Mehta's pay package by 52% to £482,000. 

Aviva which owns 0.3% in Vedanta, has said it would withhold approval for these resolutions. Investor advisory PIRC said the bonus payouts which are linked to safety issues, are "contradictory" as the approval is sought for a period when over 26 employees of Vedanta were killed in various accidents. 
In a report communicated to Vedanta shareholders, PIRC said: "The bonus awards are dependent on effective stakeholder management, which resulted in recognition and achievement of awards in corporate social respon sibility, safety, quality, business 
excellence and best-employer status. In light of the loss of 26 lives occurring across group operations and projects, it is not clear how the award of bonuses can be reconciled with stated policy." 
A Vedanta Resources spokesperson declined to comment on the issue. 
The London-listed mining major last year faced protests from environmental activists who opposed Vedanta's plans to mine for bauxite on a hill considered sacred by tribals in Orissa. Aviva was also part of the protests started to stop mining activity in Niyamgiri.The project was later cancelled by the government. 

Sterlite Q1 
Net Jumps 62% 
NEW DELHI Sterlite Industries, part of Vedanta Resources, on Monday said its fiscal first quarter net profit surged 62% due to higher refining fees and firm metal prices. The flagship of Vedanta Resources, which is the largest copper producer in the country, said profit in the April-June period rose to . 1,640 crore, compared with . 1,010 crore last year. Its revenue in the same period was up 66% to . 9,820 crore. 
On a standalone basis, Sterlite Industries net profit was down 18% to . 343 crore for the first quarter, while revenue was up 31% to . 4,562 crore. Sterlite scrip ended 2% up at . 172.25 on BSE. — Our Bureau

Anil Agarwal

Tightening to Stay till Prices Cool: RBI Central bank set to raise key rates by 25 bps today

The Reserve Bank of India, or RBI, has said the broad thrust of monetary policy will have to be on tightening despite risks of slower growth, in what is being perceived in the financial markets as an indicator that the central bank is set to raise interest rates again on Tuesday. In its latest report on macro and monetary developments of the economy, the RBI said monetary policy would have to preserve its tight monetary stance till there is credible evidence of inflation trending close to a level within the central bank's comfort zone of 4-4.5%. Taming inflation is an unfinished task considering that price pressures still persist, it said. 

The report, unveiled on the eve of the policy review on Tuesday, is a pointer to another increase in the key repo rate, or the rate at which the RBI lends to banks against government securities. All 15 market participants polled by ET over the weekend were unanimous the central bank would raise repo rate by 25 basis points (1 bps is 0.01%). It has raised rates 10 times since March 2010 to cool inflation, but its job is far from over with headline inflation still over 9%. The RBI has projected inflation to come down to 6% by the end of this fiscal. 
The macro report said if the monsoon turns sub-normal, upside risks to the projected moderation in inflation during the second half 
would go up. Not only is the headline inflation still hovering around 9%, but non-food manufacturing inflation also remains significantly high at above 7%, according to the RBI's assessment. It also cautioned against a potential impact of the Eurozone crisis on the domestic economy. "Challenges from the policy perspective have become even more stringent with increased risks to growth, though inflation is likely to remain high in near term. Risk factors have emerged that could adversely impact aggregate demand," the report said.

Refining Saves the Day for RIL as Gas Output Dips

Q1 net profit rises 17% as margins swell to $10.3/bbl, petrochem and exploration business take a knock

Reliance Industries' quarterly net profit rose 16.7% as its refineries ran at full throttle and earned more dollars for each barrel processed, helping it offset a sharp fall in gas output and lower petrochemicals margins. 

The company said the outlook for refining, which contributed 76.6% of its revenue, was good. "Positive margin outlook for refining with global oil demand expected to grow at 1.2 million barrels per day — growth driven by transportation fuels," it said in a presentation to analysts. Reliance also foresees an improvement in the local petrochemicals market after a quarter in which domestic polymer and polyester demand contracted. "Stable to improving margin environment in petrochemicals as India continues to remain deficit in key products," it said. 
In the April-June quarter , the company processed a record 17 million tonnes of crude oil as its refining margin fattened to $10.3 from $7.3 per barrel. Its refining complex at Jamnagar, the world's largest, shipped out 10.4 million tonnes. This boosted exports of oil products 62% to $10.2 billion compared with the year-ago quarter. 
Its huge pile of cash and securities swelled another 8% in three months to . 45,775 crore, bringing it closer to becoming practically debt-free and giving it room to deploy capital profitably. Its debt stood at . 67,041 crore at the end of the quarter. 

CALCULUS 
The Magic may Not Last... 
Although RIL's results were the best-ever in a quarter, its sustenance in future quarters is doubtful. 

• 12 
Unified Telecom Permit to Aid Reliance 
The new telecom policy may allow companies to offer all 'forms of communication services under a single permit', benefitting players like RIL, report Joji Thomas Philip & Rohini Singh . 

7 
Lower Petrochem Demand at Home 
"Our cash flows give us the unparalleled opportunity to allocate capital to higher-margin resource plays in leading markets around the world. We remain committed towards investing in India and have," Reliance CMD Mukesh Ambani said in a statement-.Quarterly net profit of µ5,661 crore was in line with street expectations. Turnover rose an annual 37.2% to µ83,689 crore.The key driver of profits was the refining and marketing division, whose revenue swelled 45.8%, while the segment's operating profit, measured in earnings before interest and tax, soared 57.2%. 
In contrast, Reliance's oil and gas business, a relatively small part of its turnover, declined as the KG-D6 block's natural gas output dropped 18% while oil output fell 41%. The company hopes to reverse the decline with the involvement of oil major BP, whose $7.2-billion deal to buy 30% in Reliance's oil and gas blocks was approved last week. 

The company also relinquished an oil block in Oman while output from Yemen suffered due to adverse conditions. The segment's revenue fell 16.5% to µ3,894 crore while operating profit dropped 23.3%. The oil and gas segment contributes 4.1% of the revenue but 21.4% of the earnings before interest and tax. The company said its shale gas JVs were progressing well.xThe petrochemicals segment's business revenue grew 32.1% to µ18,366 crore but operating profit rose just 7.9%. 
The EBIT margin of the petrochemicals segment contracted to 12.1% from 14.8% in the first quarter of 2010-11. 

"On a trailing quarter basis, EBIT margins were lower due to negative impact of margin contraction in polyester & polymer chains which was partially offset by higher margins in PVC, PET, Butadiene and LAB," the company said in a statement. Domestic demand for polyester products fell by 5% during the quarter on account of price volatility as well as labour and power shortage at the downstream industry. Demand for polymer products also decreased by 4% during the quarter. 
The earnings, which matched expectations, were declared after market hours and are not expected to significantly impact the company's share on Tuesday. RIL shares have fallen 17% so far this year over concerns about its D-6 block. 
Rahul Singh, MD and head of equity research, StanChart, said earnings were in line with expectations both on 
petrochem and E&P side. "The market will take it in its stride and I don't expect any significant impact on the share price tomorrow (Tuesday)," he said. 
Devang Mehta, head of equity sales at Anand Rathi Financial Services, also said the earnings met expectations. "The GRM numbers saved the day given that petrochem margins are down and E&P continues to be under pressure…stock movement should largely be range-bound tomorrow," he said.
Deven Choksey, MD, KR Choksey Securities, said the performance of the company's exploration and production segment was along expected lines but the lower petrochemicals margin was a concern. "But that could be the silver lining for the next quarter as volatility in crude pieces is slated to abate which could positively impact petrochem margins next quarter… There might be small selling pressure in trade tomorrow," he said.

Thursday, July 21, 2011

‘RIL, RCOM investors were short-changed during split’


Mumbai: A Canadian research firm, Veritas Investment Research, has slammed billionaire industrialist brothers Mukesh and Anil Ambani in a report that attacks poor corporate governance standards in India Inc. The report—'Brothers in Arms: Misappropriating a Fortune'—said Reliance Industries and Reliance Communications have shortchanged investors during the family split, which it calls "a charade" to take the fortune away from minority investors. The Ontario-based equity research firm, little known in India, released the full version of the report on July 18. Reacting sharply to the report, a Reliance Communications spokesperson in an email reply said, "Veritas is an unknown organization lacking any credibility whatsoever, and it has, for ulterior and dishonest motives, published a malicious and motivated report containing baseless allegations, masquerading as research." 
    "The language of the report, and the manner of dissemination of the same in an orchestrated manner over the past four weeks in multi
ple Indian languages by the Canadian outfit debunks any claims of the same being genuine research, and clearly establishes the same to be the handiwork of our unscrupulous corporate rivals," the RCOM statement said, adding that the company's accounts are duly audited by top international accounting firms for the past several years. Reliance Communications statement also threatened to take legal action in Canada, India and elsewhere against publication of any part of the false and defamatory comments in the report. 
    However, RIL officially refrained to offer any comments on the report, which alleged that Reliance Communications "is the poster child of everything that is wrong with corporate India, and irrespective of management's assertions about 'values' and 'integrity' in various annual reports, we find 
no credible evidence of either in its financial statements or those of its former parent, RIL." 
    However, a source close to RIL questioned the motive behind such a report six years after the demerger of telecom business. "The demerger was approved by the Bombay High Court and shareholders of RIL in 2005. What is the objective of coming with such a report now? The report is baseless and done with a malafide intention by corporate rivals," said the source. Neeraj Monga, co-author of the report, in a telephone interview from Canada, told TOI, "They (Reliance) have abused the system. They have abused the law. The ownership of RCOM was stolen away from the minority shareholders by the promoters." When asked if RIL and RCOM will sue Veritas, Monga said, "They (Reliance) will have to prove in court that 
they invested Rs 13,675 crore for owing 67% stake in RCOM. Promoters wrested majority stake during demerger by investing only Rs 186 crore while the minority shareholders of RIL invested Rs 13,675 crore for owning only 33% stake. This is duping the shareholders."

Mukesh and Anil Ambani (right)

Retailers back at hypermarkets for growth

Mumbai: Mukesh Ambani's Reliance Retail probably signalled the arrival of hypermarkets when it opened the first big-box store spread across 165,000 sq ft in Ahmedabad four years ago. But things did not quite work according to plan and the retailer downsized its largest store within the first year of operations. The focus then had shifted to neighbourhood stores under Reliance Fresh brand. 

    On a comeback, the retailer is now rejigging the hypermarket story with Reliance Mart. Others like Dutch retail chain Spar, K Raheja's Hyper-City and the country's largest retailer Future Group too are banking on the hypermarket format to ring in profitability and differentiation. 
    "The neighbourhood convenience store concept has not done well and it's a learning for all of us in the industry. The big-box model 
can offer the choice to 
customers which a convenience store cannot. It's 
also clear that financial viability will rest in the big stores as the small format stores do not have a feasible business model," says Damodar Mall, director for food strategy at Future 
group, which operates stores like Big Bazaar. 
    The economic crash of 2008 halted the hypermarket push as real estate and cash crunch became big hurdles for 

big and small players. Hardly any hypermarkets opened in 2008-09 with even smaller format retailers struggling to stay afloat. The now-shut discount retail chain Subhiksha 
had added some 1,400 neighbourhood stores in just two years during the boom period only to be wiped off by 2009. Reliance Retail says hypermarkets will be a strategic growth driver within its retail play. There are 16 Reliance marts operational currently. Future Group is ramping up the Big Bazaar 'Family Centre' model which is typically 75,000 sq ft stores offering service facilities such as beauty parlour and gymnasium. "We have ten stores now and will have two each in the big cities going forward," Mall adds. 
"Large format stores will be the model for profitability considering they operate on economies of scale. If retailers get the supply chain in place hypermarts have the potential to get huge footfalls as they are more than just a place to shop at," says Anand Mour, VP-FMCG & retail at brokerage firm Indiabulls Securities. 
Tweaking the format 
But the hypermarket story is being tweaked to Indian conditions. 
Spar India, which has a licence agreement with Dubai based Landmark Group's Max Hypermarkets, plans to almost double the number of hypermarkets from eight currently to 14 by March next year. "What is significant this time, though, is that retailers are talking about hypermarkets which are typically 50-70,000 sq ft in size, and not more," says Viney Singh, MD, Max Hypermarket India. Spar has two types of hypermarket formats—mini-hypers which are spread across
30-40,000 sq ft while the regular hypers are 50-70,000 sq ft. 
    HyperCity, which started in Mumbai's suburb Malad five years ago, says it understood that 100,000 sq ft plus hypermarket model won't work in India. A few uneventful years later, it is now aiming to grow rapidly but with a size of 70,000 sq ft stores in the metros. "We have become very clear about the size of the stores that we should adopt in past six months. There is still not enough product range available to be effective and profitable in the huge boxes. The tier 2 stores take longer—about two years— to turn profitable compared to metros. Hence we are keeping the size of the tier-II stores at about 50,000 sq ft," says Mark Ashman, CEO, Hypercity. 
    He says the retailer plans to add seven new stores by 2012 to the present tally of 10, and make it 50 stores in four years. 
    "The last three years have been a phase of discovery for Indian retailers and has resulted in changes to the original hypermarket format. The changes will continue because there are no models you can apply from any part of the world here," says retail consultancy firm Technopack chairman Arvind Singhal. 

Big Box On The Shelf 

t Hypermarts offer economies of scale 
t Retailers can differentiate themselves through large format stores 
t Hypermarts have a viable financial model compared to neighbourhood stores 
t Dutch retail chain Spar will double its hypermarts by March 2012 
t Hypercity is looking to have 50 hypermarts by 2015 
t Future group to expand its big-box Big Bazaar Family Centres

BP-RIL Deal, FDI In Retail On Agenda Today

Things are moving, not at a standstill: FM


New Delhi: Finance minister Pranab Mukherjee on Thursday sought to dispel the notion that decisionmaking in government has virtually come to a halt. 

    The veteran Congressman's comments during an interaction with the media came on the eve of two crucial decisions. The Cabinet is expected to approve BP's acquisition of 30% stake in Reliance Industries' oil and gas fields deal on Friday, paving the way for the country's largest-ever foreign direct investment. The immediate inflow of $7.2 billion (over Rs 32,000 crore) will almost match FDI inflows of $7.8 billion (over Rs 35,000 crore) between April and May 2011. If everything goes as per plan, BP could end up investing up to $20 billion (around Rs 90,000 crore) over the next few years. 
    Also on Friday, a committee of secretaries is scheduled to discuss allowing foreign retailers such as Walmart and Carrefour to set up retail stores in India. The proposal is to allow up to 51% investment in Indian ventures with stiff riders which could include a stipulated level of investment in back-end infrastructure as well as sourcing from small scale units. 
    Mukherjee, who has spent the last two days meeting mediapersons to shore up government's faltering image, was, however, tightlipped on both issues. All that he said was the government was discussing allowing FDI in multi-brand retail and indicated that the BP-Reliance 
deal could get the green light. But, he did point out that the government had cleared the Cairn-Vedanta deal, which had generated concern in the investor community. 
    "I want to take the opportunity to dispel some sense of despondency, some sort of cynicism that things are not moving and there is virtual standstill… No one is claiming that everything is positive. There are areas of concern, there are problems but 

at the same time, the overall economic performance is not bad," Mukherjee said during an interaction that lasted for over an hour. 
    But he sought to make a distinction between administrative and legislative decisions and blamed the absence of legal changes for 
holding up administrative decisions. 
    At the same time, he listed several moves initiated by the government which have removed hurdles. The list included deregulation of petrol prices and the hike in prices of kerosene, diesel and cooking gas, freeing up of coal blocks that were locked in the 'Go-No Go' dispute. The minister listed the new nutrient-based subsidy regime for fertilizers and the plan to start a pilot projects for cooking fuel as the other decisions. 
    Besides, Mukherjee said, the group of ministers on Air India had decided to meet every month to ensure that things were moving. Clearance of road projects and rules for setting up infrastructure debt funds to finance large core sector projects too appeared to be on Mukherjee's list of items with priority tag. 

PUSHING REFORMS 
Pranab Mukherjee has requested the parliamentary standing committee on finance to expedite its report on Bills pending before the panel. Here's FM's legislative schedule though it comes with the rider that the ruling party alone cannot push a Bill 

Direct Taxes Code | Govt on course to usher in new regime from next April 
Constitutional Amendment for GST | Govt plans to reintroduce Bill in winter session if standing committee submits its report during the six-week session 
Banking, Insurance & Pension Bills | Awaiting standing committee's review 
Mining Bill | To be introduced in monsoon session 
Food Security law | Bill will be introduced during monsoon session 
UNEARTHING HIDDEN WEALTH 'Swiss pact to help track black money' Revised Double Tax Avoidance Agreement Expected In Two Months: FM 
New Delhi: The government is hoping to track unaccounted wealth of Indians stashed in Swiss banks despite the authorities in the European country only agreeing to share prospective data under the revised Double Taxation Avoidance Agreement (DTAA). India and Switzerland had signed a revised agreement last year which will enable the government to access information on a prospective basis. The treaty has not been revised as it was pending ratification from both Houses of the Swiss Par
liament. While the upper and lower Houses have approved the amendments, the over two dozen Swiss cantons too need to clear the revisions. 
    Finance Minister Pranab Mukherjee said the revised agreement was expected to be operationalised over the next couple of months and would be effective April 2011. "I am sure that the criminal investigators and the tax officials would be able to use the data available with them to construct the case," he said. 
    The government is under pressure from courts as well as political parties to launch an offensive against black 
money and a review of the treaties and signing tax information exchange agreements (TIEA) was part of the exercise. The government has completed negotiations on 57 DTAAs, while another 29 are under negotiations. 
    Besides, heightened surveillance, surveys and search operations undertaken by the income tax department had helped the government detect Rs 15,000 crore in hidden taxes, while another Rs 35,000 crore had been mopped up over the last few years due to improved transfer pricing norms, which had helped check instances of foreign companies under-invoicing goods to their local affiliates. 
    But the Supreme Court had recently been critical of the government's efforts and 
had ordered the constitution of a special investigating team, a move that has been challenged by the Centre. Though Mukherjee did not comment on the court ruling, he said that the government was simultaneously moving on its efforts. 
    To begin with three agencies have been entrusted with the task of assessing the scale of the problem. The committee headed by the Central Board of Direct Taxes chairman too is expected to submit its report over the next two-three months, finance secretary Raminder Singh Gujral said.




 

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