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Friday, September 28, 2012

RELIEF RALLY Sebi Plans Safety Net for IPO Investors


Promoters or lead bankers will have to compensate investors ifshare price falls over 20% of the issue price within three months of listing


Retail investors in an initial share sale will have to be compensated if the shares fall sharply within three months of listing, capital market regulator Sebi proposed on Friday. 
According to the proposal, the so-called safety net provision will trigger in cases where the price of the shares fall by more than 20% from the issue price. Promoters will also have to compensate investors if the volume-weighted average market price of the shares drop 20% more than the benchmark indices – BSE 500 or S&P CNX 500 – within three months of listing. The regulator's proposal comes after an internal analysis of the recent post-list
ing price performance of initial public offerings. According to the analysis, of the 117 share sales in four years to 2011, as many as 72 were trading below the issue price after six months of listing. Out of these 72 scrips, the fall was more than 20% of the Issue price for 55 scrips, Sebi said. "If this trend continues, the sentiment of the investors will get affected and they may lose confidence in the capital market. Thus, there is a need to provide a safety net arrangement for retail investors to build their confidence in the capital market," the regulator said in a discussion paper posted on its website inviting comments before October 31. 
Sebi also said the facility will be available for all the allotted securities to retail investors applying for shares worth less 
than . 50,000. The promoters or lead banker for the share sale will have to announce triggering of the safety net mechanism after three months of the share sale. 
Promoters will have to buy back shares from retail investors who tender the shares back and pay them within 20 days. Total obligation on issuer for the retail investor will be capped at 5% of the issue size. After a Sebi board meet last month, it was suggested that besides disclosures, more measures were needed to bring in "self-discipline" in pricing of initial share sales. 
The board decided that while a safety net mechanism was needed to protect the interests of small investors, public consultation on the details was needed before the implementation of the guidelines.

Rupee may hit 50/$ in a few months: Govt

NewDelhi:The government on Friday said it expects the rupee to appreciate to around 50 against the dollar over the next three-four months on higher foreign inflows, a development that will help rein in subsidies and also check inflation. 

    "The rupee has gone below 53 and that reduces the subsidy requirement. If rupee further strengthens, which we hope it will, with the steps the government is taking, we expect it could even touch 50 in the next 2-3months or four months," economic affairs secretary Arvind Mayaram told reporters. He said the recent policy initiatives are expected to result in higher foreign exchange inflows — through the FII and the FDI channels — and ease the pressure on the rupee. 
    On Friday, the rupee rose to 52.50, a level last seen on May 1 before ending the day at 52.86, 16 paise stronger than the previous close. For a currency that was among the worst performers till recently, this was the fourth straight week of gain and the 
best quarter since June 2009. Since September 13, when the government initiated the so-called reform measures by raising diesel prices and capping subsidized cooking gas sales, the Indian currency has gained around 5% against the greenback. 
    A gaining currency makes imports cheaper, especially the oil import bill, and cools down inflation. Mayaram said that a one rupee gain translated into 8 basis 
points reduction in inflation (100 basis points make a percentage point). Going by this argument, nearly a quarter percentage point has been shaved off from inflation in the last two weeks, while the oil subsidy, based on underrecoveries of oil companies that was projected at Rs 1.67 lakh crore, has also come down by around Rs 20,000 crore. A one rupee change against the dollar results in change in under-recoveries by Rs 8,000 crore. The market, however, is not as bullish. In a research note, Bank of America Merrill Lynch economist Indranil Sengupta estimated the rupee to be around Rs 51 to a dollar this fiscal. Most agencies expect the rupee to hover around 51-52 to the dollar given the global uncertainty. 
    But even at these levels, there is a gain for the government. "It is not simply in terms of cutting subsidies that you can contain fiscal deficit, (but) by better management of economy also fiscal deficit can be contained," Mayaram said. He said the government may step up the disinvestment drive and will try to keep the fiscal deficit as close the target as possible. 
Sensex closes near 15-month high 
Mumbai: The government's moves to increase revenues and an assertion that its borrowing from the market for the second half of the current fiscal will not exceed the budgeted figure led to a strong rally on Dalal Street, lifting the sensex by 183 points to 18,763 — near its 15-month closing high mark. 
    The day's rally, that added Rs 73,000 crore to investors' wealth, was also aided by news from Europe that Spain, one of the struggling economies in the continent, has agreed to an austere budget that would contain its fiscal deficit to some extent. 
    The day's session began on a strong note with sensex up more than 100 points, and soon climbed to its intra-day high at 18,870. 
    Profit-taking late in the session, however, pulled the index down from its high and it closed with a 1% gain. 
    The rally was helped by foreign fund buying with data at the end of the session data showing a net inflow of 
Rs 1,230 crore. 
    The day's figure took the aggregate monthly FII flows to over Rs 20,000 crore, or about $3.9 billion. 
    Domestic funds, however, remained net sellers with a net selling figure of Rs 679 crore, taking the monthly figure to close to Rs 9,200 crore. 
    Among the top sensex gainers were Hindalco, up 3.4% at Rs 121, Tata Motors gained 3% to Rs 267 and Cipla with its stock up 2.5% at Rs 381. 
    Of the 30 sensex stocks, 26 ended with gains. 
    The strong FII flows also aided in strengthening the rupee, which closed at 52.86 to the dollar, compared to its Thursday close of 53.03, a five-month high.


Bring down excise, service tax to 8%: Kelkar panel

Govt Won't Stagger Food Law Rollout


New Delhi: The Union government on Friday snubbed the recommendation of its own expert panel to stagger the implementation of the proposed food security law, in a loud indication of its plan for a 
mega rollout of the populist welfare scheme over the next few months. 
    The government made public its disagreement even before the much-an
ticipated report of the Vijay Kelkar Committee was released for public comment. 
    The recommendations were much awaited as they were seen fit for the gov
ernment's belt-tightening exercise. 
    The panel, headed by the former finance secretary, recommended a series of steps needed to repair battered finances, includ
ing stepping up the disinvestment drive, slashing subsidies and revamping tax laws so that excise and service tax rates could be lowered to 8% from 12% over the next few years. 
. may hit 50/$ in 3-4 months: Govt 
The expects government the rupee has to said it appreciate to around 50 per dollar in three-four months on higher foreign inflows. P 21 
Panels to push cash transfer plan 
The many Centre panels has to set expedite up the process of launching the cash transfer system for major subsidies. P 11 
KELKAR'S FISCAL FITNESS PLAN 
TAXES 
Move to GST, cut excise & service tax rates to 8% Reduce service exemptions such as those to non-profit sector Revamp tax admin, process more data on taxpayers 
SUBSIDIES 
Move to market-based price 
for diesel, kerosene, cooking gas by Mar 2014 Raise fertiliser and food prices Shift to direct cash transfers 
OTHERS 
Monetise govt land Step up pace of disinvestment, evolve new models



THE INDIAN ECONOMY IS POISED ON THE EDGE OF A FISCAL PRECIPICE 
—KELKAR PANEL REPORT

Wednesday, September 26, 2012

FOR A FARE RIDE

Auto, taxi fare to rise by 2-3 next week

'CM Has Given Nod To Hakim Panel Suggestions On Tariff Hike With Few Changes'


Mumbai: Autorickshaw and taxi fares will rise by Rs 2 to Rs 3 in Mumbai, Thane and Navi Mumbai from the first week of October. This means that the basic fare for autos could rise to Rs 15 from Rs 12 while the minimum cab fare could climb to Rs 20 from Rs 17. 
    Highly placed sources confirmed that chief minister Prithviraj Chavan on Wednesday approved the recommendations of the Hakim Committee on fare hikes, barring a few minor modifications. Chavan told TOI, "We will 

make an official announcement on fare hikes in a couple of days." 
    Sources said that while approving the recommendations and the fare hike formulae devised by former union secretary P M A Hakim, the chief minister has reduced the cost-of-living factor for auto and taxi drivers, and cost of maintenance for both autos and taxis. This, according to experts, will impact the fare hike calculations. The final fare hikes for both autos and taxis therefore could be anywhere in the range of Rs 2 to Rs 3 (Hakim had suggested at least a Rs 3 hike). 
    "The Hakim report had proposed that the cost-of-living factor should be taken as Rs 12,000 per month for drivers. But the CM has recommended that this should not exceed Rs 11,000," a Mantralaya source said. "Besides, annual re
pairs and maintenance of taxis was estimated by Hakim as Rs 92,000 for one-shift duty and Rs 1.02 lakh for double shift. The CM has approved Rs 70,000 for one shift and Rs 80,000 for two," the source said. Similarly, for autos, the maintenance cost proposed by Hakim was Rs 21,000 for one shift and Rs 25,000 for two. The CM has approved Rs 19,000 for one shift and Rs 22,000 for two. 
    An official order (government resolution) in this connection will be issued by the transport department on Thursday, sources said. It is learnt that the CM has also insisted that every driver compulsorily wear ID cards. The card will bear his name, badge number and photograph. Besides, taxis should flash an e-indicator 'For Hire' on the roof. 
    Taxi and auto union leaders 
have decided to cooperate with the authorities and there is no likelihood of cabbies or automen going on strike in the first week of October, union sources said. 
    Sources indicated the government has also accepted a minimum fare for 1.5 km instead of 1.6 km at present. Night fare may also be hiked by 5% (from 25% to 30%) while auto fare will be decided once 
a year, depending on rising costs; tentatively in the first week of May. 
    Commuter rights activist Shirish Deshpande said, "The Mumbai Grahak Panchayat has already written to chief minister Prithviraj Chavan demanding there should not be a single paise hike unless drivers stop refusals and meter tampering. But we have not been called by the CM's office for discussions."
UNFAIR TRIP FARE HIKES IN RECENT PAST 
MARCH 2012 
Autos | An interim hike of 1; basic fare rose from 11 to 12 
Taxis | Cabbies too got a 1 hike; fare rose from 16 to 17 plus a 50 paise hike for every subsequent km, from 10 to 10.50 
OCTOBER 2011 
Autos | The MMRTA approved of a 50paise hike for autos for every subsequent km from 6.50 to 7 
Taxis | No hike 
JULY 2010 
Autos | Basic fare rose from 9 to 11; for every subsequent km by 50paise 
Taxis | Basic fare rose from 14 to 16; for every subsequent km from 9 to 10
SOME KEY HAKIM COMMITTEE RECOMMENDATIONS 
Basic taxi fare should rise to 20 from 17; autos to 15 from 12 Minimum fare distance in Mumbai, Thane and Navi Mumbai may be fixed at 1.5 km (instead of 1.6 km) Fall of the electronic meter should take place for every 100 metres Late-night trips should be fixed at 30% (25%) of permissible fare New formula gives weightage to cost-of-living of drivers in Mumbai. It 
was calculated at 3,750 per month in July 1996 (old formula). It had now been proposed at 12,000. (But it may been hiked to 10,880) 
Need for more share taxi and auto routes, especially in suburbs 
Recalibration of e-meters should be done within 45 days of fare hike 
Fare revisions should preferably come in on May 1 every year 
All taxis should be fitted with e-meters by August 2013 

    Mumbai Grahak Panchayat 
    has already written to chief minister Prithviraj Chavan, demanding that there should not be a single paise hike unless drivers stop refusals and meter tampering 
Shirish Deshpande | 
MUMBAI GRAHAK PANCHAYAT 
The government will lose its credibility if it doesn't hike fares after Ganpati festival. Our drivers have to face rising costs and are living a hand-to-mouth existence. The hikes are a must 
Sharad Rao | AUTO UNION LEADER 

There should not be a single paise hike. The government should first discipline the drivers and then give any hike 
Sunil Mone | COMMUTER RIGHTS ACTIVIST




Tuesday, September 25, 2012

Ajit Pawar Quits, Maha Politics May Turn Choppy

UNCERTAIN TIMES Resignation follows allegations of scam in okaying irrigation projects; chief minister Prithviraj Chavan to discuss issue with Congress and NCP brass


Maharashtra deputy chief minister Ajit Pawar has resigned following allegations of a mega irrigation scam when he was the water resource minister in the state. The move could create a political crisis in Maharashtra. Nationalist Congress Party ministers expressed solidarity with Pawar and submitted their resignations to the state party president. 

Pawar's resignation highlighted his seeming difference with his uncle and NCP chief Sharad Pawar, who was quick to announce in Kolkata that NCP did not wish to destabilise the Maharashtra government and Ajit's resignation would not affect the state government. Later in the day, chief minister Prithviraj Chavan said, "I have received the letter of resignation from Ajit Pawar. After discussing this issue with senior party leaders from both sides, I will take further action on it." 
After his resignation, Ajit Pawar told journalists, "I have decided to resign following allegations levelled against me on granting clearances to various irrigation projects. I cleared all projects only to ensure people get benefits faster. The Opposition and media have alleged that I have indulged in corruption and have awarded out-of-turn contracts." The deputy CM said that he had sent in his resignation to the chief minister, and added that he won't accept any post till his name is cleared. He said that he was ready to face a CBI probe as well. Pawar also held the charge of finance and energy ministries. 
NCP leader and Union minister for heavy industries and public enterprises Praful Patel, who appeared to be taken aback by Pawar's sudden resignation, said in Delhi that the party will not pull out of the state government. "We will not withdraw from the government in Maharashtra. We want the truth to come out. Supriya Sule (Sharad Pawar's daughter) is not going to take over any position right now. This whole thing is a conspiracy to defame NCP in Maharashtra," said Patel. He clarified that Sharad Pawar had decided to ac
cept Ajit's resignation, but other ministers will stay on in the state government. 
However, there were hectic political activities in Mumbai. Senior NCP leaders like PWD minster Chhagan Bhujbal and home minister RR Patil rushed to Ajit Pawar's residence to discuss the possible consequences. Chief minister Prithviraj Chavan, who was on his way to Pune, cancelled his trip. 
Coalition partners Congress and NCP have shared a somewhat rocky relationship in Maharashtra, with each taking potshots at each other from time to time. Recently, Congress used the irrigation scam to corner NCP, and Chavan even demanded a white paper on the expenditure incurred on various irrigation schemes in the state during the last decade. 
The Opposition accused NCP of misappropriation of funds in 2011. Chavan too made a public statement on the issue about a year ago, saying about . 68,000 crore was spent on irrigation schemes in the past 10 years, which resulted in very little, or no improvement, in the land under irrigation. Sharad Pawar's NCP has held the irrigation portfolio throughout this period and Ajit Pawar was in charge of the ministry for eight years.

CREATING CRISIS: Ajit Pawar

Godrej launches online store with Indiatimes


New Delhi:Consumer durables company Godrej Appliances on Tuesday announced its exclusive partnership with Times Internet's online shopping portal Shopping.Indiatimes.com to launch its first online store. Currently, Godrej Appliances sells its products through various multi-brand online portals. 
    Godrej Appliances is targeting Rs 15 crore annual sales through its online store with Indiatimes in the first year. It is targeting revenue of Rs 100 crore over the next five years through the Indiatimes online stores. 
    Godrej's decision to enter the online space comes with a view to tap the fast growing e-commerce market in India. "Given the increase in online shopping, Godrej was keen to reach out to its customers on the online platform. With our expertise in the best in class products space andindiatimes.com's expertise in the online retail space, we hope to bring greater value," said Kamal Nandi, executive VP, sales & 
marketing, Godrej Appliances. 
    "We have invested in our warehouse, last mile logistics and customer relationship management (CRM) infrastructure to support brands across categories. E-commerce is growing at a CAGR of over 50% and more brands are looking at entering online medium these days," said Subhanker Sarker, COO, Indiatimes shopping. The online store will be powered by Indiatimes shopping for delivering products. Godrej Appliances will handle the logistics and shipping through its 31 depots across the country. TNN

‘Days of 20% growth will never come back’ Industry Saddled With 2L Cr Debt But Govt Yet To Get The Reality: Vodafone India CEO


    Marten Pieters, CEO of Vodafone India, the country's second largest mobile phone operator, has worked in emerging markets for 17 long years but his Indian stint at the British telecoms giant over the last three-and-a-half years has been in one word — challenging. He has a similar opinion on life as an expat in the country's financial capital. A $2.2-billion tax dispute, regulatory issues that have troubled the telecom market and now the falling growth and subscriber numbers, Pieters has had to steer the telco through a tough market which has so far not delivered financially for the company's shareholders. In a candid chat with TOI, the Vodafone India boss says the wait for returns from India may get longer with the uncertainty that surrounds its license extension that comes up after two years. Excerpts: 
It has been over five years since the Vodafone Group Plc bought a 67% stake in Hutchison Essar. Has the 
Indian market performed as expected and been able to offset the slowdown in 
Europe? 
Overall, Vodafone has had a very good five years here. We came to India as it was a growth market just like the two other emerging markets we entered at the time — Turkey and South Africa. Till then, we were largely Europecentric. India was by far the biggest market in terms of size and potential but South Africa proved to be financially more profitable. However, India has delivered on the promise at least on the growth front — from 30 million to 153 million subscribers. Our revenue market share has grown from 17 % to 22%. All this while we made an investment of Rs 50,000 crore (including Rs 11,600 crore on 3G spectrum acquisition) in this period, of which the government got Rs 45,000 crore. Shareholders got nothing. 
So what has been the big 
challenge for you here 
in India? 
It is a financially troubled industry today and not well un
derstood. It has been a good industry to create value but not for free cash flow production. Over the next two years, we have to get an extension of our licences that will be a huge additional financial stress. We are worried about this… 
What is the kind of hit that you will take if you have to renew your licences keeping the benchmark of Rs 
14,000 crore — the reserve price set by the government for 5 MHz of pan-India 2G spectrum? 
Many billions of dollars, but it depends on a few factors like payment terms. Looking at the reserve price of Rs 14,000 crore, one wonders if that will work. We have to wait and see the outcome of the auction as that might be the benchmark for licence extension too. There is a disconnect between the realities and what the regulatory environment assumes it to be. 
How is this disconnect impacting business… 
The problem is that people are broke; the industry has a debt of an estimated Rs 2,00,000 crore. So at the moment your balance sheet is stretched and you cannot service your debt. But that reality has not landed with the government, which is a pity. The industry is on its knees and there are a number of new players whose losses are two to three times their revenues. How long can you sustain it? There are constant attacks on our revenue stream. SMS capping, which was 
done during the unrest in Assam last month, hurt us, as they (users) moved to other (free) applications. 
For the first time in a decade, incumbent GSM players lost subscribers as the Indian mobile subscriber 
base fell sharply by 20.7 
million in August. How are you handling this low 
growth phase? 
This was due to two reasons, seasonality, but probably the bigger reason is the slowdown. People don't have the money or they are sitting on it. August was bad for business. I am preparing for a situation wherein those 20% growth rates will never come back. The total subscriber base now is over 900 million. How many more will you add? So, we will see flattening out of the real growth but I am still optimistic about India Inc as far as long-term growth is concerned. It is like the US, between 1910 and 1940, when consumerism was at its peak. 
What about call tariffs, 
where are they headed? 
Lot of irrational pricing is there in the market which is not based on longer term costs plus profit margin, it is just opportunistic. We won't see any substantial change in pricing, so long as desperate players operate. The industry will rationalize with longer term sustainable players. I think it is a matter of time. The players who have scale can survive in such an environment if they do not have to pay for spectrum. 

    SHAREHOLDERS GOT NOTHING 
ON INDIA EXPERIENCE 
India was by far the biggest market in terms of size and potential but South Africa proved to be financially more profitable. However, India has delivered on the promise at least on the growth front — from 30m to 153m subscribers… All this while we made an investment of Rs 50,000 crore. Shareholders got nothing 
ON TARIFFS 
Lot of irrational pricing is there in the market which is not based on longer term costs plus profit margin, it is just opportunistic 
Marten Pieters | CEO, VODAFONE INDIA



Monday, September 24, 2012

L&T Up 18% in Sept despite Downgrades by 4 Brokers

Shares of Larsen & Toubro have climbed sharply in recent weeks despite a spate of downgrades by major brokerages. L&T, India's largest engineering and construction company, has climbed nearly 18% so far this month compared with a 6% gain for the benchmark Sensex. 

Four major brokerages — Credit Suisse, Merrill Lynch, JP Morgan and Goldman Sachs — have donwgraded the stock, citing a variety of factors, including high valuations, muted order inflow and Chinese competition. While Goldman Sachs removed L&T from its Asia-Pacific 'Buy' list last Friday by downgrading its ratings to 'Neutral', JP Morgan and Nomura lowered their ratings to 'Underweight' from 'Neutral' and from 'Buy' to 'Reduce', respectively. Absence of buying opportunities in the market combined with the belief that the economy may turn around following the burst of reforms from the government are helping the stock. Business challenges notwithstanding, some investors think that L&T is still the best pick in the stress-laden capital goods sector. L&T shares, which were trading at . 1,341 at the end of August, touched its year high of . 1,616 on Monday before ending down 0.44% at . 1,577. 
"The negatives that were anticipated in L&T's main businesses have been factored in. The recent reforms announced by the government indicate that order execution may pick up and there may be some recovery in industrial capex, which will boost order inflow," said Gaurang 
Shah, assistant vice-president, Geojit BNP Paribas Financial Services. 
In an attempt to de-risk business from the slowdown in the local market, The $12.8-billion conglomerate has in the past two years expanded its presence in the Middle East for hydrocarbon, power transmission & distribution and infrastructure projects. 
L&T's revenue Q1FY13 rose 26% y-on-y to . 12,078 crore, driven by a pick-up in order execution and a robust order book. Recurring profit-after-tax stood at . 890 crore, up 19%. Its order book was worth . 153,095 crore as of June-end. It has guided that its order inflow in FY13 will be 15-20% higher than . 70,574 crore reported a year ago. But analysts believe the guidance may be optimistic, particularly after it missed annual guidance for FY12. At the 
beginning of FY12, L&T had forecast an order inflow guidance of 15-20%, cut it to 5% subsequently and finally ended the year with a 12% decline. 
Geojit's Shah cautions that gains will remain capped in short-to-medium term as valuation appears expensive, and longterm investors may look at entering the stock at . 1,300-1,350. "L&T has been an investor-friendly company, which announced bonus and dividends. There is comfort about its diversified portfolio and geographical expansion," he said. 
"L&T is arguably India's best play on the infrastructure and corporate capex cycle. However, an unfavourable macro-environment and impediments on new orders driven by policy paralysis across sectors plague L&T's medium-term growth and margin outlook," he said.



Liquidity Glut Sends Penny Stocks Through the Roof


Prices of around 100 stocks soar 30-90% over past 16 sessions, post global & local stimulus plans


    Retail investors don't necessarily learn the hard way if the recent spurt in penny stock counters is anything to go by. The prices of around 100 stocks, with a market cap of less than . 300 crore, have jumped 30-90% over the past 16 sessions, which has coincided with an improvement in market sentiment following global stimulus measures by the European Central Bank and the US Federal Reserve along with reforms back home. 
The price spurt comes despite most of these stocks having circuit filters of 5%, which limits their daily price move. Market analysts caution that limited supply of such stocks makes them an easy target for manipulators who can dump them when retail investors start buying. 
"The nature of penny stocks is such that even if retail investors manage to make money in a few, they invariably lose money in the final reckoning as these stocks are easy targets for manipulators," said G Chokkalingam, CIO, Centrum Wealth Management. 
The top penny stocks that have dominated active counters with a whopping return of over 80% so far this month include Nikki Global Fi
nance, Nardhana Infrastructure, Gujarat Carbon, Jagson Airlines, Arcuttipore Tea, Vora Constructions and Unno Industries among others. Most small investors lost money during the market turmoil in the 2008, when the Sensex fell over 52% and BSE small-cap crashed over 72%. Due to the sharp fall, lack of direction and fear, small investors sold their stocks heavily. Now they are buying similar stocks in the hope of making good their past losses. 
"Retail investor interest in equity markets has gone up over the past few days. However, we advise them to invest only in companies with good corporate governance and sound fundamentals, while avoiding penny stocks," said Anand Rathi, chairman, AnandRathi. 
In many counters, volumes have picked up drastically since the beginning of this month. For instance, Arcuttipore Tea, with a daily average volume of 3,000 shares during June-August, has seen average volumes of more than 65,000 so far this month and 1.17 lakh last Friday. 
Another counter, Divine Multimedia, which gained 62% this month, saw an almost 10-fold increase in average volumes to 2.23 lakh shares in the past 10 trading session compared with 25,000 shares earlier. 
Similarly, counters such as Gujarat 
Capital Ventures, Sybli Inds and Nivyah Infra have seen huge volumes and price increases in the past few days. This clearly indicates that while FIIs are chasing quality stocks in Indian equities, retail investors are betting on small-cap stocks in anticipation of quicker gains. 
The strategy of investing in smallcaps may pay off as long as the party continues on Dalal Street. As stocks change hands from one investor to another, prices rise due to controlled supply. However, those who are left with the mid-caps at the end of the chain may suffer huge losses.



After Big Reforms, Now PMO is Off With a Bang Special thrust on infrastructure, energy and financial sectors

    The Prime Minister's Office has drawn up a list of reforms that can be implemented by the executive and will have the effect of unlocking investments and removing hurdles for expansion of projects. These include setting up a railway tariff authority, nudging RBI to issue new bank licences, putting in place a new policy for pricing of natural gas, and ensuring faster clearances for private sector oil and gas producers like Cairn and RIL. 

The government has selected four areas — finance, infrastructure, energy and industry — to show that "it means business", a top bureaucrat involved in the decision-making process said. Further, the government will sell its residual stake in Hindustan Zinc and BALCO to the majority owner, the Vedanta Group, which acquired control of these companies during the privatisation carried out in the NDA era. It also plans to set up a National Investment Board (NIB) within a month, clear a bunch of large urban infrastructure projects, including new airports, metro networks and sealinks, and operationalise infrastructure debt funds. The list, which was described to this paper by senior officials, has been compiled by the PMO on the basis of inputs from various ministries. "The government means business and the coming weeks will show how it does so," a top government bureaucrat with direct knowledge of the plans told ET. None of these decisions, with the likely exception of the one on banking licences, needs parliamentary approval.Issuing New Bank Licences May Not Be Easy 
The plan to issue new bank licences may encounter logistical hurdles as RBI has insisted on an amendment to the Banking Regulation Act, explicitly empowering it to dismiss boards of banks. The government could issue an ordinance, an official said, but this would have to be ratified by Parliament, something far from certain, given the sour relationship between Congress-led UPA and the principal Opposition party, BJP. 
In a note issued to its clients on Monday, listing a catena of possible reforms and their likelihood, the brokerage arm of Goldman Sachs termed the possibility of new bank licences as "less likely". If the government issues an ordinance, RBI is likely to announce norms for new players, including industrial houses, paving the way for the likes of Aditya Birla Group, M&M Financial Services, Tata Group as well as NBFCs such as the Shriram Group to set up new 
banks. 
The government is also in talks with the Vedanta Group to reach a final decision on the valuation of the residual minority stakes in HZL and BALCO. The interministerial group has been unable to resolve the issue so far. Finance Minister P Chidambaram is keen to bring about an early resolution to the imbroglio surrounding gas pricing. Both RIL and its partner BP have made it clear that the removal of the $4.20-per-unit cap imposed in 2009 (ending in March 2014) is essential for them to commit long-term investments. Further, the government is eager to ensure faster clearances to investment proposals from private sector oil and gas producers so that they can ramp up production. The government is set to introduce pooling of gas prices so that imported fuels such as liquefied natural gas can be used for a temporary period. 

It is estimated that about 10,000 MW of gas-based power plants are idle because of non-availability of domestic gas. LNG costs almost $10 a unit more compared with domestic natural gas. The government is considering the options of pooling prices of domestically-produced gas and imported gas and offering it at an average price that is commercially viable for power plants. 
The other infrastructure sector set to get a fillip is the railways, which has remained with non-Congress ministers for nearly 16 years. In order to put railway tariffs on a sounder footing, a railway tariff board will be set up to rationalise tariffs. Rationalisation is likely to meet higher tariffs for passengers and lower freight rates. 
The government will also issue request for proposals for new airports at Navi Mumbai, Goa and Kollam and clear a policy to make major Indian airports as aviation hubs on the lines of Dubai.


Sunday, September 23, 2012

Global Retail’s Big 10 & Our Shopping Future

If you look beyond Walmart & Tesco, you find big retailers that have the money and nerve to do business in India. But what are the challenges for these giant companies, globally & in India?


    With foreign direct investment (FDI) in retail, India's $450-billion retailing industry is about to undergo a big change. What you buy and how you buy will change too. 
    Pushing for this change will be an entire brigade of big retailers. The big daddy of retail — Walmart — has already announced that it will be here in 12-18 months. Others like Metro and Tesco too are figuring out their India strategy. They all will do their best to stir up the Indian shopping experience. 
    In the next five-ten years expect many more global retailers to get into the fray in India. Who will they be? What are they like? And how will they fit into Indians' shopping basket? These are questions with no easy answers. But global pecking order should hold a few clues. More importantly, how is the world of global retailing (born in the 20th century) getting redefined in the 21st century? What are the opportunities and challenges that the big retailers see and how is that reshaping the landscape in the industry? 
Answers for these questions will help us get a perspective on global retailing. But it will also offer clues into how Indian retailing will shape going forward. 
As India and Indians take tentative steps to embrace modern retail, ET Magazine brings to its readers a global perspective on how the retailing world is stacked up and a few trends that are reshaping it: 

Changing Pecking Order 
First the pecking order. Of course Walmart is the biggest of them all. Based on 2010 retail sales figures, a Deloitte 2012 global report puts the top 10 retailers as follows: Walmart, Carrefour, Tesco, Metro, Kroger, Schwarz, Costco, The Home Depot, Walgreen and Aldi — in the descending order. 
    The nationality of these retailers is revealing. There are five US-based retailers (the biggest consumer market till recently), three German and one each from the UK and France. 
    But that order is seeing some flux. "Many of the new, fast-growing players are coming from China, Japan and Australia," says Shyamak Tata, partner, Deloitte Plc, a consultancy firm. 
    A ranking done by Planet Retail, a global retail consultancy firm, based on total sales of 2011 sees entry of two Asian ( Japanese) retailers Aeon, Seven & I and one French retailer Casino. The entry of Asian retailers in the top 10, mirrors the shift that the world economy is undergoing from the West to the East. Interestingly, US-focussed Home Depot and Walgreen make an exit from the Planet Retail's top 10 ranking. 
    Their pace of growth too tells a story. Look at Carrefour, the second-largest retailer after Walmart. Its total sales are expected to grow from $123 billion in 2006 to $161 billion by 2016, a growth of 31% over a decade, according to the Planet 
Retail data. As compared to this, Asian retailer Seven & I is expected to grow from $62.5 billion in 2006 to $131 billion by 2016, a rise of almost 110%. 
    But the world's biggest retailer, Walmart, seems to be maintaining its competitive edge. From around $368 billion in 2006 to an estimated $607 billion in 2016, it is expected to log a topline growth of almost 65% over a decade. "The business is undergoing a structural shift. Action is shifting from slow mature markets to emerging ones. And their successful big-box strategy is under threat with e-tailing. Retailers will have to rejig their strategy to maintain edge," says Natalie Berg, global research director, Planet Retail. 

    India angle: As India enters 
    the world of organised retail, 
    its billion-plus population and growing consumption power will receive a lot of attention from global giants seeking growth. Expect to hear many more to announce their India plans in future. 
Retail is a Local Business 
Of course global giants will look at India. But it is important to keep in mind that organised retailing has so far been a very local business — often dominated by local not global players, says Arvind Singhal, chairman, Technopak Advisors. 
    Most of the top retailers in China — from the Brilliance Group, to Suning 
Home Appliances, Gome Home Appliances to Dashang Group — are Chinese. This is when there are 25 global retailers vying for customers in the $2-trillion plus Chinese market. 
    China isn't an exception. It is the same in most other countries like Japan, Germany, France and the US. Most top global retailers — from Carrefour to Walgreen to Aldi to Home Depot get the bulk of their global sales from their home territory. There are some like The Kroger Co (fifth largest) and Target (11th largest) who only operate out of one country, the US. 
    Many global retailers have ventured out, but finding success hasn't been easy. Carrefour recently withdrew from Malaysia and Thailand and will shut down operations in Singapore. Walmart has had to close down 
its operations in Germany 
and South Korea. 

    In 2006, the US-focussed Home Depot ventured into China by acquiring a local company. But it has been struggling with its operations there. "The complex logistics and understanding of local cus
tomers make it very difficult for foreigners to crack 
the market. Local firms have a 
significant edge," says Singhal. 
India angle: India, considered one of the most difficult markets in the world where food habits change every 200 km, may not be any different. The operating cost of an organised retail store is about 15% higher than a kirana store. India has among the highest rents per sq ft of space while the sales per sq ft are among the lowest. Global retailers, as much as Indian, are struggling to make profits. Some like Bharti Group may let its partner Walmart lead the way. The Future Group too might get a global partner on board to continue the journey. But experts expect local players like the Tatas (it has a tie-up with Tesco), Birla and Reliance to show the way provided they get their act right and play their cards well. 

Globalising to Chase Growth 
With slowing growth in their home bases, the retailers are exploring newer markets in the developing world. Take for example Carrefour, which has a vast network of stores across the world but bulk of it sales still come from western Europe. It is now looking at Latin America and Asia seriously. 
    The same is true for the German Schwarz Group which operates Kaufland and deep discounter Lidl stores. The Europe-only player was focussed on central and west European market. However, growth in these places has tapered and it is now looking beyond to eastern Europe, Asia, the Americas and South Africa for growth.
    This journey will not be easy as many like Carrefour, Walmart and 
    Home Depot have realised it 
    first hand. Most of them 
    have had to exit a few 
countries or rework their strategies in these markets. The big retailers will need to go glocal — use their global experience and tap into local knowledge and 
    management 
    to operate in 
    emerging markets, says Berg. India angle: After lots of trial and tribulations, difficult markets like China have taught global retailers such as Walmart to be flexible and appreciate the importance of local knowledge. Humbled, today it marries well its global learning and best practices with local understanding to handle emerging markets. India, late to the global retailing party, should benefit from this. 
Death of Big Box? 
The story of big retail has largely been built around big-box strategy, which took birth in the middle of the 20th century. The retailers set up large hypermarkets, often outside the main city, where real estate was cheap and used the economies of scale and operational efficiency to make money. His- 
torically, big retailers have entered a new country through the hypermarket route before a full-fledged rollout. 
But now this model is under threat. A Canadian retailer Rona is pushing for proximity stores while closing down its big-box outlets. Walmart is testing a smaller-format Walmart Express aimed at urban locations. Another retailer Target has opened City Target in downtown Chicago. Targeted at the local population, it will be the first Target store with no parking facility. 
    "Proximity retailing looks to address the convenience of shoppers through easily accessible stores offering an edited assortment to fulfil the top-up/impulse/distress needs of shoppers," says Himanshu Pal of Kantar Retail in a recent report. 
    But why are retailers looking at newer formats? A combination of factors is pushing big-box driven retailers to think small. In mature markets like the US, retailers built big-box stores on the outskirts of the cities, where space was cheap and plenty. That market is saturated. "One last opportunity for them are the cities which are still under penetrated," says Berg. Greying population in mature markets, where people prefer neighbourhood shopping, is catalysing this shift. Not to forget that technology too is shaking up the business — but more on this a bit later. 
    All this means that big retailers, used to making money on bigbox stores, have to learn how to make money from small stores. Located in the middle of the city where real estate is scarce and expensive and replenishing merchandise in these stores is difficult. Making money is even more so in this proximity model which leans on high footfalls and capture rate to make money. 
India angle: This learning will come handy for many of the retailers with aspirations in India. Densely populated India, with costly real estate, will not afford retailers the comfort to go for a full-blown big-box strategy. Indians are also used to shopping for routine stuff at their neighbourhood stores rather than driving long distances. 
Tech-edged Challenge 
Technology has redefined many industries. Retailing isn't an exception. Guess who is keeping Walmart awake 
at night? Amazon. Three factors — low prices, wide assortment and everything under one roof — helped the big-box retail model become so successful in the past. Now, e-tailers like Amazon offer all that with more convenience, better price and more variety. Not to forget that over time, retailers like Amazon have also built customer trust that they can exploit. 
The growing popularity of "showrooming" is another challenge big retailers face. Show
rooming is the act of examining a product in a brick-and-mortar store and then purchasing it online at cheaper rate. It does not help that today's consumers are armed with smartphones and can instantly compare the prices while walking down the aisles of stores and make an informed decision. 
    Further, e-tailing is growing rapidly even as brick-and-mortar-focussed retailers such as Best Buy and Border book stores struggle to survive. Almost all retailers are laying thrust on tapping the internet. Using social media to connect with customers is high on the agenda. Tesco, for example, recently offered double Clubcard points to its customers who used Facebook to like, share and buy its products on its website. Dell is rewarding its customers who promote Dell products online. 
    But they have a long way to go as Walmart discovered recently. To promote one of its products, it announced a contest where it would send American rapper Pitbull to a Walmart store that received the most new Facebook Likes. A cheeky online campaign #ExilePitbull was launched to send Pitbull to the remotest Walmart outlet near Alaska — and it won. 
    Big retailers are also trying hard to reinvent their big-box strategy. Proximity stores that know the neighbourhood well and stock appropriately and cannot easily be replaced by internet shopping is their first weapon. Most retailers are pushing deeper into private labels which help them avoid direct price comparison with other big brands, takes the conversation away from just prices and offers them better margins. Some retailers are also trying newer formats. For example, Auchan in France has innovated on a hybrid model — where you place order online but drive and collect the order from a physical store. The format has seen good success and is being followed by many other retailers. 
India angle: India is late to the organised retail world. It can leapfrog. Expect global retailers, with no legacy issues here, to experiment with some of these new formats when they come.



Walmart 
Presence 
Home base is US; present in 16 countries 
The big daddy of the retailing world is also the world's second-largest private sector employer with 2 million plus employees. With 8,500-plus stores in 16 countries under 55 different names, it is known for using its global supply chain efficiency to offer low-priced products to its customers. Its size and dominance has also made it an easy target for anti-capitalist, anti-globalisation and labour pressure groups. The big-box retailer, now feeling the heat from e-tailers and changing shopping habits, is shifting thrust to small stores, e-commerce and a global push to gear up for the future. Experts expect it to push its small-store strategy in new emerging markets that it is entering, including India. It recently scaled back operations in Brazil and China to improve profitability. REVENUES $418.9 bn


Carrefour 
Presence 
Home base is France; present in 33 countries 
The inventor of the big-box model, despite 
its presence in so many countries, is 
struggling today due to its heavy depend
ence on slow-growing west European economies, demographic shifts (ageing population, single household and urban lifestyles) and new competitive threats (online, smaller formats). Its obsession with "fixing the hypermarket" meant it was late in embracing multi-channel formats. It is now laying thrust on small-box stores (especially in markets like Latin America and Poland). It is expected to also push for the Drive (click & collect) concept. Under shareholder pressure, it is rationalising its operations in unprofitable markets like Singapore, Malaysia, Indonesia, Poland, Taiwan Greece and Turkey. This could mean complete or partial exit from these markets. REVENUES $119 bn


Tesco 
Presence 
Home base is UK; present in 13-plus countries 
The third-largest retailer holds the top 
rank in the UK and Hungary; is No. 2 in 
Thailand, Ireland and Malaysia and 
No. 3 in South Korea and Czech Republic. Yet, it is hobbled by a slow growing home market and is investing both attention and resources in overhauling its UK operations. It is also pushing for smaller-format high-footfall stores like Express and Metro stores, e-commerce, m-commerce and click & collect stores to get back in shape. For future growth, it is increasingly looking to emerging markets like China and India. Its entry strategy in new markets is fairly flexible. It typically prefers the M&A route or through joint ventures and once a JV is established and lessons learnt, it then looks to acquire a majority stake in the JV like Hymall China. It is now also open to entering through the franchise route, like in South Korea. REVENUES $92 bn


Metro 
Presence 
Home base is Germany; present in 33 countries 
The group's operations are split into 
wholesale, food retail, non-food speciality stores and department stores. 
It is among the top-three players in nine of its markets from Europe to Asia. But under pressure due to slowing economy, demographic and changing shopping habits, it has recently rationalised operations pulling out completely or partially from Morocco, the UK, Indonesia and Norway. It is the only player among Germany's top 5 forecasted to see a decline in sales by 2016. The first in Germany to try click & collect through its Real Drive format, it is pushing for this and small-box city stores to remain competitive. But when it comes to global expansion, it is largely through Metro Cash & Carry, especially in emerging markets like India. Once a market develops sufficiently, it then tends to roll out its other retail formats.REVENUES $88.9 bn


Kroger 
Presence 
Home base is US; present in only 1 country 
This is America's largest traditional 
grocer that operates under Kroger, 
Ralphs, Fry's and Smith's. It also 
operates Fred Meyer hypermarkets, several convenience store chains, and fine jewellery stores. It consistently outperforms the channel and key competitors due to its strong competitive positioning and a compelling price/value proposition. Best-in-class shopper 
    analytics and shopper insights developed 
    in partnership with dunnhumby USA 
enables customised and personalised marketing and promotional programmes down to shopper level. Its problems are it is exclusively reliant on the competitive and Walmartdominated US market, dependent on bigbox strategy and targets baby boomers. Lagging behind in e-commerce, it will face challenges with young, tech-savvy Americans. REVENUES $82 bn


Schwarz 
Presence 
Home base is Germany; present in 26 countries 
The Europe-only player is mostly focussed on 
western and central Europe and has discount 
stores under two brands Lidl and Kaufman. 
The privately held retailer, owned by a family trust, has largely followed an organic growth so far. It is now looking beyond saturated European markets, to eastern Europe, Asia, South Africa and the Americas for growth. As a private label-focused retailer, Lidl is increasingly investing in vertical integration to keep costs low. After setting up its own water bottling plants, Lidl has built its own chocolate manufacturing facilities and will soon build its own bakeries. With its focus on priceaggressive grocery stores, the group is well positioned in the difficult economic climate across Europe. Lidl is likely to start click & collect service in France. As one of the fastest-growing global retailers, its concepts are internationally standardised but are flexible enough to adapt to different markets. REVENUES $79 bn


Costco 
Presence 
Home base is US; present in 9 countries 
It is a membership-based warehouse 
club that follows the low-cost model with 
the golden rule of never marking up a 
product by more than 14%. For this it keeps a tight control over costs and maintains high efficiency level in sourcing and shipping. US operations remain its core but it is laying more thrust on new markets, especially in Asia (Japan, South Korea and Taiwan). In the US, it is not only the club channel leader in terms of sales, but continues to separate itself from its competitors like Walmartowned Sam's Club in club productivity. It gets more members per club, bigger average transaction size and faster inventory turns in its stores vis-à-vis its rivals. Slow to adopt e-commerce, it relies heavily on a big-box concept that may not resonate well with techsavvy younger generations.REVENUES $76.2 bn


The Home Depot 
Presence 
Home base is US; present in 5 countries 
It is a US-based home improvement retailer recognisable for its big orange box format. 
The retailer operates in the US, Canada, 
Mexico, China, Guam and Puerto Rico. Home Depot segments its customers into three main groups: do-it-yourself customers, who are typically home owners and buy products and complete projects and installations themselves; doit-for-me customers, who are typically home 
    owners and buy products themselves, but 
arrange for third-party contractors to complete projects or installations; And professional customers, who are typically small business owners or contractors. It operates a global sourcing function from the US with sourcing offices in China, India, Italy, Mexico and Canada. Home Depot is struggling with its operations in China. Coupled with that, a weak demand in the US too is keeping it worried. REVENUES $67.9 bn


Walgreen Co 
Presence 
Home base is US; present in 2 countries 
Walgreens operates drugstores 
across the US and in Puerto Rico. 
The retailer sells pharmacy, OTC 
health-care products and more recently has also begun to retail a wide variety of convenience goods, fresh food, general merchandise and, in selected stores, fresh food. It has a strong portfolio of OTC health-care private labels. The majority of stores feature a drive-through pharmacy facility. It finally forayed into international markets in partnership with Alliance Boots which will give it access to high-growth markets like China, Thailand and Russia. It is also repositioning itself from a traditional drug retailer to a provider of "retail health and daily living". It has also acquired drugstore.com to boost its online presence. REVENUES $67.4 bn


Aldi 
Presence 
Home base is Germany; present in 18 countries 
Aldi is the world's leading hard discount 
grocer and inventor of the concept. It 
has a single-format strategy with a pres
ence in Europe, Australia and the US (where Aldi Nord also owns Trader Joe's supermarkets). Aldi is focused on efficiency and cost control through limited assortments, limited services, low prices, small footprints and private labels. Its global presence is limited to developed markets in three continents. Aldi is struggling with 
    slowing home markets. After withdrawal from Greece, its initial plans to 
launch in east and central Europe too have been scrapped. It is also losing some ground to its rival Lidl. Aldi is establishing new categories and launching innovations, addingvalue to its ranges with in-store bakery ovens, more convenience and regional foods to boost its sales. REVENUES $67 bn

PIL challenges FDI in retail and aviation

New Delhi: A public interest litigation (PIL) was filed in the Supreme Court on Saturday challenging the government decision to allow FDI in multi-brand retail and aviation which it said was violative of the country's foreign exchange and insurance laws. The petition, filed by advocate Manohar Lal Sharma, is the second such PIL filed by Sharma against the government. He had earlier filed a petition drawing the top court's attention to the coalgate scam. 

    A two-judge bench has already issued a notice to the government on this. Saturday's PIL has made the cabinet secretary, the finance secretary and the RBI governor parties to the challenge to FDI in retail and aviation as embodied in notifications 4, 5, 6, 7 and 8 of 2012. The petition also claimed that FDI in these sectors would adversely affect 3.5 crore Indians by taking away the livelihood of those engaged in small-scale retail business. — Our Bureau

Thursday, September 20, 2012

FDI in Retail and Aviation Sectors Now a Reality


The government on Thursday evening braved intense political opposition and a nationwide bandh to notify the rules for allowing foreign retailers such as Walmart and Carrefour to set up stores in India. 
The government also notified the relaxed conditions for single-brand retail as well as the norms for allowing 49% investment by foreign airlines in Indian carriers and permitting greater foreign investment in some sections of the broadcasting sector, sending out a clear message that it will not be cowed down by protests and effectively severing its relations with Trinamool Congress. 
These notifications give effect to the decisions taken by the Cabinet last Friday, which have resulted in a political uproar 
and possibly threatened the long-term stability of the Manmohan Singh government. 
Industry was quick to welcome the government's move. "…the notifications have been issued quite promptly, reflecting the government's strong commitment towards the reforms process. This will put to rest all apprehension on wheth
er there would be any turnaround," said CII Director-General Chandrajit Banerjee. The policy says foreign retailers can only open stores in states that have agreed to allow FDI in multi-brand retail. "The above policy is an enabling policy only," said the press note issued by the Department of Industrial Policy & Promotion. Bar on Online Retail Trading 
"State governments and Union Territories would be free to take their own decisions in regard to implementation of the policy," said the DIPP press note. The policy prohibits retail trading through e-commerce by companies with FDI engaged in multi-brand retailing. This means the ban on FDI in B2C e-commerce continues, preventing Amazon and others from entering India. 
The states that have agreed to allow foreign investment in multi-brand retail, according to the press note, are Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand and the Union Territories of Daman & Diu and Dadra and Nagar Haveli. 
The new rules stipulate that foreign retailers will have to invest a minimum of $100 million, and at least 50% of the total FDI brought in will have to be invested in back-end infrastructure. They will have to source 30% of products from small industry within five years of operations, and every year subsequently. 
Moreover, if a small industry crosses the $1-million investment mark in plant and machinery, purchases from it will not be counted towards the 30% mandatory sourcing requirement. 
Foreign retailers will be allowed to set 
up stores only in and around cities with a population of more than 10 lakh. If a state does not have a city with such a big population, an exemption to this rule can be made. 
The FDI-funded retailer can sell fresh agricultural produce, including fruit, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, but the government will have the 
    first right to procure 
agricultural products. 
The DIPP has also notified the relaxed rules for singlebrand retail trading, allowing foreign retailers with more than 51% FDI the freedom to locally
source 30% of the value of goods sold over a five-year period initially, and every year subsequently. 
It also relaxed the condition that the single-brand retailer has to own the brand, allowing any one entity to retail the brand. Even FDI-funded singlebrand retailers will not be allowed to sell their goods through e-commerce. "The guidelines are fairly reasonable. This will allow many singlebrand retail companies to come to India," said Diljeet Titus, senior partner at Titus & Co, which is working with several foreign retailers looking to enter India.



 

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