News As We Read- 23rd July'13

Thought of the Day:

Did you know?

Following made the Headlines:

India:

• Govt Set to Ease Foreign Retail Norms: The government plans to dilute local sourcing norms and investment guidelines for foreign retailers as well as give states the freedom to relax the minimum 10 lakh population threshold, as it makes yet another attempt to woo global retail chains. The UPA government had last year staked its survival over the issue of allowing foreign supermarkets to invest in India, but has so far not been able to attract a single dollar from the likes of Walmart, Tesco and Carrefour, which have been unhappy with the stringent entry norms imposed on them. The government’s attempt to relax these norms, in the form of ‘clarifications’ issued a couple of months ago, had failed to assure foreign investors, and this is the second time it is trying to address their concerns. According to a cabinet note prepared by the Department of Industrial Policy and Promotion (DIPP), the stipulation that foreign multi-brand retailers must purchase 30% of what they sell in India from small vendors will remain.

• Hyderabad Bags ‘Hotshot’ Saina for 65.28 Lakh: Badminton joined the big league in India on Monday when ace shuttler Saina Nehwal fetched $120,000, or 65.28 lakh, at the players’ auction of the IPL-styled Indian Badminton League that can potentially encourage many youngsters to take up the sport. While it was nowhere close to the huge money involved in the Indian Premier League, the successful auction of players and participation of big names such as Nehwal and men’s world number one Lee Chong Wei points to rising popularity of badminton in a cricket obsessed country. In a keenly watched auction in a city hotel, Hyderabad Hotshots team bought world No. 3 Nehwal, while Wei emerged the most expensive player when Mumbai Masters bid $135,000, or 73.44 lakh, for the Malaysian star. Six city-based teams will play in the inaugural Indian Badminton League to be held from August 14-31 in a format similar to the IPL cricket league. The Badminton Association of India has distributed team franchises among businessmen, sportspersons, actors and even realtors, including the Sahara Group, Dabur’s Mohit Burman, cricketer Sunil Gavaskar and actor Nagarjuna.  “In the next ten years, an estimated 150 crore is expected to be invested in the League by franchise owners,” said Ashish Chadha, chief executive officer of Sporty Solutionz, a consultancy firm that is working with the badminton association (BAI). He said each team owner will invest up to 10 crore every year, including players’ fee, franchise fee to BAI and marketing costs. Each team will have six Indians, four foreigners and one Indian junior player. More than 150 players participated in the auction for the 66 slots.

• John Abraham is New Brand Ambassador of Reebok India: Reebok India has signed Bollywood actor John Abraham as its new brand ambassador as the sportswear brand looks to revive its operations in the country after shutting down hundreds of outlets last year following a financial scandal. The association is part of German parent Adidas’ efforts to reposition Reebok as a premium fitness brand in India. Reebok will launch a campaign with the actor across media platforms (print, outdoor, television) for their running and training gear during the upcoming festive season, Adidas Group India said in a media release. The company last month announced plans to open 100 premium stores called Reebok Fit Hubs by March next year to sell premium products such as shoes priced at 12,000, and provide fitness consultation to customers. Last year, a 870-crore accounting scam was uncovered in Reebok India and parent Adidas AG fired then managing director Subhinder Singh Prem and chief operating officer Vishnu Bhagat after accusing them of siphoning off merchandise by creating secret warehouses. After this, the company shut down several of its stores. Later it adopted a new business model in the country and announced the opening of Fit Hubs. Besides John Abraham, Reebok also has several other brand ambassadors including cricketers Mahendra Singh Dhoni and Gautam Gambhir who inaugurated first two Fit Hub stores.

• OnMobile Buys US-based Livewire Mobile for $17.8 M: Mobile VAS firm OnMobile Global on Monday said it has closed the deal to acquire US-based Livewire Mobile for $17.8 million, a move aimed to increase its mobile entertainment portfolio in North America. The deal (worth about 106 crore) will help OnMobile gain a stronger foothold in the North American market, which is considered a high music consuming market with high average revenue per unit (ARPU). Livewire Mobile’s portfolio of mobile music, RBT and gaming solutions and its marquee client base, including Sprint, metroPCS, US Cellular and Cricket, will combine OnMobile’s American customer base, including AT&T, T-Mobile and Rogers, to establish a footprint at six of the top 10 mobile operators in North America, OnMobile said in a release. The new combined entity presents a single source solution for integrated Value Added Services (VAS) that will cater to high value subscriber segments, including youth and upwardly mobile professionals, it added.

• Avis to Raise Stake in Mercury Car Rentals: American car rental company Avis is raising stake in its India joint venture Mercury Car Rentals. The New Jersey-based company has sought approval from the Foreign Investment Promotion Board to buy 27% stake in the joint venture from the Oberoi group for 18 crore. Avis currently holds 33.33% stake in the company, which will increase to 60% once the proposal is cleared by the board. The car rental company entered India in 1999 and has invested 8.6 crore in the paid up share capital of Mercury Car Rentals, which started out by providing transportation services to Oberoi hotels across the country. Over the years, though, its business mix has changed. From 100% of its work coming from the hotel chain, today 70% of its business comes from corporate leasing and its rent-a-car business while the rest comes from hotels. “Buying additional stake in the company reflects this change in the business mix for the JV,” said Sunil Gupta, CEO, Avis India. The company has been offering shortterm rentals to corporates since 1999 and ventured into corporate leasing of vehicles in August last year. While the hotels business is still growing at around 15% with Oberoi group adding new hotels in Hyderabad and other cities, growth in the corporate business is much faster at over 30%.

• Aviation Ministry Backs Jet’s Slot Sale to Etihad: The civil aviation ministry has strongly defended the sale of three pairs of landing and departure slots by Jet Airways to Abu Dhabi’s Etihad Airways at Heathrow Airport in London, saying the allegations by a number of MPs that government clearance to the transfer amounted to cheating are “absolutely baseless and false.” The aviation ministry said in a statement that the slots — permissions given by airports to airports to use a runway or infrastructure — are not owned by the Indian government and hence the sale did not need its permission or a reimbursement. Though slot trading is not available at Indian airports, in the case of Heathrow, an airline gets the grandfather rights (legislative provision that permits an exemption based on a preexisting condition) to slots after two years and can trade slots to another airline by way of sale, lease etc, it said on Monday. The Airport Coordination Limited of Heathrow, which is tasked with allocation of slots as per availability, confirmed the transfer of slots by Jet to Etihad, according to the statement. Though permission from the government or aviation ministry was not required, “Jet has obtained permission from Reserve Bank of India under Fema rules because foreign exchange was involved in the trading”, it said. Etihad, which is awaiting Indian regulatory approval to acquire a 24% stake in Jet, had bought the Indian carrier's slots at Heathrow for $70 million as a precursor to the stake sale. MPs, including Janata Party president Subramanian Swamy, Nishikant Dubey of BJP, and the Parliament Standing Committee on Transport, Tourism and Culture have challenged the sale of slots as well as the deal.

• Pernod Ricard to take India mkt a peg higher: Pierre Pringuet is an affable chief executive at the world’s second-largest drinks company, Pernod Ricard. He triggered two big acquisitions, taking his French giant closer to Diageo. While Allied Domecq and Absolut buyouts were much talked about between drinks, Pernod Ricard’s build-up in China and India under Pringuet is another commentary that left Diageo grappling for an emerging markets story till recently. Pringuet, 63, who insists that “conviviality” drives Pernod Ricard, talks about global growth, his company’s robust show in India and the intensifying battle for emerging markets.

• Manufacturers target young people through EMI plans: Manufacturers are targeting young people with relatively lower incomes through EMI schemes to expand the market as well as clear inventories, particularly for expensive products such as smartphones. While manufacturers are prepared to get their payments in instalments, they do not have the wherewithal to assess credit worthiness or recover payments. “In the case of EMI at POS, the merchant or the manufacturer bears the interest burden but if the cardholder defaults, the risk is borne by the credit card issuer,” said Mohapatra. Card companies have been offering customers the option to convert some of the large purchases into consumer loans which can be repaid in instalments over some years. But the response has been lukewarm as Indian consumers are interest-averse with almost 80% choosing to repay their entire bill by the month-end instead of rolling over. “In recent years, several new entities have started accepting card payments. This includes insurance companies and government utilities. But the biggest driver for increase in size of transactions has been the zero-interest EMI option,” said Visa’s country manager Uttam Nayak. Visa has been aggregating hundreds of high value billers across the country, from LIC to electricity, gas, telecom, and water utilities where bills can be viewed and paid online. Another driver is that banks are getting innovative with their rewards programmes. For instance, the Citibank PremierMiles credit card, which targets air travellers, offers reward points which work as a virtual currency as they can be used for airline tickets, hotels and car rental services.

• Reliance Retail bets on cash- and- carry for high growth: At Reliance Industries’ annual general meeting in June 2012, when Mukesh Ambani laid out an ambitious turnover target of ₹ 40,000- 50,000 crore for Reliance Retail in the next three to four years, he wasn’t looking at bullion trading. Often retailers take recourse to this route on the way to bigger revenues. Reliance Retail has instead identified the cash- and- carry business as its growth driver. This not only provides large volume, but also promises higher return on capital ( RoC), akey benchmark to judge the sustainability of any business. A year hence, the company has already made progress. In 2011- 12, when the target was set, Reliance Retail had an annual turnover of ₹ 7,600 crore and operational losses of ₹ 34.2 crore. By 2012- 13, the turnover had risen 42 per cent to ₹ 10,800 crore and the company had reported an operational profit of ₹ 78 crore, its first in seven years of existence. The game- changer was its first cash- and- carry store, Reliance Market, which opened in Ahmedabad in September 2011. By the end of 2012- 13, Reliance Market, which caters to kirana shops, caterers, hotels and other business establishments, had acquired a sizeable customer base of 125,000, including 24,000 kirana shops. Propelled by its success, six new stores have been opened in the last three months in Bangalore, Mumbai, Anand, Faridabad, Chennai and Guntur. As a result, the company’s turnover increased 53 per cent to ₹ 3,474 crore in the June quarter of 2012- 13. It also posted an operational profit of ₹ 70 crore. Reliance Retail is the first Indian retailer to enter the cash- and- carry business, currently dominated by multinationals such as WalMart, Metro and Carrefour, whose expansion in the multi- brand format has been hobbled by policy hurdles. While Reliance Retail does not want to provide any numbers for store expansion, going by its growth plans it is likely to have 12 to15 stores by the end of the current financial year. The cash- and- carry business is highly efficient, as it has fewer requirements for stockkeeping units, which in turn means better supplier management and greater sourcing power. A bigger draw is the higher RoC. “Retail is a business that is best judged on return on capital instead of the (profit) margins, which could be as low as two to three per cent,” says Arvind K Singhal, chairman of consultancy firm Technopak Advisors. In the cash- and- carry business, the inventory turnover could be 40 to 50 times in a year, which in turn pushes up the RoC. The company in various strategic phases, internally referred to as Reliance Retail 1.0, 2.0 and 3.0, has established businesses under value, digital, lifestyle, jewellery and brands formats and has become the second largest retailer in the country after the Kishore Biyani- promoted Pantaloon Retail reported net sales of ₹ 19,780 crore for the 18 months ending December 31. Because the company is going through a business re- organisation, it will again report an 18month financial year. On an annualised basis, this comes to ₹ 13,187 crore, at an annual growth rate of 10.2 per cent. Analysts’ estimate 15 per cent of this or about ₹ 1,980 crore, came from the apparel and fashion business that has been recently sold to Aditya Birla Nuvo. The company has since been rechristened Future Retail. At the end of Reliance Retail 3.0 in 2012- 13, about 56 per cent of its revenue of ₹ 10,800 crore came from its value and other segment that operates the grocery chains, Reliance Fresh, Reliance Super and Reliance Hyper, under Chief Executive Officer Rob Cissell. This represented a33 per cent jump in revenue of ₹ 6,100 crore in the year, while the number of stores grew marginally by 10 to 760. Under Reliance Retail 4.0, as part of plans for business expansion, the cash- and- carry store, Reliance Market, is soon expected to become a separate vertical.

International:

• Royal baby: Kate gives birth to boy: The Duchess of Cambridge has given birth to a baby boy, Kensington Palace has announced. The baby was delivered at 16:24 BST at St Mary's Hospital in Paddington, west London, weighing 8lb 6oz. The Duke of Cambridge said in a statement the couple "could not be happier". He and the duchess will remain in the hospital overnight. The news has been displayed on an easel in the forecourt of Buckingham Palace in line with tradition. A bulletin - signed by the Queen's gynaecologist Marcus Setchell, who led the medical team that delivered the baby - was taken by a royal aide from St Mary's to the palace under police escort. The document said: "Her Royal Highness, the Duchess of Cambridge was safely delivered of a son at 4.24pm today.

• Ubuntu Edge smartphone seeks $32m of crowdfunded cash: The developer of the Ubuntu operating system has turned to a crowdfunding site in an attempt to launch a handset pre-installed with its software. London-based Canonical is seeking to raise $32m (£20.8m) over the next 30 days to produce 40,000 devices. To succeed it needs to raise several times more cash than any other crowd-financed project has done before. However, one market watcher said even if succeeds, the mobile OS would probably still struggle to gain ground. Canonical has said that if it manages to hit its goal using Indiegogo's website it plans to deliver the phones to qualifying backers by May 2014. Indiegogo's current funding record is $1,665,380 which was raised by Scandu Scout - a scheme to build a Star Trek-style Tricorder medical scanning device. Its rival Kickstarter's record is $10,266,845 for the Pebble smart watch.

• Lucky Brand Sale Closer to a Resolution: The bidding for Fifth & Pacific Cos. Inc.’s Lucky Brand division has entered into the late-stage negotiation round, while its Juicy Couture brand is said to be slightly further behind in the bidding process, sources said. As first reported last month, the bidding for Lucky was between two potential buyers: Jos. A. Bank Clothiers Inc. and global private equity firm Advent International. One of Advent’s operating partners is Jenny Ming, now president and chief executive officer of Advent portfolio company Charlotte Russe. She previously was president of Old Navy and a member of the original executive team that founded the Gap Inc. division. Reuters reported Monday that Fifth & Pacific was in discussions with Advent on the sale of Lucky, which noted that the deal wasn’t finalized and could still fall apart.

• Bernd Beetz Hires New St. John CEO: Bernd Beetz made his first major hire as chairman of St. John Knits, poaching a senior executive from the luxury leather goods world. On Monday, Beetz, who also invested in the Irvine, Calif.-based company, named Geoffroy van Raemdonck St. John’s new chief executive officer, succeeding Glenn McMahon, whose departure after six years was announced earlier this month. Van Raemdonck joined from Louis Vuitton, where he was president, South Europe, based in Milan. In that role, he was responsible for the brand’s operations in 22 countries. Previously, he was acting president at Vuitton’s North American division. He also worked in senior positions at Limited Brands and The Boston Consulting Group. “Geoffroy has an unparalleled understanding of global wholesale and retail that will be integral as we move into the next phase of the company’s history,” Beetz said. “He is an excellent leader to drive the executive team and to continue to strengthen and grow the business worldwide.” Reached late on Monday, van Raemdonck said there are multiple reasons he was drawn to the brand. “It’s a wonderful opportunity and a great team to join,” he noted. “The very interesting thing for me is the fact that it is such an iconic American brand. There are not many of those that have 50 years of heritage and such a strong brand anchor with its own craftsmanship around the American lifestyle.”

• S&P Puts Saks on Credit Watch: With multiple bidders emerging for Saks Inc., the focus has shifted to how much the luxe department store might fetch and what toll a buyout could take on the company’s balance sheet. Shares of Saks fell 6 percent to $14.94 Monday, retrenching after real estate player Starwood Capital’s reported interest in the retailer pushed its stock to a 52-week high of $17.51 Friday. Standard & Poor’s said it is likely that Saks would ultimately be acquired, but put the retailer’s credit rating on its watch list Monday, anticipating that a new owner would weigh down the tony retailer with additional debt. Just what Saks’ debt load would look like is only one of the open questions lingering around the sale process. Also up in the air is how much of a role, if any, the company’s major shareholders would play in a transaction and what would happen to chairman and chief executive officer Stephen I. Sadove if he were to close a deal. By entering the fray, Starwood is providing a counterbalance to Hudson’s Bay Co., which has been looking at opportunities to bring its operations together with Saks. Other buyers are also believed to be considering a run at the retailer.