News As We Read- 24th July'13

Thought of the Day:

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Following made the Headlines:

India:

• Daily funds available to banks halved, CRR raised indirectly: The Reserve Bank of India halved the daily funds available from it to banks and raised the cash reserve requirement (CRR) without saying so, as it intensified efforts to arrest the rupee slide, probably setting the stage for a formal increase in interest rates. Governor Duvvuri Subbarao cut the funds RBI lends to individual banks under the liquidity adjustment facility (LAF) to 0.5% of the deposits of a bank. This compares with 1%, or 75,000 crore, available for the entire financial system. The changes announced on Tuesday evening, which essentially replaces a limit on overall bank borrowings from RBI with a daily cap for each bank, bring down the total quantum of funds available to all banks to 37,000 crore. RBI also raised the minimum daily average holding of the mandated 4% cash reserve requirement to 99%, from 70%. Banks have to comply with CRR norms on alternate Fridays. That essentially sucks out an estimated 90,000 crore. CRR is the portion of deposits banks have to keep with RBI. Yields on commercial paper and certificate of deposits may jump 200 basis points, and treasury bill prices may tumble as a result of RBI’s actions. Prices of other bonds, including benchmark government ones, will decline, raising borrowing costs across the board, reversing the interest rate cuts of the past few quarters. Bond prices and yields move in opposite direction. “Holding excess of bonds (above the 23% mandated statutory liquidity ratio) is of no use today,” said BA Prabhakar, CMD at Andhra Bank. “The bigger banks will have to sell these bonds at losses in order to generate cash liquidity. I will not be surprised if the call rates shoot past 10%.” Investors in fixed-income securities and bond schemes of mutual funds may lose about 3 percentage points since July 15 when RBI dealt the first shock to the bond market. The government, which did not want to pay 9.3% for T-Bills last week after RBI tightened liquidity, may end up paying a percentage point more when it auctions cash management bills for 6,000 crore on Wednesday.

• Malls Cut Stores to Size for More Biz: While the mall story across the country remains grim with few takers, a few popular ones are minting money. Indeed, the demand for space in malls like Select Citywalk in Delhi, Ambience in Gurgaon, Inorbit Mall or High Street Phoenix in Mumbai is so high that they are rightsizing stores of existing brands or relocating them within the shopping premises. In the bargain, malls gain by way of improved yield as newer brands come in at higher revenue share deals and existing brands deliver better performance within smaller spaces. Select Citywalk, for instance, has cut down Levis from 2,700 sq ft to 800 sq ft to bring in new brands like Superdry and Dune Shoes. Next London has shed about 1,000 sq ft, helping the mall accommodate Apple. According to mall operators, at Ambience Mall in Gurgaon, s.Oliver has optimised its space by 50% and Guess will soon right size. In Ambience Mall at Vasant Kunj in Delhi, a large department store has reduced its size from 24,000 sq ft to 16,000 sq ft and a new restaurant brand Yauatcha has been accommodated. “This helps everyone become more efficient and creative and the mall gets more space to bring in new brands,” says Arjun Sharma, director of Select Citywalk. Malls today track performance of brands, collecting data on per sq ft sales in specific categories, total sales of a brand and other parameters. This helps them run a diagnostics check on various brands and conclude on whether the brand is using space optimally within the mall. “Sometimes brands take up more space than they require but might not be using it optimally. We work with them actively to see what is the correct size for them,” says Deepti Goel, vice president, strategy for malls at Ambience group. s.Oliver, for instance, had blocked a larger space at the group’s mall in Gurgaon but has now decided to optimise it.

• SpiceJet’s High-Flying CEO Mills Quits: SpiceJet CEO Neil Mills, the closest India had to an outspoken airline boss, has resigned. The abrupt departure nearly a year-and-a-half before the end of his contract has caught the industry by surprise and has set off a fresh round of speculation that an investment is at hand. The resignation happened during Mills’ visit last week to Chennai to meet Kalanithi Maran, the promoter of SpiceJet’s parent company Sun Group, according to two persons familiar with the matter. “No official confirmation has come nor has an email been sent to employees,” said the first person, a senior executive, requesting anonymity.  Mills did not answer repeated calls and texts to his phone. “It is still a rumour,” a spokeswoman for SpiceJet said. “We do not comment on market rumours or speculation,” she added. Mills was a hands-on CEO and the face of the airline, handpicked by Maran from low-cost carrier FlyDubai when he bought the airline from non-resident investor Bhupendra ‘Bhulo’ Kansagara and buyout specialist Wilbur L Ross in 2010. His contract runs until 2015. The departure of Mills comes just two weeks before the low-cost airline’s board is due to meet to finalise its earnings report for the June quarter. The second person familiar with the matter said the board is yet to take a call on the resignation. Mills’ exit also comes about two months after the low-cost airline reported another poor earnings, a bigger-than-expected loss of 186 crore in the March quarter. The eight-year-old airline had posted losses of 606 crore and 191 crore for 2011-12 and 2012-13. The Maran family, which owns a profitable television network and a direct-to-home telecast company, has invested 350 crore in SpiceJet in the past three years. With the declining rupee, a turnaround may become more painful, as almost half the cost incurred by Indian carrier is on account of fuel costs.

• Walmart Says it Cannot Meet 30% Sourcing Norm: The world’s largest retailer, Walmart, has expressed its inability to the government on meeting the sourcing norm in the multi-brand segment that requires 30% procurement from small industries, stating it can procure only about 20%. According to sources, the representatives of the company had met DIPP officials in the second week of this month and informed about the company’s stand on the contentious sourcing issue. “Recently there was a meeting between Walmart and officials of DIPP. The company has said that it will not be able to meet the mandatory 30% sourcing norm and can only source about 20%,” sources said. However, they said that it would be “really” difficult for the government to ease this provision as “it is a politically sensitive issue”.

• Maruti threatens to shut down Manesar plant: At a time when it is gearing up to set up a massive manufacturing unit in Gujarat, Maruti Suzuki has threatened to shut its key Manesar plant in Haryana as it faces the prospect of paying additional compensation — worth over Rs 500 crore —for the 600-odd acres of land where the plant sits. The threat is significant as Maruti makes blockbuster models like the Swift hatchback and Dzire sedan at Manesar, which is also its sole base for making diesel engines.  “...If further enhancement is granted, the (Maruti) management may have to take a decision to discontinue the plant at Manesar,” said counsels P S Patwalia and Abhishek Manu Singhvi while appearing for the company before the Supreme Court. The counsels also claimed that if the company closes its manufacturing activities at Manesar, more than 20,000 workers will be rendered jobless and Haryana will suffer a revenue loss to the tune of Rs 8,000 crore.

• Kumar Birla resigns from RBI board: Weeks after his group firm applied for a bank licence, Kumar Mangalam Birla on Tuesday said he has resigned from the board of RBI to avoid any conflict of interest. “I have resigned from RBI Board 4-5 days ago. So, there is no conflict of interest now,” Birla said here. Birla was a nominated as a member of the directors of the central board of RBI in 2006. His group firm Aditya Birla Nuvo is among 26 entities that have applied for a bank licence. The last date for applying for a bank licence expired on July 1. With Birla continued to be on the board of RBI even after his group firm applied for a licence. The CPI had recently raised objections, saying there is conflict of interest as he is a member of the RBI board. RBI governor D Subbarao had responded by saying the central bank would look into the issue.

• McDonald’s raises 180 crore from Arisaig Partners: Arisaig Partners, which singularly bets on consumer facing businesses across emerging markets, has picked up a 3.5% stake in Westlife Development for Rs 180 crore, valuing the company at a tad bit over Rs 5,000 crore. The BSE-listed Westlife Development’s subsidiary Hardcastle Restaurants is the development licensee of American burger chain McDonald’s Corp for the south and west of the country. This investment reinforces the growing appetite of investors for the Indian food services industry. The Singapore-based investment firm has picked up the stake through Arisaig India Fund. Present in India for a decade, Arisaig has investments in marquee domestic FMCG and retail biggies such as Marico, Nestle India, Godrej Consumer and Jubiliant Foodworks, which operates Domino’s Pizza, among others. The fund will be allotted 5.4 million shares at Rs 333.05 a piece, Westlife said in a statement on Tuesday. The Westlife scrip ended the day’s trade on the BSE at Rs 328.45 up about 2% from yesterday’s close. Post the preferential allotment, the promoters of Westlife, will own 64.07% in the firm. TOI reported in its July 1 edition that Westlife Development is looking to raise funds as it prepares to double its store count over the next couple of years. Arisaig Partners is a fund management company with $ 5billion in assets across emerging markets. Having been around in India for 17 years, Hardcastle Restaurants merged into its listed group company, Westlife Development six months ago. The fund raise comes at the back of Westlife Development getting the Bombay High court approval to make Hardcastle Restaurants a direct subsidiary of the listed entity. Amit Jatia, vice-president , Westlife Development said the funds raised from Arisaig will meet the company’s needs in the medium term as it looks to add another 100 stores in the next two years.

International:

• Apple's profit beats estimates as iPhone sales surge: Shares of computer and smartphone maker Apple rose nearly 5% in after-hours trading after it reported better-than-expected profits for the third quarter. It made $6.9bn (£4.5bn) profit for three months to June, thanks in part to good sales of its iPhone smartphone. Apple said it sold 31.2 million iPhones, a record for the June quarter, compared to 26 million last year. But profit was down 22% from the same period a year earlier as its profit margins shrank to 36.98% from 42.8%. However, average sale prices were lower at $581, compared with $608 a year ago. Its revenue was also better than expected, with the company earning $35.3bn, although that was barely above the $35bn of a year ago. Analysts said the data, especially on iPhone sales, may help allay some fears of a slowdown in Apple's growth rate. "The iPhone number should provide some comfort to investors who were worried about smartphone demand," said Shannon Cross of Cross Research. "That's one of the reasons the stock is up. Expectations were not strong for this quarter."

• Fashion Firms Emphasize Employee Health, Fitness: Fashion is all about image, but the demands of the industry don’t always support a healthy lifestyle. Late hours, international travel and meals eaten on the run have a way of wreaking havoc on the body’s systems. “This is one of the nicest-looking and least-fit industries,” said Kelvin Gary, owner of Body Space Fitness on West 14th Street in New York, who has several designers on his client list. “The fashion industry needs to be convinced [about exercise]. They can get away without it until something happens and the stress level changes.” Gary was a “suit” in his former life as an employee of Pfizer, where he would often see the chief executive officer and chief financial officer working out in the company gym with trainers. “They got it,” he said. “I don’t know why the fashion industry doesn’t get it.” While industry executives won’t admit it, looks play a part when hiring employees to represent a brand. Abercrombie & Fitch Co. has been sued in federal court for its policy of hiring classic “all-American” looking men and women. The retailer paid $50 million to settle a 2004 case. “Any company that’s customer-facing or wants a healthier staff wants them to look good,” said Alastair Greer, founder of Local Sqr, a corporate wellness consultancy that was hired by Saks Fifth Avenue to create a healthy lifestyle/ nutrition program for employees of its Fifth Avenue flagship. “Research shows that employers who implement corporate wellness programs consistently see a positive return on investment. More companies are taking it seriously now. We’re in a health crisis. Companies take the brunt of the financial burden. They cover it when their employees are sick. Trends show that corporate wellness is growing at 9 percent or 10 percent a year. Saks really jumped in with both feet.”

• Major Saks Shareholder Sells Block of Shares: A major Saks Inc. shareholder sold off millions of shares in the past few days at about $15 a share, capitalizing on a price that’s increased since the luxury chain went up for sale. Sources believe Southeastern Asset Management Inc. was the seller of a major chunk of Saks stock. The investment advisory firm did not return a request for comment Tuesday, but a block of 3.7 million shares of Saks was sold at about $15.20 late Monday. While the price could be an indication of what Southeastern believes Saks could ultimately be sold for, there might also be mandates triggering the stock sell-off at a certain price. “Southeastern might have had a price target,” said one financial source. Prior to the sell-off, Southeastern was Saks’ third-largest shareholder, with 11.4 percent, or 17.4 million shares — a position that had already been trimmed from more than 29.5 million shares in February.

• Billabong Deal Facing Takeover Panel: Billabong’s rescue deal has hit a snag. A 395 million Australian dollars, or $364 million at current exchange, refinancing package from a consortium led by Altamont Capital Partners, which was released July 16 and has now been completed, is currently before the Australian Takeovers Panel. The deal gives Altamont a 15 percent stake in the company in exchange for a 325 million Australian dollar, or $300 million, bridge loan facility and the sale of the DaKine brand to Altamont for 70 million Australian dollars, or $65 million. Altamont could wind up with a 40.49 percent stake under a long-term refinancing package that includes a loan of $254 million, the issue of a convertible note with a face value of $40 million, convertible into redeemable preference shares and a $160 million revolving credit facility.  According to a statement released by Billabong to the Australian Securities Exchange on Tuesday morning, the drawdown under the bridge facility occurred on Friday, repaying in full all principal, accrued interest and outstanding commitment fees under Billabong’s syndicated debt facility of approximately 300 million Australian dollars, or $277 million, that has been held since June primarily by two U.S. hedge funds, Oaktree Capital Management and Centerbridge Partners. The DaKine sale has also gone through, the company said. On July 16, several hours prior to the announcement of the Altamont deal, 14 Oaktree/Centerbridge representatives arrived in Brisbane from the U.S. to present their own refinancing proposal to Billabong. According to an Oaktree/Centerbridge spokeswoman, Billabong declined to meet with them.

• AHAlife Acquires Photo-Sharing Service Kaptur: AHAlife has acquired the photo-sharing service Kaptur and merged so that Kaptur’s engineers can drive traffic to the luxury e-commerce site. Terms of the deal were not disclosed. Kaptur’s seven staffers, including president Tej Bhatia, are now based in AHAlife’s offices on Bond Street in Manhattan, boosting the employee count there to 45. Said to be the largest photo-sharing service on Facebook, Kaptur has aggregated more than 250 million photos from 14 million events touching 60 million Facebook profiles in the past 18 months. Engineers are focusing on perfecting the viral growth mechanics for a brand where there are multiple clear monetization strategies, Bhatia said. (The Kaptur application will continue to service its users and fold into our commerce flow.) Two months shy of its three-year anniversary, AHAlife.com has raised more than $20 million from three rounds of financing and has a total of 1.5 million registered users thanks to the Kaptur deal, said founder Shauna Mei, who declined to break down that figure. The aim is to have two million by the end of the year, by driving traffic through images, she said. AHAlife, a full-price site, currently sells 1,800 labels and expects to increase that figure to 2,000 before January.