News As We Read- 8th Aug'13

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Following made the Headlines:

India:

• Loans to Cost More as Rates Rise for Banks: State-run banks may not have formally raised their base lending rates despite a spike in market interest rates, but are charging even their marquee customers such as Housing Development Finance Corp (HDFC) more, indicating that cost of home and car loans may rise. With borrowers such as HDFC paying higher interest rates, bankers expect lending rates to firm up across the board as the Reserve Bank of India’s recent monetary tightening measures begin to bite. The nation’s biggest mortgage lender, which so far got loans at base rate, is now contracting lines of credit at 50-75 basis points higher than base rates, said two persons familiar with the matter. HDFC may now be borrowing at 10.5% and 11%. HDFC provides home loans in the range of 10.15% to 10.40% and if liquidity conditions continue to be tight, it may be forced to raise rates for its borrowers. Its subsidiary, HDFC Bank, the most profitable lender, has raised the base lending rate by 20 bps to 9.80%. “Many banks signed contracts with HDFC to lend at rates ranging between10.50% and 11% and on condition that they cannot repay the loan within 90 days of availing it,” said a banker who did not want to be identified. “Since the FM does not want banks to raise lending rates, banks have raised the spread on base rate to prevent margins from shrinking.”

• Amul to Spread Bakery Business; New Plant for Cookies on Menu: Amul, the country's biggest dairy brand, plans to expand its fledgling bakery products business and will soon build a plant that can produce 20 tonnes of cookies a day, a top official said. “We are looking at a 40% annual growth for cookies, buns and bread that accounted for over 20 crore,” Rahul Kumar, MD of the 2,800-crore Amul Dairy, told ET. “Unlike other brands which use butter flavour we are using 26% Amul butter in our cookies which consumers will like,” he added. The dairy cooperative has been selling cookies in chocolate, multigrain, butter and coconut varieties for two years in the Anand region catering to neighbouring markets of Ahmedabad and Vadodara in central Gujarat. It currently has a manufacturing capacity of 15-20 tonnes of cookies a month, which it says is not enough to meet demand. The company will set up an automated plant at Mogar in Anand within a year, Kumar said. “We have received good response and feel that we can capitalise on distribution network of the federation that is experienced dealing with perishable products,” he said. Six months ago, Gujarat Cooperative Milk Marketing Federation (GCMMF) decided to brand and pack cookies attractively for the Anand market. RS Sodhi, managing director at GCMMF, however, said the cooperative is in no hurry to take its nondairy business national. Despite becoming 20-crore portfolio for Amul Dairy, its diversification in cookies is yet to catch the attention of established players such as Parle Products (maker of Hide& Seek and Milano), Britannia (Good Day) and ITC (Sunfeast).

• Hero Aims at Getting Back 50% Mkt Share: After a steady decline in market share, Hero Moto-Corp, world’s largest two-wheeler maker by volumes in a bid to maintain its pole position, is slated to introduce a slew of indigenously developed products to regain its 50% pie in the Indian bike and scooter market. “I am confident of not just retaining our leadership, but also of taking our market share to an all-time high by exceeding our previous best,” Pawan Munjal, MD & CEO of Hero MotoCorp, told ET in an exclusive interaction on Wednesday. “We are sure of gaining market share even beyond 50%, and my confidence stems from all the stuff that we have been doing, in terms of technology, new products, people empowerment and global expansion. At the same time, our focus is also equally on improving margins.” Hero’s market share for the March ended fiscal came down to 42.85% in the 13.97 lakh units Indian market. The company has enjoyed around 49% of the pie just five years back till 2009 fiscal. The erosion largely is impacted by the growing dominance of its erstwhile joint venture partner Honda Motors of Japan that is making steady inroads in the Indian two-wheeler market. Both the companies parted way in December 2010. Honda that has entered the Indian two-wheeler market in 2000 has steadily increased its share to around 20% in the current fiscal on strong demand for its newly launched Dream series bikes even as it continues to maintain leadership in the scooter segment.

• Cadbury Offers 1k-Cr Sweetener for Andhra Pradesh in Hard Times: Cadbury India will set up its biggest manufacturing facility in the Asia-Pacific region in Andhra Pradesh’s Sri City business hub with initial investment of over 1,000 crore. The announcement by the unit of Nasdaq-listed snacking company Mondelez International is a rare piece of good news in the midst of gloomy economic data and complaints by foreign investors about the business environment in India. The manufacturer of Cadbury Dairy Milk, Bournvita and Oreo biscuits plans to add three more phases involving a total investment of at least 2,000 core by 2020. The first phase is expected to start by mid-2015. At present, Cadbury India has its manufacturing facilities in Himachal Pradesh, Maharashtra, Karnataka, Madhya Pradesh and Andhra Pradesh. Cadbury India has signed an agreement with Sri City to take on lease 134 acres for the facility in the business city with special economic zones, domestic tariff zones and free trade and warehousing zones on the AP border, located close to Chennai. The business city now houses over 90 industrial units from 25 countries. “We are excited over attracting such large investment from Cadbury India at a time when the entire country is suffering from unfavourable economic conditions and the state of Andhra Pradesh is reeling because of a political crisis,” Sri City managing director Ravindra Sannareddy told ET. Cadbury India said in a statement that the multi-category food campus it is setting up at Sri City will have the largest chocolate manufacturing plant in the country. The facility is expected to create close to 1,600 direct jobs in total. “This investment will build on our success in India till date and ensure long-term business sustainability,” Mondelez’s president for India and South Asia, Anand Kripalu, was quoted as saying. Among the FMCG companies which have their facilities at Sri City are PepsiCo, Kellogg’s and Colgate Palmolive.

• What slump? Malls in India double in 5 yrs: The slowdown in the Indian realty sector over the last few years has surprisingly not hampered the development of new malls across the country, report Samidha Sharma and Anshul Dhamija. According to numbers collated by a real estate consultancy firm which were shared with TOI exclusively, India had 570 operational malls as of May 2013 with a total area of 180 million sq ft compared to just 225 malls five years ago. The seven metros had 190 operational malls even as more than 60 malls opened across India in the last year alone. Also, the average area of the top 15 malls across the country has gone up 40% in the past three years. Developers are building larger malls, as these have a better chance of succeeding in an overcrowded marketplace, the report says.

• Suntory, Pernod Ricard in talks to buy stake in Tilaknagar Industries: Tilaknagar Industries (TI), the maker of Mansion House, the world’s second- best- selling brandy label, is in talks with global giants like Suntory Holdings and Pernod Ricard to sell a 15- 20 per cent stake in the company. According to people in the know, the company will use the funds so raised, likely to be about ₹ 600 crore, to deleverage its balance sheet. At present, Tilaknagar Industries has a debt of ₹ 600 crore on its books. Besides clearing debt, TI plans to acquire distilleries, as well as regional brands, to expand its presence in the country. A clutch of private equity investors and spirits & wine leader Beam Global are also learn to be in discussions with TI to acquire the stake. Ambit Corporate Finance is advising TI in the fund- raising process. The promoters, including Chairman & Managing Director Amit Dahanukar and family, hold a 56 per cent stake in the company at present. According to sources, TI, which clocked a revenue of ₹ 737 crore in FY12- 13, is eyeing a valuation of four times its sales — this comes to about ₹ 3,000 crore. On Wednesday, the shares of the company, which has a market cap of ₹ 672 crore, rose 16 per cent over their previous close on BSE to end the day at ₹ 55 apiece. Tilaknagar manufactures, markets and sells over 40 brands across price points and had in 2012- 13 recorded sales of 13.8 million cases — a four per cent increase from the previous year.

• Reliance Retail lifestyle chief Bijou Kurien quits: Bijou Kurien, part of the original team which built Mukesh Ambani’s Reliance Retail, has resigned after seven years in the company. He was chief executive and president, lifestyle. Kurien, 54, also plans to step down from the boards of the joint ventures with UK’s Marks & Spencer’s and Vision Express, among others. An alumnus of XLRI Jamshedpur, he spent 19 years at lifestyle company Titan Industries, where he was chief operating officer, before moving to Reliance Retail. He had started at Hindustan Unilver as a management trainee. When asked, Kurien said: “I am taking a break for personal reasons and will pursue other options after my break.” Kurien denied having any issues with the restructuring in Reliance Retail. A senior executive at the latter said: “Reliance is very dynamic in its business strategy. Different people come with different skill sets. The company believes in deploying different people in different leadership positions.” The group shifted the Reliance Jewels headquarters to Mumbai from Bangalore and brought in Sunil Nayak from Landmark in Dubai. According to retail consultants, Reliance Retail saw hits and misses in the lifestyle segment. Though Reliance Jewels and Digital are the first to break even among its many formats, the company had to shut categories such as Reliance Kitchen, which sold modular kitchen furniture, and Reliance Wellness, a beauty and lifestyle chain. The company also exited a joint venture with Office Depot. Reliance Retail began its stores in 2006. It had the late Raghu Pillai, Gunender Kapoor, Sanjeev Asthana and Kurien at the helm. Kurien was among the last ones from the original top team still with the company. Pillai, chief executive officer of the company’s value formats rejoined Kishore Biyani’s Future; he died of a heart attack last year. Gunender Kapoor joined private equity firm TPG. In late 2009, Reliance Retail did a major restructuring, wherein it hired executives from Tesco Lotus, including Gwyn Sundhagul, chief marketing officer and director at the latter, who joined as CEO of the value format. In mid- 2011, it hired Rob Cissel, former chief operating officer at Walmart China, as CEO of the value formats, replacing Sundhagul. Shawn Gray, vice-president at Walmart China, joined as chief operations officer. Though there are CEOs of every format, Mukesh Ambani’s trusted deputy Manoj Modi calls the shots at the top, executives in Reliance Retail said.

International:

• Groupon soars 20% as sales jump: Don't completely write off the daily deals website Groupon just yet. Shares of Groupon (GRPN) soared 20% in after-hours trading on Wednesday after the company reported better-than-expected quarterly sales. The company's board also officially offered Eric Lefkofsky the CEO job after filling in for ousted founder Andrew Mason on an interim basis since February. Also boosting the stock was Groupon's announcement that it will repurchase $300 million of its own shares over the next two years. The company had its "strongest quarter ever in North America," said Lefkofsky in a prepared statement. This was due, in part, to a 30% increase in the total value of purchases of goods and services made by customers in North America -- a closely analyzed figure. The deals site also performed well in mobile. Nearly 50% of North American transactions were completed on mobile devices in June, up from 30% during the same month last year. Overall, Groupon said it brought in $608.7 million in sales during the second quarter, a 7% increase year-over-year. That beat the $606.2 million median forecast of Wall Street analysts surveyed by Thomson Reuters. The company said it lost $7.6 million in the quarter, but excluding one-time charges totaling 3 cents per share, Groupon said it earned 2 cents per share. That's in line with the median forecasts of analysts surveyed by Thomson Reuters, who typically exclude one-time items from their estimates. Although the stock has been on the upswing during the past year, rising 79% in 2013, shares of Groupon have lost nearly a third of their value since November 2012, when the company announced dismal quarterly earnings. Months after that, the company fired Mason as its CEO.

• Yahoo is getting a new logo: Under CEO Marissa Mayer, Yahoo might still be trying to shed its image as a relic of the 1990s Internet era. But hey, it's getting a new logo! Yahoo announced Wednesday that it will unveil a new corporate logo September 4 -- the first such change since the company was founded 18 years ago. The new look will retain the current purple color scheme and, yes, its trademark exclamation point. Yodel away, Yahoo fans. "Over the past year, there's been a renewed sense of purpose and progress at Yahoo!, and we want everything we do to reflect this spirit of innovation," Chief Marketing Officer Kathy Savitt wrote in a blog post. "While the company is rapidly evolving, our logo — the essence of our brand — should too." To build some buzz around the new logo, the Internet company will display a different variation of the logo on its homepage and throughout its network in the United States for each of the next 30 days. The first example, shown above, opts for a more streamlined look, although the second "O" is larger than the first, reflecting -- in Yahoo's words -- the company's “fun, vibrant, and welcoming" character. The variations on the new logo offers a potential preview -- also will be showcased each day on Yahoo's Twitter account (#dailylogo).

• J.C. Penney Shares Drop on More Rumors: Shares of J.C. Penney Co. Inc. fell nearly 4 percent in midafternoon trading before rebounding slightly at the close amid rumblings that chief financial officer Ken Hannah might be leaving the company. The retailer firmly denied the rumors. A spokesman for J.C. Penney said, “The speculation that Ken Hannah is stepping down as chief financial officer is completely false. In fact, Mike Ullman has assembled his go-forward leadership team, which includes Ken Hannah and the recent addition of Debra Berman as our senior vice president of marketing. The company has a highly experienced and focused leadership team in place as we head into the fall season.” Hannah was named cfo in May 2012, while under the leadership of former chief executive officer Ron Johnson. Johnson was succeeded by Myron “Mike” Ullman 3rd, his predecessor, earlier this year. The company on Tuesday tapped Berman as its marketing guru. She previously directed global brand strategy at Kraft Food Group. J.C. Penney’s stock was trading around $12.76 in the afternoon, slightly up from the new low of $12.50 reached during intraday trading. The intraday high was $13.14, or a 59.6 percent drop from its 52-week high of $32.55. This is the second time in as many weeks that shares of the retailer took a hit on market rumors. On July 31, the stock tumbled 10.2 percent to close at $14.60 over concerns about its credit burn rate. There were rumors that CIT stopped approval on some vendors scheduled to ship orders to Penney’s in January, although in reality some of those vendors were simply asked for more information on the orders before a final decision would be rendered by the factor. Even after J.C. Penney refuted those rumblings a day later, shares of the retailer inched down 0.2 percent to $14.58 instead of rebounding. Shares of J.C. Penney fell 3.6 percent to $12.80 at the close of trading Wednesday on the New York Stock Exchange. It is set to report second-quarter earnings results on Aug. 20, a report that is expected to provide factors and credit analysts with detailed information about the retailer’s current financial condition.

• The Limited Names Diane Ellis CEO: Diane Ellis, currently president and chief operating officer of Brooks Brothers, will become chief executive officer of The Limited on Aug, 26. At Limited, which is owned by Sun Capital Partners, Ellis succeeds Linda Heasley, who became ceo of Lane Bryant last February. At Brooks Brothers, Ellis oversaw information technology, human resources, retail and outlet stores, planning and allocation, product development, sourcing, supply chain, e-commerce and finance. Earlier, she was a founding partner of Lighthouse Retail Group, managing director for the retail strategy practice at PricewaterhouseCoopers and director of merchandise planning, allocation and inventory control at Filene’s. Ellis also served in merchandising, planning, strategy, buying and store management roles at Marshalls and Joseph Horne’s department stores. “Diane’s expertise in consumer behavior, branding and store operations will add energy and momentum to the exciting initiatives underway at The Limited,” said Scott King, senior managing director of Sun Capital and board member of The Limited. The 259-unit, 50-year-old Limited plans to open four outlets and eight regular stores this year, and has added 68 stores since 2008. The chain specializes in work and weekend private-label sportswear.

• Neiman Marcus Inches Closer to IPO: Neiman Marcus Group is moving closer to an initial public offering, as support from bankers and investors grows and other sale strategies get eliminated. In recent weeks, merger talks with Saks Inc. were explored and NMG’s owners, TPG and Warburg Pincus, held discussions with possible buyers, such as the sovereign wealth fund of Qatar. However, it is now believed that the two private equity owners view an IPO as the best exit strategy. Last week, Hudson’s Bay Co. reached a definitive agreement to buy Saks, leaving one less player in the field that could have pursued a deal for Neiman’s. One investment banker, who requested anonymity since he’s not working on the IPO, said, “There aren’t many corporate buyers for an asset such as Neiman Marcus. The other option is to trade to bigger financial sponsors, but there’s not many at the next-higher level after TPG and Warburg Pincus. That leaves really the IPO as the exit strategy that’s left.” Another banker said that the IPO window is still open, with investors likely receptive to a “really good retail IPO coming to market.” Investors are already awaiting the planned apparel and retail offerings of Claire’s Inc., Burlington Coat Factory and the Vince brand, to name a few. Claire’s filed in May to raise $100 million. Burlington filed its plan in June for a proposed maximum offering price of $175 million. Vince, a division of Kellwood Co. and owned by private equity firm Sun Capital Partners, last month filed a draft registration statement with the Securities and Exchange Commission under the name Apparel Holding Corp. Wall Street investors and retail analysts generally believe Neiman’s could be a strong IPO, but not necessarily a blockbuster. “A Neiman’s IPO would be very well received,” said one retail investor. “Neiman’s is widely viewed as a better business than Saks, though it only owns 15 to 20 percent of their footprint [real estate].” TPG and Warburg Pincus bought Neiman Marcus in 2005 for $5.1 billion in a cash and debt transaction. Leonard Green & Partners subsequently took an investment stake in the retailer.