News As We Read - 16th Aug'13

Thought of the Day:

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FOLLOWING MADE THE HEADLINES:

India:

• Walmart Won’t Shop in Bharti : Walmart Stores Inc is unlikely this year to convert the $100-million loan it extended to the holding company of Bharti Retail into equity, and has pulled out a key executive from front-end retail operations in the country, signalling the world’s largest retailer’s shifting priorities for the Indian market in recent months. In March 2010, the Mauritius unit of Walmart had invested $100 million through compulsory convertible debentures (CCDs) into Cedar Support Services Ltd, the holding firm of Bharti Retail, with an option to convert it into a 49% stake by September 30, 2013. But despite the government last year allowing foreign companies to hold 51% equity in retail ventures, Walmart is unlikely to exercise its option of converting the $100-million loan into equity, which would have in one stroke given the world’s largest retailer an indirect 49% stake in Bharti Retail.

• Mobile Call Rates Set to Rise by 10p/Minute : Consumers should brace for a more than 15% rise in cost of making calls over mobile phones as some operators consider increasing rates, albeit gradually, to boost profitability and increase their cash flows. “All we want is 10 paise (per minute) more from customers,” said a top executive at one of India’s largest mobile phone operators. “And that too, over a period of time, not at one go. I am sure they (customers) won’t mind.” The extra 10 paise is all that most top mobile phone operators would need to boost profitability, and generate enough cash to fund capital expenditure plans which would be the bedrock of their future growth, this person told ET. The comments echoed the general mood in the industry which has just emerged from a quarter that reflected easing competition and the return of pricing power. Industry leaders also hope that new merger & acquisition guidelines, expected in a couple of months, could facilitate consolidation. About three to four fewer operators in the market would thus help sustain the pricing stability. Call rates in India hit rock bottom amid intense competition since late 2008, denting companies’ financials.

• ‘Smartphones to Ring At the Core of Sony’s Strategy in India ’ : Sony India managing director Kenichiro Hibi tells ET’s Gulveen Aulakh that despite being a late entrant in the booming local smartphone market, the company will not play the low-price game and will compete in the premium segment with aggressive players such as Apple and Samsung. India is one of the biggest focus markets for Sony and smartphones will be core to the Japanese consumer goods maker’s Indian strategy.

• MACY’S CUTS PROFIT OUTLOOK AFTER SOFT Q2 SALES : Shoppers walk past Macy’s in the Magnificent Mile shopping district in Chicago, Illinois. Macy’s reported lower than expected second quarter sales on Thursday and cut profit outlook for the year. Some analysts fear the disappointing news will reverberate throughout the retail sector because Macy’s is looked at as a barometer of spending among middle- to upper-income shoppers.

• 65% More Traffic on Online Retail Sites : With the festive season around the corner, there is a 65% increase from last year in online shopping, according to industry body Assocham. “This festive season, there is a 65% more traffic on online retail websites and shopping on ground has taken a back seat. Apart from convenience, rising fuel price, security reasons, online discounts and availability with abundance of choice keeping them (consumers) indoors,” Assocham general secretary D S Rawat said in a statement.

• Colgate takes HUL to court, ad stays for now : Colgate-Palmolive (India) has dragged Hindustan Unilever (HUL) to court in response to the comparative advertisement that the Pepsodent Germicheck marketer launched, claiming 130% superiority over Colgate Strong Teeth. According to industry sources, the Delhi high court has reserved its order on a complaint filed by Colgate. This means that the comparative advertisement continues for the moment. On August 9, HUL had launched the new Pepsodent Germicheck advertisement which directly compared the toothpaste’s germ attack power with Colgate Strong Teeth — a popular mass brand from Colgate-Palmolive’s portfolio. The advertisement claims that Pepsodent Germicheck has “130% superior” germ attack power over Colgate Strong Teeth after four hours of brushing. The Pepsodent advertisement was strategically launched on a public holiday which extended into a long weekend so as to capture a larger audience of consumers. Although a reaction from Colgate-Palmolive was expected, the firm has not taken the conventional route of first filing a complaint with the Advertising Standards Council of India (ASCI). Instead, Colgate-Palmolive (India) decided to directly go to court. An email sent to Colgate-Palmolive (India) did not elicit any reply. HUL too was unavailable for comments.

• India, China account for 60% of gold buying : In the quarter ended June, India and China together accounted for about 60 per cent to the global demand for gold. During the period, global demand fell 12 per cent. Data compiled by Thomson Reuters and World Gold Council showed global demand stood at 856.3 tonnes during the quarter ended June, against 974.6 tonnes in the corresponding period last year. While jewellery demand rose 37 per cent to 575.5 tonnes, demand for gold bars and coins increased a staggering 78 per cent to 507.6 tonnes, against 285.9 tonnes in the year- ago period. The rise in physical demand was partly offset by the offloading of gold exchange- traded funds, which recorded an outflow of 402.2 tonnes, against none in the corresponding period last year. The rest of the global demand was accounted for by technology and net purchases by central banks. Despite repeated increases in the import and excise duties by the government and the supply restrictions imposed by the central bank, consumer demand for gold in India jumped 71 per cent to 310 tonnes, compared with 181.1 tonnes in the year- ago period. With an emphatic 87 per cent rise during the quarter ended June, gold demand in China stood at 275.7 tonnes, against 147.7 tonnes in the corresponding period last year. Owing to a double- digit price rise in the second quarter, investors were attracted towards bullion, amid expectations of price rise. The majority of investors polled by Thomson Reuters estimated a rise in gold prices. “The consumer market for gold was once again dominated by global leaders India and China, which together accounted for about 60 per cent of the global jewellery sector and about half of the total demand for bars and coins. On a yeartodate basis, total consumer demand ( for jewellery, bars and coins) in both the countries is about 50 per cent more than in the corresponding period in 2012,” said Marcus Grubb, managing director ( investment), World Gold Council.

• Fuel retailers offer discounts on bulk diesel : Only a few months after the government freed up prices of bulk diesel, private fuel retailers have resorted to offering discounts to entice customers. Essar Oil and Reliance Industries are offering discounts of as much as R1,000 per kilolitre to win back clients, sources said. The discounts have helped revive bulk diesel sales, which had fallen sharply after the deregulation of bulk diesel prices. This had led to a migration of bulk users to subsidised OMC-run fuel retail stations which continued to sell diesel at below market prices. “We have to offer discounts to attract bulk buyers, otherwise only those customers which can’t physically move to fuel pumps will remain customers, such as railways,” said an official at a top private fuel retailer on the condition of anonymity. Essar Oil managed to increase its bulk sales to 6% of its total sales in the first quarter of FY14, from 4% in the fourth quarter of last year. An RIL spokesperson declined to comment on the company’s bulk diesel sales. The sharp fall in the rupee has meant that diesel under-recoveries have once again swelled to more than R9/litre below market prices, compared with below R3/litre in May. This has pushed many bulk buyers to shift purchases to retail fuel stations to take advantage of the cost differential. It’s this shift that private players are hoping to stem by offering discounts. Industry-wide share of bulk sales to total sales, which was about 18% in 2011-12, declined to around 10% in June, according to data

• India restricts foreign exchange to halt rupee slide : India's central bank has put further restrictions on the amount of money that companies and individuals can send out of the country. It hopes to ease the pressure on the rupee, which has lost about 15% of its value against the dollar so far this year. The currency has been hit by a weaker Indian economy and investor fears of more money leaving the country. This has led to higher prices for key items such as food and fuel. Under the new rules, the limit for overseas investments by Indian companies has been cut to 100% of a company's net worth, from 400% previously. However, state oil companies were granted an exemption, while others can apply to exceed the limit if they can show a genuine requirement. The amount of money that individuals can send overseas was cut to $75,000 each financial year from $200,000. The Reserve Bank of India (RBI) has also banned imports of gold coins and bars, which constituted about a third of total bullion demand in India last year. Local buyers will also have to pay cash for their gold.

International:

• BMW Uses Humour to Clear the Air on Diesel’s Reputation : BMW of North America is revving up its diesel engines again, starting an ambitious effort to encourage car buyers to consider six new dieselpower models for 2014. In Europe, diesel is a mainstay, but not so in this country, where unpleasant experiences in the 1970s and 1980s led a generation or two to regard diesel as if it were a synonym for “Edsel” and remain uninterested in subsequent diesel engines that were cleaner, quieter and more fuel efficient. BMW of North America would like to change that, in large part because as an auto company with a German parent, Bayerische Motoren Werke, it already has access to diesel technology. The ability to further amortise the development costs of those engines by changing North American minds about diesel must appeal mightily to the accountants in Munich.

• Microsoft sets October 17 release for Windows 8.1 : Consumers waiting for Microsofts revamped version of its latest Windows operating system will be able to get the software beginning October 17. The release date for Windows 8.1 is nearly ayear after the debut of Windows 8, a dramatic overhaul of the operating system that has been powering most personal computers for decades. Microsoft Corp unveiled its plans for Windows 8.1 three months ago, but hadnt set a release date until Wednesday. At test version of Windows 8.1 that may still include some bugs has been available since late June. Windows 8 represented Microsofts attempt to create an operating system that works well on tablet computers, as well as on laptop and desktop machines. But the overhaul confused and frustrated many people, resulting in disappointing sales of devices running on Windows 8. One research firm, International Data Corp, has even blamed Windows 8 for deepening the slump in PC sales as more people rely on smartphones and tablets to connect to the internet. Microsoft, which is based in Redmond, Washington, also absorbed a $ 900- million charge to its most recent quarterly earnings to account for its expected losses from a company- produced tablet, called Surface, which relies on a slimmed- down version of Windows 8. Windows 8.1 is Microsofts attempt to make the operating system easier and more appealing to use. It will be available as a free update to owners of Windows 8 machines.

• Lenovo seeking acquisitions in PCs and phones, says CEO Yang : Lenovo Group Ltd, the world’s largest maker of personal computers, said it’s looking for acquisitions in PCs and smartphones as expanding share for those products boosted quarterly profit 23 per cent. “We are definitely seeking opportunities in both the PC and phone areas,” Lenovo Chief Executive Officer Yang Yuanqing said in a phone interview on Thursday. “ The industry is in a period of consolidation, so we definitely should take the opportunity if we can find the right target.” Lenovo will be more “ proactive” on acquisitions, Yang said, declining to name specific targets. Lenovo was in talks to buy part of International Business Machines Corp’s server division until the two sides couldn’t agree on aprice, a person familiar with the discussions said in May. BlackBerry Ltd said it will consider takeover bids after almost a year of advisors unsuccessfully canvassing potential buyers. Yang declined to comment on whether the company would be interested in either IBM or BlackBerry assets. “Lenovo has come close a couple times already this year to a big acquisition,” Stephen Yang, a Hong Kong- based analyst with Sun Hung Kai Financial Ltd, said in an email. “ We do believe something will happen this year.” Lenovo’s Chief Financial Officer Wong Wai Ming said in January the company was assessing potential acquisition targets and strategic alliances, including a deal with BlackBerry. The company, which has headquarters in Beijing and Morrisville, North Carolina, said in March there hadn’t been any specific evaluation of BlackBerry as a target. “I believe that Lenovo may potentially explore either an acquisition of BlackBerry or form a joint venture with the company,” Jean- Louis Lafayeedney, an analyst at JI Asia in Hong Kong, said in an email on Thursday.

• Driving into the future with an electric car : A few years ago, electric cars were the dogs of the automotive business, moneylosing propositions that were either toys for the rich or economic sinkholes disguised as eco- warriors of the future. In three months, all that has changed. The first bit of news that has electrified the car world is that Tesla the poster car of the industry and long derided for losing money-- turned profitable, not just in its May quarter ($ 11.2 million) but for the one that ended in June as well ($ 26 million). Then, it upped itself by paying off the $440 million government loan five years early— the only US- based auto company availing of the government’s post- 2008 slowdown recovery funds to do so. The underpinning reality driving all of Tesla’s success is simply that its Model S cars are flying out of its showrooms. According to reports, in the first quarter of 2013, the approximately $ 80,000 Tesla (fully loaded) put more of its cars in customers’ hands ( 4,750 units) than other electric stalwarts the $ 40,000 Chevy Volt ( 4,421 units), and the $ 30,000 Nissan Leaf ( 3,695 units). It also apparently outstripped the sales of every other $ 100,000 sedan in the US market with the Mercedes S Class coming a distant second (3,077 units). In sales estimates, Elon Muskfounder Tesla and online payment company Paypal thinks he can sell 21,000 of his cars this calendar year, astaggering eightfold increase over 2012. Following on Tesla’s heels, a somewhat more mainstream but iconic car manufacturer has further propelled the possibilities of an electric auto world. BMW’s i3 is not cheap around $ 43,000 in the US for a car and doesn’t have the sex appeal or the power of the Tesla but it has dazzled people with the sheer structural ingenuity of its product. Of course, some people might think its leather seats tanned with oil- leaf extract or its wood- panelled dashboard made up of “ responsibly farmed” eucalyptus wood and compressed dry grass is just canny marketing gimmickry, but the real engineering wizardry is in its guts.

• Wal-Mart Cuts Profit Outlook on Shopper Worries : Wal-Mart Stores Inc., the world's biggest retailer, said the weak global economy continues to batter its low-income shoppers. The chain on Thursday cut its annual profit and revenue outlook for the year after reporting second-quarter results that missed Wall Street estimates. The company's stock fell nearly 3 percent on the news. Wal-Mart's sober assessment adds to worries about consumer spending that arose when Macy's Inc. lowered its profit expectations for the year after reporting disappointing results on Thursday and Kohl's Corp. did the same on the following day even after posting solid results. But Wal-Mart's results are even more troubling because it is considered an economic bellwether, with the company accounting for nearly 10 percent of nonautomotive retail spending in the U.S. Wal-Mart's latest performance appears to show that many people continue to struggle in the U.S. and abroad. In the U.S., while jobs are easier to get and the housing market is gaining momentum, these improvements have not been enough to get Americans to spend. On top of that, Wal-Mart said Americans continue to struggle with a 2 percentage-point increase in the Social Security payroll tax since Jan. 1. During a call with the media, Wal-Mart Chief Financial Officer Charles Holley said the top three concerns among its customers are jobs, food costs and gas and energy prices. "The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending," Holley said in a statement, noting a "reluctance" among customers to spend on things items like flat-screen TVs.

• With balloons and fiber, Google experiments in Web access : In recent months, Google Inc has announced plans to bring free wireless Internet access to 7,000 Starbucks cafes across America, eventually displacing AT&T Inc; it has asked U.S. regulators for broader access to wireless airwaves; and it has launched 30 solar-powered balloons over the South Pacific ocean, designed to beam the Internet to remote regions. Then there is Google Fiber, the high-speed cable TV and Internet service that was introduced in Kansas City late last year and that will be expanded soon to Austin and Provo, Utah. Fiber delivers Internet speeds at 1 gigabit per second, as much as 100 times faster than the average U.S. network. Google is happy with customer responses in Kansas so far and may roll Google Fiber out to a few more U.S. cities, according to several people close to the project. "Fiber is considered the golden child right now within Google because of its disruptive nature and the applause that they get from the communities using it," said a former member of Google Access, a group headed by Vice President Milo Medin, who drives the company's Internet access projects. Medin, a networking industry veteran who founded the seminal @Home cable broadband network in the 1990s, leads a few hundred employees. The group operates autonomously with its own engineering, finance and marketing units, according to the source. As Google delivers more music, videos and other content to mobile devices, it has become increasingly invested in ensuring it gets the bandwidth it needs. Web access projects like Fiber could help Google grow revenues beyond its maturing search business, and give it more insight into consumers' online habits, crucial to making ads more effective. But Google would be venturing into territory far afield from its traditional strengths and margins may suffer as a result, analysts said. The company would also be competing against well-established Internet service providers, such as AT&T or Time Warner Cable Inc. 

• Groupon buys mobile restaurant finder Plumfare : Groupon has purchased Plumfare, a mobile discovery application that encourages users to share photos of their restaurant meals. Terms weren't disclosed, and Groupon has had little to say about the deal. Plumfare "has some functionality that seems to overlap with what would be on [Groupon's] product road map anyway, so it probably makes sense for them," Forrester analyst Sucharita Mulpuru-Kodali said.