Daily News Digest- 11th Nov'13

Thought of the Day:

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Following made the Headlines:

India:

• SENSEX IS AT 16000. THE REST IS FII FLAB: Screaming headlines and breathless market commentary about the Sensex’s all time highs have dominated discourse on the markets in recent weeks. While most experts have focused on surging overseas investor flows as the main driver — although corporate performance and a rebound in some sectors have also played a part — the absolute control that FIIs have come to exert on the market is perhaps not so well-understood. Since January 2012, FIIs have invested nearly 2,20,000 crore in Indian stocks. The rush has happened despite poor corporate earnings and economic growth slipping to a decade-low in FY13. ET conducted an exercise to find a different way of expressing the extent of FII dominance. We tweaked the Sensex to remove all stocks with low FII holding and assumed the benchmark to comprise the top 15 stocks with the highest foreign fund holding. Seen this way, and taking the Sensex’s base of 2008, its value is actually 41,000, double the current levels. If you only take stocks with the lowest FII weightage, the index is at 16,000, lower than current levels. We conducted another exercise with small-cap and midcap stocks. The Sensex was reconstituted with the members of these two indices. The benchmark’s value with only midcap stocks was 13,369; with small-caps, it was 9,420. Moral of the story: The FII heavy stocks are the only drivers of the market while the rest of it is below the levels recorded in 2008 and 2010. No wonder retail investors are staying away.

• Hyderabad Under Delhi gets TRS Hot Like Andhra Chilli: A home ministry task force wants New Delhi to have control over law & order in Hyderabad for a decade after Andhra Pradesh is divided, raising the hackles of the main separatist Telangana Rashtra Samithi. The recommendation, justified on the ground of “fear psychosis” among professionals from Seemandhra (the coastal and southern parts of Andhra Pradesh from which Telangana is sought to be separated) comes amid a frenzy of activitywhich could determine the fate of the bifurcation of India’s fourth-largest state. The task force headed by K Vijaya Kumar, a former directorgeneral of the Central Reserve Police Force and senior security advisor to the home ministry, visited Hyderabad last week before making its recommendations to a ministerial panel that will decide on the issues relating to bifurcation. “There is fear psychosis in Seemandhra professionals in Hyderabad that they will be driven out and forced to sell their concerns under distress after division of the state. Pertinently, most of the private educational institutions and hospitality sector in and around Hyderabad are owned by people of Seemandhra origin,” according to the task force’s report seen by ET.

• Apple Eyes 1k cr from iPhone 5s India Sales in Q3: Encouraged by the popularity of the iPhone 5s in India, Apple has targeted 1,000 crore from sales of the handset this quarter, which will make it one of the most successful smartphone launches in the country and in line with that of devices such as the Galaxy S series of phones made by market leader Samsung. The goal is about twice the sales of the iPhone 5 in the year-ago quarter, which made Apple the second-largest smartphone vendor in India by value after Samsung. Apple is also looking to tap the 6-lakh owners of the iPhone 4 to trade up to the new model, currently the costliest smartphone in India at 53,500 for the 16GB unit, 62,500 for the 32GB one and 71,500 for the 64GB handset. It has also launched its biggest advertising campaign ever in India, estimated at around 25 crore, for the iPhone 5s and 5c in partnership with distributors Redington and Ingram Micro, along with telecom partners Reliance Communications and Bharti Airtel. Apple has less than two months to sell about 2 lakh new phones to meet its target and has sought fresh supplies of the 5s, reportedly sold out after its November 1 launch in relatively sparse numbers, according to three senior executives at Apple’s trade partners in India. They didn’t want to be identified. “Apple is aware its iPhone 5s has become an instant hit,” said one of those cited above. The iPhone 5c, with a plastic body, is priced at 41,900 for the 16GB model and 53,500 for the 32GB one. The Cupertino, California-based company is seeking to gain market share in India, the world’s biggest market for mobile phones after China, which it neglected until about a year ago when it began trying to push its products with installment plans and other programmes. It’s also concerned that this has allowed companies such as Samsung to take advantage of the vacuum created by Nokia’s weakening presence to gain a dominating lead in the marketplace, with an added edge provided by the launch of products such as the new Samsung Galaxy Gear smart watch. Samsung’s leadership also means the wider adoption of the Android ecosystem developed by Google to the detriment of Apple’s own iTunes app store.

• JLR’s Good Show ‘Rescues’ Tata Motors, Yet Again: Tata Motors acquired Jaguar Land Rover (JLR) in 2008 for $2.3 billion, about a year after Tata Steel purchased Corus. Earlier this year, Tata Steel announced a $1.6-billion write-off on account of the Corus unit. On the other hand, JLR has been Tata Motors’ saviour. While the parent has persisted with a line-up of jaded, boring clunkers that even taxi fleet owners are shying away from and commercial vehicles have been hit hard by India’s economic slump, JLR has flourished under Tata parentage despite a difficult global environment with a range of models that have excited the market with their sleek, contemporary design. JLR today accounts for more than 80% of the Tata Motors consolidated top line and almost 100% of its profitability. Put another way, JLR is pretty much all of Tata Motors today. Without JLR, Tata Motors, on a standalone basis, reported its sixth straight quarterly loss, excluding other income, in the July-September period. That income from other sources, which cushioned the standalone bottom line in the past quarter, is made up largely of hefty dividends from JLR. The slowing economy has seen sales of medium and heavy commercial vehicles dropping to less than half over the previous years. The Tata Motors passenger vehicle range isn’t strong enough to compete. And the Nano has failed to live up to its hype thus far, though the company is trying to rework its strategy on what was once touted as the world’s cheapest car. Tata Motors’ standalone EBITDA (earnings before interest, taxes, depreciation, and amortization) collapsed to less than 1% in the September quarter from more than 10% in the December 2010 quarter The Tata Motors stock, however, is bound to see significant buying interest on the bourses on Monday led by JLR’s impressive show that beat analyst estimates on all fronts – revenue growth, profitability and margins. On a consolidated basis, Tata Motors posted a 69% increase in net profit to 3,559 crore in the quarter from the year ago, while net sales rose 30% to 55,701 crore, beating industry estimates by a substantial degree. JLR’s remarkable EBITDA margin of 17.8% for the quarter was aided by a rebound in the US and European markets, besides continuing success in China. The share of the China region in JLR’s overall sales surged to 26% from 21.1% in the year ago quarter. A favourable product mix with a higher share of the Range Rover and Range Rover Sport also resulted in better margins for JLR and ultimately in better financial performance for Tata Motors at a consolidated level. A near-term upside in Tata motors’ share price can’t be ruled out as the company, especially JLR, will be investing heavily in research and new models.

• Local Startups Eye Foreign Locales with Friendly Policies: A number of Indian startups are turning to newer geographies as favourable policies and untapped markets offer an opportunity for quick growth. These young ventures are taking advantage of special visas, government incentives and networking facilities in markets such as Chile, Canada and the United Kingdom that offer support for startups. “It was a perfect opportunity to explore and enter the South American market,” said Pawan Marwaha, co-founder of Table Grabber, an online restaurant reservation service who enrolled in the Startup Chile programme last year. Marwaha, 34, founded the company in 2012 and was looking for global customers for his service. The $40,000 (25 lakh) equity-free grant, free co-working space and help with launching the service in new markets offered by the Chilean programme was a huge draw according to the hospitality professional. “With over 100 startups sharing the co-working space, there is never a shortage of technical skills or market expertise to bounce ideas off,” said Marwaha who expects his company to earn revenue of 5 crore by 2014. “Around 6% of start-ups in the programme are Indian entrepreneurs,” said Horacio Melo, executive director at Start-Up Chile, which was set up in 2010. Indian entrepreneurs are welcomed for their coding skills, and for being able to execute a business model. “Startups from India tend to build things that try to solve the problems such as health and access to water, this is especially valuable for the Chilean startup community,” said Melo.  Similarly, Canada launched its Start-Up visa in April this year, to encourage entrepreneurs to set up base in Canada. Entrepreneurs who are able to secure funding from venture capitalists or angel investors based out of Canada are eligible for this visa. The Canadian government has also initiated an expansion to the Start-Up Visa Programme to include business incubators. “This will complement existing venture capital and angel investors,” said Citizenship and Immigration Minister Chris Alexander.

• Sula taps investors for stake sale: India’s largest winemaker Nashik Vintners, owners of Sula wines, has kicked off a big stake sale to facilitate exit for financial investors who control around 50% in the company valued at about $125 million, said people directly familiar with the process. The process has attracted early interest from L Capital, an investment arm of French luxury goods conglomerate Moet Hennessy Louis Vuitton (LVMH), and cognac maker Remy Cointreau, among others, who have been approached. Investment bank Avendus Capital is mandated to find either financial or strategic suitors for the proposed stake sale. Sula was founded by Rajeev Samant, who quit his silicon valley job two decades ago, to launch a premium Indian wine brand. Sula sells over 500,000 cases of wines in India’s overall wine consumption pegged at 2.1 million cases, but, more importantly, has about 50% share of the premium wines sold in the country. An emailed questionnaire to Sula remained unanswered, while a spokesperson said on phone that Samant would not comment on market rumours. A large stake purchase would help international alcoholic beverage groups to gain a strong foothold in India’s premium drinks market where Sula has a strong reach, especially in on-trade sales, sources added. The domestic alcobev market has been in flux with several smaller players seeking foreign partners, after Diageo Plc snapped up Vijay Mallya’s United Spirits last year. Information sourced from registrar of companies suggests that investors — Indivision Venture, Verlinvest SA, Confintra SA, GIA (Sula) Holdings and ICP Holdings — together have over 50% ownership of the winemaker. The Samant family owns most of the remaining stake. Verlinvest and Confintra, which together own about 20% stake, are the investment vehicles of a Belgium family office, who are the founders of beer giant Anheuser Busch InBev. Everstone Capital’s arm Indivision has about 18% stake. Verlinvest may not sell entire stake, but that decision depends on valuations.

• Value fashion chain Max set to outgrow lifestyle: Lumba: Lifestyle International expects its value fashion retail chain Max to become the largest revenue contributor in the next few years, beating Lifestyle departmental stores, due to rapid expansion and strong demand for affordable fashion. Kabir Lumba, managing director at Lifestyle International, said Max's revenue is growing 50% a year, at double the pace of its other formats such as the departmental stores chain and home furnishings and furniture seller Home Centre. "The increase in Max revenue will also boost our profit since almost 90% of sales is driven by private labels, which have higher margins unlike Lifestyle where private label contribution is 30%," he said on the sidelines of inauguration of the first Lifestyle store in Kolkata on Friday. Max format currently contributes 35% to the Dubai-based Landmark Group firm's Rs 3,000-crore revenue, Lumba said. While 60% business is generated by Lifestyle and Home Centre, speciality formats like Bossini account for the rest. "The increase in Max revenue will also boost our profit since almost 90% of sales is driven by private labels which have higher margins unlike Lifestyle where private label contribution is 30%," Lumba said. Max has hit the sweet spot for the company, positioned higher than Fashion at Big Bazaar and lower than Pantaloons and Westside in pricing. The company now plans to open some 25 Max stores annually and 6-7 Lifestyle stores. "We would invest Rs 150 crore annually for our expansion," Lumba said. Lumba said the stores are reporting double-digit same-store growth this year and consumer sentiments have improved. "We are cautiously optimistic, but this year has been quite good," he said. At present, there are 40 Lifestyle stores, spread over 40,000-50,000 sq ft each, and 85 Max stores, each operating in 12,000-15,000 sq ft. Then there are 16 Home Centre outlets, each spread over 25,000-35,000 sq ft. Lifestyle International targets Rs 5,000-crore annual revenues within two years. Indian billionaire Micky Jagtiani owns the $5.7-billion Landmark Group.

• Wagh Bakri Tea eyes 10% sales growth at Rs 800 cr in FY14: Packaged tea firm Wagh Bakri is targeting 10 per cent growth in revenue at Rs 800 crore this fiscal, a top company official said. It is also looking at garnering 12 per cent market share in the premium category within five years. "We are the largest privately held tea company in the country witnessing continuous revenue growth. Last year, we saw a sales of Rs 730 crore and this financial year we are expecting about 10 per cent growth in sales at about Rs 800 crore," Wagh Bakri Tea Group Executive Director, Sales and Marketing, Parag Desai told here. The company, which distributes over 30 million kg of tea, enjoys a strong market position in Gujarat, Rajasthan, Madhya Pradesh, Maharashtra and Goa. "Recently we have forayed into the markets of Delhi, National Capital Region (NCR) and Hyderabad. Currently, we enjoy seven per cent market share in the premium tea segment. We are targeting 12 per cent market share in the next five years," Desai said. Wagh Bakri Tea Group is the third largest packaged tea company in India exporting its tea to 33 countries with a strategic retail network all over the world. The company offers brands like Wagh Bakri Premium Leaf Tea, Wagh Bakri Perfect, Good Morning premium tea & tea bags, Teaquick, Mili and Navchetan. These brands are sold in the US, the UK, Australia, Canada, New Zealand, Oman, Kuwait and Dubai, among others. The company has also ventured into Wagh Bakri Tea Lounges in franchise format in 2008 and currently has four such outlets in Delhi and Mumbai. "In these lounges, tea enthusiasts can experiment with a variety of tea that allows patrons to mix-and-match their choice of blend from amongst the strong Assam tea, healthy organic tea, green tea, Darjeeling tea, iced tea and flavoured tea," he explained. These tea lounges are aimed at providing consumers with unique offerings of tea in a five star ambiance. "We are planning to open 50 Wagh Bakri Tea Lounges mainly in the metro and big cities in 3-4 years," Desai added. The company has three manufacturing plants and a contemporary production and packaging unit for production, blending and packaging of the tea leaves with a capacity of 35 million kg annually.

International:

• Adele Turns Down £12-Million ‘Face of L’Oreal’ Offer: Adele has walked away from a £12-million offer to be the face of L’oreal. The 25-year-old singer had been in negotiations with the cosmetic giant and was set to brush aside Cheryl Cole by signing a four-year advertising contract, the Mirror reported. A source said L’oreal was in negotiations for the deal with the ‘Rolling In The Deep’ hitmaker and it looked to be happening, but she changed her mind. The insider said L’Oreal is gobsmacked she turned down such a huge amount. Adele had earlier insisted that she is against selling out, claiming that she dislikes artists who are constantly in everyone's face.

• Pucci opening boutiques in global fashion capitals: The storied Florentine house of Emilio Pucci, which made colorful, kaleidoscopic prints world-famous and once counted Marilyn Monroe as a top client, is embarking on a new chapter. The house has started an ambitious expansion campaign. It's opened up boutiques across the world's fashion capitals, including New York's Madison Avenue, Rome's Piazza di Spagna, and now on Paris' prestigious Avenue Montaigne. Designer Peter Dundas is meanwhile trying to match the momentum by moving the house in a younger direction. But will Pucci, founded by the Italian aristocrat in 1947, succeed in shaking off that love-it-or-hate-it retro print that's garish for some, vibrant for others? "I think that having the strong heritage, yes, it's sometimes a challenge when you want to move forward," admitted Dundas in an interview. "But I consider myself lucky. There's an advantage having this DNA - an opportunity to expand on it," he added. "The print is still an important part of the collection, but it includes solids and neutrals now," he added. The tall, energetic 44-year-old is certainly not one to dwell on to the past. Dundas has made a name for himself since taking over the design helm in 2007 - and is known for his red carpet showstoppers and celebrity circles, dressing stars like Gwyneth Paltrow and Jennifer Lopez.

• BlackBerry's new CEO gets $88 million package: BlackBerry will pay its new interim CEO a base salary of $1 million, a bonus of up to twice that amount as well as stock awards potentially worth some $85 million, in the hopes of turning around Canada's most prominent technology company. John Chen, the second consecutive chief executive officer at BlackBerry to receive a bumper package, will have to help the embattled smartphone maker regain its footing and win back market share ceded to the likes of Apple's iPhone and a range of devices that run on Google's Android operating system. Chen was credited with turning around Sybase in the late 1990s. Sybase, an enterprise software company, was eventually acquired by SAP AG in 2010. Chen's share awards only begin to vest after he completes three years with BlackBerry, and the majority of the options will vest only after he completes his fifth year, according to a regulatory filing late on Thursday. Should Chen be fired without cause, he will be paid up to $6 million, according to the filing. Chen's appointment came after BlackBerry stunned many on Monday when it abandoned plans to sell itself and instead opted to raise funds via a $1 billion notes offering led by Fairfax, its largest shareholder. Fairfax, led by investment guru Prem Watsa, had said it was investing $250 million in the offering. In its filing on Thursday, BlackBerry said Canso Investment Counsel is investing $300 million in the offering, while Mackenzie Financial, Markel Corp, Qatar Holding, and Brookfield Asset Management are buying the remainder. As part of the financing deal, BlackBerry has agreed to pay a fee to the investors if it does reach an alternate deal that results in the sale of the company, either before, or within 30 days of the close of this deal. Depending on the circumstances, the fee could range between $135 million and $250 million.

• China braces for 'Cyber Monday' frenzy: Chinese online retailers are bracing for their busiest day of the year Monday. What began as a holiday for singles has morphed into an online retail frenzy that dwarfs Cyber Monday, the day after the Thanksgiving weekend when Americans rush to snap up bargains at the start of the Christmas shopping season. "On this day, the prices are much lower," said Zoe Zhang, an expectant mother in southwest China, who filled up her shopping cart days ago with baby staples like diapers. Created as a response to Valentine's Day, the holiday falls on Nov. 11 or 11/11, representing four singles. Gifts are often exchanged among single people, but the day has grown into the country's biggest annual e-commerce bonanza.

• US seeks $864m from Bank of America in mortgage trial: The US government has said it is seeking $864m (£540m) in compensation from Bank of America for losses over home loans sold to it by the bank's Countrywide Financial unit. US attorney Preet Bharara made the request in documents filed late Friday in New York. The bank was found liable for defrauding two US state-backed mortgage companies by a federal jury last month. Countrywide was acquired by Bank of America in 2008. The ruling was a major win for the US government, which launched the case in the wake of the financial crisis. Reports last month suggested that US banking giant JP Morgan is set for a record $13bn fine to settle investigations into its mortgage-backed securities. And Wells Fargo agreed to pay $335m to settle claims it misled investors over mortgage-backed bonds. The US Department of Justice is investigating at least nine banks over their sales of mortgage-backed securities.

• Twitter stock already downgraded: Twitter bird, you've flown too high. At least that's what some on Wall Street think. Twitter enjoyed a white-hot initial public offering Thursday, with shares closing 73% higher. But analysts were extremely quick to tamp down the euphoria. Several wondered why Twitter deserves to be worth about $24.4 billion. "That valuation is simply far too high for a company that's losing money and seeing their rate of sales growth decrease," said Brian Hamilton, the chairman of financial analysis firm Sageworks. Twitter revealed in its IPO paperwork that it has not turned a profit for at least the last three years, and losses accelerated in the first nine months of 2013. But that didn't stop investors from sending Twitter sharply higher in its market debut. That worried Pivotal Research Group senior analyst Brian Wieser. Less than one hour after Twitter began trading, Wieser downgraded his rating on the stock to "sell" from "buy.""Twitter is simply too expensive" at any level above the low $30s per share, Wieser wrote in a note to clients. He has a $30 price target on the stock. Twitter closed at $44.90 on Thursday. The stock was down more than 3% in late morning trading Friday.