News As We Read- 8th May'13

Thought of the Day:

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Following made the Headlines:

India:

• Finland Calls India on Nokia Tax Case: Finland has invoked an alternate dispute resolution provision in its double taxation avoidance agreement with India against the 2,000-crore demand slapped on handset maker Nokia, as it seeks to arrive at a negotiated settlement over the tax dispute. The Finnish government has requested India to consider the case under the alternate dispute resolution mechanism called the Mutual Agreement Procedure (MAP) in the tax treaty, which provides for settling the case even as a parallel judicial process continues in India. “They have filed an application. We are examining it and will take a decision in accordance with the provisions of our tax treaty with Finland,” a finance ministry official told ET. The government is not bound to accept the request. It had earlier rejected a request for an MAP to settle the multi-billion-dollar Vodafone tax dispute.

• Qatar Airways Seeks Partnership with IndiGo: Qatar Airways is keen to explore a possible alliance with IndiGo, India’s biggest airline, the CEO of the fast-expanding Gulf carrier said on Monday. “We hope that on the level of the management we will begin talking to them (IndiGo),” Akbar al Baker, chief executive officer at Qatar Airways, was quoted as telling reporters at a travel show in Dubai. “I don’t want to talk about stakes. I don’t have so much money to buy stakes in airlines,” a Reuters report quoted him as saying. According to a Gulf News report, Baker said there is already an approach between the management of the two airlines. “IndiGo is an airline that is not for sale. We only want to do a codeshare partnership with them,” he said. An official of the Indian budget airline, however, categorically denied any engagement with Qatar at the moment. “We can confirm that there are no such talks with Qatar,” said the IndiGo official who did not want to be identified. Last month UAE carrier Etihad Airways announced a deal to pick up 24% stake in Jet Airways at a hefty premium, signalling the potential seen by global airlines to expand in the through the Indian market by forging alliances with Indian airlines.

• PVR Coming to a Global Screen Near You: Multiplex operator PVR, which recently acquired Cinemax to become the largest film exhibition company in the country, is exploring opportunities to take its luxury format Director’s Cut to Asian markets such as Thailand, Singapore and Hong Kong. “DC (Director’s Cut), as a luxury lifestyle concept, is now complete and has an international appeal. Now is the time when we can take it to some international markets,” Sanjeev Kumar Bijli, joint managing director of PVR, told ET. Director’s Cut is a high-end format with theatres, restaurants, books and merchandise. Its tickets are priced up to 1,200 on a weekend and offers facilities such as in-cinema dining, movie on demand. The cinemas screen independent and rare films, besides the mainstream ones. The theatres have restaurants and sell books and merchandise. “Asian cities will be the right markets, where the consumerism story is still strong, compared to the US or the UK which are either saturated or trapped in economic crisis,” Bijli said, adding that the plan is at an initial stage. The foreign foray is being explored though PVR Leisure, a subsidiary of listed firm PVR Ltd. The company already has a tieup with Thailandbased Major Cineplex Group for bowling alleys and allied entertainment activities under the Blu-O brand. Meanwhile, PVR is expanding both Director’s Cut and Blu-O networks within India. It currently has one DC in Delhi and five Blu-Os in Delhi, Gurgaon, Bangalore and Pune.

• McDonald’s India to Hike Prices Again This Year: Fast-food chain McDonald’s plans to increase prices in India for the second time this year, responding to rising inflation which, along with an economic slowdown, it expects to temper demand growth for at least the next 7 months. The company said on Tuesday it would raise prices by 5-6%. That follows a 5% hike after the government increased the service tax rate in February. “There is pressure and it’s a tough environment, no doubt. But inflation is at 8-10% so we have to hike our prices,” said Amit Jatia, vice-chairman of Hardcastle Restaurants, which owns the McDonalds franchise for west and south India. Consumer spending in India has taken a hit in the past three quarters as rising food prices, meagre salary increases and the slowest Indian economic growth in a decade hurt buying appetites for clothes, cars and eating out. With its 1.2 billion people and growing middle class, India is a large market for global chains, though for now most Indians cannot afford to eat regularly in western-style restaurants. The burger chain said its same-store sales remained under pressure and although they would grow, the increase would not be at the 22% achieved in the fiscal year ended March 2012. McDonalds entered India in 1996 without its signature hamburger, respecting local religious beliefs which mean many people avoid eating beef and pork. It has become India’s largest fast food chain operator selling chicken and fish burgers along with vegetarian items like McAloo Tikki, which has a potato patty, and the McSpicy Paneer, filled with cottage cheese. The burger chain plans capital spending of 5 00-1000 crore in India over the next 3-5 years, mostly for store expansion, Jatia said, adding India’s long-term consumption growth story remained intact. McDonalds has 309 stores in the country. The company plans to add 80-90 restaurants in western and southern India in the next two years. Hardcastle is also contemplating an equity fund raising to fuel McDonalds’ expansion in the country in the coming years. “We are in talks with merchant bankers every day and are open to it. But we are considering all our options and that includes debt also. We will be clear with our decision on what instrument we choose in a month,” Jatia said. In December, Hardcastle Restaurants merged its operations with listed parent Westlife Development.

• Telenor, Tata in alliance move: The Tata group and Norwegian telecom major Telenor have appointed merchant bankers to advise them on a possible strategic alliance that could include merger or sale of equity in Tata Teleservices. While Telenor has appointed Citibank, the Tatas have roped in Lazard to study all options for their telecom business. The move comes even as the government is expected to liberalise the current rules for mergers and acquisitions in the telecom sector while finalising the new policy. If the deal goes through, this would be the first major decision of the Tata group’s new chairman, Cyrus Mistry, for the telecom business, which has been in losses. The Tatas own 59.5 per cent stake in Tata Teleservices, the unlisted holding company, and 27.9 per cent in the listed Tata Teleservices Maharashtra. Japanese telecom major Docomo owns 26 per cent in Tata Teleservices, while the remaining equity is held by minority investors, including the Sivasankaran group. Telenor, which has set up a new firm for its telecom business following a battle with the Unitech group, its former partner, has brought in Sun Pharma CFO Sudhir Valia as Indian partner with a 26 per cent stake in his personal capacity. Telenor holds the balance stake in Telewings Communications, which bagged spectrum in six circles in November last year. When contacted, a Tata spokesperson said: “The query raised is speculative and Tata Teleservices, as a policy, does not comment on speculation.” A Telenor spokesperson said the company would not comment on rumours and speculation, adding: “ What the group has said is that it is not compelled to participate in any merger or acquisition, seeing that its current six- circle footprint allows it to serve every second person in India. At the same time, it will evaluate any such opportunities, should those become available and make business sense.” A Citibank official said the bank did to comment on confidential client mandates, while Lazard declined to comment on the issue. Through Unitech Wireless, Telenor had 31.7 million customers till February- end. Tata Tele, which has 66.9 million subscribers, is reducing its exposure in the CDMA business and, as a sign of protest, has decided to return in 13 circles the spectrum it holds beyond 2.5 MHz. It is now focusing more on the GSM business. The two companies would together command 11.46 per cent share of the mobile market in terms of subscriber base. This would help the two close in on the large gap they have with their rivals Idea Cellular ( 13.84 per cent), Reliance Communications (13.92 per cent) and BSNL (11.65 per cent). It could also give Telenor a pan- Indian footprint. In the past five years, the Tata group has put in equity capital of around ₹ 3,250 crore in Tata Teleservices.

• Crossword plans to expand non- book product portfolio: Retail major Shoppers Stopowned Crossword Bookstore plans to expand the nonbook product portfolio in its outlets, as demand for music and movies, one of the largest selling categories, has come down in the recent past. The chain will now showcase more electronic gadgets, toys and stationery in its outlets. “Music and film sales through the stores have seen adecrease in the past 24- 30 months, mainly due to the online and downloading facilities on the internet. We are right- sizing the outlets and changing the portfolio to address this,” said Govind Shrikhande, managing director and customercare associate of Shoppers Stop. The company is reducing the size of the stores to suit the product mix it presents. For instance, if the outlet had asize of around 4,000- 6,000 sq ft earlier, it might be reduced to 2,200 to 3,000 sq ft, which would reduce the cost on space. It has already changed the productmix to increase presence of toys and stationery items in the stores. Of the 82 Crossword Bookstore outlets, half are owned by Shoppers Stop; the rest are run by franchisees. The company expects to add five stores a year, he added. The company added two Crossword stores in the final quarter of FY13, one each at Kochi and Mumbai. The firm also plans to tie up with publishing houses to offer books with ‘ value addition’ such as interesting facts about the author, copies with the author’s signature, etc.

International:

• Ivan Menezes to Take Charge as Diageo CEO from Paul Walsh: Diageo Plc chief executive officer Paul Walsh will step down after almost 13 years shaping the company into the world’s largest distiller and hand over the reins to his chief operating officer. Ivan Menezes, 53, will take the helm on July 1 and Walsh will leave the board as of September, the company said in a statement on Tuesday. To aid the transition, Walsh will stay on for a year before retiring from Diageo on June 30, 2014. Menezes is “a man of great vision,” Chris Wickham, an analyst at Oriel Securities said on Tuesday. “He’s been very clear about the company’s approach to M&A: acquiring local spirits and using that distribution to spread Diageo’s global brands.” Menezes became COO in March 2012 after leading the company’s North American unit for eight years. During his tenure as COO, Diageo bought Brazi lian cachaca brand Ypioca as well as winning approval to buy a Chinese maker of white spirits. More recently, Menezes worked alongside Walsh to help engineer a deal to buy a stake in United Spirits, giving the company greater access to the fast-growing Indian whiskey market.

• Online retailers in US call Internet sales tax a 'nightmare': The nation is one step closer to an Internet sales tax that some online retailers think would be compliance hell. Online retailers would have to start collecting sales tax upfront. They'd also be forced to send payments to local governments across the country. The "Marketplace Fairness Act “passed but faces a higher hurdle in the House of Representatives before becoming law. The law would apply to online sellers that have total annual sales of at least $1 million outside of states where they have physical presence. Justin Krauss is worried about the paperwork burden it would place on his tiny company, Garage Flooring. His business has annual revenues just above the million dollar threshold and racks up as many as 36,000 transactions a year. The vast majority are outside his home base in Grand Junction, Colo. There are only four states that have no sales tax. Krauss would have to cut quarterly checks to the other 46. "I didn't sign up to be a tax collector," he said. "The federal and state governments are putting the burden on small businesses."

• Disney awards 'Star Wars' video-game rights to EA: Electronic Arts will be the exclusive provider of games based on the Star Wars series, Disney and the game developer announced jointly on Monday. Following Disney's acquisition of Lucasfilm last year, it shut down the LucasArts game development division, indicating its preference to license console games rather than develop them in-house. Now, Electronic Arts will be the only publisher creating Star Wars games for a "core gaming audience," according to today's press release. Electronic Arts said that its in-house game teams DICE (Battlefield) and Visceral (Dead Space) will work on Star Wars titles, in addition to BioWare, the team behind EA's existing Star Wars MMO The Old Republic. Meanwhile, Disney will "retain certain rights to develop new titles within the mobile, social, tablet and online game categories." My initial take: While this might seem like a great arrangement for Electronic Arts and Disney, I cannot see how taking away the element of competition will be good for the quality of Star Wars games. Individually licensing out Star Wars games to different publishers and developers might have ushered in a variety of creative ideas and directions for the franchise, but locking out anyone that isn't affiliated with Electronic Arts seems like a commitment to the same old, same old. "Every developer dreams of creating games for the Star Wars universe," said EA Labels President Frank Gibeau. And now, unless they go work at EA, they can't.

• WTO names Roberto Azevedo as new head: A Brazilian trade diplomat has been named as the next head of the World Trade Organisation (WTO). Roberto Azevedo will succeed France's Pascal Lamy in September, the Brazilian government says. Mr Azevedo, Brazil's ambassador to the WTO since 2008, was competing for the post with Mexico's former trade minister Herminio Blanco. The WTO is expected to formally announce Mr Azevedo as its new director-general on Wednesday. He will be the first Latin American to head the WTO since its creation in 1995. The process of choosing a new head has taken six months, with nine hopefuls putting their names forward for the post. The Brazilian President, Dilma Rousseff, issued a statement congratulating the diplomat.

• Carlsberg profits boosted by Asian sales: Danish brewer Carlsberg has returned to profit in the first quarter of the year, helped by strong sales in Asia. The world's fourth largest brewer reported a net profit of 62m kroner ($10.9m; £7m), compared with a loss of 76m kroner a year earlier. Sales in Asia were up 13%, and the region now make up 20% of Carlsberg's group revenues. Carlsberg's brands include Tuborg, Kronenbourg, Baltika and Holsten Pilsner. In common with other leading global brewers, Carlsberg has increasingly been looking to Asia to boost sales and offset weakness in more mature markets, such as the eurozone. Recent figures for parts of Asia have shown the rate of economic growth slowing. But Carlsberg's chief executive, Jorgen Buhl Rasmussen, said he still expected the Asian market to show rapid growth this year. "I see no reason that the picture from 2012 should change significantly in 2013," he said. Sales were particularly strong in Vietnam, Cambodia and India. The company also has a joint venture in the China's Chongqing Jianiang Brewery, where it has recently increased its share.

• Britain's Luxury Sector Set to Grow 12%: The U.K. luxury sector is set to grow 12 percent this year to 7.4 billion pounds, or $11.51 billion, and will post double-digit growth annually for the next five years, according to the fourth annual Walpole Ledbury Luxury Benchmark Report. The report, which is based on interviews with 78 senior luxury executives in sectors ranging from fashion and accessories to watches and jewelry to hospitality, said that brands remain “optimistic” about the outlook, and they have every reason to: The sector is set to double in size over the next five years to 12.2 billion pounds, or $18.98 billion, in 2017. Some 83 percent of luxury brands said they are expecting to see a rise in sales in 2013, according to the study by Walpole, the not-for-profit organization that represents British luxury companies, and Ledbury, a market research firm specializing in the luxury sector. The study added that tourists remain “crucial” to the British luxury industry, with 64 percent of respondents targeting this group specifically through various initiatives such as foreign payment methods, and hiring foreign speaking staff. While Americans remain the most important nationality of luxury visitors to the U.K., the Chinese are considered the fastest growing group of luxury shoppers to the U.K. “The findings from this year’s study provide an insightful look at the changing landscape of the U.K. luxury industry and the key priorities and challenges facing senior luxury executives in the coming year,” said Julia Carrick, Walpole’s chief executive. “Despite the backdrop of the euro zone crisis and a difficult economic environment, the U.K. luxury industry remains extremely robust and is forecast to grow significantly,” she added. The report said that key potential growth regions for U.K. luxury brands include the BRIC economies, Brazil, India, Russia and China. With the Olympics and World Cup coming up, 52 percent of brands have plans to enter the Brazilian market.

• Ralph Lauren Taps Laura Lendrum to Run U.S. Stores: Ralph Lauren Corp. named Laura Lendrum president of its U.S. stores division, giving her responsibility for the overall strategic direction, management and execution of the domestic Ralph Lauren retail business. Lendrum has spent much of her 23-year career in the luxe realm, serving most recently as president of Gucci America, where she oversaw retail, wholesale and e-commerce. She has also worked at Yves Saint Laurent and Chanel.