News As We Read- 13th May'13

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Following made the Headlines:

India:

• Piramal, Shriram Banking on Deal: The quest for a banking licence played a key role in defining the contours of the deal between Piramal Enterprises and Shriram Transport Finance Company (STFC) concluded last Friday, said two persons with direct knowledge of the matter. Piramal, who originally intended to acquire a 20% stake in the nonbanking finance company, opted instead to pick up a 9.9% stake so that both groups could apply for licences to set up new banks. Further, the future shape of the alliance will depend on success in obtaining new bank licences, which RBI is likely to issue sometime in the next 12 months. The Ajay Piramal flagship executed the 1,652-crore deal in the secondary market by buying out PE fund TPG’s stake in STFC.

• New US Visa Rules to Hit Cognizant & TCS Most: Last week, investors cheered Cognizant’s robust sales growth and bullish June forecast but the celebration was mixed with caution as 80% of its revenues are derived from the US, leaving the New Jersey-based company extremely vulnerable to the proposed overhaul of the immigration system in the world's largest economy. While large IT services companies are scrambling to minimise the impact of proposed changes to rules for issuing temporary and short-term work visas, analysts expect Cognizant and Tata Consultancy Services, to be the most affected based on factors such as their US revenue contribution and proportion of visa holders in their US workforce. “This bill does not affect only Cognizant. It affects many of the largest companies in the US who use our services because of the shortage of science, technology, engineering, math graduates in the US,” said R Chandrasekaran, group chief executive at Cognizant.

• M&M May Shrink UVs for Lower Excise: Mahindra & Mahindra plans to modify some of its vehicles to help them avoid a 3% additional excise duty on sports utility vehicles as its sales have come under pressure. The country’s top utility vehicle maker will make some of its models meet any of the three parameters — less than four metres length, below 1.5 litre engine capacity or ground clearance of lesser than 170mm – so that they will not have to pay the additional duty, top officials said. The excise duty on SUV was increased to 30% from 27% this year. “Such changes in policy also affects our product planning. We will do whatever possible to try to get back to 27% excise bracket,” Pawan Goenka, president at M&M, said. Except for Quanto and some variants of Xylo, all M&M vehicles including Bolero, Scorpio and XUV 500 are affected by the new excise duty. The company’s sales increased only 2% year on year in April after growing 27% in 2012-13. It takes one-to-two years to reduce the size of a vehicle to less than four metres as it is almost like building a new vehicle, so M&M is trying to adapt existing engines and lower ground clearance that take comparatively lesser time. M&M may consider the 1500cc engine that powers the Quanto for the Bolero, Scorpio and the XUV500. Currently the Bolero is powered by a 2523cc engine, Scorpio with a 2179cc engine and XUV by a 2179cc engine. Scorpio has a ground clearance of 180mm while XUV 500 has 200mm. Pravin Shah, chief executive, automotive sector, at M&M, said, “While making changes we have to see that it does not impact performance, and yet meets the requirements.” There is a fear that the 1500cc engine could be underpowered for some of its vehicles. Goenka said, “The 1500cc engine could be underpowered. So, we don’t want to do a product that will satisfy the excise requirement but not satisfy customer requirements. So, while there are enough competitive pressures there is this unnecessary taxation pressure too.”

• Oberoi Realty Ties up with Ritz-Carlton for Mumbai Hotel: Oberoi Realty, India’s second biggest real estate firm by market cap, has zeroed in on the luxury brand Ritz-Carlton to manage its new hotel property at Worli in Mumbai, barely a kilometre away from the Bandra-Worli sea link. The two firms will make an announcement soon, a person involved in the talks said. A spokeswoman for Oberoi Realty said the company would not comment. Rajeev Menon, area vice-president for India at Marriott International, which owns Ritz-Carlton, too declined to comment on a contract with Oberoi Realty, but said the group is in an expansion drive in the country. “Our intention is to grow all our brands in India. By the end of 2015, around 40 new (Marriott group) hotels will be operational in the country,” he said. The person quoted earlier said Oberoi Realty has had talks with brands like Mandarin Oriental, Bulgari, Waldorf Astoria, St Regis and Raffles over the past two years to manage its second hotel in the city before deciding on Ritz-Carlton. This will be the third property in India for The Ritz-Carlton Hotel Company, known for its extreme luxury and high-end services, and some of its suites rank among the most expensive hotel rooms in the world. The person said the Worli hotel property will have 225 luxury rooms in one tower. Another adjacent tower will have 200 branded residences with exclusive concierge and butler services for its residents. The management of these residences might go to another brand, the person added. The construction of the mixed-use project is expected to be finished by early 2015, has been given to Samsung C&T Corporation that has built some of the tallest buildings in the world, including Burj Khalifa in Dubai and the Petronas Towers in Kuala Lumpur. The hotel is part of a larger project that is being developed by Oasis Realty, a joint venture between Oberoi Realty and Sahana group for a slum rehabilitation project in Worli.

• Coke tanks up juices portfolio to take on PepsiCo: The cola battles are now spilling over to the juices category with more Indians opting for healthier drinks. Just a few months after Pepsi-Co launched a powdered version of its juice brand Tropicana, Coca-Cola is broadening its Minute Maid 100% juice portfolio by introducing a new flavour in Guava and strengthening its retail and distribution push in order to take on the well-entrenched players in the packaged juice market. Coca-Cola entered the pure juices market dominated by arch-rival PepsiCo’s Tropicana and Dabur’s Real two years ago but has not been able to dent the their market shares. The Atlanta-based beverage major is now looking to rev up its non-carbonated portfolio in its push to provide offerings all year round to consumers and not have its sales skewed to the summer season, traditionally the peak time for cola companies. The world’s biggest beverage maker also sells the mango juice-based drink Maaza along with the fruit-based Minute Maid Pulpy Orange and Nimbu Fresh in the Indian market. The Rs 5,000-crore Indian non-carbonated beverage market comprises pure juices and fruit based drinks. According to market research firm Nielsen, the overall juice category clocked a growth of 23% in April 2012 to March 2013. Of this, the premium range, which is 100% juice, is estimated at Rs 1,500 crore.

• Sunil Mittal to step down from Unilever’s board: Bharti Enterprises Chairman Sunil Mittal, who had joined Unilever Plc’s board in 2011, has decided to step down. He is not seeking re- election as non- executive director at the firm’s annual general meeting (AGM) in London on May 15. According to Unilever, lack of time is the main reason for Mittal’s departure from the board. A Unilever spokesperson said: “Mittal has decided not to seek reelection because he can’t devote sufficient time to Unilever, with current executive responsibilities elsewhere.” After RIL Chairman Mukesh Ambani recently stepped down from the board of Bank of America (BofA) as anon- executive director, this is going to be the second high- profile exit from a global firm’s board by an Indian this year. Ambani has moved to the bank’s global advisory board and is not seeking re- election in the AGM, to be held next month. A non- executive director’s position has fiduciary duties, too, while an advisory board does not attract any such responsibility. Ambani had cited personal reasons to quit the BofA board. Among similar prominent exits, Tata group’s former chairman Ratan Tata had quit the board of Fiat Spa last year. But he continues to be on the board of aluminium major Alcoa. Corporate watchers say, it had become difficult for Mittal and Ambani to devote time to the board duties of foreign firms, especially since their respective businesses had been growing with global acquisitions and local expansion. Lack of time was cited as the main reason for Bharti Chairman Sunil Mittal’s exit from the Unilever board.

• Carrefour set to review India plans: French retail chain Carrefour could review its plans to set up stores in India, if some of the “tough” policy riders are not relaxed. The € 80- billion chain, the second- largest in the world after Walmart, is learnt to have sent feelers to the French government, as well as some key Indian ministries, expressing its “ reluctance” to invest here due to uncertainties around the foreign direct investment (FDI) policy for multi- brand retail. The Cabinet had in September last year cleared the policy, allowing up to 51 per cent FDI in multi- brand retail. But, despite the high level of interest in the $ 500- billion Indian market, foreign chains have yet to come up with proposals, as some guidelines “lack clarity” and, they claim, are tough to comply with. Among the norms making global players jittery are the 30 per cent mandatory sourcing from small and medium enterprises, at least 50 per cent investment in back- end infra and state- wise approvals. The government’s stand on not allowing FDI in e- commerce is also seen as a hurdle, as most foreign chains have been pushing the online format to cut cost and beat competition. According to highly- placed sources, the French retailer, which was keen to expand India footprint from being just a cash- and-carry (wholesale) player, is now “going slow” and might even decide to “review” its investment plans, if things didn’t go according to its expectations. Top Carrefour representatives, in their meetings with the government, are learnt to have demanded certain significant changes in the policy. To address foreign retailers’ concerns and to woo them back, the commerce ministry is understood to be planning to issue a comprehensive clarification. Asked if the company was reviewing its India plans and had conveyed its disappointment to the French and Indian governments, Carrefour’s India spokesperson said the company had “ no comments” to offer. Besides India, where it only has cash and carry operations, Carrefour is present in two other Asian markets — China and Taiwan. As of December 2012, it had 218 hypermarkets in China and 61 hypermarkets and three supermarkets in Taiwan. Over the past few months, it has withdrawn from key Asian markets like Singapore, Malaysia and Indonesia, to reduce debt and generate cash flow. Among other geographies, it has exited from Colombia and cut stake in Turkish business, triggering speculation it might withdraw from there, too. In India, Carrefour runs a fully- owned cash- and- carry business, with four wholesale outlets — one each in Delhi, Jaipur, Meerut and Agra. It has yet to identify an Indian partner for retail operations. On the other hand, the US’ Walmart, which has 20 wholesale outlets in India under a 50: 50 joint venture with Bharti, is expected to extend the partnership for frontend retail, too. The UK’s Tesco has a franchise agreement with the Tata group for back- end and wholesale; these two are also likely to extend the partnership for retail.

International:

• Nawaz back as PM in Pak’s first govt change via ballot: Two-time Prime Minister Nawaz Sharif (63) was on Sunday headed back to power in the first democratic transition from one elected government to another, marking a landmark for Pakistan’s political history hobbled by frequent military dictatorships. Sharif was set to bag more than 125 of the 272 seats contested in Saturday’s vote that saw a record 60% turnout despite Taliban threats, putting him in easy reach of the winning mark of 137. He will be sworn in later this week. In addition to the elected candidates, Sharif will also get to name the bulk of the 70 nominated parliamentarians. Observers described Sharif ’s tally as overwhelming considering Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) had seriously challenged his bid for power with the promise to transform the country. The PTI managed just 35 seats belying projections that put it as a contender for power. With Sharif in office, hopes for better India-Pakistan ties soared since he has referred to improving relations as one of his missions if voted to power. Speaking to the media late on Saturday, Sharif said he had worked hard for a detente with New Delhi before Musharraf deposed him. “We’ll pick the threads from where we left. We want to move toward better relations with India, to resolve the remaining issues through peaceful means, including that of Kashmir,” he said. Political observer Imtiaz Gul said he had it on authority that Sharif had told the powerful generals that he wanted a free hand in dealing with New Delhi. Sharif has promised to investigate the ISI’s role in 26/11 besides fixing responsibility for the Kargil war. “Let there be the joint commission of investigation. Let both the countries sit together, exchange the evidence that they have. Let the investigation be conducted jointly,’’ he said in a recent interview. Days before the vote, he made an emotional speech about India while addressing Hindu, Sikh and Christian leaders. He turned towards a contingent of Indian journalists and said the two countries were once one and his mother yearned to see their house in Amritsar. He said he would visit India even if he was not invited to pick up the threads of his successful engagement with ex-PM Atal Bihari Vajpayee.

• Sears debuts lease-to-own service for large purchases: Sears has rolled out a lease-to-own program as an alternative to layaway for credit-challenged consumers on purchases of appliances, furniture and other big-ticket items. Sears tested the program in 10 stores in New York, Texas and Florida last fall before debuting it in all 900 locations this week.

• Best Buy names new chief for Five Star stores in China: Best Buy named Meng Zhou as the new CEO of its Five Star chain in China, spurring speculation that the U.S. consumer electronics retailer will continue to operate Five Star instead of selling. "Best Buy wants to keep a foothold in China. It seems that the company wants more time to realize some potential there," Kantar Retail analyst Laura Kennedy said.

• Yen breaches 100 threshold mark against US dollar: The Japanese currency has breached the 100 yen to the US dollar mark for the first time since April 2009. It broke the threshold in New York on Thursday and was trading close to 100.8 yen to a US dollar in Asia on Friday. The yen has fallen nearly 25% against the US dollar since November, after Japan unveiled a series of aggressive moves to spur growth in its economy. The drop has helped boost exporters' profits and triggered a rally in the country's stock market. The Nikkei 225 index rose nearly 3% on Friday. The benchmark index has surged more than 55% since November last year. The Japanese currency has come close to the 100 yen to the dollar mark in recent days, but has been unable to breach that level. Analysts said that on Thursday, strong data out of the US, which showed that first-time applications for unemployment insurance had fallen to the lowest level in more than five years, had helped the yen pass the mark. The data triggered hopes of a sustained recovery in the US economy, they said, resulting in investors ditching safe-haven assets such as the yen in favour of the US dollar. "A stampede out of safety and brightening US job prospects helped catapult the dollar over the key triple-digit threshold against the yen," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

• TowerBrook Capital to Acquire True Religion for $835M: True Religion Apparel Inc. entered an agreement to be acquired by TowerBrook Capital Partners in a transaction valued at $835 million. Under the terms of the agreement, TowerBrook will acquire all of the outstanding share of True Religion common stock for $32 a share in cash, representing a premium of 52 percent to the denim firm's share price on Oct. 9, 2012 before it said it had begun to explore strategic alternatives. True Religion's board has already approved the merger agreement and recommends that shareholders vote in favor of the transaction. If approved by shareholders, the deal is expected to close in the third quarter of 2013. Seth Johnson, a lead director at the denim company, said, "After a thorough review of strategic alternatives to enhance shareholder value, we are pleased to reach this agreement, which provides our shareholders with immediate and substantial cash value representing a significant premium… Having considered alternatives over a seven month period, the special committee believes TowerBrook’s $32.00 per share cash offer for the company is in the best interest of our shareholders.” Lynne Koplin, interim chief executive officer and president of True Religion said, “At this critical inflection point in our business, global growth and product development effort, TowerBrook’s support and experience will be a true differentiator. TowerBrook’s long-term approach toward investment and brand stewardship will best enable True Religion to maintain its leadership position in the marketplace.”

• Holt Renfrew Rolls Out Second Hr2 Shop: Holt Renfrew opens the second hr2 store today, advancing its program to enlarge its footprint across Canada and broaden the appeal. The one-level, 26,000-square-foot hr2 is located in the Vaughan Mills off-price center, one half hour north of Toronto. The first hr2 unit opened March 28 at the Quartier DIX30 shopping center on the south shore of Montreal. “In addition to exciting plans to expand and enhance our luxury Holt Renfrew banner, our hr2 stores offer a further channel to extend our market reach,” said Holt Renfrew president Mark Derbyshire. “Hr2 is not an off-the-rack operation. There is a clear personality and DNA to the store,” Heather Arts, vice president of hr2, told WWD. The executives described hr2 as a “premium off-price store” with about 150 contemporary and designer labels sold at 25 to 60 percent off. “Seventy-percent of the product is from the same brands that Holt Renfrew carries, but the products are not the same,” Arts explained. She also said the products are in season, and roughly half of the store would be contemporary labels; half designer.  The store sells 150 brands, including Alice + Olivia, Diane von Furstenberg, Splendid, Michael Michael Kors, Cole Haan, Ray-Ban, Seven For All Mankind, Nicole Miller, Elie Tahari, House of Harlow, Naked and Famous Denim, Anzie and Hunter. Women’s will represent about 50 percent of the volume; men’s, 20 percent, with footwear, accessories and jewelry representing the remaining 30 percent. Hr2 has a separate buying team from Holt Renfrew. A few better brands are creating “small” merchandise groups under the hr2 private label, which is currently available in men’s shirts, ties and suits and some sportswear separates. Women’s cashmere under the hr2 label is being developed for the fall.