Daily News Digest- 2nd July'13

Thought of the Day:

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Following made the Headlines:

India:

• With More Zeroes, Selloff Now a Hero: The government is drawing up an ambitious plan to sell shares in state-owned companies to raise a record amount from disinvestment this year as it looks to avert a major fiscal slippage, betting that a stock market boom and a brightening of economic outlook will lead to a blockbuster asset-sale programme. In addition, blue chip companies could be offered to retail investors at an attractive discount to persuade them to participate in the programme, widening stock market ownership. “We are looking at the quantum of discounts that could be offered,“ said a government official familiar with the plans that have been drawn up. The govern ment has in the past offered a 5% discount to retail investors in book-built offers. With disinvestment crucial to the government's pledge to deliver on fiscal consolidation in the current financial year, it would be looking to raise more than the 36,000 crore targeted in the interim budget. Experts have said that market sentiment is buoyant enough for the government to think of raising more than double the 36,000 crore in the budget set to be announced on July 10. The plan is set to begin with Steel Authority of India (SAIL) and include stake sales in Power Finance Corp, Rural Electrification Corp, NHPC, NMDC, Coal India, NBCC, MMTC and many more. The government could also ride the booming market to bring profit-making unlisted companies such as Cochin Shipyard, NEEPCO and ITPO to the market. These could be the more lucratively priced offers. Public sector stocks have been among the best performers after BJP's election victory, on the hope that the new government will provide greater support to state-run enterprises. The wider market surge has been driven by expectations the Narendra Modi government will implement policy measures that will yank the economy out of its slumber and propel it toward recovery. BSE's PSU Index has risen 18% from a day before the election result compared with a 6.3% rise in the Sensex over the same period.

• Most of India Dry, But It's Raining Big Sales at Auto Cos: Driven by excise duty benefits and heavy discounts, car sales posted their second straight monthly gain in June. Most major players, such as Maruti Suzuki, Hyundai and Honda, clocked robust sales, signaling a positive turnaround in sentiment, reports Chanchal Pal Chauhan.

• Pros Now Prefer Startup Challenges over MNC Comfort: Anuradha Narsimhan recently quit as marketing head at Britannia, the country's second-largest biscuit maker, to join A Mahendran's consumer start-up. In return, she gets a sizeable chunk of sweat equity as part of compensation. The package could be close to 15 crore, assuming certain milestones are met, said a person aware of the details. The company being set up by former Godrej Consumer Products managing director Mahendran is funded by Goldman Sachs and Mitsui Global Investment and is working on a range of products such as chocolates, snacks and beverages. Mahendran confirmed the appointment of Narsimhan, 45, who spent seven years at Britannia, but declined to give details related to compensation. “There is an element of sweat equity in senior management roles... they are here to create shareholder value for the company and themselves,“ he said. The move reflects an increasing trend-mid-level officials quitting cushy jobs at big firms in exchange for challenging assignments, stakes and equity in start-ups, or milestone-linked compensation packages. Many are giving up top jobs at high-profile companies, regarded as the pinnacle of achievement for managers, because they find their professional lives too humdrum. While the risk of failure is ever present, a start-up offers the prospect of excitement and challenge apart from a more flexible role. Aside from this, while the take-home amount may be less, dramatically high financial returns are also possible thanks to steep valuations. Nitin Dubey, 32, quit consumer goods and tobacco giant ITC to join Ola Cabs last year, then moved to Qikwell in February as vice president, operations. Qikwell seeks to put patients in touch with doctors.

• Flipkart Boss Bansal to Don Role of Delivery Boy: Amazon chief Jeff Bezos is known to encourage customers to email him directly. The company’s main competitor in India is taking this a step further. Soon customers of Flipkart could find the company’s founder and chief executive Sachin Bansal at their doorstep delivering orders. Bansal, 32, will spend a day later this month delivering to customers in Bangalore the latest in a string of customer outreach initiatives being launched by the seven-year-old company. Chief operating officer Binny Bansal has already made a start. In May, he rode pillion on an eKart delivery boy’s bike to deliver a product and pick up a returned one from a customer in north Bangalore. The Bansals, who are not related to each other, have also spent a day each answering customer calls. While one day every month is set apart for in-person meetings with both existing customers and those who have never bought from the portal. The drill is now compulsory for all top executives over 85 in number who will be expected to follow suit as Indian e-commerce firms brace them firms brace themselves for rapid growth that often leaves disgruntled customers in its wake. As the industry has grown in size from $1 billion a year ago to over $2.3 billion this year, all the top online retailers online retailers have been battling rising customer complaints. “By making this compulsory with leaders, we are trying to drive the whole customer first' message within the organisation,“ said Ra vi Vora, senior vice president of marketing at Flipkart. At fashion portal Myntra, acquired by Flipkart in May, the practice of senior staff making deliveries and taking customer calls has been standard practice for a couple of years now. “It helps us understand our customer profile better and this helps us with brand positioning,” said Sachin Arora, chief customer experience officer at Myntra, who delivered a pair of jeans to a customer in south Bangalore last month. At Delhi-based Jabong, senior employees at the director level have made deliveries when new features have been launched. However, it is not compulsory. Mekin Maheshwari, chief people officer at Flipkart, said new recruits will also be encouraged to experience last-mile delivery.

• MNCs Keen to Buy Indian Startups: In a big boost to the country's startup ecosystem, multinational conglomerates such as GE India and Cisco have indicated that they may acquire young Indian ventures with innovative technologies in the near future. Last week, GE Healthcare announced that it will open its John F Welch Technology Center in Bangalore for startups with ideas for frugal innovation in the maternity and infant healthcare space, where the number of deaths in India have been high. “Once the products are developed, we will talk to the developers on possible co-licensing or even possible acquisitions of these startups,“ said Vikram Damodaran, director of healthcare innovation at GE Healthcare India. India is a natural test bed for companies like GE Healthcare India, where both medical needs and startups are in abundance. “While technological help will be provided by a team of experts from the Massachusetts Institute of Technology, under its specialised wing CAMTech India, intellectual capital will be offered by GE,“ said Elizabeth Bailey, director at CAM Tech, Massachusetts General Hosptial, who will be organising a hackathon later this month to screen the right ideas. In a similar initiative, Cisco Investments announced that it would 240.9 crore) set aside $40 million (to invest in early-stage Indian startups and would consider acquiring them. “It is important to embed these innovations. It brings tremendous amount of shareholder value,“ said Joydeep Bose, managing director for corporate development--investments and acquisitions at Cisco. The company's fund will invest in three verticals¬¬ connected mobility, big data and internet of things. “This is new. For companies to look at India seriously, the ecosystem needed to reach a certain scale. It looks like that is happening now,“ said Ramesh Loganathan, vice president of Progress Software and adjunct faculty at International Institute of Information Technology, Hyderabad. As part of the $250 million (1,503 crore) global fund, Cisco has invested in two Indian companies ¬ Mumbai-based Covacsis, a realtime analytics platform for industries, and Bangalore-based MobStac, a mobile app developer. Besides this, it has invested in digital media start-up Qyuki in 2012. Although Cisco declined to share if the agreements with Mobstac and Covacsis included a right of first refusal clause, it said it would keep an option open.

• Govt to Encourage Startups that Meet Specific Tech Needs: Prasad: Information technology minister Ravi Shankar Prasad said there are specific gaps that technology needed to fill in the country and his government will back startups willing to take up those challenges. Lost and found technology portal for missing children, wi-fi connectivity, access to mobile phones for every village and to improve e governance are some of the challenges. “To my pleasant surprise, I learnt, I am the first IT minister ever who is interacting with the startup industry,“ Prasad told at least hundred product technology startups at an event in Bangalore organised by software product think tank iSpirt. On Tuesday, the minister attended two events organised by IT trade body Nasscom and iSpirt. Prasad said the vision of the new government is that India must be digitally connected through broadband connectivity especially villages and schools. At the iSpirt event, 10 product technology companies made presentations including mobile advertising firm InMobi, medical devices maker Forus Health and Team Indus which is making a robot land on the moon. Data visualisation software maker FusionCharts and agriculture technology firm FrontalRain also made presentations to the minister. Prasad said although Indians have done very well in IT services, innovations needs to be promoted. Today is the time to travel beyond value chain. Some players can come with ideas, where service can be given cheap, but a product is a product,“ said Prasad. “And some of the innovation I saw here I need to salute all of you.“ Prasad said the government has given him a task to connect 50,000 gram panchayats through non optical fiber network this year followed by two lakh gram panchayats in next two years. Prasad said he was distressed with the fact that broad band penetration in the county is less than Sri Lanka and Malaysia.

• Over 20% of young Indians jobless: More than 20% of Indians in the 15-24 age group were jobless and seeking work, according to startling Census 2011 data released on Tuesday. In absolute terms, this army of unemployed youth is staggeringly huge -around 4.7 crore of which 2.6 crore were men and 2.1 crore women. These definitive figures for 2011 reveal the deep and pervasive unemployment that gripped India since the past decade even as economic growth was zooming along at over 8% per annum for most of this period. The figures include the entirely unemployed and marginal workers who get work only for up to six months in a year. Overall, the unemployment rate in the 15-59 working age population was a worrisome 14.5%. In the 25-29 age group, the unemployment rate was nearly 18%. Even in the 30-34 age group, nearly 6% were unemployed, numbering over 1.2 crore. Among Dalits, the unemployment rate in the working age population of 15-59 years was a shocking 18%, much higher than the general population. Among Adivasis, the unemployment rate was even higher at over 19%. These are the two most marginalized sections of Indian society and clearly they are struggling with widespread unemployment. Inexplicably, Census authorities have not released data for 15-19 years and other such five-year age groups for scheduled castes and scheduled tribes, like it has been done for the general population. In the 15-34 age group, 21% Dalits and 22% Adivasis were reported to be unemployed. This includes the ‘youth’ age group of 15-24 years but in later years, more persons should be finding employment. One myth busted by this age-wise data on workers and non-workers is that young women do not want to work either because of family responsibilities or social disapproval. While the bulk of non-workers are indeed women, among younger women 20 to 29 years of age, the share of those seeking work is the same as for men in the same age group — slightly over 20%. This is the new generation that is relatively better educated and wants to build a better life, but the opportunities are not there. This finding is in consonance with the fact that women are getting married at a later age, and having children at an even later age than before. In urban areas, nearly 18% of the 15-24 age group is seeking work while in rural areas the share rises to over 21%. In both rural and urban areas, the share of young women seeking work is high at 17% and 20% respectively. So, young women wanting to work is no longer just an urban phenomenon.

• Defence min wants FDI capped at 49%: Putting a spanner in the industry department's plan to allow up to 100% FDI in the defence sector, the defence ministry has suggested that the ceiling should be raised to 49% from 26% -a move that is in line with the view expressed by a majority of domestic companies with interest in the sector. Sources said the ministry has expressed its view during consultations over the proposal, which was moved days after the Narendra Modi government was sworn in. The department of industrial policy and promotion (DIPP), which is piloting the proposal, is, however, averse to a limit of anything under 51%, arguing that no foreign investor will transfer technology without majority control over the Indian venture. Besides, it is of the view that by limiting the overseas investment limit at 49%, the Modi administration would only be going back to the pre-August 2013 regime, when the government allowed 26% FDI, with another 23% permitted via the FII window. DIPP's draft cabinet note had suggested that 49% FDI should be allowed in ventures without any transfer of technology. In companies where the foreign partner is willing to transfer the know-how, it proposed to allow overseas players to hold up to 74%, while 100% was suggested for companies engaged in manufacturing state-of-the art equipment and machinery, or those undertaking modernization of projects. During his election campaign Modi had spoken of greater private participation in the defence sector, something that was also stated by president Pranab Mukherjee in his first address to both Houses of Parliament after the BJP government was sworn in. In its election manifesto, BJP had said that it was open to FDI in all sectors other than multi-brand retail. In fact, liberalization of the FDI regime in some of the sectors is expected to be among the major announcements by finance minister Arun Jaitley in his maiden Budget next week. Apart from defence, DIPP has also moved a draft note for allowing FDI in certain segments of Railways. But, it has put plans to allow foreign flows in B2C e-commerce on the backburner amid fears that it would be allowing FDI in multibrand retail through the back door. Despite the defence sector being opened to foreign investment in 2001, when NDA was in power, the segment has seen overseas flow of under $5 million, which is the lowest among 62 sectors that are tracked by the government.

• FMCG cos run into growth bump in South: South India, a market which has always been used as a product testing ground by FMCG players, given its demography of a more evolved consumer, has become a tough market for these very companies. The South has grown the slowest among all regions in the last one year for the FMCG industry. High category penetrations could have led to this situation. But how does one make consumers in this developed region consume more? For one, companies are tweaking their marketing strategies to prop up growth in the South. They also see this as an opportunity to introduce premium ranges, which they believe consumers in the South would happily lap up. “The challenge for us is the South has high levels of penetration. However, there are many white spaces that we can look at for growth opportunities. Some of the segments are becoming more sizeable and thus driving those harder is an opportunity,“ said Hemant Bakshi, executive director, home and personal care, Hindustan Unilever. Nobody is taking the slowdown in the South lightly . The region's contribution is the largest among all regions. For GSK Consumer Healthcare (GSKCH), southern India contributes 40-45% of its total sales. “Some of our categories, like malted food drinks have high penetration levels in urban South. It is the most developed market and thus the head space for growth is constrained. But there is room to develop more premium offerings like Horlicks Gold to upgrade consumers, which is what we are doing,“ said Jayant Singh, executive vice president (marketing), GSKCH. The slowdown could also be because of a drought in Tamil Nadu and prolonged political unrest in Andhra Pradesh. Industry analysts estimate that the South could be growing lower (in single digits) as compared to the national average growth of 12% for the roughly Rs 450,000crore FMCG industry. “Southern India has been the worst performer among all regions,“ said Kurush Grant, executive director, FMCG business, ITC. The reason could also be because growths in the eastern belt and northern markets (including Bihar), are looking better due to base effect. “However, the reality is that southern India is still high in terms of per capita consumption and nowhere has penetration reached saturation points,“ said Grant. Playing the portfolio game -straddling price points and demand in categories -is a strategy ITC would rely on to bring growth back in the region. Godrej Consumer Products (GCPL), on the other hand, is using the innovation route to win back growth in the region. Categories/ brands which are South-centric have grown slower than those which are not Southcentric. Take hair colour, for instance. The South is mainly a powder hair colour market with a low penetration of cream hair colours. GCPL has seen this as an opportuni ty to build a market for cream colours through its Godrej Expert Rich Hair Creme, which was launched a couple of years ago.

• Papa John’s India arm eyes more stores: OM Pizza, the Indian franchisee of Papa John’s, the world’s thirdlargest pizza delivery company, is planning to open more stores in the country from 2015. The firm, owned by the Mittal family, forayed into Indian food services space by acquiring OM Pizza & Eats last year. Currently, Papa John’s runs about 20 stores across the country. Atulya Mittal, director, Avan Projects and son of Vinod Mittal, younger brother of Lakshmi Niwas Mittal, said, “ After we took over, the focus has been on consolidation. Overall, we see good progress in strengthening our core operations and the focus will be on new stores.” In the ₹ 2300- crore Indian pizza market, where Dominos holds 70 per cent share, Papa John’s holds a meagre market share, after Pizz Hut. Mittal said, “There will be more focus on opening stores from 2015. So, we have focused the first half of this year on consolidating our operations and streamlining store- level functions. We have also launched a few new products and will continue to do so.” Without disclosing further details he said, “ I can’t talk about specifics on capital expenditure or store count. But we are happy enough with the way we see our current stores performing and we are cautiously optimistic on our store opening count. We will focus on one or two specific geographies to open stores to build our clusters. In terms of new pizzas, we have an exciting line- up planned for the rest of the year. The 2015 line- up will be decided sometime later this year.” Avan Projects bought controlling stake in Om Pizza from TVS Capital for ₹ 25 crore in December 2013. During the buyout, Om Pizza had been operating 20 Papa John’s outlets with an annualised revenue of ₹ 25 crore, with expected annual cash loss of ₹ 8- 10 crore. TVS Shriram Growth Fund 1A (TSGF) had forayed into Om Pizza in December 2012 by investing ₹ 50 crore. Later, TSGF invested ₹ 20 crore more in the company, taking the total investment to ₹ 70 crore in Om Pizza. TVS Capital and the Jawad Group of Bahrain, continues to hold a minority stake in Om Pizza. Retail consultancy Technopak Advisors’ Saloni Nangia said, “Pizza has the highest market share among international quick service restaurants in current players —both international and need a strong differentiated value proposition to be able to create an impact in the market.” According to Mittal, Avan Projects does not plan to focus on ‘The Great Kabab Factory, the business bought along with Papa Johns under Om Pizza and Eats. The firm also does not have any immediate plans to diversify into other food service space in India.

• Walmart kick-starts its B2B e-commerce business from Lucknow and Hyderabad: Wal-Mart Stores has selected India for its first online business-to-business (B2B) venture worldwide, launching a website where its wholesale club members - predominantly operators of mom-and-pop shops - can place orders. The company's exiting club members in Lucknow and Hyderabad can order a wide range of products on the India-specific portal www.bestpricewholesale.co.in, it said in a news release. The products will be home-delivered within a certain distance in the two cities. The US-based retailer will watch customer response to the B2B initiative for about six months before deciding on extending online sales to all the 20 Best Price outlets it operates in eight states. "This initiative is aimed at enhancing our members' shopping experience by integrating physical and digital store presence," said Krish Iyer, chief executive of Walmart India. In the run-up to the site going live, Walmart organised workshops in the two cities to educate its members, especially kirana store owners. The online B2B business is Walmart's first initiative in India after it parted ways in October with local partner Bharti Enterprises. The world's largest retailer acquired the 50% stake held by Bharti Enterprises in their joint venture to go solo in the South Asian nation. According to Walmart, India's wholesale market is expected to swell to $700 billion by 2020 from $300 billion now. Enticed by this potential opportunity, the company plans to open another 50 cash-and-carry stores over the next four-five years.

International:

• Adidas lifts ban on sales via eBay, other online sites if they adhere to the criteria: German sportswear maker Adidas has decided to allow the sale of its products via market-place sites like eBay and Amazon, an issue the German cartel office has been investigating. "We have decided to extend our e-commerce guidelines to also include open market places: if our retail partners adhere to our criteria, there will be no restriction for online sales in any channel," Adidas said in a statement on Tuesday. Adidas had previously said it wanted its products to be sold only via expert and specialist retailers rather than eBay and Amazon to ensure they were presented "in the best possible way and in the right environment". Adidas said on Tuesday it had made the change because the functionality of e-commerce distribution channels had improved as the market had evolved. A spokesman for the German cartel office, which in April expressed concern over similar restrictions imposed by rival sportswear firm Asics Corp, said on Tuesday it was close to concluding an investigation into Adidas. The Cartel Office, which is still investigating Asics, has said the ban of the sale of its products via market-place sites amounts to a way of limiting price competition.

• Facebook faces UK probe over emotion study: A UK regulator is investigating whether Facebook broke data protection laws when it conducted a psychological study on users without their consent. The test saw Facebook "manipulate" the news feeds of nearly 700,000 users to control which emotional expressions they were exposed to. The Information Commissioner's Office (ICO) said it planned to question Facebook over the study. Facebook said it had taken "appropriate protections for people's information". "We are happy to answer any questions regulators may have," Facebook's Richard Allen said in a statement. The Financial Times and The Register quoted the ICO as saying that it would contact Ireland's data protection regulator over the issue. Facebook's European headquarters are based in Dublin.

• Brazil marks anniversary of inflation-busting currency: Twenty years ago, after decades of financial turmoil, Brazil introduced its current currency, the real, marking a turning point in the country's fight against hyperinflation. Many Brazilians still have painful memories of the period in the late 1980s and early 1990s, when people rushed to the supermarkets as soon as they received their salaries, because prices could increase rapidly the following day. Once a month, families would embark on a shopping expedition worthy of Christmas Eve, and in many homes, large fridges were kept to stock up on food. And minutes after an increase in petrol prices was announced, cars crowded into filling stations, creating huge snaking queues.

• Fernando Aguirre to Step Down as Levi's Director: Fernando Aguirre has resigned as a director of Levi Strauss & Co., effective Aug. 15. Aguirre has been a director of the San Francisco-based jeans and sportswear firm since October 2010 and serves as chairman of the board’s finance and nominating, governance and corporate citizenship committees and as a member of its audit committee. He was elected to serve three years as a director at the firm’s annual meeting in April. Aguirre was chairman, president and chief executive officer of Chiquita Brands International Inc. from 2004 to 2012 and earlier served in a variety of executive capacities at Procter & Gamble Co. He is a former director of Coca-Cola Enterprises and currently a director of Aetna Inc. and Barry Callebaut. Levi’s board has 11 members. In a regulatory filing with the Securities and Exchange Commission, the company said Aguirre’s resignation was “solely for personal reasons” and not a matter of any disagreements with the company.

• NYSE to Run Software Tests Ahead of Alibaba IPO: The New York Stock Exchange said it will hold a test run of Alibaba Group Holding's highly anticipated market debut, reflecting the securities industry's focus on risk controls after a raft of technical snafus in recent years. NYSE, owned by Intercontinental Exchange Inc, said in a note to traders on Tuesday it would allow firms to test their trading software ahead of the initial public offering of Alibaba on July 12 for a listing on the New York Stock Exchange. The Chinese e-commerce company's trading debut this summer could be the largest-ever technology IPO in the U.S., possibly eclipsing Facebook Inc's $15 billion share sale in May 2012. Facebook's trading debut on Nasdaq OMX Group's exchange was plagued with software problems as massive volumes of orders came in, setting off a chain of events that market-making firms said cost them a combined $500 million. Nasdaq, which was fined $10 million by the U.S. Securities and Exchange Commission over the problems, said it would voluntarily compensate firms that had been harmed up to a total of $62 million. NYSE regularly conducts systems testing during the weekends but it was only last October, ahead of Twitter Inc's market debut, that it opened up for an IPO simulation requested by member firms, many of which participated in Facebook's IPO. During the Twitter IPO simulation, NYSE was testing mainly for two things: To see if its systems could handle the amount of message traffic that might be generated by the IPO; and to make sure that once the IPO took place any firms that placed orders would promptly receive the reports telling them that their orders had been executed. The Facebook incident was one of a number of high-profile technology-related problems that have roiled markets and weighed on investor confidence in recent years, placing a bigger focus on operational risk by regulators and market participants.

• NPD: Plus-size Apparel Sales Rise 4.7%: A marked increase in purchases of plus-size apparel among female Baby Boomers helped lift the category to its strongest sales increase in the last three years. According to data compiled by The NPD Group, overall sales of plus-size women’s wear in the 12 months ended in April rose 4.7 percent to $17.53 billion, easily eclipsing the 1.7 and 0.3 percent increases registered in the years ended April 2013, when sales totaled $16.74 billion, and April 2012, when the figure hit $16.46 billion. The performance for the 12 months strongly outpaced the growth in overall apparel and women’s apparel sales, which rose 0.9 and 1 percent, respectively. Driving the plus-size increase was an 8.7 percent pickup in purchases by women between the ages of 55 and 64, to $4.16 billion from $3.83 billion in the earlier period, allowing that age bracket to repeat its performance from past years as the dominant purchasers of the category.