Daily News Digest- 4th July'14

Thought of the Day:

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Following made the Headlines:

India:

• MasterCard & Visa Face Big Assault from Govt's RuPay: For the first time in their 30-year existence, Visa and MasterCard, the world's largest payment companies, are facing the heat in India. Lending its weight behind the local card scheme, RuPay, the government has asked state-owned banks to issue RuPay debit cards to customers. In a communiqué to banks last week, Gurdial Singh Sandhu, secretary at the finance ministry's department of financial services, “urged“ CEOs of public sector banks to issue RuPay cards to all existing customers who do not have debit cards as well as to new clients. Banks have also been told to “encourage“ merchant establishments to install point of sale terminals for RuPay cards, two banking sources told ET. While banks have not been instructed to refrain from issuing cards where transactions are processed by Visa or MasterCard, there is a clear direction to promote RuPay. Customers are typically issued a single debit card per account and banks will have to pursue the unconventional practice and possibly tweak systems to issue two debit cards to a client who insists on a Visa or MasterCard that currently have greater acceptance than RuPay. RuPay was launched by National Payments Corp of India (NPCI), set up to function as a cost-effective payment services entity. Responding to ET's query on whether PSU banks could lose rich and more brand conscious customers to private banks (which have not received a similar direction from the finance ministry), AP Hota, MD & CEO of NPCI, said, “Such fears are unfounded. RuPay is a fully functional card payment system. We are also launching Platinum cards for HNI customers.“ “I’m not aware of the ministry’s communication to banks. But as I understand, the government’s focus is to promote financial inclusion,” said Hota of NPCI. For banks, it’s a mandate they will have to fulfil. Within the next six months they will have to offer the new debit card to existing customers, inform thousands of branches and submit progress report to the ministry every quarter. It’s not unusual for countries and governments to support local retail payment networks that offer the software backbone and process card transactions. Countries such as Singapore and Brazil have their local payment companies while China disallows foreign payment firms to process domestic card transactions. But industry sources said an absence of a level playing field may worry global players such as Visa and Master Card.

• Coffee Day Gears up for Rs 1.5k cr IPO: The holding company of Café Coffee Day, India's biggest café chain, is gearing up to mop up 1,200-1,500 crore through a proposed IPO in about nine to 12 months. The domestic listing will see the holding company, Coffee Day Resorts, sell 10-15% for $150 million 900 crore), valuing the group backed by KKR at about $1 billion.

• India is Coca-Cola's 6th Largest Market Now: India has become the sixth largest market for Coca-Cola by volume sales, overtaking Germany as low price points and wider distribution helped the world's largest beverages maker increase sales in the second-most populous country. Coca-Cola India now trails the US, Mexico, China, Brazil and Japan after overtaking 13 global markets since 2006 when it was ranked 19th, Coca-Cola has posted on its website. Coca-Cola India now contributes 12% of the company's AsiaPacific region volume sales. Ventakesh Kini, president at Coca-Cola India and South West Asia, said there is still huge potential for growth in India. “In terms of potential, we have just scratched the surface....only a quarter of India's population has had our beverages,“ he told ET. India is a top market for Coca-Cola's rival PepsiCo as well. While a PepsiCo India spokesman on Thursday declined to comment on India's contribution to its global sales, the beverages and snacks maker had last year claimed that India was a top five market for the firm globally. But this is not strictly an apple-to-apple comparison as PepsiCo's numbers include its snacks business, which is a faster growing business than beverages for the firm. Coca-Cola India, which sells Thums Up, Coke, Sprite and Fanta, accounts for 56%-57% of the 14,000-crore Indian soft drink market. PepsiCo, whose products include Pepsi, 7UP and Mountain Dew, accounts for 35%-36%, according to two industry officials quoting Nielsen data. With growth in mature markets like the US and Europe drying up owing to the economic slowdown and consumers turning away from sugary sodas towards healthier drinks such as tea, India is seen as a key growth bastion for both the US firms as soft drink consumption in India is among the lowest. Per capita consumption of CocaCola products in India, for example, is just 14 bottles per year, compared to the global average of 94. Coca-Cola sold only 710 million unit cases of beverages in India last year against 5.5 billion unit cases in its home market US where the population is just around one-fourth of India’s. The Atlanta-based firm has targeted India to be a top 5 market by volumes by 2020. But its sales growth in India has slowed down to single-digits in recent quarters. Coca-Cola’s volume growth slowed to 6% during January-March 2014, compared to 8% in the year-ago quarter.

• AirAsia to Speed up Fleet Addition, but may Miss the Break-even Date: Budget carrier AirAsia India will accelerate its fleet induction plans on high passenger demand and its founders will put in excess of $200 million into the airline every year, Tony Fernandes, the CEO of its parent, said on Thursday. But the airline will miss its break-even target of four months, senior executives said. Fernandes, who was in Bangalore to “celebrate” AirAsia India’s launch, said the airline will now have six planes by December. Its earlier plan was to end the year with four, said AirAsia India CEO Mittu Chandilya. “We need to accelerate our plane induction plan. Our load factors are great. The response is very impressive,” said Fernandes. AirAsia started operations on June 12 and currently flies to Chennai, Goa and Kochi from Bangalore. It now operates one Airbus A320 plane.Scaling up is crucial for AirAsia to compete against bigger rivals such as IndiGo and SpiceJet as low-fare carriers currently control 57% of the Indian passenger market. AirAsia's low fares are fast matched by rivals and passengers would go to an airline which has higher flight options.The airline is a tripartite joint venture between AirAsia (49%), Tata Sons (30%) and Arun Bhatia, a private investor who owns Telestra Tradeplace (21%). It started with an initial investment of $50 million. Fernandes later said the founders would every year invest $200 million to $250 million in the airline.

• Emami on Hiring Spree: Emami has roped in former Britannia employee Shridhar Panshikar as its sales president in the latest of a series of senior-level appointments undertaken by the Kolkata-based consumer products maker to spearhead an aggressive growth plan. At a time when a slowdown in consumer demand has made most marketers cautious about their expenses, the maker of Boroplus antiseptic cream and Zandu Balm pain reliever has been inflating its salary bills by going on a hiring spree. Promoters say these are strategic recruitments aimed at catalysing growth. “These are all investment for us to implement the expansion plans. Couple of more senior executives would join the company soon,” said Harsha V Agarwal, director at Emami. He said Emami — which recently ventured into deodorants and women hygiene space with ‘He’ and ‘She Comfort’ brands — plans to enter into more categories. “There are several high-growth areas in personal care and healthcare which we want to enter,” Agarwal said. Emami has hired more than half a dozen senior executives in recent months, even as Emami CEO (sales, supply chain and human capital) Krishna Mohan has put in his papers. The firm’s recent high-level appointments include consumer care division CEO Neeraj Chandra, who was Britannia’s COO, and senior VP for media buying and planning Bashab Sarkar who was earlier the managing director at media agency Maxus. Emami has also roped in a number of senior officials from the country’s largest FMCG firm Hindustan Unilever, including HUL’s erstwhile chief of innovation, technical and planning Mohan Panchabhai, who is now president (operations) at Emami, and former HUL director (IT) KS Arun Kumar who has joined as president (IT) with a target to automate and improve supply chain operations of the company. The company has also appointed some senior Unilever veterans as its advisors.

• BlackBerry Plans Healthcare Services Platform in India: After losing ground in the smartphone race, Canada's BlackBerry is attempting to make a dent in the internet of things space by launching a healthcare service that will integrate thousands of medical devices to enable early detection of illnesses. The company will soon announce the launch of a connected healthcare service in partnership with US-based healthcare technology firm NantHealth as it looks beyond smartphones in the Indian market, one of the few where BlackBerry's revenue is still growing. The NantHealth platform is currently installed at about 250 hospitals globally, and connects more than 16,000 medical devices collecting more than 3 billion vital signs annually. “Work has started on it but we haven't finalised an official launch date,“ said Sunil Lalvani, managing director, BlackBerry India. “We are running trials with multiple hospitals in India. It includes integration with different hospital information systems as well as various medical equipment.“ Healthcare providers in India are expected to spend $1.08 billion (about 6,400 crore) on IT products and services in 2014, a 4% increase over the previous year, according to brokerage Equentis Capital. NantHealth's Clinical Operating System (cOS) platform integrates the knowledge base with the delivery and payment systems, and with BlackBerry's QNX embedded technology, it combines secure cloud-based and supercomputing services to provide data integration, decision support and analytics. BlackBerry bought a minority stake in the privately held NantHealth in April to enter the con nected healthcare space. Medical equipment, such as scanners, dopplers and ECG machines, are among thousands of medical devices that can be integrated using cOS along with BlackBerry's QNX. QNX, bought by BlackBerry in 2010, is an operating system, which the company used as a foundation for its revamped BB10 platform. QNX commands a 53% marketshare in automobile infotainment systems, where it has been used in over 200 models of cars, including those made by Ford, Mercedes, Audi and BMW, according to market research firm HIS. Apple's recently announced platform for cars, CarPlay, also utilises QNX.

• Preetha to Succeed Prathap C Reddy at Apollo Hospitals: Apollo Hospitals founder chairman Prathap C Reddy on Thursday said his daughter Preetha Reddy is likely to succeed him as the chairman of the group. “As things stand today Preetha is most likely to succeed me as Chairman,“ Apollo Hospitals Group chairman Prathap C Reddy said. He also said the ownership shares of the Apollo Hospitals is divided equally and there was no change in Preetha Reddy's shareholding. Preetha Reddy was elevated as the executive vice chairperson of the group on Wednesday.

• Jet Airways Expands Codeshare Pact with Alitalia: Jet Airways on Thursday said it has expanded its codeshare pact with Italian airline Alitalia, which offers passengers of the two carriers enhanced network connectivity across cities of the two countries. The new code-share flights are on sale from July 1, for travel starting from July 5, Jet Airways said in a release. Codeshare is a commercial agreement between two or more airlines that share the same flight, with all partners able to sell seats on that flight.

• Tatas' First CTO Will Have to Steer Group to Digital Core: When Tata Sons chairman Cyrus Mistry hand picked a technology veteran from General Electric as the group's first chief technology officer earlier this week, it underscored the role that software and digital technologies would have in shaping the group's future. The $100-billion (Rs 5.9 lakh crore) group, which has a presence across sectors such as cars, steel and power plants, had on Monday named Gopichand Katragadda, a GE veteran of around 12 years, as group chief technology officer reporting directly to Mistry. Mistry, according to those close to him, is looking at the way GE has put software at the core of its transformation, connecting physical machines with digital networks that track usage patterns and offer insights. “The role indicates Mr Mistry's emphasis on R&D, innovation and harnessing of synergies among group companies,“ a Tata Sons spokesperson said. The move is also a signal that the Tatas want to embrace industrial internet (connecting physical machines to digital networks) and other digital technologies across businesses ranging from steel, power, cars and salt, similar to how GE's Jeff Immelt is pushing for “a digital heart“ in the US-based conglomerate. It's not that there's a lack of software expertise in the Tata group, especially with India's largest software company Tata Consultancy Services under its fold. “But the core engineering and research expertise can only come from leaders who have worked at conglomerates such as GE,“ said a senior executive at one of the Tata companies. Globally, the lines between software and hardware are blurring with carmakers such as Ford scrambling to provide a smartphone-like experience in their vehicles and manufacturers fitting sensors on their machines to collect data that can be converted into valuable insights.

International:

• Lululemon Jumps on Report Wilson Talking to Private Equity: Shares of Lululemon Athletica (LULU) were rising Thursday after The Wall Street Journal reported that founder Dennis "Chip" Wilson was talking to private equity firms about taking the yoga apparel maker private. Firms that Wilson had reportedly been talking to included Leonard Green & Partners, the newspaper reported. No deal had been reached yet but as the Journal points out, Wilson is "actively exploring options as he seeks to exert more influence over how Lululemon is run." Lululemon jumped as much as 5.6%. The shares have lost 28% this year. A deal to take the Vancouver-based company private, however, would be expensive, considering that investors would expect a premium to its $7.5 billion market capitalization. As TheStreet's sister site The Deal has emphasized, private equity firms tend to steer away from companies that trade much above 7 times Ebitda, particularly in the cyclical world of retail.

• FAA shoots down Amazon's drone delivery service Amazon Prime Air: The US Federal Aviation Administration (FAA) this week issued a report that would affect Amazon's proposed drone delivery service, called Amazon Prime Air. The report clarified between recreational drone use and commercial use masquerading as hobbying. "Clearly, commercial operations would not be hobby or recreation flights," the FAA said. Many in the media took this to mean that the FAA was denying companies like Amazon the right to use drones commercially. But Amazon doesn't think the ruling pertains to what it's trying to do. "This is about hobbyists and model aircraft, not Amazon, and has no effect on our plans," said Paul Misener, Amazon's VP for global public policy. Another Amazon spokesperson said that the FAA was working to create rules around commercial drone use. "Turns out, reports that the ruling affects Amazon's plans were incorrect, including one in the PSBJ that has since been removed from our website," the Pugent Sound Business Journal's Emily Parkhurst writes. Parkhurst's claim that the media misinterpret- ed the FAA's report is somewhat undercut by the fact that her organisation was among those to "misinterpret" it. "The interpretive rule we released recently had nothing to do with commercial operations," said Laura Brown, the FAA's deputy assistant administrator for public affairs. So while it may be true that the FAA didn't "shoot down" Amazon Prime Air, the point re- mains the same: commercial drone operations are the exception to the rule, not the rule.

• Demand for Amazon's new phone appears to be tanking: Amazon's first smartphone isn't officially available for sale until the end of the month, but it looks like consumers may already be losing interest. The phone has plummeted all the way down to #68 on the online retailer's list of best-selling electronic devices. Two days after Amazon unveiled its first smartphone, the Fire Phone sat close to the top of the list comfortably at #4. At the time of writing, the 32GB version of the handset now places at #68. The 64GB version doesn't place on the top 100 list at all. The AT&T exclusive phone is already available for pre-order and will officially hit stores on July 25. It's unclear exactly why consumers have seemed to lose interest the Fire Phone based on Amazon's rankings, but some speculate that pricing may be a factor. The 32GB model sells for $199 on a two-year contract, which is the same price as a 16GB iPhone 5s and Galaxy S5. Although Amazon is offering double the storage space, some expected Amazon to be more competitive with its pricing for the Fire Phone, as Seeking Alpha notes. That being said, the Fire Phone is still faring strongly compared to other smartphones being sold on Amazon. It currently ranks as #2 in the Contract Phones category, falling right in between the Galaxy S5 which takes up five spots in that category's top 10.

• Facebook Acquires Video Ad Company LiveRail: Facebook is acquiring video advertising company LiveRail in its latest step to make video ads a bigger part of its business. Facebook did not disclose a price for the San Francisco-based company which was founded in 2007. LiveRail's technology automatically pairs video ads with the videos that appear on many websites, such as the sites for Major League Baseball, ABC and A&E Networks. Facebook would not discuss plans for using the technology on its own website. In March, Facebook began offering 15-second video ads from a limited number of companies on its social networking website.

• Dow Jones Industrial Average hits 17,000 for first time: The Dow Jones Industrial Average has closed above 17,000 for the first time, buoyed by investor confidence about the global economy. The US stock index, which is made up of some of the biggest global firms, rose 92 points to finish at 17,068. Investors pushed shares higher after a better-than-expected jobs report showed the US economy added 288,000 jobs in June. Overall, low interest rates have led investors to pour money into stocks. That has pushed US indexes - including the S&P 500 - to new highs in 2014. On Wednesday, the Dow closed at its 13th record high for the year, while the S&P 500 hit its 24th closing high for 2014.

• Facebook still won't say 'sorry' for mind games experiment: Facebook can't seem to bring itself to apologize for performing psychological experiments on its users. In her first public statement on the matter, Facebook Chief Operating Officer Sheryl Sandberg said that the outrage over the company's controversial study was all a big misunderstanding. "This was part of ongoing research companies do to test different products, and that was what it was. It was poorly communicated," said Sandberg at an Indian Chambers of Commerce event in New Delhi on Wednesday. "And for that communication we apologize. We never meant to upset you." Internet users were angry earlier this week when Facebook revealed that it intentionally made a subset of its users less happy during a week in 2012. As part of the study, Facebook changed the mix in the News Feeds of almost 690,000 users. Some people were shown more positive posts, while others were shown more negative posts.

• Lew Frankfort's Role at Coach Inc. Shifts to Part-time: Lew Frankfort’s role as executive chairman of Coach Inc. is moving to part-time from full-time and his salary to $500,000 from $1.5 million. In a disclosure with the Securities and Exchange Commission Wednesday, Coach said Frankfort, who also served as the company’s chief executive officer from 1995 until earlier this year, began working in a part-time capacity on Tuesday. As amended, the revised contract will be in force until Coach’s annual stockholders meeting, scheduled for Nov. 6.  Under the terms of the amended agreement, Frankfort won’t be eligible for either bonus or equity compensation. The changes, according to the filing, don’t imply a change in Frankfort’s role as chairman. They were described as “voluntary” and not in any way implying “a termination without cause or [resignation for] a good reason” as defined by the original contract signed in 2003. Under terms of his new deal, Frankfort is expected “to provide a level of bona-fide services...that is more than 20 percent of the average level” provided over the last 36 months. The filing’s only reference to his retirement is that it is to come at a “to-be-agreed upon” date. The former Coach ceo, who was succeeded by Victor Luis in January, is unlikely to have difficulty keeping busy. He made a strategic investment in spin club operator Flywheel Sports in 2012 and also has had investments in J Brand, BodyArmor sports drinks and, according to reports, Tequila Avión. Meanwhile, Luis has had a challenging first year as ceo. At an investor conference last month, the New York-based accessories firm revealed plans to close 70 full-price stores and revamp its outlet business as it confronts double-digit declines in revenues and same-store sales this year. In the nine months through March 29, net income fell 13.2 percent to $706.1 million, while sales were down 4.7 percent to $3.67 billion.

• Fendi to Pop-Up in SoHo: Fendi is adding a playful pop to SoHo. On Saturday, the Rome-based house will open a temporary store at 122 Greene Street, on the corner of Prince Street across from the Apple store. It features a concept that is unique to Fendi in the way it nods to SoHo’s industrial aesthetic and rotates themes each month until the pop-up closes its doors on Dec. 31. “SoHo is one of the most vibrant shopping destinations in the world for local and international customers,” said Fendi chairman and chief executive officer Pietro Beccari. “It is important for Fendi to secure its presence here and we are fortunate to have the chance for the next six months.” The 630-square-foot store interior is inspired by an amusement arcade replete with merchandise shown in customized Fendi vending machines, with handbags hanging from mechanical claws, for example. “Another exclusive element is a special space dedicated to one-of-a-kind accessories; unique pieces that clients will be able to find only there,” Beccari said. The interior’s exposed brick walls, original parquet floor and neon “Fendi Soho” signs capture the neighborhood feel. The first theme will be “Minis” with several small versions of such Fendi handbag styles as 2jours, Peekaboo and Selleria. “Specific temporary locations with captivating concepts give a fresh energy to the brand, capable of also attracting a younger clientele,” Beccari said. “This pop-up gives us the opportunity to reach new customers and welcome our clients in a unique environment highlighting an exclusive selection of our most iconic products.” The U.S. demand for Fendi is strong, according to the executive, and there could be more temporary concepts down the line. “We plan to continue expanding organically in a variety of ways based on opportunities,” he noted.

• FiveT Capital Cuts American Apparel Stake: FiveT Capital decided not to stay around for the fight over American Apparel Inc. The Zurich-based investor sold off 14.9 million shares of the company last month for $10.1 million, according to a regulatory filing today. Most of the stock sales occurred after the company ousted founder Dov Charney as president, chief executive officer and chairman, for alleged misconduct. Charney has teamed with investor Standard General and together they control about 44 percent of the company. The former ceo has called a special shareholder meeting to reshape the board and is also fighting his dismissal in arbitration. Shares of the stock rose 4.8 percent to 87 cents today, giving the company a market capitalization of $150.9 million.