News As We Read- 4th June'13

Thought of the Day:

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Following made the Headlines:

India:

• BCCI Will Look into Dhoni Issue: Dalmiya: Jagmohan Dalmiya, the new interim boss of BCCI, has promised to probe the apparent conflict between Mahendra Singh Dhoni’s business interests and his role as the captain of the Indian cricket team. "As far as this (Dhoni’s conflict of interest) is concerned, I have been told just now. I was not aware of it. I assure you that BCCI will look into it," Dalmiya told ET when asked about a story in the paper’s Monday edition that reported Dhoni’s extensive connection with a sports management firm that also manages four other India players. At a press conference in the evening in Kolkata, Dalmiya said: "You have to wait. BCCI will discuss the issue in its next meeting." The ET investigation generated a media firestorm with extensive follow-up reporting by television channels and websites. The story reported that Dhoni had acquired a 15% stake earlier this year in sports marketing firm Rhiti Sports Management, which was set up by his close friend and business associate Arun Pandey. This company manages Indian team players Suresh Raina, Ravindra Jadeja and Pragyan Ojha. Cricketer RP Singh, who was also named in the report said in a tweet on Monday that he is "not with Rhiti Sports". However, till mid-day on Monday the website of Rhiti Sports had his name in its client list. Commenting on Twitter, former Australian captain and cricketing great Ritchie Benaud said: “Indians just don't get ‘Conflict of Interest’. Srinivasan is bad enough, but Dhoni is just as bad." BCCI President N Srinivasan said he was focusing on his cement business. "I am on leave from BCCI. I am looking after my cement business. I have not read the story so I would not like to comment on the matter." BCCI Joint Secretary Anurag Thakur declined comment. Adding a new twist to the tale, Rhiti Sports said in a statement that Dhoni currently holds no shareholding in Rhiti Sports Management. The statement, signed by Pandey, said shareholding was allotted to Dhoni on 22.03.2013 only to secure certain old outstandings that were due for more than one year.

• Idea in Talks with Axiata to Sell Tower Business: Aditya Birla group-owned Idea Cellular is in discussions with its second-largest shareholder, Axiata of Malaysia, for selling its towers to the Malaysian company, but the deal could get stuck over valuation of assets. Two persons familiar with the development said Idea was looking to divest its 9,400 towers to raise funds for capital expenditure, licence renewals, as well as purchase of airwaves. In the past, Axiata had broached the option of a stock swap deal but Idea prefers to cash out, even at a slightly lower valuation, said one person aware of the development. A team from Axiata is scheduled to arrive in India in the next few weeks to take the negotiations further. While the two companies have been in discussions for the past many months, it is possible that the talks could convert into a concrete deal agreement during this visit. Merrill Lynch is one of the banks involved in the possible transaction. Another source said given the subdued market conditions, the deal could be undone as Idea may not get the right price.

• Paras Ex-promoters Return to Offer More Personal Care: Breakaway factions of erstwhile Paras Pharmaceuticals are slowly returning to the personal care products space one by one to take on several leading brands they built over the years before the Ahmedabad-based company was sold to Reckitt Benckiser, and to compete with each other. Devendra Patel, youngest of the three Patel brothers, has launched Layer’r brand of perfumes and deodorants, following the footprints of his brother, Darshan, who launched Vini Cosmetics in 2010. “More and more Indians are buying feel-good products,” Devendra Patel said. He pegged the domestic fragrance market at over 3,000 crore and said it’s growing 25% a year. He expects this growth rate to continue for another five years. Devendra Patel’s deodorants and perfumes along with Darshan Patel’s Fogg and 18+ will compete with Paras’ Zatak. The youngest Patel also plans to soon foray into hair care and skin care segments, where his brother’s brands already compete with Paras brands. Darshan’s Seven X cream, for example, is pitted against Paras’ Itchguard, while Jinjola powder competes with Dermicool. Marico’s former Paras brands Livon (hair detangler), Set Wet (hair gel) and Recova (anti-aging cream) too may soon face competition from either or both the Patel brothers. The brothers are no longer bound by the non-compete agreement. The eldest brother Girish Patel has moved to real estate after selling Paras Pharma to UK multinational Reckitt Benckiser in 2010. Reckitt in 2012 sold off Paras’ personal care business to Harsh Mariwala-promoted Marico.

• IndiGo a Dark Horse for Star Alliance: Budget carrier IndiGo has emerged as a dark horse for Star Alliance, a 27-airline grouping, which continues to woo Jet Airways to join it, but remains silent on its five-year-old deliberations to induct Air India into its fold. Airline groupings such as Star Alliance usually give a wide berth to budget carriers, but IndiGo, being the market leader in the Indian market, makes it difficult for any alliance to ignore it. Star Alliance is still keen on Jet Airways in spite of the airline’s recent equity deal with Gulf carrier Etihad, while it opened talks with IndiGo, alliance’s CEO Mark Schwab told ET. “We still believe that India is a big enough market and that two members of Star Alliance in India would make a lot of sense. We have more than one partner-carrier in many regions or countries in the world…We continue to dialogue with Jet. Conversation has been going on for some time and we continue to have them,” Schwab said.  Meanwhile, Star Alliance has also kept other Indian options open. “Indigo is a possible candidate. Leadership of IndiGo is probably not thinking about alliance-membership at this stage. It is a question better asked of them… We are holding on to our two-carrier desire in India. So, you have to talk to anybody who is a possible candidate, absolutely. Name a carrier in India and it is a possible candidate,” Schwab said. However, Air India, which had started the process to get alliance membership in 2008 and was put on hold in 2011 due to the airline’s financial and labour problems, has still not found headway to its dreams. The airline has already paid 10 million (. 63 crore approximately) as joining fee to Star Alliance, whose membership was expected to boost Air India’s revenues by giving it access to more traffic and destinations.

• ChrysCap Buys 14% in CavinKare for 250 Cr: Private equity firm ChrysCapital has picked up 14% in Chennai-based consumer goods company CavinKare for 250 crore. The 1,100-crore CavinKare, maker of Chik and Nyle shampoos, said the funds would be used to strengthen and expand its existing brand portfolio spanning shampoos, fairness cream, hair colours, deodorants, dairy items, snacks, foods and beverages. “The major chunk of the money would be invested in personal care and diary business,” CK Ranganathan, CMD of Cavin-Kare told ET. “Our objective is to rapidly grow the company’s brand portfolio few notches upwards across different markets. In ChrysCapital, we have found a partner who shares similar values and vision,” he said in a statement. In February, ET had reported that CavinKare, that pioneered the clutter-breaking idea of selling shampoo in sachets in the early 1980s, was in talks with private equity firms ChrysCapital, Everstone Capital and others to sell a minority stake of about 10-12%.  CavinKare has a turnover of over 1,200 crore as of fiscal 2013. The company was founded as Chik India in 1983 when CK Ranganathan started it as a single product company with 15,000 as seed capital in a small town in Tamil Nadu.

• Govt Defines ‘Group Co’ to Remove FDI Ambiguities: The government on Monday issued guidelines defining clearly the concept of ‘group company’ in the foreign direct investment (FDI) policy, which is expected to address concerns over backdoor entry of foreign retailers into India through the wholesale route. The foreign direct investment policy allows 100% FDI in cash & carry wholesale trade but puts a limit on sale by such a foreign investment funded venture to its ‘group company’. The policy, however, did not define group company. “Group company means when two or more enterprises, which directly or indirectly are in a position to either exercise 26% or more voting rights in the other enterprise or appoint more than 50% of members of board of directors in other enterprise,” the department of industrial policy and promotion (DIPP) said in a press note issued on Monday. Experts welcomed the new definition, which is in line with the one in the foreign trade policy, but were not sure how it would impact world’s biggest retailer Walmart that has a wholesale cash&carry venture in India with the Bharti group, Bharti-Walmart. Walmart owned slightly more than 50% stake in Bharti-Walmart, which has about 20 cash & carry stores in India. Majority of Bharti-Walmart sales are to Bharti Retail, a Bharti Group company that runs around 200 retail stores under the Easy Day brand. According to the rules, a FDI wholesale venture cannot have more than 25% of its sales to a group company. There were charges that Bharti-Walmart’s sale to Bharti Retail breached this group sale rule. If Bharti Walmart and Bharti Retail are considered group company, according to the new definition, then the two companies will have to reduce the volume of goods sold by one to another. FDI in multi-brand retail was banned till September last year when government allowed 51% foreign stakes. The clarity in rules will allow for better assessment of the Bharti-Walmart’s relationship with Bharti Retail, but experts ET spoke to declined to comment on the issue. Bharti Group spokesperson also declined to comment. “Now there is at least certainty where anyone can take a position depending on the given definition, but it does not make things easier for foreign investors,” said Akash Gupt, executive director, Pricewaterhouse Coopers.

International:

• G-III Shares Up on Surprise Q1 Profit: Shares of G-III Apparel Group Ltd. rose more than 7 percent late Monday after the New York-based sportswear firm surprised analysts with a first-quarter profit and lifted guidance for the year. With gross margin up 400 basis points and same-store sales rising at a double-digit clip, the company registered net income of $1 million, or 5 cents a diluted share, in the three months ended April 30. This came against a loss of $847,000, or 4 cents, in the year-ago period and the analysts’ consensus estimate for a loss of 5 cents for the just-completed period. All eight analysts weighing in on G-III’s results expected a loss. Aided by the addition of Vilebrequin last August and strong performance from its extensive portfolio of Calvin Klein licenses, sales rose 18.8 percent to $272.6 million from $229.4 million in the year-ago quarter. The consensus was for sales of $267.8 million. The strong showing prompted G-III to raise guidance for the year. It now expects earnings per share of between $3.20 and $3.30, versus its earlier expectation of between $3.10 and $3.20, and sales of about $1.57 billion, up from previous guidance of $1.55 billion. Shares closed Monday up 63 cents, or 1.5 percent, at $42.74 but rose $3.05, or 7.1 percent, to $45.79 immediately following the 4 p.m. disclosure of first-quarter results. “We saw a strong performance across a broad range of categories, particularly with respect to a number of our Calvin Klein products, and from our growing retail operations, which produced double-digit comparable-store sales increases in the quarter,” said Morris Goldfarb, chairman and chief executive officer. “Current booking activity and sell-through rates, as well as positive feedback from our retail customers on our upcoming merchandise programs, give us increased confidence in our full-year outlook.” Goldfarb cited strength in women’s sportswear, dresses, suits and handbags and said the company was on target for upcoming launches of its Ivanka Trump collection, Calvin Klein men’s and women’s swimwear and women’s swimwear under the Vilebrequin brand. “Our strategic and diversified approach to growth encompasses multiple brands, both genders and several tiers of retail distribution,” he added. On a conference call with analysts, Goldfarb noted, “This is the first time in at least 15 years that we have had a profitable first quarter,” pointing to strong outerwear sales because of the cool weather during the quarter and gross margin improvement in “our non-outerwear wholesale business and our Wilsons retail operations.” Same-store sales at Wilsons were up 12.4 percent on top of a 6 percent increase in the first quarter of last year, Goldfarb said. G-III also operates stores under the banners of Vilebrequin, Andrew Marc and Calvin Klein Performance. Overall gross margin advanced to 33.9 percent of sales from 29.9 percent a year ago.

• LVMH Counts On Lipstick as Handbag Sales Slow: Justine Le Sassier wouldn’t be caught dead buying a Louis Vuitton handbag. “They don’t have any appeal,” the 18-year-old art student said of the label’s $1,340 monogrammed handbags while shopping on the Champs Elysees in Paris. Happily for Vuitton’s owner, LVMH Moet Hennessy Louis Vuitton SA (MC), Le Sassier is crazy about the € 13.90 ($18) foundation sold by Sephora, the company’s fast-growing fragrance and cosmetics retailer. “I love their makeup,” she said. “And it’s reasonably priced.” With Vuitton’s sales growth slowing from Barcelona to Beijing, catering to beauty buyers like Le Sassier is getting more important for LVMH. As shoppers curb spending on $940 Neverfull bags while splurging on $31 Dior Addict lipsticks, Sephora will help LVMH’s Selective Retailing unit overtake fashion and leather goods as its biggest business by 2018, Sanford Bernstein estimates. That leaves LVMH better placed than rivals such as PPR SA to weather stagnating luxury demand. “Sephora is a category killer,” said Sanford Bernstein analyst Mario Ortelli. Investors concerned that sales of the Vuitton brand will keep fading are “overcautious about LVMH.” The owner of more than 60 brands — from Dom Perignon champagne to Bulgari jewelry — LVMH in April reported its weakest fashion and leather goods sales in more than three years.

• Turkish stock market falls 10.5% as demonstrations escalate: Turkey's main share index closed 10.47% down following investor concerns over the escalation of anti-government protests over the weekend. The Borsa Istanbul 100 index tumbled as investors feared the demonstrations could hit the economy, and the Turkish lira fell to 16-month lows. Demonstrators nationwide clashed with police after water canons and tear gas were used to control crowds. The protests were originally sparked by plans to build on an Istanbul park. As well as sharp falls in the stock market, there was also a big rise in the cost of insuring Turkey's debt against default. "The risk clearly is that this all just drags on. I would expect the Turkish authorities, particularly the central bank to be active in re-assuring investors," said Timothy Ash, head of emerging markets research at Standard Bank.

• Zynga lays off 18% of staff: Zynga on Monday announced it will lay off 520 employees, or 18% of its workforce, as part of an effort to stabilize finances at the struggling video game company. The job cuts will be issued across all parts of the company, and Zynga will close down a few office locations. The "Farmville" maker didn't say which offices will be shuttered, but the tech blog AllThingsD reported that New York, Los Angeles and Dallas are on the chopping block. Zynga said the "substantial" cost reductions from the layoffs will save the company $70 million to $80 million a year. Shares of Zynga tumbled 10% on the news. "None of us ever expected to face a day like today, especially when so much of our culture has been about growth," Zynga CEO Mark Pincus wrote in a blog post. "But I think we all know this is necessary to move forward." Social gaming has become so popular that it's been difficult to maintain a leadership position, Pincus added.

• Gap Inc. Updates International Plans: Gap Inc. is growing its overseas base, with four more international stores set to open later this year. The three countries where it will expand this year so far are Paraguay, Hungary and Mexico. By the end of this year, Gap expects to have a presence in eight Latin American countries: Chile, Panama, Colombia, Mexico, Uruguay, Paraguay, Peru and Brazil. The company said it expects to have a presence in Costa Rica in the “near future.” The San Francisco-based firm said it has signed a new agreement with Neutral to open the first Gap store in Paraguay later this year. Neutral is an existing franchise partner, having opened a Gap store in Uruguay last November. Gap will also open two Gap stores in Budapest through an existing relationship with Gottex Brands. Gottex is part of the Trimera Group. Banana Republic will open its first freestanding store in Mexico later this year through retail partner Distribuidora Liverpool SA de CV. Previously, Banana Republic-branded merchandise was available in a franchise shop-in-shop concept at Liverpool department stores. The store will be the first freestanding site and will carry a full assortment of Banana Republic merchandise. The company’s first franchise-operated store was opened in 2006. There are now more than 300 franchise stores around the world in 40 markets that include Asia, Europe, Latin America, theMiddle East and Australia. Currently, only its Gap and Banana Republic brands have franchise stores in operation.

• Fendi to Open in Brazil: Bikinis, flip-flops and fur. Thanks to Fendi, the latter will soon be part of the fashion mix in Brazil. The Roman fashion house, prized for its sables and inlaid minks, is to open a flagship on Wednesday in São Paulo’s Cidade Jardim, its first unit in South America’s largest country. “There’s a growing appreciation for luxury there,” said chief executive officer Pietro Beccari, noting that Fendi welcomes many Brazilian clients at its boutique in Miami — and increasingly in Paris and Rome, too. “They travel a lot and they represent a very big potential for us. They buy all categories: our bags, ready-to-wear and furs. It’s about a Fendi silhouette.” In Brazil, where the winter rarely goes below 50 degrees, selling fur coats may seem odd. Jean-Marc Gallot, managing director of Fendi Brazil, is aware of that, but believes the flagship couldn’t be launched with none of the trademarks of the brand. For the opening, almost 20 fur coats will hang on the racks. A mink coat costs 60,000 reals (about $28,000), whereas a coat made of cashmere with only short sleeves covered with sable costs 15,200 reals (just over $7,000). Beccari said showcasing Fendi’s calling card — its savoir-faire and creativity in fur — is key, and he expects Brazilian clients to be appreciative of its craftsmanship. The 3,800-square-foot unit will showcase Fendi’s complete women’s offering in a boutique design echoing its Rome palazzo with Navona travertine walls and lava stone floors. One wall of the store exalts its Selleria leather goods, with their hand-stitched details. The shopping complex is open seven days a week until 10 p.m. The Brazilian population’s penchant for color and fantasy, and happy disposition, are also echoed “in the Fendi DNA,” Beccari added.