News As We Read- 5th June'13

Thought of the Day:

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Following made the Headlines:

India:

• It’s A Big Veggie Delight as it Rains Cats and Dogs: Prices of vegetables and spices have dropped up to 20% in the past month and are likely to remain low as higher output along with the brisk start to the monsoon has calmed the market. The drop in vegetable prices, on top of the global fall in various commodities from aluminium to zinc, is good news for policymakers as stubbornly high inflation has hindered moves to cut interest rates. Expectations of higher farm output after last year’s slump would also boost overall economic growth, economists said. The fall in vegetable prices in the past month has been the steepest in recent times. Prices had shot up in previous years because of erratic rainfall, particularly in 2012 when rainfall was 30% below normal in June. “Prices of most vegetables have fallen because productivity has increased this year. Most farmers in south India and Maharashtra have used low-cost drip irrigation, raising the moisture level of the soil by 50-75%. Prices are not expected to go up this month. And if monsoon remains normal, we do not foresee prices to climb,” said Shriram Gadhave, president of the All India Vegetable Growers Association. In the wholesale market, vegetable, chana, spices and poultry feed fell 15-20% over the last weekend.

• Indians’ DZire for Bigger Cars Beats Alto: The Swift DZire has become India’s best-selling car, ending the Alto’s long stint at the top, a development that signals the preference of Indian consumers for a slightly larger car even at the entry level. The small compact sedan from the Maruti Suzuki stable outsold sibling Alto, a hatchback powered by an 800cc engine, by 854 units in May. The surge in sales of the DZire, which is much costlier than the Alto, is likely to boost the profitability and margin of Maruti Suzuki. The DZire costs 5-7 lakh, depending on the model, while the Alto is around 3 lakh. “DZire is proving us right. We had perceived five years ago the demand for compact sedan would be strong enough with customers propelling it in their pursuit to upgrade to bigger cars, which led to the creation of this new car that has emerged as such a strong product,” Maruti Suzuki COO (marketing & sales) Mayank Pareek said. The DZire is part of the compact sedan category that has emerged as the fastest-growing passenger car segment with sales rising 21% in the last fiscal to 2.26 lakh units even as the car market as a whole shrunk 7%. Other models sold in this segment are the Honda Amaze, Mahindra Verito, Toyota Etios and Chevrolet Sail. The DZire was first launched in 2008 on the Swift hatchback platform and had registered average monthly sales of nearly 10,000 units each month. But the real spurt took place when Maruti launched the second generation of the DZire in February last year. Monthly sales rose to over 15,000 units every month that peaked to over 17,000 units in recent months.

• Bata to Open Standalone Ladies Footwear Stores: Bata India, the country’s largest footwear maker, will roll out a chain of ladies footwear stores across the country within a year, its managing director, Rajeev Gopalakrishnan, has said. “The ladies shoe business is growing at more than 30% for Bata India and is going to be the next big opportunity for us,” Gopalakrishnan said on the sidelines of the company’s 80th annual general meeting here on Tuesday. The company, which has 1,250 stores across the country, aims to increase the revenue contribution of its ladies footwear business, its fastest growing segment, from 20% of overall sales at present to 40%, he added. Bata’s proposed ladies footwear outlets, which will be smaller than its flagship stores, will stock the company’s entire range of women’s shoe brands and accessories, Gopalakrishnan said. The ladies footwear market in India is dominated by the unorganised trade, which controls almost three quarters of it. Bata also plans to invest more than 100 crore this year to set up more than 100 stores and expand manufacturing capacity of its three plants near Chennai, Kolkata and Bangalore. In 2012, Bata had opened 189 new large format stores with a majority of them spread over 3,000 sq ft.

• A Perfect 10! HUL’s 1,000cr Club Swells: Hindustan Unilever now owns ten 1,000-crore plus brands after Dove, Pond’s and Clinic Plus crossed the mark in annual sales last fiscal, making it perhaps the first instance of three brands a firm joining the elite club in the same year. The trio have joined Rin, Surf Excel, Wheel, Brooke Bond, Lux, Lifebuoy and Fair & Lovely in the 1,000-crore club that accounted for more than 60% of Hindustan Unilever’s annual sales of 25,810 crore last year. The country’s largest FMCG company has three-dozen brands in its portfolio. While its largest brand, Wheel, took almost three decades to hit the 1,000-crore sales mark first in 2005, Dove has now become the fastest brand to match this feat, reaching the landmark in two decades after its launch in 1993. In fact, with sales of 100 crore in 2007, the personal care brand has grown ten times in just over five years as it transformed from a bathing bar launched in 1993 to virtually all new age categories such as conditioners, deodorants, hair-oil, body and face wash. “Dove is leading the agenda of driving premiumisation,” an HUL spokesperson said. This focus on premium offerings helped Hindustan Unilever post its highest operating margin in a decade at 20% for the year ended March 2013. No wonder, two premium brands — Pond’s and Dove —crossed the 1,000-crore mark in the same year. “The categories of the future are what we are talking about, all of them are more aspirational and more premium. If you accept the fact that the general trend is going to be uptrading and premiumisation in the market, every category will see the trend,” Hindustan Unilever CEO Nitin Paranjpe said while declaring the annual results last month. “Our job is to identify those and take steps well before it becomes obvious and imperative for everyone to act. We will benefit when the tipping point comes in any of these categories,” he said. Under Paranjpe, HUL has made a broader push upmarket in new and pricier categories that have helped the company’s share price and net profit rise to record levels five years after he took the top position.

• Emaar MGF receives 8.6k cr fine notice: Realty giant and Commonwealth Games Village builder Emaar MGF was on Tuesday slapped with a show-cause notice of Rs 8,600 crore by the Enforcement Directorate for violating Foreign Exchange Management Act (FEMA). The company is alleged to have diverted FDI money to buy thousands of acres of agricultural land in violation of FEMA and FDI rules and could face a penalty in excess of Rs 25,000 crore. Significantly, the development comes on a day the Union Cabinet approved the Real Estate Regulators Bill. Sources said the company had used a modus operandi similar to as alleged in the case of Walmart, under investigation by the ED for diverting FDI money to retail sector through various subsidiaries. Emaar MGF allegedly used a maze of subsidiaries through which it diverted FDI money — brought in for investment in construction projects — to buy agricultural land.  ED first raided 13 premises of the company here and elsewhere in 2009 in connection with the case and had seized several documents and large amounts of cash. Investigations then found that almost 70% of the company’s land bank was agricultural land. Out of over 12,000 acres of land bank with the company, close to 8,500 acres were found to be agricultural, most of which is alleged to have been bought by FDI money. The firm is also alleged to have floated over 300 companies as subsidiaries in India and abroad with several of its lowgrade employees listed as directors. Some of these companies were allegedly used to divert FDI into agricultural land bought around Delhi, Haryana, Punjab and Uttar Pradesh. Sources said ED’s investigation is now complete and after the company’s reply to the show-cause notice the matter will go to the agency’s adjudicating authority, which will decide the penalty. “In his case, the penalty can go up to three times the amount involved in FEMA violations. The company can, however, challenge the order in high court,” said an ED official.

• eBay invests an undisclosed amount in Snapdeal: Online marketplace eBay said it has invested an undisclosed sum in e-commerce firm Snapdeal and has entered into a commercial partnership with the company.  While the US-based firm did not reveal the amount of investment, market sources said the deal size may be $30-50 million, which also includes investments by a Japanese firm. "The partnership seeks to drive more consumer demand for eBay and Snapdeal merchants along with wider selection for India consumers in a rapidly growing market," eBay said in a statement. The firm, however, did not provide any more information on the deal or the investors. Quoting the Internet & Mobile Association of India research, eBay said Indian e-commerce Market is projected to grow from approximately $1.2 billion in 2012 to $1.8 billion in 2013. "The growth of online shopping in India is at an exciting phase. We chose to partner with Snapdeal due to their complementary business model, good management team and strong brand," eBay Asia Pacific Senior Vice President and Managing Director Jay Lee said.  Founded in 1995, eBay is one of the world's largest online marketplaces with over 100 million active users. Launched in February 2010, Snapdeal employs over 1,500 people and delivers to more than 5,000 cities and towns in India.

International:

• Heathrow's new Terminal 2 to open in a year: Heathrow's new £2.5bn terminal will open to its first passengers in exactly one year's time, the airport has announced. The privately-funded terminal T2 will eventually serve 20 million people a year after its opening on June 4 2014. It replaces the old Terminal 2 which was demolished in 2009. More than 20 airlines and 25,000 staff will operate out of T2, part of a construction project that includes a 1,712ft (522m) satellite pier. The project also incorporates a 1,340-space car park and a wood-chip fuelled energy centre, which will generate heat and power for T2 and T5.

• Zynga announces more job cuts and expects wider losses: Games developer Zynga has said it plans to cut 520 jobs and warned that it expects wider losses than it previously estimated. The cuts, which represent about 18% of its workforce, come after the company shed 5% of its staff in October. Zynga is one of the pioneers of social gaming but has struggled to replicate the success of its Farmville series. It said it now expects to make a loss of between $28.5m to $39m (£18.6m to £25m) in the April to June quarter. That is worse than the projection of a loss of between $26.5m and $36.5m the company had issued earlier this year. The firm also warned that sales of in-game virtual goods were likely to come in at the lower end of its estimate.

• Billabong shares plunge as takeover talks collapse: Shares in Australian surfwear maker Billabong have plunged after the firm said that takeover talks with two potential bidders had collapsed. Its shares fell as much as 58% to a record low of A$0.19 on the Australian Stock Exchange on Tuesday. Billabong had rejected a takeover bid valued at A$3.50 per share last year, but has struggled to restructure its business. It said it was discussing refinancing options with the two bidders. The two bidders are consortiums, one led by its former US head Paul Naude along with private equity firm Sycamore Partners, the other led by Altamont Capital Partners. Billabong said it was also discussing the possibility of asset sales with the two, and proceeds from any such sales would be used to repay its existing debt. "This is the worst fear that we had," said Evan Lucas, a strategist with IG markets. "They are now in the situation where they are going to have to be completely refinancing; that will obviously dilute their share price and dilute any form of debt that they've already got, which is the concern they've had the entire time." The firm also lowered its profit forecast for the financial year to 30 June.

• Authentic Brands in Hunt for Juicy Couture: It’s a two-horse race for Juicy Couture, with Authentic Brands Group in a bidding war with IDG Capital Partners for the brand, according to sources. Financial sources said E. Land Group, the South Korean conglomerate that recently acquired K-Swiss and is in a joint venture with Kate Spade in China, remains “interested” in the process, although it has not made an offer for Juicy and is not expected to. That means E. Land is hoping to either join forces with one of the bidders or work on a licensing deal with the ultimate buyer. Some sources believe IDG could be looking for a partner. IDG is venture capital backed, and is focused on investments in China that are VC or private equity related projects. The typical IDG investment is between $1 million and $100 million. Both Juicy Couture and Kate Spade are owned by Fifth & Pacific Cos. Inc., which is also looking to sell the Lucky Brand Jeans division. As reported, that sale is also between two bidders, one of which is said to be Jos. A. Bank Clothiers Inc. and the other global private equity firm Advent International. One of Advent’s operating partners is Jenny Ming, now president and chief executive officer of Advent portfolio company Charlotte Russe. She previously was president of Old Navy and a member of the original executive team that founded that Gap Inc. division. Executives at Advent could not be reached for comment.

• DVF Taps Eran Cohen as CMO: Diane von Furstenberg tapped Eran Cohen as chief marketing officer, a newly created role that will take effect July 18. Most recently, Cohen was cmo and executive vice president for New York & Co. Inc. Before that, he was senior vice president and cmo at Collective Brands Inc.’s Payless ShoeSource division, and held senior executive positions at Gap Inc., including the Gap and Old Navy divisions, and Esprit de Corp. “His depth of experience and proven track record in innovative retail marketing will be instrumental as we continue to grow the DVF brand worldwide,” said von Furstenberg, to whom Cohen will report. At DVF, Cohen will oversee areas of global creative marketing and public relations, which include brand development and digital media strategies “Diane and her exceptional team have built an iconic brand that strongly resonates with women around the world,” said Cohen, adding that he plans to contribute to the company’s “vision of first-class marketing and industry excellence.”

• Harvey Nichols to Relocate Birmingham Store: Harvey Nichols’ 12-year-old Birmingham store will relocate and expand in size under new plans. The new store will be situated in the Mailbox, a luxury shopping destination area surrounding the site of the old Royal Mail sorting office. It will more than double in size to over 45,000 square feet and the retail space will be over six meters in height to make the most of natural daylight. Departments currently performing beyond expectations such as men’s wear and personal shopping will be rewarded with increased space allocation, whilst the store will also consider incorporating a more sophisticated hospitality offer. Architecture firm Stanton Williams is behind the design of the new shop. An opening date is yet to be announced.

• Neiman Marcus Profits Rise 13%: Whether Neiman Marcus Inc. gets sold or goes public this year is anyone’s guess. Yet one thing is certain — business isn’t bad at all. On Tuesday, the Dallas-based Neiman’s said third-quarter profits rose 13 percent to $70.8 million from $62.6 million a year earlier. Neiman’s revenues for the three months ended April 27 rose 3.8 percent to $1.1 billion from $1.06 billion. Comparable sales increased 3.6 percent. Those numbers — and the fact that there were several strong performing categories last quarter, notably women shoes, designer handbags, beauty and men’s wear — put Neiman’s in a positive light. But women’s apparel, which has been up and down at the retailer for several seasons, was not cited as a winner. Weather and moderate consumer demand could have impacted some merchandise areas. Tax breaks for the wealthy being rescinded and a potential stock market correction could also factor into Neiman’s performance. During a conference call, executives emphasized advancements in technology, omnichannel initiatives, remodels and business overseas, though there was no word on the company’s future as it pertains to ownership. TPG and Warburg Pincus bought the company for $5.1 billion in 2005. Sources said investors are working with Credit Suisse to explore a sale or an initial public offering.