News As We Read- 2nd July'13

Thought of the Day:

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Following made the Headlines:

India:

• Marquee Names Lining up to Enter Bank Street: Tata Sons, IDFC, India Post and Suryamani Financing are among the 26 entities seeking a bank licence which the Reserve Bank of India said will be granted only to a few even if everyone meets the guidelines. The aspirants include the Aditya Birla Group, which has interests ranging from telecom to aluminium, and Reliance Capital of Anil Ambani — which has presence in power and roads, besides financial services. Lesser-known names such as Suryamani Financing Co from Kolkata (owned by Dunlop Tyres’ Pawan Ruia), auditing firm INMACS Management Services and Smart Global Ventures, Noida, have also thrown their hats in the ring, applicant names published on the RBI website show. “Of the 26 applications, the RBI can easily eliminate 17-18 and of the 7-8 considered, the central bank will give out 4-5 licences,” said Ashwin Parekh at consultants Ernst & Young. “Guidelines were very onerous to apply and under the current structure, scope for niche or specialised banking is restricted.” Submission of applications ends a 10-year drama of permitting more banks in a country where more than half the population has not walked into a bank despite nationalisation four decades ago. The list of applicants saw surprising additions and dropouts.

• Godrej Top Dog Wants to be Fat Cat in Business: Arumugham Mahendran, who signed off as managing director of Godrej Consumer Products (GCPL) last week after an 18-year innings with the group, is close to inking two significant deals worth 600-900 crore, marking his return to what he loves the most — entrepreneurially building new businesses. First, he is in talks to buy a majority equity stake in ISS Hi-Care, a pesticide services company. Mahendran had initially helped set up this business as Godrej Hi-Care in 2009. It was later renamed ISS Hi-Care, when the Godrej Group sold it to ISS, a Danish company. Sources knowledgeable about the negotiations say Mahendran, 58, is looking to complete this buyout with some strategic partners. Second, he is separately brewing another venture in the FMCG space, with a substantial upfront investment commitment from a large private equity fund, say highly placed investment banking sources. “I will be getting into the pesticides business, but for reasons of confidentiality I cannot comment on it,” he says, referring to the first deal. “It is too early to discuss anything,” he adds in response to ET’s queries on the second transaction. When asked about Mahendran’s plans in pesticide services, Godrej Group Chairman Adi Godrej said the group does not comment on such matters. But Godrej did offer some comments on Mahendran’s contribution to the group. Mahendran, who continues with the Godrej group as a nonexecutive director, is perhaps one of India Inc’s most successful ‘intrapreneurs’, or people who work as part-owners and part-managers.

• Google Ready to Trip up Travel Portals: A fledgling effort by Google portending the launch of its flight travel search service in India is creating jitters among online flight aggregators, who fear their business model is under threat. Google, whose services include Gmail and YouTube, is “very close” to introducing Flight Search in India, according to people with direct knowledge of the plan. Flight Search — first launched in the US and then in parts of Europe — lets users compare fares offered by airlines and book tickets directly from airline websites. This could, in effect, make flight aggregators such as Makemytrip, Yatra and Cleartrip redundant, industry observers said. Another website, kayak.co.in lets users compare flight options from hundreds of travel sites at once. In response, the aggregators are considering steps to protect their interests, including a possible complaint to the Competition Commission. They claim discrimination by Google when it comes to search results for queries relating to online travel. Separately, Google is the subject of investigations by the Competition Commission based on complaints that it is abusing its dominance in the country’s search-engine market. In February last year, matrimonial siteBharatmatrimony.com had filed a complaint against it.

• ‘India Slips on Global Retailers’ Most Attractive Destination List’: India has fallen to 14th position as the most attractive destination for global retailers, underperforming smaller markets such as Turkey, Kazakhstan and Armenia, according to global consulting firm AT Kearney. AT Kearney’s Global Retail Development Index (GRDI), which ranks 30 emerging countries based on a set of 25 variables including economic and political risk and market attractiveness and saturation levels, dropped India nine position from last year when it ranked fifth. In fact, the Indian market was the most attractive destination five years ago and had consistently occupied one of the top five slots in the last decade. “The cost of doing business in India because of corruption has significantly deteriorated over the past twelve months. While nobody can ignore India, it’s not easy to get their business model translate into profits even after many years,” says Debashish Mukherjee, partner, AT Kearney. This is despite the government allowing 100% FDI in single brand for the first time. Several single-branded retailers entered India in many sectors: apparel and beauty (including Brooks Brothers, Kenneth Cole, Sephora, and Armani Junior), standalone boutiques (including Roberto Cavalli and Christian Louboutin), and food (including Starbucks and Dunkin’ Donuts). Large retailers such as IKEA too are finalising their India entry strategies. Even in multi-brand retail, the government allowed 51% FDI starting early 2013 though with riders about investment, sourcing, store locations, and state government approval. Yet, multibrand players are taking a “wait-and-see” approach due to apprehensions about how the policy will be implemented. “Even if we have the most positive policy now, there is political uncertainty which has affected the ranking,” adds Mukherjee… India’s GDP growth rate slipped to 5%, down from a 10-year average of 7.8%. Same-store sales volume growth slowed in 2012 across retail, particularly for lifestyle and value-based formats.

• Hero Acquires 49% in US Tech Partner Erik Buell for $25 m: The Pawan Munjal that the media in the Capital got to meet on Monday morning was a different man — not the usually reticent, suit-attired, guarded personality. This time, the chief of the world’s largest two-wheeler manufacturer, by volume, was oozing confidence with his shirt sleeves rolled-up, and aggressive body language, which easily conveyed that he was ready to take on the competition. While announcing Hero MotoCorp’s first-ever equity purchase in an overseas company — a 49.2% stake for $25 million in its US-based technology partner Erik Buell Racing (EBR) — Munjal also outlined a slew of aggressive plans that he has already initiated, which is the imminent foray into Africa with assembly lines, spreading operations in more countries in Latin America, multiple product launches leading up to the festive season and a big splash in Delhi’s Auto Expo in February 2014. ET was the first to report on February 27, 2012, the likelihood of Hero picking up stake in the American bike maker. The company on Monday announced that the first tranche of $15 million has already been invested by HMCL, while the second tranche of $10 million will be invested within the next nine months. Its shares jumped 2.57% on BSE after the Monday morning announcement, gaining 42.75 to close at 1,705. The investment in EBR is being done through Hero Moto-Corp’s newly-incorporated wholly-owned American subsidiary — HMCL (NA). Hero MotoCorp will now have representations on the EBR board with two directors and one observer.

• Vodka sales slip after decade-long boom: India’s vodka consumption declined 3% last calendar — first fall in more than a decade — suggesting the odorless spirit’s waning honeymoon with the youth. Broader lifestyle changes of the urban middle class have prompted the young consumers to experiment with drinks or cocktails that are not just vodka-based. Fresh tipplers — those entering the legal age of drinking — drove vodka’s 30% annual growth in the last decade. Drinks giant Diageo Plc, in the latest annual report, cautioned about India’s slipping vodka sales after Smirnoff declined about 10% in 2012. The recently released International Wine and Spirits Report (IWSR) numbers showed most leading Indian vodkas posting double digit declines last year. The overall domestic vodka sales stood at 7.84 million cases (of 9 litres each) dropping from 8.05 million cases in 2011. “The youth had patronized vodka, be shots or cocktails, but now they have shifted to other categories,” said Deepak Roy, executive vice-chairman and managing director, Allied Blenders & Distillers (ABD). “Vodka had been a preferred spirit by the youth as it could be camouflaged well. Today, drinking is not much a taboo, hence you see more experimentation and shifts to other spirits and alcoholic beverages,” added Roy. United Spirits’ White Mischief and Romanov vodkas, which together have a 50% market share in value segment, saw volumes decline by 11% each. Radico Khaitan’s Magic Moments, another significant player in the same price bracket, saw growth sobering to 8% compared to almost 23% compounded rise in the past four years. ABD’s Gorbatschow vodka sales plummeted 46% in 2012, while Pernod Ricard’s brand Fuel dropped 28%, as the youth shifted preferences to traditional brown spirits and a slew of attractively imported liquors (from Mexican tequila to Brazilian cachaca to Japanese whiskeys). Tequila for one is seeing much action clocking growth figures of 32% to 34% across price categories in the last two calendars.

• Tata Coffee eyes retail market for growth: In an effort to cash in on the growing consumption of coffee in the domestic market, the Bangalore- based Tata Coffee is looking at vending solutions to offer innovative products and services. The company is already supplying coffee beans to cafes, instant coffee to Hotels, restaurants and catering (HORECA) segment, vending and various other establishments. Going forward, it plans to look at vending solutions on its own. According to the company’s Annual Report domestic coffee consumption has been growing steadily over the last several years, driven by double digit growth in instant coffee category and out of home consumption. “India will see the increased emergence of private label brands due to the increased share of modern trade. Rural markets and semi urban markets are expected to drive consumption. Freeze dried coffee is expected to form a new segment in the domestic market,” the company said. The company, however, has said health and wellness platform being appropriated by other beverages, could limit growth in coffee consumption. New technologies in vending could also increase competition in the domestic market.

International:

• Piano maker Steinway bought by Kohlberg & Co: Steinway, maker of the famous pianos, is being acquired for $438m (£288m) by the private equity firm Kohlberg & Co. The 160-year old firm had previously announced it was looking for a buyer. Steinway Musical Instruments also produces Bach Stradivarius trumpets, Selmer Paris saxophones, and CG Conn French horns, and holds more than 127 patents for musical instruments. Kohlberg will pay $35 per share, 15% more than the stock's closing price on Friday of $30.43. "Our agreement with Kohlberg represents an exceptional valuation for our shareholders," said Michael Sweeney, chairman and interim chief executive. Shares in the firm were up more than 15% following the announcement, and have risen more than 70% this year. The company, which was founded in 1853 in lower Manhattan by German immigrant Heinrich Engelhard Steinweg (later Henry E. Steinway), still has manufacturing facilities in Astoria, Queens and Hamburg, Germany. Kohlberg partner Christopher Anderson said the firm was looking to help Steinway expand globally, "while ensuring the artisanal manufacturing processes that make the company's products unique are preserved, celebrated and treasured".

• Nokia to buy Siemens' stake in NSN joint venture: Nokia has agreed to buy Siemens' 50% stake in their joint venture, Nokia Siemens Networks (NSN), for 1.7bn euros ($2.2bn; £1.5bn). The deal comes at a time when NSN has started to show profits after a series of cost cutting measures. Nokia, once a market leader in the mobile phone market, has struggled in that sector amid increased competition. It said NSN, which makes telecom network equipment, would help it grow in areas such as broadband technology. "Nokia Siemens Networks has established a clear leadership position in LTE, which provides an attractive growth opportunity," Nokia chief executive Stephen Elop said in a statement. "Nokia is pleased with these developments and looks forward to continue supporting these efforts to create more shareholder value for the Nokia group," he added. Shares in Nokia were down almost 2% in mid-morning trade, while Siemens' shares were up 0.3%. The joint venture was launched in 2007 but struggled to make profits in the early years.

• Make that 28: Croatia becomes newest EU member: Croatia formally became the newest member of the European Union on Monday, marking an end to a 10-year campaign for a Balkan state that emerged from the ruins of a bloody civil war. The celebrations began as the clock struck midnight Sunday. Fireworks lit the sky in the capital Zagreb, a choir sang "Ode to Joy" and thousands clinked champagne glasses and erupted in cheers. "Welcome to your union, welcome to our union," EU President Herman Van Rompuy told the crowd. The nation of 4.4 million people is the 28th member of the EU, and the second Balkan country that rose out of the ashes of Yugoslavia to join the union. Slovenia became a member in 2004. "Whatever anyone is saying about us, you should know we are a country of rational people who are realistic about themselves and their country, and the role of their country in Europe and the world," Prime Minister Zoran Milanovic told the crowd.

• Banking on New WTO Chief to Revive Doha: The global commerce community is pinning its hopes on new World Trade Organization director-general Roberto Azevedo to break the stalemate in the troubled and dormant 12-year-old Doha Round of trade talks aimed at lowering barriers to the international flow in goods and services worth $22 trillion annually. Azevedo, 55, a career diplomat and Brazil’s ambassador to the WTO since 2008, is slated to take the helm from incumbent Pascal Lamy on Sept. 1. “The WTO is in a very critical stage,” Azevedo said at a press conference in late May. “We have a trade agenda that we have to broaden and tackle. There are a large number of areas and issues that need to be evaluated, discussed, at the WTO. We’re not doing it, and that’s extremely worrisome, and we need to change this situation as quickly as we can. In my view, the way to do it is to ensure the negotiations move and move as soon as we can.” Former U.S. Trade Representative Susan Schwab, who served in that post from 2006 to 2009, said, “I got to know Ambassador Azevedo during the Doha Round. I was very impressed with him. He’s an exceptional talent as a negotiator, and I think will be an excellent leader for the WTO.” However, Schwab, who witnessed the collapse of Doha talks in 2006, 2007 and 2008 over differences between major advanced and emerging economies, said the job also has its limitations. “The leadership of the WTO is critically important, but the director-general alone is not going to be able to be successful if the members don’t want the organization to succeed,” said Schwab, now a strategic adviser at Mayer Brown LLP in Washington.

• Patricia Williamson Joins VF Corp.: Patricia Williamson has joined VF Corp. as vice president of global sales for the Splendid and Ella Moss labels. Prior to joining the company, she served as president of international sales at Elie Tahari Ltd. In late May, her former employer named Fabio Guidetti as president of international. At her newly created position at VF, Williamson is responsible for domestic and international sales for all divisions of Splendid, Splendid Mills, Splendid Girls and Littles, as well as Ella Moss and Ella Girl. In addition to overseeing all sales functions, Williamson will pursue new business opportunities. She is based in the New York office, but will travel frequently to the Los Angeles headquarters and domestic and international showrooms. Williamson reports to Jonathan Saven, president of Splendid and Ella Moss. Saven said of Williamson: “She understands the Splendid and Ella Moss brands and is an innovative thinker with a proven record of driving domestic and international sales.” The baseline of her role was previously handled by the sales departments, which Williamson now manages and will expand. “With her guidance, the company is streamlining how the sales divisions operate, allowing the sales teams to concentrate on the needs of our customers and pave the way for greater growth,” a company spokeswoman said.