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Friday, December 9, 2016

MRP Label on Every Product is a Policy Hurdle for Ikea: Mikael Palmquist

Interview with the retail president (Asia Pacific), Ikea

Mikael Palmquist, retail president (Asia Pacific), Ikea, has been busy visiting households across Indian cities last week to understand the kind of furniture they need, from bedroom to living room and kitchen. The company wants to get it just right before rolling out the first store in Hyderabad end of 2017 and then in Mumbai within a few months. But there are challenges too and MRP labeling on each product is one such. Palmquist speaks to Karan Choudhury and Nivedita Mookerji on the India plans. Edited excerpts:  

How does India compare with other countries in Asia?

Normally we do not compare with other countries. Ikea India is for India. But then if you push me to a corner, India is super big, its 1.3 billion strong, a developing country, so of course, it is a great opportunity for us. We have a long history in this country, it is a good time to meet the customers. If we talk about revenues, China is the biggest in Asia at the moment, we have 21 stores there. In India, we have not started as yet but we have extensive plans here—we plan 25 stores by 2025. We have to be big to meet the demand in India.

How many years would it take for India to be one of the biggest markets in the region compared to China?

We cannot compare India and China, they are two very different countries. We started almost 20 years back in China but today it is a different world altogether. We started as a store only company, but now we are a multi-channel retailer where we want to have store and eCommerce. India could reach there quicker as the world has changed. 

Are there any policy challenges or regulation hurdles now in India? 

First of all, we appreciate the stakeholders on issues around FDI and eCommerce licence etc. but of course, there’s still more that can be done around ease of doing business and we think it should be more modern and open business climate. We are a company that fuels diversity and inclusion in the workplace and we believe that women should be able to work in retail business after 8 pm, to maintain diversity throughout the opening hours. We also see some of the labeling challenges in India. 

What are the labeling challenges?

To reach out to many, we have to keep the costs low. In India there is a maximum retail price (MRP) slip on every product, we are 100 per cent aligned with that. But in a modern retail society we can use things like phones to check prices on the website to maintain transparency. Labeling of items individually drives costs, we work with some of the international retailers and relabeling that has to happen in India when the products enter India is a concern. MRP is something very unique to India, in most countries today they do not have MRP marked on each product, it is mostly on the shelf or the display product, there might be a barcode or online pricing, they do not stick a label on every product. 

Are you in talks with the government to sort this out? Is there any resolution likely?

Labeling for us is a challenge as the volumes we are planning to do, to sit and label each and every product with a unique India label, which is not part of the global supply chain requires a lot of extra effort and it is unnecessary. We are talking with the government and there is an interest not only from the government but other retailers as well. The government while it is listening but nothing has come out as yet. For us, it is one of the issues where we think India would move into modern retailing very soon, and removing this is one of the steps. We are working together with other retailers in European Business Group where we have a principal positioning paper which includes this issue. We are working with CII and FICCI as well, this is not just an Ikea topic anymore.

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Tuesday, December 6, 2016

Travel Firms Offer EMI, Cashback Options to Lure Customers

Online portals say their business has not been impacted due to demonetisation

Travel firms are luring customers with discounts and cashless payment options to tide over the weak consumer sentiment this winter.

MakeMyTrip is giving attractive discounts on air tickets, packages and cashback on hotel bookings in a three-day sale beginning Tuesday.  “As a company we have been focused on driving customers to shift from offline to online for their travel bookings,” said Rajesh Magow, chief executive officer, MakeMyTrip.

Rival portal Yatra is promoting EMI  holidays (holidays booked with equated monthly installments).  While this option has been available  in the market for few years, there are few takers till now.  But, now companies are hopeful  it will do well as consumers are deferring their purchases due to cash crunch, thanks to Narendra Modi government’s demonetisation move.

“We feel EMI holiday products should pick up now ,” said Sharat Dhall, president,  “We are back to growth after few days of a decline in transactions,” Dhall said and added that there  was an increase in traffic to places in northeastern states in domestic travel space and Vietnam and Cambodia for international holidays. Foreign tourism boards including those of  South Africa and the Netherlands are seeing 25-30 per cent growth in arrivals from India this year.

“There is no significant impact on number of visa applications since November 8,” said Alexandre Ziegler, French ambassador to India. 

Online portals say their business has not been impacted due to demonetisation. TripAdvisor says it has seen a 15-20 per cent spurt in searches and travel planning compared to first two weeks of November. “We are seeing more traffic for sure. But we do not know immediately how much of these searches convert into actual bookings. We hope there will be significant 

last-minute bookings this time,” said Nikhil Ganju, country manger, TripAdvisor. Currently, about 45 per cent of all domestic airline tickets and 10 per cent of hotels are booked through online portals. Bulk of hotel bookings is sold by offline agents who have seen 10-20 per cent decline in their sales since November. 

 “Overall bookings have been relatively low  to what one would expect in a peak season. This is due to weak consumer sentiment and uncertainty,” said a senior executive of a private airline. Demonetisation  is also bringing about other changes. The move has forced offline travel agents and visa service providers to switch to electronic fund transfers for payments and expand their offerings.

Companies are seeing business opportunities in demonetisation.  Club Mahindra is advertising “cashless and hassle-free holidays” as it seeks new members. Thomas Cook is seeing a strong uptake in cashless payment options including EMI holidays and Holiday Savings product,” said Abraham Alapatt,  company's president and group head marketing.

“ We are working with our banking partners, and are in consultation with all our client governments, to introduce cashless payment solutions, including NEFT, RTGS, payment wallets, debit and credit cards for applicants., said  Vinay Malhotra, chief operating officer (South Asia), VFS Global.

VFS Global, which offers visa   facilitation services for 40 countries in India, is also accepting electronic fund transfers from travel agents and soon plans to extend the facility to individuals.
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Monday, December 5, 2016

Discounts, 100% Financing and More: Carmakers Push the Pedal Hard to Woo Buyers

Cos hint at price hike next month

"If I were in the market to buy a car, I would have bought it now," says Jnaneswar Sen, the senior vice-president (sales & marketing), Honda Cars India. Impacted by the cash crunch in the hands of buyers, car makers are doing their best to bring them back to the showrooms. From discounts to hundred per cent financing to talks of a price hike, companies are doing everything to ensure retail sales pick up this month.
"If I am not wrong, discounts are at their highest levels around this time. This, coupled with price hikes planned from next month, means that great deals can be had now," said Sen. He added that Honda is likely to announce an average price increase of 2 per cent across models starting next month. Maruti is offering cash benefits of Rs 50,000-60,000 on entry-level models like Alto and WagonR, whereas M&M is offering consumer benefits ranging between Rs 30,000 and Rs one lakh.
Japanese auto major Toyota has also said it will increase prices by up to 3 per cent from January next year. "There has been an increase in the price of raw material commodities like steel, aluminum, and rubber over the last six months and this puts a lot of pressure on us. Another factor leading to higher input cost in our case is the appreciation of the yen in the international market which has increased the cost of parts that we import from Japan," said N Raja, director and senior vice president (sales and marketing) at Toyota.
One may wonder how companies are taking a move to hike prices when retail sales at dealerships have been hit by 30-40 per cent in the last three-four weeks due to the cash crunch after government withdrew 500- and 1,000-rupee currency notes from circulation on November 9. Sen defends the move. "Cost is not always directly correlated to the demand situation".
The market situation, however, is complex and buyers remain confused. There are talks of interest rates going down as banks are flush with funds post demonetisation. Some also expect car prices to come down post implementation of GST. As a result, inquiries are taking time to convert into sales, said industry executives.
On an average 70-80 per cent of cars are bought through bank finance but the assistance was mostly limited to 80 per cent of the price and the rest had to be brought in by the buyer as margin money. Car makers, along with the banks, have introduced hundred per cent on road and ex-showroom financing for buyers on a case-to-case basis to address cash problems related to margin money and registration. Another problem comes from a decline of transactions and value of cars in the used car market where cash payments dominate. Since most car owners sell their old car before purchasing a new one, the situation in the used car market is impacting new car sales.
"The main issue here is of sentiments. With other more important obligations, car comes low on priority. I believe sales will not be lost. Buyers will postpone purchases", said Arun Malhotra, managing director at Nissan Motor India. The company is yet to take a call on raising prices from next month.
Interestingly, the problems at the retail level did not make large dent on the wholesale car dispatches of November. According to data announced by top ten passenger vehicle makers, sales (to dealers) is estimated to have grown by about two per cent last month though leading players like Hyundai and M&M posted their first decline in many months. In November last year, sales had grown over 11 per cent.
Two factors helped the growth: for many companies, the inventory at dealerships was low post the festive sales of October. Secondly, companies like Nissan and Volkswagen had a low base last year. However, managing a growth in dispatches this month could be an uphill task if retail sales don't pick up.

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Friday, December 2, 2016

Demonetisation: Organised Jewellery Firms See Growth Spurt

Almost 85-90% of transactions in the unorganised jewellery market in India take place in cash as opposed to the organised market

India's jewellery market, estimated at $45 billion (or Rs 3 lakh crore), which is 85 per cent unorganised, may see a shift due to demonetisation and introduction of the goods and services tax (GST). As Titan's Managing Director Bhaskar Bhat explains, the ban on high-value notes coupled with the GST, will compel the unorganised market to formalise.

In a conference call today, Bhat said as much as 15-30 per cent of the unorganised jewellery market could perish if they were unable to organise their businesses in the new environment. "The unorganised jewellery market could be squeezed because it will not be able to manage increased compliance," he said addressing investors on the effects of demonetisation.

Almost 85-90 per cent of transactions in the unorganised jewellery market in India take place in cash as opposed to the organised market where cash transactions are to the extent of 40 per cent. Unorganised players, Bhat said, would have to switch to credit card-based sales, as was the trend on the organised side.

Other organised players such as Orra and Gitanjali are in agreement. Vijay Jain, founder director and chief executive, Orra, said: "While the next 12-15 months will be challenging for both organised and unorganised players, in the long-term the organised market will gain from the new taxation and payment environment. What we are seeing happening to jewellery today is what happened to apparels around 20-25 years ago. At that time, you had apparel stores scattered all over, which slowly but steadily began organising themselves. Something similar could happen in jewellery."

Mehul Choksi, chairman and managing director, Gitanjali Group, said in seven years the organised market could double to around 30 per cent from 15 per cent now, a big shift given that the conversion rate from unorganised to organised prior to demonetisation was low.

Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss, said: "Small players could either become franchisees of organised chains or may simply choose to transform or reinvent themselves. My guess is that they will be associated with the retail trade in some way since jewellery as a business has been in their family for generations."

India is the world’s largest consumer of gold at nearly 700 tonnes a year, a third of the total gold mined in the world. In 2015, the government introduced a sovereign gold bond scheme that allowed people to swap their gold for an interest-bearing bond.
Additionally, it was also made mandatory for consumers to declare their PAN in the case of jewellery purchases above Rs 2 lakh.
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Thursday, December 1, 2016

Mukesh Ambani's New Year gift: Free Jio Offer Till March 2017

Move to put further pressure on incumbents

Mukesh Ambani-owned Reliance Industries (RIL) further extended the free usage period for Jio services to its existing and new customers till March 31, 2017, pushing the start of Jio’s commercial operations to the next financial year.

“Starting December 4, 2016, every new Jio user will get Jio’s data, voice, video and the full bouquet of Jio applications and content, absolutely free, till March 31, 2017. We are calling this Jio Happy New Year offer. The benefits will be available to all subscribers signing up for Jio services up to March 3, 2017,” said Mukesh Ambani, chairman, Reliance Industries, in a live video address over the firm’s social media channels to its stakeholders. Ambani further added that all existing customers under the Jio Welcome offer would automatically be signed up for the new offer on January 1, and get extended benefits till March 31, 2017.

The decision to further extend promotional services will push RIL’s accounting for both the depreciation on capital invested in telecom and earnings from this vertical to the next financial year, say analysts. They point out that the larger and adverse impact, however, would be on the incumbents.

Ambani maintained that Jio was not getting adequate points of interconnect (PoIs) from the incumbent operators and termed their behaviour "anti-competitive". As a result, he said he was unable to deliver on his promise of providing "best customer and service experience" to customers. “We have not received the required support from existing operators. In the last three months, nearly 9 billion calls from Jio customers to the networks of our three largest competitors were blocked. The benefits of Jio's superior voice technology have been denied to Indian customers due to such anti-competitive behavior of incumbent operators,” Ambani said. He expressed confidence that over the coming weeks, the voice experience would improve due to "imminent availability of sufficient PoIs from other operators".

The Telecom Regulatory Authority of India (Trai) had allowed Jio to provide free service till the end of this year for customers who subscribed to its services till December 3. The telecom regulator said today it would examine Reliance Jio's latest offer providing free 4G services for all its customers till March 31, 2017. "We will look into it. Every tariff that is filed before us is examined. We will come up with our response at appropriate time," Trai chairman R S Sharma told Press Trust of India when asked about the validity of Jio's offer.  

According to Trai rules, promotional offers can only run for 90 days. “Thus, a new scheme is more of a business call for the company,” said an analyst from a domestic brokerage firm, who did not wish to be identified.  

In September, RIL announced all Jio services would be offered free to its customers up to December 31, 2016, under the Jio Welcome offer. In order to follow the Trai guideline, Jio services were to be first offered free up to December 31, only to those customers who enrolled up to December 3. The new promotional offer will now offer free services to both existing and new customers up to March end.

Along with the extension of the Jio promotional offer, RIL will also introduce JioMoney merchant app starting Monday. “Starting December 5, every merchant can download the JioMoney merchant application. Consumers use their JioMoney wallets to pay merchants from their bank accounts and merchants can use the JioMoney merchant app to accept these payments directly into their bank accounts,” said Ambani. JioMoney looks to add 10 million small merchant retailers in the next few weeks.

JPMorgan analysts Pinakin Parekh and Sagar Sanghavi in their report on Thursday said, “Any new network, and that, too, on a large scale as RJio, would have initial network stabilisation issues, which the free period allows the company to tweak. There is a greater probability of high data consuming consumers seeing the positive aspects of RJio’s offering and signing on to it.”

Analysts see the move to extend free services a bigger negative for incumbents than RIL in the near term. “From how the stocks reacted, the move is more negative for the incumbents and less for RIL where an extension was already expected,” said an analyst from a domestic brokerage firm.

For RIL, the extension will push reporting of earnings and depreciation to the next financial year. “The financial impact is very clear; monetisation not happening beyond December is a negative impact as costs are being incurred. The earnings will start coming from the next financial year. The FY17 earnings get protected from the depreciation hit as earnings would have been lower for the two-three month period. Next year, the petchem operations’ revenue will also possibly act as a cushion. It is less likely that the entire consumer base will stay once Jio starts charging,” said Nitin Tiwari, analyst with Antique Stock Broking.

Most analysts refrained from estimating the financial impact of extending free services for another three months. “The company has not revealed the cost structure so far, so we will need to wait and see what the cost and impact of extending free services for another three months will be,” said a third analyst.  

A Bank of America Merrill Lynch report said, “Publication of Jio’s profit and loss account (costs, average revenue per user, retention ratios) - allowing some crystallisation of Jio valuations - would have been a big catalyst for the RIL stock - which is now pushed out another three months.”

Incumbent players such as Bharti Airtel, Vodafone and Idea Cellular, in turn, would now be staring at a drop in revenue during the current quarter due to demonetisation and a possible impact from Reliance Jio’s new offer. In a November 25 report, CLSA had said the extension of Jio promotions beyond December 2016 would result in the foreign brokerage lowering its forecast revenue and Ebitda (earnings before interest, taxes, depreciation, and amortisation) for incumbents by one to eight per cent for FY17-FY19.

Incumbents are expected to roll out some freebies and new offers to their customers. “The incumbent players will evaluate the offer and will see how the customers react to Jio’s new offer based on which they will decide their strategy,” said an industry executive.

Bharti Airtel, sources add, may give five to 10 per cent more per recharge to its prepaid customers. This is being done in the backdrop of demonetisation, which has impacted revenues of telecom companies and also due to RJio’s announcement. Some experts said that the impact of demonetisation on the revenues of telcos could be to the tune of seven to eight per cent.

However, independent telecom expert Mahesh Uppal said, “Demonetisation has certainly slowed down the economy and has dampened spending. However, telecom expenditure is less discretionary than others. People may reduce consumption of telecom services but cannot possibly forgo their utility.”

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Wednesday, November 30, 2016

KKR, Altico Pump Rs 435 Crore into Gurgaon Realty Project

KKR has extended Rs 120 cr for the development of the project, while Altico has pumped in another Rs 315 cr

Global investor KKR and non-banking finance company Altico Capital have invested Rs 435 crore in a residential project of SARE Homes in Gurgaon in the National Capital Region.
The township project is at Sector 92. The project is spread across 66 acres with a residential development potential of about 6.5 million sq ft. 
KKR, through its real estate-focused non-bank finance company, has extended Rs 120 crore of financing for the project. Altico has invested Rs 315 crore.

Sanjay Nayar, chief executive officer (CEO) of KKR India, said: “We are happy to extend our partnership with SARE Homes and we look forward to continuing strong performance on the project, given the high-quality developer, affordable unit configurations, and attractive location.”

KKR India Asset Finance recently lent Rs 300 crore to Puranik Builders to fund two projects in Pune. The same NBFC invested Rs 700 crore in three real estate projects last year. It included Rs 200 crore in SARE Homes' group housing project in Gurgaon, about Rs 250 crore in a township project of Bhartiya City Developers in Bengaluru, and another Rs 250 crore in a luxury residential project called Parthenon in Andheri, a Mumbai suburb.

It did its first transaction in June 2014 when it invested about Rs 350 crore in the Mumbai-based Wadhwa Group’s luxury homes project, The Address, in Ghatkopar area. 
Sanjay Grewal, CEO, Altico Capital, said: “This is a unique opportunity to participate in a large ongoing township project in the NGR — considered the fastest-growing residential micro-market of Gurgaon — with an established and credible partner.” 

The investment aims to underwrite a township development wherein the marketability has been established through sales of about 4.5 mn sq ft in the project to date, says he.
“SARE Homes has demonstrated consistent performance even during the slowdown period by delivering two phases aggregating one mn sq ft. More than 500 families are already living in the delivered phases of the project with the balance development in advanced stages of construction.” Grewal said.

SARE Homes is a top-tier pan-India developer with operations in major cities such as Gurgaon,  Ghaziabad, Mumbai, Amritsar, Indore, and Chennai. SARE is promoted by the US$5.6 bn, London-based global asset and real estate management firm, the Duet Group.
Additional marquee investors include Goldman Sachs and Kuwait China Investment Company, among others.  The Group has delivered four mn sq ft since 2006 and is currently executing more than 9 million sq ft across five projects. 

The Group has delivered four mn sq ft since 2006 and is currently executing more than 9 mn sq ft across five projects.
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Tuesday, November 29, 2016

Morgan Stanley Trims Flipkart Value by 38% to $5.58 Billion

Flipkart has been struggling to raise funds at a valuation of $15.2 billion or more

US-based mutual fund Morgan Stanley's exercise of marking down the value of Flipkart to $5.58 billion will put pressure on the company to raise funds in order to compete with Amazon at a lower valuation.

The US-based firm marked down the value of Flipkart for the sixth consecutive time, lowering the value of its shareholding by 38 per cent on a quarter on quarter basis. The markdown comes at a time when Flipkart has been struggling to raise funds at a valuation higher than or equal to $15.2 billion.

In a filing with the US Securities and Exchange Commission on November 28, Morgan Stanley valued its holding in Flipkart at $52.13 per share for the three months that ended September, down from $84.29 a share in the previous quarter.

Flipkart's value is down from $142.24 a share in June 2015 when the company closed a $700 million round that gave it its peak value. While the US mutual fund does not disclose reasons for its markdown, analysts and industry watchers expect the exercise is on account of the growing clout of Amazon in India.

"It may be a theoretical exercise but all processes of valuation are theoretical as there is no set formula with which to calculate this. If Morgan Stanley has put this value then no investor anywhere in the world will be able to go much beyond that," Harminder Sahni, founder, and MD at Wazir Advisors. "This is Morgan Stanley we're talking about, they have their logic and no one can ignore it. How it will impact is yet to be seen, but it will definitely have one."

Flipkart's valuation has been weighed down not just by Morgan Stanley, but also by mutual fund investors Valic and Fidelity. In the quarter that ended August, the two firms marked down the value of the e-commerce giant by 11.3 per cent and 3.25 per cent.

The slew of markdowns has put pressure on Flipkart's upcoming fundraise, for which the company is looking at hiring an investment banker to reach out to new investors. Prospective investors such as Walmart are believed to have walked away from a $1 billion round after disagreements over the company's valuation.

"Mutual fund mark-to-market is a purely theoretical exercise and is not based on any real transactions. We are seeing a strong traction in our business momentum and operating performance. We continue to be focused on innovating for the customer, growing the market and executing on our long-term growth agenda," said a Flipkart spokesperson.

While rival Amazon's massive $5 billion war chest to win India has given investors the jitters, in the most recent Diwali sales in October the US company was outperformed by Flipkart. The Indian company over the last year has pulled up its socks focusing on improving customer experience rather than chasing revenue growth at the cost of losing money. It also has cut costs, improved efficiency and has created additional revenue streams by opening up its logistics arm for third party customers.

Even with this improvement, industry watchers say Flipkart would still struggle to raise fresh funds at its peak valuation of $15.2 billion or higher.

Overall there seems to be a downtrend in the valuations of Indian startups, with ride-hailing company Ola's valuation being marked down by its largest investor Softbank on hand of an increasingly aggressive push by Uber in India.

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Monday, November 28, 2016

Note Ban Hits Petchem, Polymer Units

Large companies have seen 25% decline in businesses in the past three weeks, expect normalcy soon

After a sharp fall in demand due to liquidity crunch caused by the currency note ban, the petrochemicals and polymers sector is hoping for some stability.

Small and medium-size processors are still operating at low capacities. Big companies have seen less impact but still say they lost about a fourth of business in the past three weeks.

M P Taparia, managing director, Supreme Industries, one of the largest plastic goods makers for industrial and household use, said: “By mid-December, demand could see normalcy but some measures to support small and medium enterprises are needed to help them survive the situation. For them, shifting immediately to a cashless system will not be easy.”

The impact of demonetisation was huge on smaller units and trade. S&P Global Platts said, quoting sources in Indian industry: “India's domestic polymer demand has crashed since the government's demonetisation policy sparked a drop in retail goods sales, impacting polymer converters and the traders who supply them.” The global agency also quoted a senior manager at Vinmar International, a global petrochemical marketing and distribution company, that, ”the slump in retail demand has hit India's polymer end-users, along with the packaging, trucking and logistics sectors, and inevitably, polymer producers directly.”

Janak Ladhani, managing director at Sonkamal Enterprises, a major player in acetone and phenol, said: “Plywood and laminating units which use phenol were badly affected.” He says ahead of the meeting on Wednesday of the global petro exporters cartel, Opec, the price of benzene, from which acetone and phenol are made, has shot up. If Opec decides to cut output, crude prices would shoot up. “Ahead of that, we have seen orders for phenol, whose prices have not yet risen in line with benzene.”

Platts said that those they spoke to had a common theme, that the surprise move had triggered panic buying of essential commodities such as petrol and diesel, while prompting consumers to defer spending on non-essential goods. Thus creating a temporary slowing in demand for products such as petrochemicals.

“India's oil demand growth this month could outpace earlier expectations as people rushed to use the scrapped currency notes to fill their tanks,” said Sri Paravaikkarasu at FACTS Global Energy.

To a query from this newspaper, Prema Viswanathan, associate editorial director at Platts, said: “Margins for Asian petrochemicals have been strong in most segments, with the benzene to naphtha spread showing the sharpest spike. The trend is expected to continue for the rest of the year, according to market participants. This is largely because of tight supply caused by production issues at Asian plants. The S&P Global Platts benchmark benzene FOB Korea prices rose by 8.15 per cent month on month to $663/tonne on November 3, outpacing the 2.9 per cent rise in naphtha prices to $432.25/tonne CFR Japan. However, prices of benzene derivative phenol saw a 2.2 per cent drop to $200/tonne CFR India, due to a pile-up of phenol inventories at Kandla port.”
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Pepperfry Plays Contrarian, Sticks to Discounts to Drive Business

Co-founder says furniture business offers flexibility to offer differential pricing to hook customers to buy goods

Goldman Sachs backed furniture marketplace, Pepperfry wants to play contrarian to the prevailing mood of e-commerce firms that are cutting down on discounts to earn profits.

Instead, Pepperfry will continue to throw bargain deals as it says furniture business offers the flexibility to offer differential pricing to hook customers to buy goods on its platform. 

“The way we look at discounts is they act as triggers of purchase. If you look at category we make upwards of 45% of margin in our business. The product that we sell there is no MRP or price tag to the product. Discounting is a way to deliver value to the customer,” says Ashish Shah, co-founder of Pepperfry. “Our products are non-standard products in terms of a price tag. I can sell a table at Rs 40,000 or at Rs 60,000 because there is no price tag to it. Discounting in such a scenario triggers the purchase by the customers.”

Pepperfry, founded by Shah and Ambareesh Murthy, have so far raised around $160 million (Rs 1,000 crore) from investors such as Goldman Sachs, Norwest Venture Partners, and Bertelsmann. The latest round being in September when Goldman Sachs made additional investments. The company says that they are looking at a break-even by  Q1 of 2018 and their monthly growth rates in terms of sales are 6-12%. 

India’s e-commerce players have suffered huge losses and many of them have wounded up business with their discount led strategy to grab customers. Firms such as Flipkart and Snapdeal, which raised massive funds and threw discounts to grab market share are still struggling to reach profits, as competition from global rival Amazon intensifies. 

Pepperfry’s rival Urban Ladder, which looks at design led furniture, has been vocal against discounts-focused sales. 

In a study done by RedSeer Consulting, furniture firms see margins of around 30-35% sold online and the value of the product goes up, the margins would also increase as these furniture are directly sourced or custom made for the platforms. 

“In terms of gross margins most furniture portals are comfortable and even doing better than other e-commerce portals. But when it comes over all cost of infrastructure, marketing etc then there may be negative margin in it,” says Anil Kumar, founder and chief executive of Redseer. “The problem they face is in generating sales volumes. The problem they face is mainly of scalability that can lead them to complete profitability.”  

Shah says that unlike a mobile phone or similar categories where a discount means a real discount, actual subsidy on the product in the furniture business still earns enough margins after giving a discount. 

“I am not doing a business where I have bought something at Rs 10 and selling it as Rs 9. I am in a business where I am buying something at Rs 10 , I make Rs 20 out of it, I give it out Rs 2 and still make Rs 8. This discounting strategy is very different,” says Shah. “My cost of servicing is lowest in business and my distribution is highest in the country. So this helps me make each transaction profitable.”
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Friday, November 25, 2016

Uber in Landmark Court Battle on Tuesday to Escape Strict Rules

Uber says it is a digital platform that connects willing drivers with customers and not a transport service

Uber will seek to convince Europe's top court next week that it is a digital service, not a transport company, in a case that could determine whether app-based startups should be exempt from strict laws meant for regular companies.

The European Commission is trying to boost e-commerce, a sector where the EU lags behind Asia and the United States, to drive economic growth and create jobs.

The US taxi app, which launched in Europe five years ago, has faced fierce opposition from regular taxi companies and some local authorities, who fear it creates unfair competition because it is not bound by strict local licensing and safety rules.

Supporters, however, say rigid regulatory obligations protect incumbents and hinder the entry of digital startups which offer looser work arrangements to workers in the 28-country European Union looking for more flexibility, albeit without basic rights.

Uber found itself in the dock after Barcelona's main taxi operator alleged in 2014 that it was running an illegal taxi service. The case concerns its UberPOP service which the company halted after the lawsuit.

Uber says it is a digital platform that connects willing drivers with customers and not a transport service.

The Spanish judge subsequently sought guidance from the Luxembourg-based European Union Court of Justice.

A ruling characterising Uber as a transport service could expose it to stricter rules on licensing, insurance and safety, with possible knock-on effects on other startups such as online home rental company Airbnb.

The case has drawn global interest. The Netherlands, where Uber has its European headquarters, Finland, Poland, Greece and the European Free Trade Association (EFTA) have submitted written observations that tend to support Uber.

Spain, France, and Ireland in their submissions, however, say Uber is a transport service. A grand chamber of 15 judges will hear the arguments, with more than 200 participants signed up for the hearing.
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Infrastructure Firms Struggle to Tap 75% Disbursement of Arbitration Amount

HCC and Reliance Infrastructure (R-Infra) are two such companies which expected to get funds under the directive

The government's August 31 directive for state agencies to pay 75% of an arbitral award they wish to dispute into an escrow account is not being implemented, say infrastructure companies. No such disbursement (against a margin-free bank guarantee) has taken place, they complain.

HCC and Reliance Infrastructure (R-Infra) are two such companies which expected to get funds under the directive, issued by the Cabinet Committee on Economic Affairs (CCEA). The aim was to revive the construction sector. 

“It is difficult to say what are the reasons but how the order has to be implemented, the operating procedures and its monitoring, are still being discussed. (Hopefully) very soon, everybody should start giving the bank guarantees and start getting the money out,” said Praveen Sood, finance head at HCC.

The CCEA intent was to use the escrow account for repaying bank loans or to meet commitments in ongoing projects. HCC alone had arbitration awards worth Rs 3,427 crore as of end-September; it is also under a big debt load — Rs  5,000 crore of standalone and Rs 10,000 crore of consolidated debt.

R-Infra has arbitration awards of Rs 170 crore from two projects of National Highways Authority of India (NHAI). This month, it said it had yet to get the money. “It is a chicken-and-egg question — should NHAI give its approval and then the beneficiary gives the bank guarantee and take it or do they wait for the beneficiary to give the bank guarantee and then NHAI will react,” said K K Mohanty, managing director, Gammon Infrastructure.

Noting the confusion, NHAI issued proposed guidelines to claim the disbursements and had called for suggestions on these. 

It did not reply to an e-mail query from Business Standard on this. Infra company officials say NHAI has started the process to bring clarity but similar steps are awaited from other government agencies.

The CCEA decision also covers public sector utilities. An e-mail query to NTPC and NHPC also remained unanswered.

“Nothing much has been done in terms of the procedures. So, companies are waiting for clarity. The government will have to take the lead and give confidence. Companies are not going to incur costs on bank guarantees and then wait for clarity,” said Ramesh Vaidyanathan, managing partner at Advaya Legal.
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Monday, November 21, 2016

No Make in India Push for Smartphones; Local Touch Weak in Mobile Making

Value addition in Indian mobile telephone handsets remains lower than global peers, despite government effort to promote local manufacturing

Value addition in Indian mobile telephone handsets remains lower than global peers, despite government effort to promote local manufacturing. 

A report jointly published by the Indian Institute of Management- Bangalore (IIM-B) and Counterpoint Research says local value addition might grow to 5.6 per cent in 2016. Lower than smaller markets like Brazil (17 per cent) or Vietnam (35 per cent).

Production of mobile handsets has grown in the past two years and is estimated to touch 180 million units in 2016, up from 80 mn in 2015. This is due to various tax incentives and an inverted duty structure on import of finished handsets. Nearly 40 new facilities have been set up across the country by various handset companies to avail of the duty and other sops offered by central and local authorities in 2015. As a result, the share of imported handsets is estimated to go down this year to 32 per cent, percent from 41 per cent last year. However, lack of adequate value addition continues to remain a concern, experts said. According to Vikash Jain, co-founder of Micromax, a majority of the manufacturing activity is confined to assembling of handsets. Key components such as the printed circuit board assembly (PCBA), display, housing, battery, camera and charger contribute to nearly 90 per cent of the total cost of a mobile handset which continues to be imported.

While local value addition in PCBA, 54 per cent of the bill of material of a handset, is two per cent, it is nil for display components (16.4 per cent of the bill of material). Display panels and printed circuit boards are imported from China and Vietnam. Other components like a rear camera (5.7 per cent of bill of material) and front camera (1.4 per cent) are fully imported. 

Only two of the major components in terms of share in bill of material, housing (outer frame of a hand) at six per cent, and the battery at 4.7 per cent are value added, by 18 per cent and eight per cent in India.

According to experts, since the import duty on various components had been reduced from 29.44 per cent to 12.5 per cent earlier this year, this has made local manufacturing of components less attractive.

According to Parag Kar, the vice-president at Qualcomm for government affairs, India and South Asia, although government had earlier tried to push local manufacturing of components like FAB, such projects could not materialize due to lack of interest from investors. Given the scale of investment required and lack of demand of such products, the companies did nit come forward. Qualcomm is a major chipset maker, globally.

The IIMB-Counterpoint report suggests local manufacturing of batteries, chargers, cables, headphones, housing & casing and designs could increase India’s value addition capacity to 17 per cent by 2018. Other components such as displays, rear & front cameras and flex & mechanics could increase it further to 32 per cent by 2020.

The report says assembly of handsets has gained somewhat over the past two years but it is important to move to the next phase — increasing of value addition. Currently, semi-knocked-down production is taking place, where components are put in place inside the casing. Complete knocked-down manufacturing needs to start, for higher value addition. It could also lead to higher export and reduce foreign exchange loss. If local value addition increases as estimated, handset export from India could reach 106 million units by 2020. Their export had peaked in 2012 at 107.3 mn and has since come down, to 3.2 mn in 2016.
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Skipping BS-V Norms is a Smart Act: Tom Linebarger, Chairman & CEO, Cummins

Cummins employs 9,000 people in India where it clocked a revenue of Rs 4,700 crore last year

Tom Linebarger, chairman and chief executive officer of the $19-billion American company — Cummins, a leading diesel engine and power generating products manufacturer, decided to cut short his and his family’s leisure stay in Delhi last winter due to pollution. He is back again to forge a partnership with the Confederation of Indian Industry for a clean air initiative. Cummins employs 9,000 people in India where it clocked a revenue of Rs 4,700 crore last year. He talks to Ajay Modi about the pollution problems in India, the importance of diesel technology and the shift to BS-VI emission norms. Edited excerpts: 

Pollution has been a challenge for years. Isn’t the reaction through this partnership quite late? 
Any time to react is better than no reaction at all. There is no question that if we can do something that is comprehensive and sustainable in Delhi and take it to other cities earlier, it will be better. Let’s start now than never. Other cities should never reach the measurable smog levels that we had in Delhi. 

You must have closely followed the developments in India with regard to diesel in last  year. How do you see these reactions?

I won’t criticise any regulation because the courts are trying to tackle the same problems we are trying to solve. The issue needs a resolution. However, the regulation from the courts was too narrow. They focused on something that looks big but is low on source and so things did not change much. We need a more comprehensive solution. We need to look at the sources and then we need to be able to build a sustainable and comprehensive set of actions. Regulations should be strict and enforceable. But, other development actions can take place and sometimes, incentives can be used to move industry from one place to another.  

India has decided to skip BS-V emission norm and move to VI. How is this being viewed?
BS-IV was a challenge and BS-VI, too. In each case, you are bringing a new technology that is more sophisticated and requires more complicated service and operation. But, BS-VI has now been used in many countries across the world. Cummins has had these technologies since 2010 and in hundreds of thousands of vehicles. So, the technology may be new to India but the products are very well tested. When we bring it to India we need to ensure that it works in the Indian context. We will make sure these are reliable and durable, and also bring down the cost so that impact on user is less.
Does the 2020 deadline for BS-VI look realistic?
Deadline is achievable in my view. In fact, it is smart for the government and the industry to skip BS-V because BS-V has some improvement in emission but it is not much. The big improvement is from IV to VI. Since this is a difficult transition, it is better to give little more time and not try to do too many in a row. Several other countries have skipped BS-V and moved to VI and have been successful.  The industry is making a very large investment and commitment. 

Does the criticism against diesel technology worry you? 
Of course, this concerns me. But I will say that diesel technology as we see it has become a cleaner and cleaner technology throughout the world. Problem with air pollution is not related to diesel fuel but to the technologies we use. With a commitment to technology and a well-enforced regulation, you get quite clean result. For example, in our BS-VI applications, the air coming out of the exhaust is cleaner than the air going in as the air in cities is most polluted. The way to make diesel competitive is to make sure we don’t settle for worst criteria of emission to get a fuel economy. We can get both. Such a technology exists and is proven.  

Will Cummins look to work in new areas of technology like hybrid and electric?
We are already working in both these areas. We have started supplying engines for hybrid applications. We have developed fully hybrid buses in China. We will be ready to provide these as the market demands them. Technology is fast moving in electrification of vehicles. Right now, batteries are not viable for commercial transportation because of the low energy. But overtime, these could change. The fuel cell technology can help. Many of these new technologies will help performance and emission. But there is so much room left in diesel technology to help the environment in India. The current ones are more than 15 or 20 years old. Our ability to clean air in India is significant from just applying existing technologies.

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Friday, November 18, 2016

Mawana Sells Titawi for Rs 375 cr to Indian Potash

Rs 150 cr for farmers dues and Rs 225 cr to go to clear debt

A sample of sugar crystals are seen on the desk of a trader at a wholesale market in Kolkata
Siddharth Shriram-promoted Mawana Sugars has decided to sell its Titawi Sugar Mill in Uttar Pradesh for Rs 375 crore to Indian Potash, a government-owned fertiliser company.

Of this amount, Rs 150 crore will go towards settlement of sugarcane farmers’ dues and the rest will be used to trim the debt of Mawana. 

“This will be a good fit for Indian Potash, which now operates some small sugar mills,” said an official at Mawana. “This acquisition will allow it to have bigger scale and help us in turning healthier and reduce our debt.”

The company had recently roped in JM Financial to find a buyer for the Titawi mill. Indian Potash, a leading potash company, had entered the sugar space about five years ago by acquiring small mills from UP Sugar Corporation.

Mawana, a well-known brand in the retail sugar market, owns and operates three sugar mills in the sugarcane-rich belt of western Uttar Pradesh, the country’s largest sugar and sugarcane producing the state. The three mills together have the capacity to crush 29,500 tonnes of sugarcane daily. 

The Titawi (in Muzzafarnagar) unit is the company’s second biggest one with a capacity of 10,500 tonnes and a bagasse-based power generation unit of 17 Mw. Titawi brought close to 25% of the company’s revenue of Rs 1,485 crore in FY16. 

An industry official said Mawana had managed to strike an extremely smart deal. “We did not expect the mill to fetch more than Rs 250 crore, considering the sugar economy has been under pressure for the last few years,” he said. 

In the 2015-16 sugar season (October-September), Mawana’s three mills purchased sugarcane worth Rs 610 crore from farmers. However, it still owes about Rs 300 crore to farmers. In the last year, the company had faced issues with sugarcane supply from farmers due to previous arrears. The company’s long-term liabilities are estimated to be close to Rs 300 crore. 

Mawana, listed on the BSE, made a one-time settlement with debtor Axis Bank in September. Against its total due of Rs 81.76 crore, the company will repay Rs 33 crore in four instalments up to March 2017. In March, the company initiated a debt restructuring programme with Edelweiss Asset Reconstruction Company.

Mawana, like most sugar companies, have been incurring losses for the past few years due to a mismatch between sugar and sugarcane prices. However, with an uptick in prices and a drop in domestic output, the situation had improved in the recent months.  An industry executive said a sustainable business in sugar was going to be difficult until sugarcane prices were linked to sugar realisation. The country’s top sugar firms such as Bajaj Hindusthan, Balrampur Chini and Triveni Engineering have all their operations in UP.

Mawana sells Titawi for Rs 375 cr to Indian Potash


Thursday, November 17, 2016

300% Growth at Offline Retail Stores in 6 days: Paytm

On the back of demonetisation Paytm has seen a 700% increase in overall traffic

 On the back of demonetisation, Paytm, the country's largest mobile payments platform, has had a 300 per cent surge in transactions at offline retail stores over the past six days.
The company launched an omni-channel initiative last year and has covered everything from entertainment (theatres), travel, education (schools, tutorial centres) to small traditional stores and shops.
"Within a year of launching its Online-to-Offline (O2O) payment solution, Paytm has emerged as the fastest growing QR Code-based POS (point of sales) network in the country," the company said.
It aims, it says, to reach eight million transactions worth Rs 400 crore a month by the end of this financial year (March 31). It is now at five million payment transactions a day.
Mobile wallets, debit and credit cards, and online money transfers have seen a rise of 200 per cent, experts say. According to senior executives at Paytm, the Vijay Shekhar Sharma-led company would be able to close the financial year with Rs 24,000 crore worth of transactions processed on the platform.
In the past two days, says Paytm, it has seen a 700 per cent increase in overall traffic and 1,000 per cent growth in the amount of money added to the Paytm account.
In this period, the transaction value continued to be 200 per cent of the average size, while the number of app downloads went up 300 per cent. The number of transactions per user went up from three to 18 in a week. The company said the number of repeat users had also increased.
"While our Nearby feature helped millions of customers find their nearest Paytm merchant on a daily basis, we have also enabled priority check-out counters for Paytm at More, Big Bazar and Central stores, to ensure quicker check-outs," said Jessjeet Bhandari, senior vice-president.
Within days of demonetisation, Paytm has partnered with various large retail outlets -- W, Jumbo, Archies, Woodland, Madura Garments, Red Tape, Modern Bazar, Easy Day -- to enable cashless transactions at these stores very soon.
Paytm is currently accepted at major offline stores, including Big Bazaar, Central, eZone, Croma, Heritage Fresh, More, Spencers, Redtape, The Mobile store, WH Smith and Bata. About 850,000 offline merchants accept it.

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Thursday, October 27, 2016

Reliance Retail Profit Jumps 31%

Company's revenues grew 63% from Rs 4,956 crore in Q2 of FY 2016 to Rs 8,079 crore in Q2 FY17

Reliance Retail posted a 31% jump in its profit before depreciation interest and tax (PBDIT) in the second quarter of FY17 at Rs 264 crore as compared to Rs 201 crore in the corresponding quarter of FY16.

The company's revenues grew 63% from Rs 4,956 crore in Q2 of FY16 to Rs 8,079 crore in Q2 FY17. The increase in turnover was led by growth in digital, fashion & lifestyle and petroleum products.

Reliance Industries said Reliance Petro Marketing Limited, a wholly owned subsidiary of Reliance Retail Limited, has expanded the network of petro retail outlets with 29 new outlets during the quarter.

It said Reliance Smart, the destination supermarket store concept, has been successfully re-launched at 60 stores and is receiving overwhelming response from its customers with high-double digit like for like growth.

During the quarter, Reliance Retail added 59 stores across various store concepts and strengthened its distribution network for consumer electronics.

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Tuesday, October 25, 2016

Biocon Profit at Rs 147 cr, Revenue up 21%

Expansion of our biologics footprint in emerging markets and licensing agreements boosted the revenue further, says Kiran Mazumdar-Shaw

IIndia's largest biotechnology company, Biocon, reported September quarter profit rose 52 per cent to Rs 146.7 crore against Rs 97 crore in the same period last year, on improved business growth across small molecules, biologics, and  research services.

The second quarter profit in FY16 is before exceptional items, Biocon said.

Based here, it grew revenue by 21  per cent to Rs 992 crore, as against Rs 819 crore in the July to September period last year.

"Expansion of our biologics footprint in emerging markets and licensing agreements boosted the revenue further. Our ready-to-use Insulin Glargine pen, launched in Japan, has been well received, which augurs well for this business," said chairperson and managing director Kiran Mazumdar-Shaw.

Biocon said it had made its second filing for review in the European Union for proposed biosimilar Trastuzumab. It also has got a tentative US drug regulator approval for Rosuvastatin calcium tablets, which helps it gain entry into the US generics market. 

Syngene, the research arm which Biocon has listed separately, grew 14 per cent to Rs 286 crore in the quarter.

“Our long-term investments in research & development, manufacturing facility in Malaysia and clinical advancement of our programs will enable us to unlock greater value,,” Shaw said. The stock, which traded at a 52-week high at Rs 1,010 in trading on Thursday, closed Rs 20.45 or two per cent down at Rs 980.25 on the BSE exchange, ahead of the results announcement.
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Sunday, October 23, 2016

Trai Nod to Jio Free Offer Till December 3

Clarifies tariffs offered by Mukesh Ambani firm not predatory

The Telecom Regulatory Authority of India (Trai) on Thursday said Reliance Jio can offer its free promotional offer till December 3, also clarifying that tariffs offered by the Mukesh Ambani-led firm were not predatory or discriminatory.

This means new customers won’t be able to avail the offer after December 3 and Jio subscribers would have to pay as per the tariffs announced by the company. Customers who have subscribed before December 3 will enjoy benefits till December 31.

In its quarterly results, Jio said it might extend the period of free services in case its subscribers were unable to get adequate experience of seamless connectivity across the network because of interconnection congestion and the quality of service parameters are not as per the benchmarks desired by the Jio management.  

Jio had launched the commercial services on September 5 and also announced it would provide all voice and data services free till December 31. The incumbent telcos objected, claiming such offers could not be provided for more than 90 days.

“According to Reliance Jio Infocomm’s filing with the Trai, the Jio Welcome offer (JWO) will be available to all the customers for subscription till December 3. RJIL wishes to reconfirm that JWO benefits of free unlimited voice and data will continue to be available to all subscribers till December 31,” Jio said in a statement.

A Trai official also confirmed to Business Standard that Jio could offer the benefits till December 31.

Jio said consumers who cannot subscribe to its services till December 3 would continue getting opportunities to avail new offers and tariff plans.

It also said it had received communication from Trai stating the tariff plans offered by it were fully compliant with regulatory norms of IUC compliance, non-predatory and non-discriminatory. “This clearly establishes that all the tariffs offered by RJIL are in compliance with the prevailing regulations. A key feature of RJIL’s tariff packs is free voice calling for local, STD and national roaming for all times,” the company said.

The existing telcos, including Bharti Airtel, Vodafone and Idea Cellular, had met the Trai Chairman R S Sharma on September 30 and expressed their concerns over free the promotional offer by Jio, which they termed predatory.

In a letter to incumbent telcos issued on Thursday, Trai said, “The revised offer of free services by Reliance Jio Infocomm has been limited to 90 days, i.e., up to December 3 and therefore is consistent with the guidelines on promotional offers.”

 “However, the authority would continue to keep a close watch on the tariffs being offered in the market by all players including Jio,” the Trai letter said.

The incumbent operators had written to Trai on September 20, claiming Jio’s voice tariffs violated of Trai’s 30th amendment to TTO order. The amendment was made in 2004 and states that tariffs should be non-predatory, non-discrimatory and IUC compliant.

The incumbents also raised the point that if the interconnect usage charge (IUC) was 14 paisa per call, the tariff should be more than that. The operators had asked Trai to examine.

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Friday, October 21, 2016

It's All About Tech & Innovation This Diwali for Durables Companies

In the television space, where larger screens are getting increasingly popular, 2 major durable firms LG and Samsung are competing on viewing experience

Home appliances and electronics firms are hard-selling technology to win over consumers this festival season. As the buying extravaganza peaks ahead of Diwali, white goods companies have lined up products that they are promoting as technologically innovative.

In the television space, where larger screens are getting popular, LG and Samsung are competing on viewing experience. While LG has come up with OLED technology, Samsung is countering with quantum dot technology – both aim to provide a natural viewing experience. These TVs are distinct from typical LED panel sets. The fight intensifies as the screen size goes beyond 55 inches, where premium offerings are the most.

OLED or organic LED technology is based on an electroluminescent layer, film of organic compound that emits light. Samsung’s quantum dot works through numerous nano-particles that create life-like picture quality. On the other hand, LED works through a panel of light-emitting diodes that create the pixels.

Appliances major Whirlpool is bringing in its global range of super premium products this season. The firm has launched Europe-made front-loading washing machines first time in the country, which are based on sixth sense technology. Samsung is betting on its new ActivWash+ technology which has been conceived and developed in India. LG has come up with a twin-tub technology which allows consumers to wash clothes in two automated tubs simultaneously. 

The festive season, which typically starts from September, is the crucial part of the year when 35 per cent annual sales get transacted for most durables firms. During this season, executives are on their toes keeping up with the frenzy of supply of products, while trying to motivate trade partners with attractive schemes. The process of introducing innovative offerings for the season starts months ahead, says an executive who’s in the thick of things. 

According to Niladri Datta, head of corporate marketing at LG India, bringing in technologically innovative products and solutions has been the key to success for them in the country. Rival Samsung, which has been facing the backlash of the Note7 fiasco globally, is also talking technology and innovation. Rajeev Bhutani, vice-president, consumer electronics, Samsung India Electronics, says new and customised products for the market is considered crucial for Samsung’s growth in India.

Samsung has launched smart convertible 5-in-1 range of refrigerators which provides options like customised storage spaces, built for Indian consumers. The range has digital invertors. Whirlpool’s introduction of external sensors in refrigerators is a first in India, claims Kapil Agarwal, vice-president. External sensors allow refrigerators to judge the environment and tweak the internal cooling.

It's all about tech & innovation this Diwali for durables companies
Videocon has taken a different route, though. Apart from a new range of products, it has launched an offer under which consumers can take home their products without paying anything. The payment of equated monthly instalment would apply only from next year. “With these measures, we are targeting a 30 per cent sales growth over last year,” said Anirudh Dhoot, director.

According to Kamall Nandi, executive vice-president, Godrej Appliances, the firm is trying to leverage its brand by building an emotional connect with consumers. 

“There have been innovations in washing machines and refrigerator space. The idea is to make them available with interesting offers”, he said.
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Vishal Sikka Pays 4 Heads Million-Dollar Salaries

Their salary is an incentive to reach the company's revenue target of $20 billion by 2020

Infosys Chief Executive Vishal Sikka is paying his top managers more, as an incentive to reach the company’s revenue target of $20 billion by 2020.

Four Infosys presidents — Mohit Joshi, Rajesh K Murthy, Ravi Kumar S, Sandeep Dadlani — and the company’s general counsel, David Kennedy, will now be paid million-dollar salaries.

Their salaries included a higher variable component, Infosys said in regulatory filings. Joshi, Murthy, Ravi Kumar and Dadlani will also receive restricted stock units and employee stock options.

Sikka is confident that the company’s top three leaders in sales will be instrumental in achieving their revenue targets. “We are now approaching $10 billion in annual revenue. This quarter we will cross it. So it means three sales presidents are collectively handling more than 

$3 billion (worth) of responsibilities. In addition, they have serious global responsibilities,” Sikka said after a recent press conference.

The Infosys board had last week approved pay hikes for key executives, including Chief Operating Officer Pravin Rao and Chief Financial Officer M D Ranganath. Human resources head Krishnamurthy Shankar and company secretary Manikantha AGS will also receive salary hikes from November 1.

Since taking over as the first non-founder chief executive of Infosys, Sikka is pushing the company to transform itself to offer technology services with an additional software layer. Yet, the firm is struggling to grow faster as traditional business lags because customers are demanding more work for less.

Infosys improved operating margins in the second quarter by moving more work offshore. But it lowered its annual forecast for the second time in three months, citing an uncertain business environment. 

“There has been a restructuring of existing leaders. It is important to improve their bandwidth and agility to give them a clear focus on accountability and targets beyond revenue growth,” Sikka said last week.

“Based on fiscal 2016 performance, 27,250 restricted stock units and 43,000 stock options will be granted (to Rao) once approved by shareholders and these will vest over four years. Restricted stock units and stock options, in future periods, will be granted on achievement of performance conditions,” said the Infosys letter to the BSE.
Vishal Sikka pays 4 heads million-dollar salaries

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