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Tuesday, August 23, 2016

Costs, margins dog Aditya Birla Retail

High costs, low margins in food and grocery, and accumulated losses are hurdles to a turnaround by Aditya Birla Retail, according to industry veterans.

"They have invested heavily in stores and have high overhead costs. They are yet to recover those costs," said Raman Mangalorkar, former chief executive at Jubilant Retail, which was bought over by Aditya Birla Retail last year.

Set up in 2007, Aditya Birla Retail runs 500 stores and is the country's fourth-largest retailer after Reliance Retail,Future Group and D Mart.

The Future Group on Tuesday denied reports of merger talks with Aditya Birla Retail. The Aditya Birla Group declined to comment on market speculation.

  • Set up
  • Stores
  • Sales:
    Rs 2,948 cr
  • Loss:
    Rs 571 cr
  • Debt
    Rs 5,232 cr
    (March 2015)
Source: RoC, reports

Mangalorkar pointed out Aditya Birla Retail had changed its chief executive officers and growth strategies many times.

Sumant Sinha, its first chief executive officer, was replaced by Thomas Varghese.

In 2013, Visak Kumar, an Aditya Birla group veteran, replaced Russell Berman as CEO of both the supermarket and hypermarket formats.

A company spokesperson said Aditya Birla Retail expected to break even in 12-15 months and added it had managed its cost structure well over the last four years.

The spokesperson said there had been no change in the top management since 2012.

"They have opened and closed stores in Maharashtra and Karnataka and are yet to figure out whether to focus on supermarkets or hypermarkets," Mangalorkar said. Aditya Birla Retail has closed supermarkets in Pune and Mumbai to stem losses.

"Till the time they get the format right, it is difficult to achieve profitability," said another industry executive.

Aditya Birla Retail posted a 15-per cent increase in sales at Rs 2,893 crore in 2014-15 and losses declined 5 per cent to Rs 571 crore.

The company had debts of Rs 5,323 crore in March 2015 and its accumulated losses were Rs 5,320 crore after eight years of operations.

Sanjay Badhe, former head of marketing at Aditya Birla Retail, said margins in food and grocery were very thin. Other retail chains that started during 2006-2007 or expanded in these two years, like Tata's Star Bazaar and Spencer's Retail, are yet to achieve profitability.

In a report last year, ratings agency Crisil said, "The company has been able to achieve store-level break-even in over 95 per cent of its stores."

According to the agency, the Aditya Birla Group had invested Rs 3,096 crore in the company through equity and bonds.

Reference -

Flipkart-Owned Myntra Hits Net Sales of $1 bn

Sales of products at full price doubled in the seven months to July, helping the fashion portal maintain healthy unit economics

Flipkart-owned Myntra crossed net sales of $1 billion in July, becoming the first online fashion portal in India to achieve the milestone. The company shifted from gross merchandise value (GMV) to tracking net sales, after investors brought in former McKinsey Director Ananth Narayanan as chief executive officer in January.

Myntra said sales of products at full price doubled in the seven months to July, helping maintain healthy unit economics despite showing robust growth. Narayanan said the company’s revenues had grown by 70 per cent in the same period. “Consumer behaviour is starting to evolve. Even without Jabong at this stage, we have more than 10 million monthly active users. Full-price sales have become double of what they were before, discounts have dropped by 10 per cent and our repeat customers continue to go up,” said Narayanan. 

  • CEO Narayanan said the firm’s revenues had grown by 70% in the period
  • Myntra had acquired Rocket Internet-backed fashion portal Jabong for $70 million last month
  • The company expects to be wholly profitable by early next year, with its acquisition of rival Jabong last month
  • It says both brands will operate independently and will be positioned differently in order to continue to grow the market

Also Read: Unit Economics Good; Hopeful Of Being In Profit This Year: Ananth Narayanan

Myntra claims it is cash-positive from a unit-economics perspective, making it the only fashion e-commerce brand to do so on such a scale. Moreover, the firm expects to be wholly profitable by early next year, with its acquisition of rival Jabong last month helping it get there sooner than expected.

Also Read: Newsmaker: Ananth Narayanan

Myntra had acquired Rocket Internet-backed fashion portal Jabong for $70 million last month. The company says both brands will operate independently and will be positioned differently in order to continue to grow the market.

By controlling a majority of online fashion sales, Myntra’s owner Flipkart is looking fend off an attack from rival Amazon in India’s e-commerce space. Fashion is the only segment rival Amazon has not been able to increase market share globally, closing it off from a sector that usually earns higher margins.

Also Read: How Jabong's Rocket Landed In Flipkart's Backyard

“It is not a market where one brand wins, the other loses. Jabong can help us grow. We are getting access to more customers as Jabong has more women on its platform. Jabong has a 60 female to male ratio and it is reverse for Myntra. The second is Jabong — it is stronger in certain areas like the north and, overall, it helps to have more customers,” Narayanan added.

Flipkart recently shifted from tracking GMV to customer satisfaction on its own horizontal e-commerce platform, after rival Amazon began poaching its loyal customers with better customer service.

The company is now looking at fashion, which earns higher margins than electronics, to help turn profitable and make it less reliant on external funding to take on Amazon.

Reference -

Sunday, August 21, 2016

InCred Gets Anshu Jain, Other Top Investors

The company is going to start operations soon with a capital base of Rs 600 cr

InCred, the non-banking financial company (NBFC) floated by former Deutsche Bank senior executive Bhupinder Singh, has garnered high-profile backers including the bank’s former co-chief Anshu Jain. It will start operations soon with a capital base of Rs 500-600 crore.

The NBFC has created its fair share of media buzz considering Jain’s involvement. Jain has invested about Rs 50 crore and would be the chairperson of the advisory board, said Singh in an interview with Business Standard. 

Singh and Manipal Group’s managing director and CEO Ranjan R Pai have contributed about Rs 150 crore each.

The NBFC, which would focus on financing to small and medium enterprises (SMEs), low-cost housing, education and healthcare sectors have also garnered strategic investments from Gaurav Dalmia, founder and chairman of Landmark Holdings (Dalmia Group), IDFC PE and Alpha Capital. Dalmia and IDFC PE have also invested Rs 50 crore each in the venture. Singh, the promoter of the company, also reached out to his friends and collected “lots of small cheques”.  

The NBFC will start business with SME financing and three retail-focused ventures - unsecured consumer finance, mortgages and education loans.  The business model of the NBFC is quite unique in India, but a proven one nevertheless globally.

Singh is banking on the “goodness of the borrowers,” and the aversion to be labelled a defaulter. While Singh has spent most of his career outside India, the Bhopal-born Indian Institute of Management (Ahmedabad) graduate is deeply familiar with the middle class Indian sensibilities.

InCred gets Anshu Jain, other top investors
The basic premise of banking on the integrity of the borrowers will be based on rigorous analytic by his team, and will be pursued by soft follow-ups every now and then once a loan is disbursed.

“We’ll keep a tab on the student’s progress and would wish her on every successful milestone. It would be a personal touch, much like a family affair,” said Singh.

The parents of the students will not need to furnish any collateral, but could be required to stand as a guarantor for the loan amount. Singh doesn’t see a chance of default unless the whole intention is to defraud.

Before disbursing a loan, the NBFC will see the study record of the student, the institution he is joining, and the even the past placement record of the institution and the stream the student has chosen.  In case of SME financing, the company will be far more cautious. It will take first lien on the cash flow by tying up with the merchant bank and will disburse loans based on the flow generated from transactions through point of sales machines.

The margin of the business would naturally be on the higher side, considering the unsecured nature of the loans being disbursed, said Gaurav Dalmia. Investors won’t hesitate to pump more money if the business does well. “If business is doing well, money is not going to be a problem,” said Dalmia, who was one of the key investors in IndiaBulls back in 2000.  Other investors are confident that the business will scale up considerably.

“We have always looked for investment opportunities in this space and we seized it when we met Bhupinder Singh and the high quality team he has put together,” said Ranjan R Pai, managing director and CEO of Manipal Education and Medical Group.

Manipal Group has had very successful legacy in the banking space as founders of the Syndicate Bank. Dalmia sees huge potential for the financial sector and sees the financial sector outperforming aggregate business sector, if the Indian economy does well.

“The risks in this sector come from leverage, falling underwriting standards in the quest for growth or market share, and for investors there is an additional risk because of high and often unrealistic valuations which tend to assume near-perfect business conditions going forward,” said Dalmia, a veteran of investing in the financial sector for the past 15 years, including in niche NBFCs.

Singh, a banking veteran of about 20 years, he has no plan to apply for a banking licence. His aim is to make InCred one of its kind success model in India. He’s willing to learn from established players in the segments he is venturing into.

For example, his education model has borrowed elements from Credila Financial Services and InCred has even hired Prashant Bhonsle, former chief of Credila, to head the education vertical. The firm's Consumer vertical will be run by Nikhil Sama, founder of Instapaisa — a peer-to-peer platform which Singh acquired. The chief operating officer and chief architect for technology is Nitin Agarwal — one of the founders of e-commerce platform

Reference -

Tuesday, August 16, 2016

Mjunction Gets Ready to Take on Alibaba

Mjunction is planning an expansion drive in the west, north and southern regions of the country, driven by the Alibaba factor

It's not just e-commerce players like Flipkart and Snapdeal that are gearing up for Chinese major Alibaba's big India play.

India's largest business-to-business online marketplace mjunction, too, is planning an expansion drive in the west, north and southern regions of the country, driven by the Alibaba factor. 

mjunction, a joint venture of Tata Steel and SAIL, with business segments such as metaljunction, coaljunction, valuejunction, buyjunction, straightline and financejunction, had provided technical solution for spectrum auction in March 2015.

The company believes the threat would come from China and not the US. "We are preparing, reinforcing, strengthening ourselves to take on Alibaba. I do not see at this point of time any internal competitor,'' said Viresh Oberoi, founder, chief executive officer and managing director of mjunction. Alibaba started off in the business-to-business space and they are masters at that, Oberoi said.

Founded in February 2001, mjunction offers a wide range of sales, fulfilment, sourcing, procurement, channel management, transaction processing and knowledge services across diverse industry verticals.

It has transacted business worth Rs 4,22,720 crore through 200,000 companies till FY16. These firms use mjunction’s e-platforms to buy or sell products, commodities and services online.

Although the company does not use gross merchandise value (GMV) as a business metric, it claims to have achieved a GMV of Rs 63,000 crore in 2015-16.

  • The company operates eight businesses under three horizons. It started with steeljunction and then expanded into coaljunction, buyjunction, and financejunction
  • It has done e-transactions worth Rs 4,22,720 cr since it started in 2001
  • It has around 200,000 firms on its platform which use mjunction’s platforms to buy or sell products, commodities and services
  • It runs the world’s largest e-marketplace for steel
  • It has also pioneered the online sale of coal in India, and till date over 500 million tonnes of coal have been sold, earning Rs 30,000 cr of incremental revenue for Coal India and Singareni Collieries Company Limited over the past 10 years

It plans to clock 33 per cent growth and touch a GMV of Rs 88,000 crore by the end of the current financial year.

According to Oberoi, the only way to combat Alibaba is to grow fast. mjunction plans to bring in more private-sector clients as it believes Alibaba would be targeting private-sector and micro, small and medium enterprise players.

The company has 120 large industries and companies as paid clients.

“We do not have in mind the number of companies we are going to bring in. We have on our radar certain sectors such as steel, minerals, construction and manufacturing from where we will get more clients. In each sector, we have selected the top 20 players and we'll bring these on board,” he said.
He added, “We do not want to be number two; we are number one and like it that way. If anybody comes in, we would be happy if they come in at number two or number three."

The company has also expanded its overseas operations in Singapore, Australia and Dubai and is now entering Saudi Arabia. 

It is also hoping to get into a collaboration with a Dubai-based company to expand its operations in West Asia and Africa region.

Reference -

Monday, August 15, 2016

LIC, Aberdeen Hold Key to Nuvo-Grasim Merger

Proxy advisory firms say they would recommend voting against the merger

Domestic and foreign institutional investors such as Life Insurance Corporation of India and UK's Aberdeen Fund, which together hold over 50 per cent in Grasim Industries, will be key decision makers in Aditya Birla Nuvo's merger with Grasim, even as the top management of the Aditya Birla Group said on Saturday that the deal would be a win-win for everybody.

Both LIC and Aberdeen hold six per cent stake each in Grasim. All foreign portfolio investors put together own nearly 23 per cent, while domestic mutual funds own over nine per cent. ICICI Prudential Life Insurance and GDR holders owned 4.3 per cent and 8.1 per cent, respectively.

Retail investors and other non-promoter shareholders own the remaining non-promoter shares.

The Birlas own only 31.28 per cent stake in Grasim. According to the current regulations, majority of minority shareholders must vote for the merger proposal when it comes to voting. The Birlas have a 59 per cent stake in Nuvo.

Shareholder advisory firms said on Monday they would recommend minority shareholders to reject the merger proposal. Shriram Subramanian of Bengaluru-based proxy firm InGovern says the deal is against the interest of small shareholders and the only purpose of the merger is to increase the promoters' stake in the company.

LIC, Aberdeen hold key to Nuvo-Grasim merger
"Investors prefer simple structuring with simple businesses. This transaction is just increasing the layering. For the Grasim shareholders, the layering and holding discount would increase while the Nuvo shareholders will not directly get the benefit of financial services demerger and share it with Grasim shareholders," he said, adding: "There is no question of sweetening the deal as the deal itself is faulty."

According to him, the shareholding structure Birla group companies reveals the promoter holding is structured in such a way that they can exercise greater control and voting powers despite having low equity stake. The group has five listed entities - Grasim Industries, Aditya Birla Nuvo, Hindalco, Idea Cellular and UltraTech Cement. There are many cross-holdings between these companies, which effectively has increased the promoters' stake in each of the companies while the 'true' beneficial interest is quite lower in many cases.

While the difference in actual beneficial interest and promoters' stake is lower in Hindalco and Grasim, it is considerably higher in companies such as Nuvo, Idea and UltraTech. Such structures help promoters to exert more control while having to make lesser equity investment.

The demerger of financial services business into Aditya Birla Financial Services Group (an umbrella brand for all the financial service businesses of the Aditya Birla Group) through a partial demerger is also in line with this policy of the Group to retain voting control. This is not in the interest of small shareholders.

The voting will now become crucial as government-owned LIC rarely goes against the recommendations of proxy advisory firms.

Amit Tandon of proxy firm, Institutional Investor Advisory Services (IiAS) said the transaction is hugely dilutive to the small shareholders and Nuvo should have first listed the financial services business instead of merging with Grasim first and then listing it. "Instead of cleaning up the structure, the merger will make it more complex. We think Nuvo should first list financial services so that it benefits its shareholders directly," said he.

Ever since the news of the merger of Nuvo with Grasim became public, both companies have lost a combined market share of Rs 10,000 crore.

Aditya Birla Group Chairman Kumar Mangalam Birla said the merger would marry mature businesses with new-age companies, simplify the shareholding structure and help unlock value in the financial services business now housed with Aditya Birla Nuvo.

Birla said if an investor takes into account the previous restructuring within the group, then they have always made money - citing the latest example of Pantaloon Fashion when it took over Nuvo's fashion businesses (which was later renamed Aditya Birla Fashion and Retail). Birla said the deal is complex and that it will connect with minority shareholders to make them understand how the deal is a win-win deal for all.

Aberdeen has said in a TV interview that the management of the group is well known for ethically correct practices and, hence, they will try to understand the reasons behind the merger proposal that would create a Rs 60,000-crore revenue entity.

Responding to investors' concerns, Ashish Adukia, head (corporate finance) and Saurabh Agarwal, chief strategy officer of the group told Business Standard on Saturday the merger would lead to textiles and chemicals coming together as common businesses, besides the new company would have a more diversified structure with multiple growth drivers. They also added that Grasim's Viscose staple fibre and Nuvo's viscose filament yarn would bring synergies.

They added Grasim already had large verticals and growth rates would not have improved without adding new verticals. Grasim would benefit from growth in various verticals, especially financial services, and it would be incubating more new businesses that accrue further benefits.

Reference -

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