Monday, August 18, 2014
Prime Minister Narendra Modi's vision of building smart cities is set to take shape within the current financial year, with the Centre readying to invite bids for Dholera investment region in Gujarat in the next three months and for integrated industrial townships in Greater Noida and Vikram Udyogpuri in Madhya Pradesh along the Delhi-Mumbai Industrial Corridor (DMIC) by March next year.
We are ready to roll out two projects and an industrial zone. We are progressing very fast. A lot of countries including Germany, UK, USA and Korea have shown interest to participate in the industrial townships," said Talleen Kumar, CEO of Delhi-Mumbai Industrial Corridor Development Corporation.
Japan is providing support of $4.5 billion in the first phase of these projects through lending by Japan International Cooperation Agency (JICA) and Japan Bank for International Cooperatio, Agency (JICA) and Japan Bank for International Cooperation (JBIC). Kumar added that the government would invite bids for another project, Shendra Bidkin industrial zone in Maharashtra, by mid-2015.
An industry consultation workshop last month saw participation from companies including Oracle, Microsoft, TCS, Cisco, Accenture and L&T, among others. Modi has promised 100 smart cities and industrial corridors to make India a manufacturing hub. In his Independence Day address, he urged countries to 'Come, Make in India'.
The Vikram Udyogpuri township will consist of automotive and auto components, IT/ITeS and engineering services industries and educational institutions. Greater Noida township, on the other hand, is envisaged to have new age sectors such as biotechnology, high-tech electronics industry, and research & development. It will also support key sectors such as telecom, electronics, automobile, food, pharma, healthcare and defence research. The move to invite bids isin keeping with the ruling BJP's poll manifesto promise that work on freight corridors and attendant industrial corridors would be expedited.
About 35-40 per cent of projects are trunk infrastructure, for which funds are provided by the DMIC Trust while the rest of the 60-65 per cent projects are being structured under the publicprivate partnership model. The department of industrial policy and promotion is currently discussing guidelines for smart cities to qualify a city to be called 'smart'.
A smart city must have three of the five infrastructure requirements - energy management, water management, transport and traffic, safety and security and solid waste management. At the same time, it must have three of the five application domains - healthcare, education, inclusion, participative governance and community services. "We have submitted the guidelines proposal to DIPP, which will discuss and take a final call," said Kumar.
Meanwhile, in the Chennai-Bangalore industrial corridor, JICA has taken up master planning for three of the eight nodes - Punderi (Karnataka), Krishnapatnam ( Andhra Pradesh) and Tumkur (Karnataka). "Land acquisition for the new industrial regions is at an advanced stage. Land availability is essential for the corridors, and we are working with the state governments for that," said a DIPP official. Japan has also shown interest in setting up industrial parks in India, on lines of Chinese industrial parks.
"You have two choices, either to compete on price or to compete through better products. With the Discover 150 we aim to offer a better product and create a new category altogether," Bajaj said.
Priced almost Rs 10,000 lower than its sports motorcycle Pulsar, the company says this segment has a potential of drawing customers from 6,00,000 units mass market (100cc) to 125cc) on one hand and 1,00,000 potential premium bike customers from the 150cc segment.
The roots of the Aditya Birla Group go back to almost a century before India’s independence from colonial rule. Indeed, its role in India’s economic history is tied inextricably with the nation’s quest for political freedom. The foundation of the Birla business empire, which was eventually divided among the members of the subsequent generations, was laid by Shiv Narayan Birla, who started cotton trading in Pilani, Rajasthan, in 1857. In the early years of the 20th century, his grandson, Ghanshyamdas Birla, established businesses in critical sectors such as textiles and fibre, aluminium, cement and chemicals. The Kolkata-based businessman became closely associated with Mahatma Gandhi and accompanied him to London on two occasions to attend the historic round table conferences. It was at a public prayer meeting in Birla house in Delhi in 1948 that Gandhi was shot dead by an assassin. Grasim Industries Ltd, the flagship of the Aditya Birla Group, was incorporated on 25 August 1947, just 10 days after India became independent. The firm then manufactured textiles from imported raw materials. Grasim is now a global leader in viscose staple fibre. Twists and turns Basant Kumar Birla —the youngest of Ghanshyamdas’ three sons—and his son, Aditya Vikram , were always the patriarch’s favourites. When Aditya Vikram returned after completing his education in the US in 1965 , he started Eastern Spinning Mills and Industries. In 1983, when Ghanshyamdas died, Aditya Vikram was appointed chairman of the Birla group of companies. Three years later, in 1986, the group’s firms were apportioned to family members and since Aditya Vikram and B.K. Birla managed many of the bigger companies, they got a lion’s share of the clan’s businesses. Aditya Vikram was a farsighted and enterprising businessman. In 1969, he started Indo-Thai Synthetics Co. Ltd, the Birla family’s first overseas venture. He went on to set up 19 companies outside India—in Thailand, Malaysia, Indonesia, the Philippines and Egypt. He also shifted his base from Kolkata, where business and industry was slowing, to Mumbai (then Bombay). He turned his companies around. Today, they include the world’s largest producer of carbon black and the largest refiner of palm oil. It is also the largest Indian multinational with manufacturing operations in the US, according to the group’s web site. At the time of his untimely death in 1995, the firms Aditya Vikram controlled had over Rs.8,000 crore in revenue globally, with assets of over Rs.9,000 crore, comprising 55 plants and 75,000 employees. Five years before Aditya Vikram Birla’s death, his son Kumar Mangalam had begun getting involved in the companies’ operations. In 1996, Kumar Mangalam consolidated all group companies under the umbrella of the Aditya Birla Group. Under Kumar Mangalam Birla, the conglomerate entered the businesses of copper, insurance, telecommunications, retail and software services. He consolidated, expanded and went on an aggressive acquisition drive. For starters, the group divested its stake in the oil refining business to Oil and Natural Gas Corp. Ltd (ONGC) in 2002 in a bid to sharpen its focus. After several rounds of mergers and demergers, Grasim acquired a controlling stake in the newly-formed cement firm, UltraTech Ltd, from Larsen and Toubro Ltd in 2004. Three years later, the group’s aluminium company Hindalco Industries Ltd acquired Atlanta-headquartered Novelis Inc., which made Hindalco the world’s largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia. Conglomerate@2014 Today, the Aditya Birla Group is a $40 billion (Rs.2.45 trillion) corporation and many of the group firms are in the league of Fortune 500 companies. It has over 120,000 employees from 42 nations, and operates in 36 countries. Notably, 50% of the Aditya Birla Group’s revenue comes from its overseas operations. The group has a presence in non-ferrous metals, cement, textiles, chemicals, agri-business, carbon black, mining, wind power, insulators, telecommunications, financial services, retail and trading solutions. The group owns one of the top three telecom companies in India, the nation’s largest cement manufacturer and one of its top retailers.
Friday, August 15, 2014
A revival in India's auto industry could lift imports of natural rubber for making tyres by a quarter this fiscal year, which would take inbound shipments to a record and may provide some support for global prices languishing at multi-year lows.
International prices of natural rubber have fallen by more than a quarter this year because of worries about weak economic growth in top consumer China and oversupply in the top Southeast Asian producers, Thailand and Indonesia.
"The growth in imports will continue in coming months," George Valy, president of the Indian Rubber Dealers' Federation, told Reuters. "Imports could rise to 400,000 tonnes this year as prices are lower in the world market and demand is rising."
India, which buys most of its natural rubber from Thailand, Malaysia, Indonesia and Vietnam, imported 325,190 tonnes in the last fiscal year to March 31.
Shipments in the first four months of the current fiscal year jumped nearly 48 percent from a year before to 133,789 tonnes.
Tyre makers are the biggest consumers of natural rubber and they are getting a boost as Indians buy more cars and other vehicles amid optimism about the economy under the new government of Narendra Modi.
Car sales grew for the third month in succession in July and are expected to rise between 5 and 10 percent this fiscal year, according to the Society of Indian Automobile Manufacturers.
"First signals of economic turnaround are in sight with the car industry registering growth in the last two months," said Raghupati Singhania, managing director at JK Tyre & Industries Ltd (JKIN.NS).
"Commercial vehicles are also showing signs of improvement. This augurs well for the tyre industry and coming quarters should see improved performance in terms of volumes and profitability."
India is the world's fifth-largest natural rubber producer but its imports have quadrupled in the past six years due to the rapid expansion of its auto industry.
Rajiv Budhraja, director-general of industry body Automotive Tyre Manufacturers Association, estimates natural rubber consumption could hit a record above 1 million tonnes in 2014/15, up from 981,520 tonnes last year.
"In the second half of the year, we are expecting higher growth in tyre sales than in the first half due to festivals," Budhraja said. India celebrates the religious festivals of Dussehra and Diwali in the next two months, when buying of vehicles is considered auspicious.
Budhraja expects tyre sales in the truck and bus segment to rise by 3-4 percent in the current financial year, while sales in the two-wheeler and passenger car segment could grow 6-8 percent.
The rubber price trend has boosted margins at tyre makers such as CEAT Ltd (CEAT.NS), Apollo Tyres (APLO.NS), JK Tyre and Industries, MRF Ltd (MRF.NS) and Balkrishna Industries BKLI.NS, as natural rubber accounts for more than 40 percent of the cost of a tyre.
BULLISH LONGER TERM
Despite growth in the Indian market, the near-term support for global rubber prices could be limited since they are dominated by demand from China, which has imported 2.45 million tonnes of natural and synthetic rubber so far this year.
In addition, Thailand, which produces around a third of the world's natural rubber and exports around 90 percent of its output, is sitting on huge private and public stocks put at half a million tonnes at the end of 2013, including 200,000 tonnes bought by the government to support the market in 2012/13.
Thailand's military government is now trying to encourage farmers to cut down more rubber trees to restrict supply and help shore up prices.
However, the predicted surge in Indian demand could spur rubber imports and help prices more over the longer term.
Tracking the drop in global prices, Indian natural rubber hit a 4-1/2-year low of 132.5 rupees per kg on Tuesday.
That is still 15-20 percent dearer than overseas prices, but it is not enough for many farmers.
"Indian farmers are not interested in tapping due to lower prices," said N. Radhakrishnan, a dealer and former president of the Cochin Rubber Merchants Association. "They are not making money. This year production could drop by 10 to 15 percent if prices remain at the current level."
India is forecast to be the world's third-largest car market by 2018, up from sixth now, according to IHS Automotive. "With the rapid growth in the auto industry, the demand-supply mismatch will increase," Valy of the rubber federation said.
And as that happens, tyre makers could be forced in coming years to snap up more cargoes overseas.
No one ever said it was going to be easy. Even so, rumblings of discontent over Narendra Modi’s first months as India’s prime minister are growing louder.
Following an overwhelming election victory in May, cheerleaders for Mr Modi predicted bold measures to tackle everything from investment logjams to subsidy reform. Thus far, however, little has materialised – and the lack of progress has been especially striking in one particular area: India’s lumbering state-backed enterprises.
Public sector companies remain hugely important to Asia’s third-largest economy. More than 60 sit among the Bombay Stock Exchange’s 500 largest listed entities, making up about a fifth of its market capitalisation, and dominating sectors such as banking, energy and natural resources.
In the mid-1990s, nine were dubbed the ‘navratna’ – meaning a ring or necklace studded with nine precious gems. These larger companies, including miner Coal India and explorer Oil and Natural Gas Corporation, were given special operational freedoms, in the hope they would grow into world-beating businesses.
No such luck. The original navratna have since delivered a far from glittering performance. With management dominated by retired bureaucrats, saddled with social obligations and beset by political interference, almost all have lagged well behind private sector competitors.
Just five years ago, state-backed companies made up a third of the value of India’s stock market – a level that has dropped steeply almost ever since, according to Ambit, a broker. Corruption has proved a problem too, as shown by the arrest this month of the chairman of Syndicate Bank, a midsize state lender, on charges of soliciting bribes.
The hope was that Mr Modi would change all this. During his tenure as chief minister of Gujarat, he had a solid record of shaking up fusty public sector bodies – typically by installing new management and setting simpler business objectives.
Some analysts even hoped Mr Modi would consider more radical steps, such as breaking up and privatising Coal India, or selling down government holdings in state-backed banks below 50 per cent. Since taking office, his administration has made clear that such measures are unlikely. Facing potentially angry trade unions, and wary of public opinion, India’s family silver is not for sale.
However, having rejected this path, Mr Modi looks set to take arguably a more problematic alternative: selling off small chunks of larger public companies – almost all of which are partially listed – without introducing changes to the way they are run.
Minority divestments can do little to improve business performance, and therefore represent a bad deal both for India’s government and its taxpayers
Next month, for example, the government is to sell a stake in steelmaker Steel Authority of India before moving on to larger entities such as Coal India and ONGC, in a drive to raise more than $10bn during this financial year.
Such sales are not a new idea. India’s previous government did much the same thing, as it tried to plug a growing fiscal deficit. But it did so with mixed interest from international investors, who fretted about weak operational performance and political meddling.
These worries are understandable. Minority divestments can do little to improve business performance, and therefore represent a bad deal both for India’s government and its taxpayers – given the much larger amounts that could be raised were management reforms to be introduced first.
A better path is set out in a recent Reserve Bank of India review of public sector banking reforms, led by former Morgan Stanley India head PJ Nayak. This suggests giving lenders greater operational independence, while also bringing in new management, paid at market rates and appointed free from political interference.
A similar template could be used to relaunch almost any public-sector company, allowing greater commercial focus while persuading politicians in New Delhi to view themselves as investors seeking returns, rather than owners.
Suitably revamped, there is no reason why energy groups ONGC and Oil India could not rival more efficient state-backed global players such as Petronas of Malaysia. Lenders such as State Bank of India could grow to resemble China’s giant policy banks. Even Coal India could shake off its basket case reputation.
But this will not happen by accident. At present, India’s navratna are in a woeful state, shackled by political tinkering and lacking the operational independence to turn their businesses around. Providing that freedom, and returning some sparkle to these jewels of corporate India, could be one of Mr Modi’s most important legacies.
Tata Motors, India’s oldest automotive group, beat forecasts on Monday, reporting that net profits tripled in the first quarter of this year as strong demand for the luxury Jaguar Land Rover brands made up for weakness in the domestic market.
Tata Motors reported consolidated profits after tax of Rs53.98bn ($882.39m) in the three months to June, up from Rs17.26bn a year earlier, on revenues of Rs646.83bn, up from Rs467.96bn
Economic growth and industrial activity remain weak in Asia’s third-largest economy, weighing on the crucial commercial vehicles segment. As a strong new government takes charge in New Delhi, however, investor sentiment has turned positive and car sales are slowly returning to growth after two consecutive years of decline.
“I see a shift happening in the trucks sector,” said Deepesh Rathore, director of Emerging Markets Automotive Advisors, a New Delhi-based research group. “I think the market is turning around and this long slowdown has also created some pent up demand in the system.”
On Tuesday Tata Motors is launching its new Zest model, a compact sedan that has received good reviews. Industry analysts say it is vital for the group to refresh its passenger vehicles portfolio, given the brand’s negative image.
Amid the wider slowdown in the industry, the group faces additional internal instability. Tata Motors is yet to appoint a new head to replace Karl Slym, who died suddenly in January, leaving a committee of executives as an interim replacement.
Shares in Tata Motors closed up 3.2 per cent at Rs446.55 ahead of the results.
JLR, the luxury British carmaker acquired by the Indian group in 2008, shored up Tata Motors once again in the first quarter of this year.
Retail volumes at JLR grew 22 per cent year-on-year to 115,596 units in the three-month period, driven by demand for revamped Range Rover models and the Jaguar F-Type. JLR posted profit before tax of £924m ($1.55bn) in the quarter, on revenues of £5.35bn.
The Chinese market has been crucial for JLR but late last month the company announced plans to cut the price of three models in the country, after the National Development and Reform Commission launched an investigation into the industry.
“It is the market regulator cracking down and companies just want to avoid this,” said Anil Sharma, senior research analyst at IHS Automotive. “Going forward I don’t see a very big impact because the company is going to localise the production, it is going to source locally and what we also see is that it’s going to be a market-wide phenomenon.”
At a press conference following the results, Ralf Speth, chief executive of JLR, said the voluntary price cut was mutually beneficial for carmakers as well as the Chinese government, while confirming that the group will open its first factory in China later this year.
JLR was a late entrant to the Chinese market, where Audi, BMW and Mercedes-Benz dominate the segment, but industry analysts have highlighted concerns that a slowdown in the economy could hit sales of the luxury British brands.
“I am absolutely convinced that the Chinese government is absolutely able to increase the economy and make the economy more stable,” Mr Speth added. “We are a small player, a very very small player in China and we are trying to do everything, we are dotting the ‘i’ and crossing the ‘t’ to make sure it is all correct there.
Tata Steel blamed a glut of steel imports for the slower than expected recovery of its European division, as net profits at India’s largest private sector steelmaker fell 70 per cent in the first quarter.
The Mumbai-based group said higher taxes and provisioning charges also ate into its bottom line, with net income dropping to Rs3.4bn ($55m) compared with the same period last year, well below the forecasts of industry analysts.
Even taking into account one-off charges, underlying performance at the group’s European division barely improved, dashing hopes that falling input prices and a recovery in steel demand would translate into a faster recovery in earnings.
Tata’s European operation, the legacy of its $13bn purchase of Corus in 2008, has launched a series of cost-cutting drives and redundancy programmes, as it attempts to recover from a protracted slump in steel demand, dating back to the global financial crisis in 2008.
Karl-Ulrich Köhler, Tata Steel Europe chief executive, said these efforts had helped to deliver a “slightly” better financial performance in the quarter, but blamed rising foreign competition for his division’s slower than expected improvement.
“European steel demand is moving in the right direction . . . [but] Europe’s position as the world’s most open market is bringing in a rising tide of imports. While we fully support free trade, all trade must be fair and international rules fully respected and enforced,” he said.
Tata’s European division accounted for slightly more than half of group revenue in the quarter, which rose to Rs364bn year-on-year, but contributed less than one-fourth of group-wide earnings before interest, tax and amortisation, a measure of underlying profitability.
Overall performance was also hit by a one-off impairment charge of around Rs16bn, relating to a stake the company owns in a troubled coal mining project in Mozambique.
Production at the facility had been affected by “logistical issues and security considerations”, the company said.
Tata Steel’s gradual recovery follows a grim period of heavy losses, which saw the company take a $1.6bn writedown last year, amid speculation that it would be forced to sell assets to stem mounting losses.
But despite the weak performance in this quarter, analysts said the group would benefit from further improvements in European steel demand, supported by the strong performance of its smaller but more profitable Indian division.
“The fear that investors had about their survival, their ability to repay debts, those concerns are clearly passed, the question is about the extent of improvements, and what they do next,” says Kawaljeet Saluja, a Mumbai-based metals analyst at Kotak, a broker.
Tata Steel is also midway through one of the largest debt restructuring exercises in Indian corporate history, as it seeks to refinance loans taken on during the 2008 purchase of Corus.
In July the company raised $1.5bn in new bonds, while Koushik Chatterjee, chief financial officer, told the Financial Times this month that he also planned to refinance around £2.9bn of debt on Tata Steel Europe’s balance sheet.
“We are in the process of discussing with various banks on the refinancing of the European debt, which will pan out over the next few months,” he said.
Shares in Tata Steel closed down around 1 per cent in Mumbai at Rs537, although the group’s results were released after market hours.