Friday, October 13, 2017

Stable crude price will bring capex back: L&T Hydrocarbon

L&T Hydrocarbon Engineering Ltd (LTHE), a wholly-owned subsidiary of infrastructure major Larsen & Toubro, has emerged as a winning bidder for ONGC’s Daman Development Project.
The offshore contract worth ₹1,150 crore — for the transportation and installation of the Daman project — becomes the second mega order bagged by the L&T division in as many months.
In September, LTHE bagged an engineering, procurement and construction (EPC) order worth ₹1,700 crore from Kuwait Oil Company to construct a new crude transit line (TL-5) from north Kuwait to Ahmadi.
In the first quarter of this fiscal, LTHE had bagged orders worth around ₹800. The Kuwait order, received in the second quarter, was among several others yet to be announced.
“People (now) have more certainty on crude prices,” Subramanian Sarma, MD and CEO at LTHE, told BusinessLine. “A couple of years back nobody knew when it would stabilise.”
“Now the industry consensus is that it will be around $50 per barrel. Having this certainty in mind, people have started making budgets and allocating money.By the second half of calendar 2018, I expect the general sentiment to improve and more capital to come into the market,” he added.
Turning around
According to Sarma, who took over as CEO and MD of LTHE in August 2015, after spending 25 years in the oil and gas industry in West Asia, the company has kick-started a major transformation to turn around the business, hit by both internal inefficiencies and a challenging external environment.
“We put a plan in place: how to consolidate, and how to rationalise and restructure. We have increased internal capabilities, put some digitisation elements in place, and looked at supply chain. We are taking these steps within the group’s five-year plan. The first stage, which is mainly business consolidation, is going to be completed in March 2018,” he said.
Sarma added that while the business may not show the same kind of performance as last year, it will contribute significantly to L&T’s overall revenue guidance of 12 per cent growth set for this financial year.
L&T’s hydrocarbon business turned around last fiscal, with revenue growing 19 per cent and margins improving as a result of more efficient execution, the company noted in its July presentation to investors. It registered a revenue of ₹2,546 crore in the first quarter of this fiscal, with international markets contributing more than half. LTHE’s order book stood at ₹23,026 crore as on June 30.

Sunday, October 8, 2017

China Overhauls Drug Approvals in Win for Global Pharma

China is revamping its approval system for medicines and medical devices to speed up access to new therapies, a potential boon for local innovators and international drugmakers expanding in the world’s second-largest pharmaceutical market.
Data from overseas clinical trials will be accepted for drug registrations in China, according to a statement from the State Council, China’s cabinet, published by the official Xinhua news agency. The changes will likely cut delays in approvals for new treatments by several years and free foreign drugmakers from requirements to conduct expensive late-stage clinical tests on Chinese patients.
Demand for new therapies is surging in China due to an aging population and rising incidence of chronic diseases such as cancer and diabetes, and the faster approvals are likely to provide a boost to multinationals like Pfizer Inc., AstraZeneca Plc and GlaxoSmithKline Plc, who are expanding there. China spent $116.7 billion on medicine in 2016 and the market is second only to the U.S. in size, according to researcher QuintilesIMS.
Shares of Chinese drugmakers researching new medicines jumped on Monday. Jiangsu Hengrui Medicine Co. surged as much as 6.5 percent and Shanghai Fosun Pharmaceutical Group Co. added as much as 6.1 percent.
"For multinational and leading local innovative drugmakers, the anticipated acceleration of approval will improve patients’ access to new medicine and increase revenues for pharmaceutical companies," said Jialin Zhang, senior health-care analyst at ICBC International Research Ltd. 

The changes had already been widely telegraphed by the Chinese government, which earlier this year said it was considering overhauling the approval process.

The China Food and Drug Administration has conducted bold reforms in recent years, and the latest policy appears to have received the blessing of top-levels of the central government, said Zhang. Reforms "will help the industry select its fittest for survival and improve its overall competitiveness," he said in an e-mail.  
The reforms also include measures to speed up approvals for clinically needed drugs and equipment, establish a compulsory-licensing system and make it easier for research institutions to conduct clinical trials, according to the document. The government will also explore a slew of rules to protect patents.

Alphabet's Google Assistant AI Can Rule Inside Home Appliances: Seeking Alpha


Google Assistant was declared to be the smartest voice-based digital assistant earlier this year.
Voice-based artificial intelligence services is an important part of Google’s cloud computing and advertising platforms.
LG Electronics' use of Google Assistant on its nearly 90 home appliances increased the total addressable market of Alphabet’s voice-based AI service.
Google Assistant uses Alphabet’s search engine to provide results to voice queries. Consequently, personal data gathered from LG appliance users are valuable to Google’s advertising platform.
Anything that improves the core advertising business of Alphabet is worth discussing here at Seeking Alpha. There is no ad-blocking software yet on voice-based appliance search queries.
LG Electronics (OTC:LGEAF) has expanded its use of Alphabet’s (GOOG) (GOOGL) Google Assistant voice-based artificial intelligence app on more than 80 smart appliances. LG-branded refrigerators, gas range, dishwashers, washing machines, ovens, and other home appliances can now be voice-controlled with Google Assistant via Google Home or any compatible Android/iOS smartphone.
(Source: LG Electronics)
Google Assistant was declared the smartest digital assistant earlier this year. Like how Android conquered the mobile devices ecosystem, third-party support can boost Google Assistant's eventual ascendance as the industry-leader for voice-based artificial intelligence.
Revenue from the global Virtual Digital Assistant Market is predicted to reach $15.8 billion by 2021. Home appliances like those from LG are the consumer VDAs (Virtual Digital Assistants) hardware. Tractica's chart below illustrates that Consumer VDAs will form the larger base in the Virtual Digital Assistant Market.
VDA-16 chart2

Industry support for Google Assistant among electronics product vendor is a tailwind for Google's AI push.

Why LG Electronics Is Important To Google Assistant

LG Electronics greatly increased the total addressable market of Google Assistant. Google's consumer-centric AI service has increased its reach into people’s home. Consequently, its search engine advertising and personal data gathering will penetrate deeper into the lives of people who will use Google Assistant on their laundry and kitchen appliances.
Going forward, LG is likely to incorporate direct Google Assistant access to its future smart appliances. The current implementation still requires the use of Google Home or a smartphone/tablet but that is not yet optimal. My fearless forecast is that most future home appliances will have built-in internet connectivity and default smart assistant software.
Alphabet’s Google Home smart assistant gadget is not yet as popular as Amazon’s (AMZN) Alexa-enabled Echo smart speaker. However, LG Electronics is a multi-awarded industry leader in laundry and kitchen appliances. By virtue of its global appliance customer base, LG is now an important growth driver for Google Assistant.

Why Google Assistant Needs To Be As Successful As Android

Voice-based artificial intelligence is an important part of the multi-billion voice-recognition market. Grand View Research surmised that implementation of AI-enhanced voice-based apps on home appliances can help accelerate the voice-recognition market to grow to a $127.58 billion industry by 2024.
Smart home appliances made by LG Electronics adds to the future economic benefit of Google Assistant. Google’s digital advertising business needs new channels to penetrate. PCs and smartphones will eventually reach saturation point. It is also more convenient to directly talk to a Google Assistant-enabled electric stove on how to cook particular dishes, rather than having to do it via Google Home or smartphone.
It is also more satisfying to dictate an email to a relative or co-worker via your washing machine in the basement, than having to go upstairs and seek your phone just to do the same task.
Furthermore, like traditional advertising on radio, Google will probably implement voice ads through its Google Assistant app. Instead of charging users a monthly fee to access artificial intelligence applications, Google will likely enforce ad monetization on Google Assistant.
Further, Alphabet needs a growing advertising business because I do not think its Google Cloud business segment can catch up with Microsoft’s (MSFT) Azure and Amazon’s (AMZN) AWS. I also seriously doubt Google G Suite’s future success against the mighty Office 365/Microsoft Teams/Dynamics package.
Google Cloud is a far third to cloud infrastructure leaders, AWS and Azure.
Alphabet is also eating dust behind Microsoft on Software-as-a-Service. AI-assisted digital advertising will, therefore, remain as Google's core business.

My Takeaway

Wide industry support is why Android became the dominant operating mobile system. Likewise, third-party support from hardware manufacturers is a boon to Google Assistant.
Google Assistant is Alphabet’s potential universal 24/7 window to people’s household habits. Integrating Google Assistant and its search engine matrix on refrigerators, washing machines, stoves, and other household appliances allows a persistent peek into people’s behavior/habits beyond their online surfing or mobile device usage.
Most people still shop offline, they go to brick & mortar malls and groceries. Google cannot obviously access the data on what people like eating/drinking if they bought food from non-online retailers. Google Assistant accessing an LG smart refrigerator solved this dilemma.
GOOG, GOOGL, and LGEAF are worth adding to your long-term portfolio. Their collaboration to make smart homes really smarter is a good idea for their respective businesses.

Wednesday, October 4, 2017

Digital eyes and ears on: the internet of things takes off

This May, California-based company C3 IoT announced that it was managing streams of information from 100m digital eyes and ears. The sensors and devices that the eight-year-old business has “under management” are planted in the factories, processing plants and buildings belonging to its clients, which include global energy company Engie and the US Department of State. By helping these organisations harvest and make sense of the data flowing through their systems over the internet, privately held C3 IoT — valued at more than $1bn — increased its revenue by 65 per cent year-on-year. The start-up’s growth is a sign that the internet of things — the attention-grabbing label that refers to electronic devices that send and receive information over the internet — is becoming big business. Twenty years ago, being online meant hunching over a chunky desktop computer and dialling up the internet on a fixed phone line. Today if you wear a FitBit or Garmin Activity Tracker you are already connected. The internet is also in home appliances such as sprinkler systems controlled by smartphones or fridges that order more milk when supplies run low. For companies, connected devices present compelling opportunities. Bill Ruh, chief digital officer at US conglomerate General Electric, hailed the IoT as “the way to get to the next level of productivity”. A growing business commitment is reflected in hiring patterns. According to a LinkedIn analysis, the third quarter of 2017 saw four times more advertisements for jobs mentioning the IoT than in the same quarter two years ago. The number of such jobs posted is, on average, doubling each quarter, year-on-year. IoT sensors in electronic equipment constantly gather data. Businesses can crunch through this, often using machine learning, to discover more about their customers, machines or supply chains. It is a wealth of information that should, in theory, help managers and executives make better decisions.   Grassroots groups use ‘internet of things’ data to tackle damp and noise Amazon working on first wearables to interact with Alexa Possessed: the dangers of the digital home Researchers expect that companies will increase spending to capture the potential benefits of “internetting” everything, from tracking pallets of their goods to giving WiFi-connected pedometers to staff. Estimations for spending on the IoT vary considerably. Research firm Technavio believes that the market value of the IoT could be nearly $132bn in 2020. Gartner says more than $440bn will be spent on the IoT in 2020. IDC, meanwhile, reckons that global spending on the IoT will reach $1.29tn in 2020. Sam Lucero, an analyst at IHS Markit, says the numbers are hard to verify: “To my way of thinking it does not mean anything because who’s getting that money? It’s a very convoluted picture, ultimately.” Mark Hung, an analyst at Gartner, says that while connected consumer goods such as Apple’s smartwatch have gained most media attention, “industries that are asset-intensive by nature”, including manufacturers and energy companies, spend the most on connected devices. The companies benefiting most from the internet of things are the ones providing the services to build it. Companies are still in the exploration stage with most of their IoT projects   Bringing the IoT to business is a slow process rather than a revolution. “Right now, the internet of things is still largely about increasing efficiency,” says Mr Lucero. The companies benefiting most are those providing the services to build it, says Mr Hung, “because companies are still in the exploration stage with most of their IoT projects . . . they’re looking for outside help for that,” rather than trying to create them in-house. Cloud computing giants, allowing organisations to access their information from anywhere on the planet, are the biggest providers of IoT platforms — including Google, Microsoft, Amazon Web Services and IBM. Long-established manufacturing and utilities companies have also rushed to offer IoT services. Hitachi, the Japanese company, made what Toshiaki Higashihara, company president and chief executive, called a “monumental change” in September, when it combined three companies into Hitachi Vantara, a single business focused on the IoT. GE has also entered the arena, offering Predix, an IoT platform for industry, while SoftBank, the Japanese telecom company, this year acquired chipmaker Arm Holdings for $32bn, largely based on its anticipated ability to produce 1tn chips for IoT devices over the next two decades. Some start-ups hope to establish themselves in the nascent market for providing IoT platforms, notably Ayla Networks of California, which is backed by investors including Cisco and led by David Friedman, who previously worked at tech groups ZeroG Wireless and SanDisk. The IoT does, however, come with a host of real world difficulties, from ethical questions over companies spying on employees to an organisation’s vulnerability to cyber attack. Internet-enabled devices have been hacked and used to mount cyber attacks. Stories abound about mundane internet-connected items being exploited to gain access to systems, including a fish tank in a casino The US Federal Trade Commission is so concerned about the effect on the privacy and information security of consumers that it laid out best security practices two years ago. Mishandling IoT security is a legal and reputational risk for companies and the commission has already taken device-makers to court. In January, it charged D-Link, a computer networking company, and its US subsidiary, over inadequate security measures that the regulator says could have allowed criminals to gain access to users’ live webcam feeds — although part of the FTC’s case was subsequently dismissed by a California judge. Chris Doran, director of research collaborations at Arm Holdings, told the MIT Technology Review that security anxieties were a barrier for the IoT. “Most people realise . . . that IoT won’t happen until security is cracked to the point that people have a sufficient level of comfort [with it],” said Mr Doran. There are also ethical concerns, with the EU taking a dim view of businesses using wearable devices to monitor staff’s footsteps: an EU panel said in June that the practice should be outlawed even if businesses obtained workers’ permission. These potential storms make it difficult to determine the return on investment that companies will achieve from becoming hyper-connected, says Mr Lucero. Even within the industry, companies are pragmatic about how far the IoT can go. CloudMine, a Pennsylvania-based start-up, provides hospitals with a platform to help manage and analyse data, a key component for any IoT project. “I think that health IoT, whether it’s wearables or portable devices, provide us with the ability to capture an unprecedented amount of patient data,” says Steve Wray, CloudMine’s chief executive. This patient information could be used to personalise healthcare. He adds, though, that “the great promise somewhat has to be tempered with a bit of realism,” because healthcare in the US “operates in a largely disconnected state.” “Healthcare IoT is an example of potentially putting the cart before the horse,” he says. 5G and the fourth industrial revolution According to Rajeev Suri, Nokia’s chief executive, the fourth industrial revolution will be powered by superfast 5G internet. “I know that more than a few of you may wonder why we need 5G, wonder what is so different about it, wonder whether it will be worth the billions planned to be spent on it,” he told the Mobile World Congress. “My simple answer is yes. It is both worth it and it is also necessary.” Visitors to Seoul for next year’s Winter Olympic Games will be the first to try the turbo-charged internet connection, thanks to a rollout by Ericsson and the KT Corporation (formerly Korea Telecom). A full mobile-standard version of 5G is expected to be widely available by 2020, says IHS Markit analyst Sam Lucero. Analysts say that 5G will be a big leap forward for the industrial internet of things, for example enabling split-second responses on a factory floor. Less battery power will be required for devices connecting to 5G, meaning that remotely deployed devices, for instance a sensor detecting water levels on a farm, could last much longer. Orange and Nokia are partnering to accelerate the development of 5G services for industries in Europe.

How 3-D Printers Could Erase a Quarter of Global Trade by 2060: ING

Critics of global trade might find something to celebrate in the advent of 3-D printing. 

Raoul Leering, head of international trade analysis at at ING, writes that growth in 3-D printing could wipe out almost one-quarter of cross-border trade by 2060. His review of the technology’s landscape kicks off this week's economic research wrap, which also touches on innovation clusters, attitudes about men and women in the American workplace, and the demographics of art spending. Check back each week for a rundown of new and pertinent economic studies. 

Printing away trade flows

If high-speed 3-D printing makes mass production using the tool viable, it could cause major disruption to the global flow of goods, Leering writes. About half of manufactured good could be printed by 2060 if the current growth of investment in the technology persists, he estimates. That would cut world trade by a quarter, because it would require less labor and reduce the need to import intermediate and final goods from low-wage countries. That could cause trade deficits to narrow for major importers, though countries with a trade surplus could suffer.

That’s Leering’s slow-growth scenario. If investment ramps up, doubling every five years, he guesses that as much as two-fifths of global trade could disappear. His estimates are uncertain (there is no data on the value of 3-D printed products and related services worldwide, and the technology hasn’t yet evolved to the point that it’s enabling mass production), but they highlight that there’s potential for disruption. 

Now Robots Are Coming After India’s Low-Cost Labour

Butler, a stubby, orange robot, crawls along the aisles to fetch everything from smartphones to shampoos from warehouse shelves. It takes an hour to do what an average worker does in five. Its cousin Sorter, a smart conveyor belt, arranges parcels by weight, size and delivery location at least four times quicker than humans.
Built by India’s largest warehouse robotics startup GreyOrange, they help online retailers and logistics firms cut delivery time and costs, central to the fight for supremacy in this nation’s booming e-commerce market. The startup operates from Gurugram and Singapore counts the country’s biggest e-tailer Flipkart, furniture portal Pepperfry and courier service providers DTDC and Delhivery among its clients.
“With the help of these robots, an order can be picked from the warehouse and dispatched in 20 minutes,” said Akash Gupta, co-founder and chief technology officer of GreyOrange. The robots are already sorting about 1.2 crore packets a month, he said. Butler and Sorter could even replace 60-80 percent of warehouse workforce, according to a GreyOrange presentation.
That robots are gaining ground in a land of abundant cheap labour shows just how dramatic the disruption to human work could become in the very near future.
A warehouse worker here earns Rs 10,000 a month on an average (about $8 a day). As online retailers turn to machines to manage a growing volume of orders, a chunk of such unskilled jobs could become redundant. More so when homegrown e-tailers like Flipkart – still the nation's biggest e-commerce site backed by SoftBank Group Corp, Tiger Global and Tencent Holdings – battle Seattle-based giant Amazon, which triggered an automation war in the U.S. by acquiring Kiva Systems for $775 million in 2012.
“The kind of jobs we used to see in warehouses four, five years back are not going to be there in the coming two to three years,” Satish Mena, an analyst at Forrester Research India Pvt., told BloombergQuint. “The pace of job creation in these warehouses is slowing down. The scale e-commerce companies are looking at, and the order volume they are getting, they need robots and humans to work side by side.”
The advisory firm expects India’s online commerce to be a $64-billion market in four years, clocking a five-year compounded annual growth rate of 31.2 percent.
Amazon and Flipkart opened nearly a quarter of their 71 warehouses in the last one year. Having lured customers with discounts, they are dealing with demanding buyers in a competitive market. The focus has shifted to same-day deliveries and easy returns, to win customer loyalty.
With automation, the number of jobs per warehouse may not increase or could decrease as companies become more efficient, said Arvind Singhal, chairman of Technopak Advisors Pvt. Ltd, a retail consulting firm. “Yet, as the e-commerce industry grows, the likes Flipkart and Amazon will require more distribution centres and will require more people to manage them.”
Flipkart, Pepperfry, Delhivery didn't respond to BloombergQuint’s queries and Amazon said it doesn't use robotics in India but has an automated conveyor system at two of its largest warehouses.
GreyOrange said it has shipped the robots to logistics companies globally, from Chile and Brazil to Singapore and Hong Kong.
Having raised $35 million from the likes of Tiger Global Management and Blume Ventures, it runs eight offices in five countries and employs more than 650 people. The company declined to share revenues.
Courier service DTDC Express Ltd., which serves more than 11,000 locations, has been using the GreyOrange Sorter for three years now. It used to take six to seven hours to push a parcel out of its hub. The time has come down to 90 minutes after installing the sorter, said Abhishek Chakraborty, executive director at DTDC Express.
“It reduced the number of human touch-points that came in the journey of the parcel. The speed went up and the number of errors came down.”

Dawn of Solar Age Declared as PV Beats All Other Forms of Power

Solar power blossomed faster than for any other fuel for the first time in 2016, the International Energy Agency said in a report suggesting the technology will dominate renewables in the years ahead.
The institution established after the first major oil crisis in 1973 said 165 gigawatts of renewables were completed last year, which was two-thirds of the net expansion in electricity supply. Solar grew by 50 percent, with almost half new plants built in China.
“What we are witnessing is the birth of a new era in solar PV,” Fatih Birol, executive director of the IEA, said in a statement accompanying the report published on Wednesday in Paris. “We expect that solar PV capacity growth will be higher than any other renewable technology through 2022.”
This marks the sixth consecutive year that clean energy has set records for installations. Mass manufacturing and a switch by governments away from fixed payments for renewables forced down the cost of wind and solar technology.
The IEA expects about 1,000 gigawatts of renewables will be installed in the next five years, a milestone that coal only accomplished after 80 years. That quantity of electricity surpasses what’s consumed in China, India and Germany combined.
The surge of photovoltaics in China is largely due to government support for renewables, which are being demanded by a population concerned about air pollution and environmental degradation that has led to deadly smogs. The country is seeking to reduce its reliance on coal and has become the world’s largest market for renewables, particularly solar.
“The solar PV story is a Chinese story,” said Paolo Frankl, head of the IEA’s renewable energy division. “China has been for a long time the leader in manufacturing. What’s new is the share in the market. This year, it was equivalent to the total installed capacity of PV in Germany.”
The U.S. and India are among other nations pushing renewables. They along with China are projected to make up two-thirds of the clean-energy expansion worldwide. Despite President Donald Trump’s vow to bolster coal’s position in the power market, the U.S. is expected to be the second-largest market for renewables.
The IEA also expects biofuels to take a larger role in the transportation industry, surpassing gains by electric vehicles.
“A lot of attention has been given in recent months to electric vehicles, and rightly so. They are increasingly globally, exponentially,” Frankl said. “But I have to say, we should not forget the biofuels, which at the end of 2016 represented 96 percent of total renewable transport.”
Electric vehicles numbers will double by 2022, but biofuels will still make up 93 percent of renewables consumed in the transport industry, the IEA estimates. The fuels are needed especially for heavier vehicles including planes and ships.
The organization recommends that governments put incentives in place to spur the development of biofuels made from non-edible plants, which would avoid diverting food crops into fuel tanks. The cost of biofuels currently is about double the global price of gasoline, Frankl said.

Sustained energy demand recovery absent: ICRA

A sustained energy demand recovery is still absent and the stressed thermal assets are sizeable at about 60 GW, credit rating firm ICRA said today.
The recent uptrend in the electricity demand growth has led to a marginal improvement in the all India thermal PLF (plant load factor or capacity utilisation) to 59.9 per cent for the first five months of 2017–18 as against 59 per cent in the April–August period of last fiscal, ICRA said.
The government has recently launched Saubhagya Scheme with a thrust on rural electrification, which will improve an energy demand in the near to medium term in ICRA’s view, if the scheme is implemented in a timely manner.
It said in a statement that a sustained demand recovery, however, is still absent and thus the energy demand growth from the relatively high tariff paying industrial and commercial segments remain critical for both the state distribution utilities and IPPs.
Also, it added, the stressed thermal capacity in private IPP (independent power producers) segment remains sizeable at about 60 GW, despite the various policy level initiatives undertaken by the government.
This affected thermal capacity is due to several issues such as lack of long-term (LT) power purchase agreements (PPAs), non-availability of domestic gas and unviable tariffs in the PPAs (power purchase agreements) due to capital cost escalation and fuel pricing issues for imported coal, ICRA said.
“Among this, affected capacity due to lack of LT PPA remains quite significant and estimated at about 25 GW,” said Girishkumar Kadam, Sector Head & Vice President, ICRA Ltd.
Further, on the distribution front, the issuance of tariff orders by the State Electricity Regulatory Commissions (SERCs) for 2017–18 have been delayed in a number of states, with only 12 states issuing tariff orders as per timelines (i.e., by March 31, 2017), it said. While out of the remaining 16 states, 9 states have issued tariff orders post March 2017 and they are yet to be issued in 7 states.
This apart, the extent of average tariff hike, based on the tariff orders issued in 21 states is at a modest 4 per cent which also differs from the tariff hike proposed under the UDAY MoUs in some of the key states.
With respect to progress on implementation of UDAY (meant for revival of debt laden discoms), the liquidity profile of the discoms has improved to some extent for utilities with stretched financial position post refinancing and part takeover of the debt by the respective state governments.
“However, the improvement on the operating efficiency front continues to remain slow with AT&C loss level for utilities in many of the key states like Haryana, Punjab, Rajasthan and Uttar Pradesh being much higher than the targeted loss level agreed in the UDAY MoUs,” Kadam added.

Smart highways are the road to the future

The world has been taken over by the digital wave with several industries embracing digital innovations. Therefore, it is imperative for the Indian highways sector also to be at the forefront of this transformation.
‘Smart roads’ or ‘Smart highways’ gaining ground in the developed world essentially use a suite of technologies that are intended to be both interactive and largely self-powering. The concept holds tremendous potential for India considering its road network is the second largest in the world and continues to be the most important means of transport carrying almost 80 per cent of the country’s passenger traffic and around 65 per cent of its freight. This large road asset can be leveraged for a lot more than it currently is, implementing technology innovations that yield significant improvements in the driving experience. We have identified several such innovations that can be applied to create smart highways to help improve and redefine the driving experience across three thematic areas: communication, convenience and safety.
Communication: Imagine if our roads/highways could ‘talk’ to vehicles plying on them! This is not a thing of the future but a reality in the present. Smart-road-to-vehicle communication can help create safer roads, more efficient travel, reduced air pollution and better driving experiences. Cameras and sensors embedded in our roads can detect congestion, traffic blockage or diversions and relay this information in real time back to upstream vehicles through digital signage allowing drivers to vary their speed accordingly or take alternative routes. The autonomous vehicles of tomorrow will require these inputs to chart their driving course in an effective manner and will ensure more road safety in the long run. Road-to-vehicle communication will serve as the foundation for safe, connected, autonomous vehicles of the future, giving vehicles the ability to “talk” to each other, and roadway infrastructure.
Convenience: The idea of smart lighting solutions for roadways powered by either harvesting solar energy or through piezoelectric sensors in the ground both is appealing and scores high on both energy efficiency and utility. Implemented in Japan and Israel, the technology relies on piezoelectric crystals placed below the surface of asphalt used on roadways. These piezoelectric devices, used for harvesting the kinetic energy of roads and walkways from the traffic moving over them, can produce electrical energy that is predictable (based on traffic patterns) and locally storable. The electrical energy harvested is sufficient to power smart lighting poles on highways, freeways and rural roads, and are extremely helpful in foggy or heavy monsoon-prone areas.
The interactive lighting system is another smart solution which uses motion sensor lights that glow bright as a vehicle nears it, illuminating a particular stretch of the road and slowly dims out as the vehicle moves away. It is a splendid solution for less-travelled highways, providing night visibility on demand and proving the best for road safety.
Safety: Safe highways will go a long way in improving throughput of our highways. In a quest to improve safety on highly risky mountain roads and highways in India, ‘SmartLife’ poles were developed. The system uses these poles to communicate with each other and exchange data on incoming traffic just before sharp turns and hairpin bends. These poles gauge the speed of vehicles and alert drivers of approaching traffic by sounding a horn. The first prototype of this system is currently being tested on NH1, the highway connecting Jammu and Srinagar, infamous for being one of the most dangerous roads in the world.
Similarly, smart systems can use digital sensors to acquire data pertaining to landslides, accidents, traffic jams and weather conditions, activating warning systems in time and enabling active LED displays on roads and highways. The Eastern Peripheral Expressway is India’s first smart highway bolstered with highway traffic management systems (HTMS) and video detection systems (VIDS) to relay the information collected to a central server in the control room resulting in real-time incident management. The Incident Management Control Centre is integral in maintaining an overall safe roadway. Running 24/7, it monitors traffic with an array of intelligent transport systems and is also able to successfully deploy ground recovery crew to assist motorists in distress. More such initiatives need to be implemented across all our highways.
Charting success
The world is slowly but steadily transitioning to a future in which self-driving automobiles will define the traffic landscape. Are our roads and highways equipped for this transition? Moreover with Smart Cities currently dominating discussions on the next generation of urban infrastructure and transportation, Smart Highways/Roads promise to be the third link to the chain in the fight against congestion and carbon emissions, helping to ease the flow of traffic, reduce accidents and in some instances, serve as viable sources of renewable energy in their own right. Smart highways are a crucial link in improving road transportation landscape in the country.

Tuesday, October 3, 2017

The reorganization of Future Group

Kishore Biyani does not like the word “restructuring”. Through the duration of an interview with Mint, he was careful to reiterate that his sprawling retail and consumer products empire, Future Group, has simply been reorganizing.
“We are always reorganizing”, Biyani said at his office in Tardeo, south Mumbai, one of two that the company operates out of in the city. The other is in Vikhroli. “The consumer is constantly changing, we have to change too. We reorganize every three-four years.”
But this reorganization has been under way for almost a decade.
The trademark of Biyani’s company is rapid, inorganic growth. In the last decade, Future Group has mutated considerably through a stream of acquisitions, sales and spin-offs. Year-on-year comparisons have become so difficult that most analysts tracking the group’s five listed entities have stopped coverage. 
Consider the events of the last few months.
In May, Biyani announced he was taking fbb, the group’s mass fashion retail chain, to Oman, through a joint venture. In the same month the two arms of his furniture retail business, HomeTown and FabFurnish, were demerged into a separate entity, and he transferred ownership of Lee Cooper, one of Future Group’s biggest fashion brands, to a separate entity. Only a couple of months before this, Biyani had announced a joint venture with American organic food firm Hain Celestial that would sell vegetable chips and other snacks in India. Meanwhile, he has finally finished reorganizing his retail arm, Future Retail Ltd, after acquiring Sunil Mittal’s Bharti Retail and south Indian retail chain Heritage.
Despite Biyani’s attempts to downplay the constant business restructuring, the group is undergoing a major reorientation, from being primarily a retail business to a consumer goods company. “I’m a consumer goods company,” he said. “I’m not a retailer anymore. Retail is the distribution part of my consumer business.” Future Consumer Ltd already has close to 30 brands in food, beverage, home and personal care, all part of the group’s listed company.
While there is plenty of movement within the Future Group, there is little clarity on how Biyani’s mainstay retail business, Future Retail, will look. Analysts are waiting to see how Future Consumer manages to integrate with the group’s retail focus. In addition, while Biyani has said he wants to consolidate all his retail offerings under Future Retail, his apparel brands firm, Future Lifestyle and Fashion Ltd (FLFL), and owns and operates two apparel retail chains, Brand Factory and Central. 
What will the Future Group of the future look like? Is the latest move one restructuring exercise too many? The jury is still out.
Rise of the small store
In 2012, Biyani sold Pantaloons, his first successful retail chain, to Aditya Birla Nuvo Ltd to defray some of the Rs5,800 crore debt the parent company had. Since then, Future Retail has changed beyond recognition through acquisitions, mergers and restructuring.
In 2016, Bharti Retail became part of the group. Bengaluru-based retail chain Heritage, previously owned by Andhra Pradesh chief minister N. Chandrababu Naidu, was added to the business in November 2016. Biyani spent nearly Rs800 crore on these acquisitions. The group now operates in seven retail formats: the large gourmet store chain Foodhall, smaller ones including BigBazaar and Easyday, along with the furniture and fashion store chains. Its largest retail brand is BigBazaar, with 235 stores in 124 cities covering 10.18 million square feet of retail space, as per data from the Future Retail annual report for fiscal year 2017 (FY17). 
Now Biyani wants to focus on smaller stores.
“Our next round of growth will come from the small store,” said Biyani. “We visualize it from a very different angle. We call it the Pados ki Dukaan, your neighbourhood store.” The group’s small stores, Easyday, Heritage Fresh and Nilgiris, will cover most of India, under brand names known to those regions locally, he said.
“It will be like your Dubeyji,” said Biyani. “You can get everything that you want. We want to open maybe 7-8-10,000 small stores.” He believes it does not matter what name a small store operates under, as long as it is well-planned and functions smoothly.
After acquiring the Easyday chain of convenience stores, Biyani began merging his own small store format, KB Fair Price, with the rest of the chain. “Easyday stores, Heritage Fresh and Nilgiris will all be small stores,” Biyani said. “We will touch 1,000 stores this year. That’s huge.”
Biyani’s strategy is built squarely on his acquisitions from the past fiscal year. First was Heritage, then Nilgiris, another southern Indian grocery store chain. Finally came Easyday, with stores heavily concentrated in north India. He is clear he wants to concentrate on the small store format. 
Biyani plans for these stores to operate on a subscription model. “It’s a membership programme,” he said. “For every neighbourhood store we want to have 1,500 members, not more. We will serve these 1,500 members the way they want to be served. You tell me what you want and we will get it, at 10% less than market price.”
“It will be more technology-driven than one can imagine”, he said. Data analytics will help each store monitor consumer behaviour and manage inventory.
Retail analysts say investing in setting up a small store network in India will pay off in the long term, particularly in newer urban centres. “Organized retail is now growing at double-digits in India,” said Pankaj Renjhen, managing director of retail services at real estate consultancy JLL India, in an interview. “With the introduction of hypermarkets, consumers are getting smarter. They are open to the idea of shopping in a better environment, and the market is set because consumption is growing fast in India as well. Now if retail chains move to the hub and spoke model (a pared-down network in which smaller centres are connected to large distribution stations), you take the experience of the big stores to the consumer’s doorstep.” 
While this may not replace the traditional kirana store for consumers everywhere, Renjhen said organized small stores like the one Biyani is setting up can work best in “new” urban areas, where mom-and-pop stores are not omnipresent. These include cities like Gurugram and Noida in the National Capital Region, and newly developed urban fringes of cities like Pune.
“The story is set for small format stores, especially in mature markets,” said Renjhen. “In some cases, if mom-and-pop stores are able to compete and differentiate, they will (survive). In some cases, they can even do better, because they can align to their local market: they might be able to customize better because they know what sells best in that neighbourhood, or can give their customers a better experience.”
One example of where kirana stores score over organized retail is that they are willing to make sales on small lines of credit to loyal, local customers. Biyani’s subscription model seems an attempt at emulating this.
Unfinished business
So where does Future Group’s iconic Big Bazaar, the large supermarket chain, fit in this new push? Biyani has not thought that aspect through.
“We will work that out,” he said. “We’ll take our customers’ opinions into consideration, but not in the first phase (of reorganization). In the second phase (of reorganization), yes.”
This does not mean the group will refrain from expanding. Biyani says he will open between 25 and 30 Big Bazaar stores every year. “It’s in a great position,” he said. But Biyani is also shifting Big Bazaar’s positioning, moving from the “cheap and best” monthly-visit supermarket slot to a “lifestyle departmental store chain”.
Big Bazaar’s closest rival also relies on this image of “cheap and best”. D-Mart, the chain run by the recently listed Avenue Supermarts Ltd, now has a higher market capitalization than Future Retail. But Biyani doesn’t think much of the comparison. Hence the repositioning of Big Bazaar, from the go-to cheap supermarket to the aspirational all-American department store.
“The Indian market can take a lot of other models,” he said. “D-Mart is a discount-led retail chain. That is a deep-discounting model. They have been very focused and very consistent. We are moving more towards a lifestyle, departmental store chain. We are a kind of a variety departmental value store.” Biyani explains that one of his earliest inspirations was upmarket Manhattan drugstore and convenience store chain Duane Reade (a subsidiary of Walgreens Boots Alliance).
In truth, D-Mart does not offer discounts, but instead has an “Every Day Low Price” scheme that enables it to sell certain categories at a lower price than other vendors. 
“I am happy where I am,” Biyani said. “India doesn’t have a convenience store, India doesn’t have a neighbourhood store. India needs a lot of models.”
Shares of Future Retail have soared as urban consumers spend more. Future Retail’s stock price rose 309.61% in calendar year 2017 till date. Analysts tracking the stock said the shares are in demand because the company was at the forefront of all the M&A (mergers and acquisitions) action in the grocery retail space.
Stocks of other group companies Future Consumer and FLFL also rose 199% and 162.9%, respectively, until September, primarily because of the overall rise in urban discretionary expenditure, as per analysts tracking the stocks.
Online experience
One of the models Biyani experimented with early is e-commerce. He set up in the mid-2000s, but it wound up quickly.
In April last year, he acquired online furniture retailer FabFurnish for Rs15-20 crore in cash. The investment complemented his furniture retail business HomeTown. The Economic Times (ET) reported in May last year that Biyani planned to spin both off into a merged entity. HomeTown is the largest retailer on Just over a year later, Biyani is looking to exit both businesses, quitting specialty retail entirely.
When Mint spoke to Biyani in February, he said, “We are working on how to look at speciality retail outside our system. We might look at demerging it, we might look at selling it.”
However, in April this year, Biyani demerged the business into a separate entity, Praxis Home Retail Pvt. Ltd, a little less than a year after buying from Rocket Internet for Rs20 crore.
Though he was an early proponent of e-commerce, Biyani is now seen as a physical retail business owner, someone who does not believe in e-commerce. He resents this, arguing that his considerations are purely practical.
“The cost of doing business is unsustainable,” he said. “It’s not about e-commerce as a business. 20% cost of customer acquisition, 20% cost of delivery, 8% technology cost. You can’t sustain any business on this basis. Of course great enterprises have been created, but in the long term it’s the model that you build that works. We have also suffered a lot. You have to build a sustainable model.”
Biyani now believes retailers should not have an e-commerce strategy at all. In an interview published by ET on 26 June, he said, “It is stupid to be in the online space…having burnt our fingers, we have decided to take a break of at least two years before even thinking remotely about online.”
This from the father of modern Indian retail, at a time when the world’s largest retailer Wal-Mart Stores Inc. is investing heavily in its e-commerce operations to catch up with online retail giant Inc. Amazon, in turn, is investing in offline retail networks. In June this year, Amazon acquired American grocery chain Whole Foods for $13.7 billion in an all-cash deal. Wal-Mart is building a formidable online presence. It acquired online menswear retailer Bonobos for $310 million in June, along with other apparel e-companies like Moosejaw and ModCloth. It seems clear that Amazon and Wal-Mart are on a collision course.
Globally, online and offline retailers are rapidly converging in each other’s territories, as retail margins shrink for companies following both business models. Closer home, offline retailers including Tata group’s Trent Ltd and Godrej Group’s Godrej Nature’s Basket have acquired small online app-based retailers to set up their online sales operations as part of their “omnichannel” strategy. But Biyani is firm, saying his group will not invest in an omnichannel strategy for its physical stores for now.
The spectre of debt
Biyani started restructuring his company in 2012 because of the debt it had incurred. This debt has long been a dampener on his plans, but he says Future Group will be debt-free in the next four or five years. He declined to share details.
“We don’t have too much of debt in any case,” he said. “You have seen Future Lifestyle and Fashion. We’re halving our debt in the next couple of months.”
Future Lifestyle is a repository of all the apparel brands Biyani owns, formerly grouped under Pantaloons Retail Technologies Ltd. Now some of the group’s apparel retail chains are also on this company’s books, including Brand Factory and Central. fbb, the apparel fashion chain that Biyani is betting heavily on, is part of Future Retail. 
In an analyst presentation for the December quarter of FY17, Future Lifestyle said it had a network of 380 stores over 5.5 million sq. ft in more than 90 cities in India. This included the Central and Brand Factory chains of apparel retail stores, as well as exclusive brand outlets.
In FY16, Future Lifestyle had debt worth Rs2,358.31 crore, with a debt-equity ratio of 1.45, as per the company’s latest annual report. But Biyani isn’t slowing down expansion plans. The overall debt of the group is falling, and Biyani says he will expand the company’s retail footprint with internal accruals alone. “We are financing through cash flows,” he said. “We have developed a model that means we don’t need to worry about expansion.”
That plans seems fairly ambitious, judging by the debt records of Future Group’s holding company.
In December 2010, Kishore Biyani took the first steps towards making ownership of the Future Group companies more transparent. He transferred his family holdings in the many group companies to a single holding entity called Future Corporate Resources Ltd (FCRL). For FY16, FCRL reported its net worth as Rs2,446.30 crore, in filings with the Registrar of Companies.
The company’s total debt for FY16 stood at Rs2,339.85 crore, a little less than its actual net worth, as per data from a private placement letter it circulated on 31 March 2017. This translates to a gross debt/equity ratio of 0.96. Debt has risen 17.2% year-on-year from FY15. In the last three fiscal years, gross debt/equity ratio has been between 0.6 and 0.96. The letter also noted that FCRL’s annual interest expenditure had risen a whopping 55% year-on-year in FY16, to Rs154.53 crore. Credit rating agency Icra Ltd is the lead agency that rates debt issued by FCRL. As of 16 January this year, it had ratings for five debt instruments issued by the company, amounting to a total of Rs1,400 crores. All of them are rated BBB-, meaning they carry a “moderate degree of risk” of defaulting on outstanding obligations. The outlook on this rating is stable as per the January report. Each tranche of FCRL’s long-term loans has remained at a BBB- rating since June 2012.
Icra’s commentary on FCRL epitomizes the present situation at Future Group. In a report published in January 2017, Icra said the rating also takes into account the currently weak financial profile of the company “on account of high borrowing levels and consequently high interest costs. Further, the market value of FCRL’s listed investments, though improved in the current year, continues to remain lower than the book value, impacting the market value buffer, though the difference between the book and market value has currently narrowed since FY15 levels”.
But Biyani is undaunted. Alongside the rapid Big Bazaar expansion, he wants to grow his fashion brands as well.
“I think Cover Story (a new fashion brand catering to younger women) has done phenomenally well,” he said. “People are comparing our products to Zara and H&M, and rating them much higher. We will gradually increase the size of the stores.” Currently, Cover Story stores are 1,000-1,200 sq. ft each. Foreign competitors—fast-fashion pioneers like Zara, H&M and Forever 21—typically operate much larger stores.
He is also planning another fast-fashion brand. “There will be a new brand,” said Biyani. “It is currently on the drawing board. It will be done by the same team (that designed Cover Story).” He would not share more details.
Biyani also would not give details of the total investment he has planned for the fiscal year. But he says he will invest money across all his listed entities, retail, fashion and consumer. On 28 August, another of Biyani’s companies, Future Supply Chain Solutions Ltd, filed draft papers with the market regulator for an initial public offering. This is the group’s logistics arm, for which a majority of sales come from other Future Group companies. Mintreported in August this year that the issue will be worth nearly Rs700 crore, citing two people aware of the development who had requested anonymity.
Biyani ended FY17 by setting up two new wholly owned subsidiaries under Future Lifestyle: FLFL Lifestyle Brands Ltd and FLFL Business Services Ltd. Once the Competition Commission of India cleared the deal, Biyani completed the transfer of his largest brand, Lee Cooper, to another subsidiary, Future Speciality Retail Ltd. Despite this restructuring, Biyani’s other major fashion retailers, Central and Brand Factory, are still part of Future Lifestyle and Fashion, though it is Future Retail that is meant to be the repository of his retail formats.
Coming back on track
For the last six or seven years, equity brokerage firms had stopped tracking Future Group’s various listed companies because they were constantly changing shape, making year-on-year comparisons impossible. But with the establishment of Future Consumer and Future Retail, analysts are once again covering the group’s activity.
Morgan Stanley has initiated coverage of Future Retail. Yes Bank’s equities team is now covering Future Consumer, starting this fiscal year. The reports are generally hopeful. “De-merger of the retail infrastructure has transformed Future Retail (FRL) into an asset-light business,” Morgan Stanley said in its first report, from March this year, on Future Retail.
Yes Bank began coverage of Future Consumer in March, anticipating that the business will grow partially by piggybacking on Future Retail’s anticipated growth. “FCL is expected to grow at a strong pace led by multiple drivers: expansion of FRL’s store count; increased penetration to such stores,” the report said.
Analysts who formerly tracked these companies are also taking notice. “Overall disclosures (for brokerage reports) are going up, and we are seeing more stability, no reckless expansion, and he is exiting non-performing businesses,” said Abneesh Roy, senior vice-president at Edelweiss Financial Services Ltd. Roy used to track Future Retail for Edelweiss. “Market cap is reflecting that. Earlier we didn’t see many examples of this (careful expansion). Biyani is focusing on inventory control.”
Previously, Biyani’s hallmark was acquisition, which he would use to test a new business model. Now, Roy says, it looks like Biyani is being more cautious. “Most of his recent acquisitions have been at low or fair value,” he said. “Earlier he was tying up with a lot of brands. Now he is acquiring his own, which gives him more economies of scale.”
The pace of expansion
In an interview with Forbes Magazine in 2010, Biyani said that he would slow the company’s pace of restructuring. Two years later, he sold his flagship retail business Pantaloons to the Aditya Birla Group. the apparel chain that made him famous as a retailer. Yet, he then embarked on a hectic restructuring journey, focused on reducing debt and clubbing like businesses together.
Seven years on, Biyani says he has learnt from the heady days of trying anything and everything. “We are more careful than we used to be,” said Biyani. “We think a lot before we do something now. We have a lot of advisers working with us. Earlier the advisers were…you sought their advice once in a while…you went there for half an hour, one hour. Now we sit with them, now we spend time with them.” One of the advisers Biyani regularly consults is Milind Sarwate, former chief financial officer of Marico Ltd, who was officially brought on as an adviser to the group in October last year. 
But some observers say Biyani has not changed his experimental ways. “Mr Biyani seems to have tried to implement every idea that came his way,” said independent market analyst Ambareesh Baliga. “Having had the first-mover advantage in retail and with investors queuing up at obscene valuations, he did what most others before him did—he thought he had the magic wand and encashed the demand for his equity.”
Baliga says Biyani’s dream run could well be flagging, as he continues to expand into non-essential businesses. “My unsolicited advice for Mr Biyani is stick to two major verticals, retail distribution and brands,” he said. “Concentrate on food and daily essentials, and related. Exit Ezone, fbb, HomeTown, and expand Foodhall to other tier I and tier II cities.”
Baliga compared Future Group to D-Mart, arguing that Biyani had been unable to find a single, consistent business model to stick to despite owning several attractive businesses.
Restructuring is often a big, bad word that businesses don’t want to be associated with. But Biyani is clear that without willingness to change, a business cannot move forward. “Who knows?” he said philosophically. “I am a strong believer that nothing is permanent in life. So who knows what will happen three of five years down the line?”