Foreign investors betting big on Indian consumers
Mumbai, 5 May
Aseries of in- bound investments in recent months highlights investors' rising preference of consumption- led Indian companies; they bet 1.2 billion Indians will spend more on food, travel and telephones.
From Diageo and Unilever to GlaxoSmithKline, all multinational companies want a bigger slice of the Indian consumption story — fuelled by rising income and small families, say bankers.
"We are seeing a secular growth trend in all consumer- led businesses, whether it's consumer products or health care — primarily driven by favourable demographics and increasing purchasing power. That is reflected in increasing M& A deal volumes, besides higher sustainable market valuations, as foreign investors don't feel concerned about any regulatory or governmental overhang that they see in other sectors in India," says UBS Investment Bank Managing Director Ravi Shankar.
The recent investments show foreign investors have completely shunned the infrastructure sector — roads and power, for example — which is facing serious issues of environmental clearances and land acquisition.
A top official of US- based Blackstone said all of the company's investments in the Indian infra sector were blocked due to problems plaguing the industry. " There is no option but to remain invested in infra companies," he said.
In contrast, in 2012, Indian food &beverage sales rose 21.2 per cent, while sales of home and personal care grew 17 per cent. Sales for airline and cell phone companies also grew. A Morgan Stanley report says food & beverages sales in India will rise another seven- eight per cent, while home and personal care sales will go up four per cent, ahead of a rise in disposable income over the next six years.
Adding to the consumption story are rising rural wages, which have continued to grow, 18.3 per cent on a year- on- year basis as of November 2012 — thanks to the National Rural Employment Guarantee Scheme.
The growth rate moved up from 1013 per cent in the first half of 2008 to an average 19 per cent annually over the past three years.
Against this backdrop, as economies across the world slow down, the Indian consumers are providing investors comfort to open their purses and put their money in companies here.
It's not only food products, the prospects of increased air travel by urban Indians and use of wireless phones have, respectively, made Etihad buy a 24 per cent in stake in Jet Airways for $380 million and led Qatar Foundation to invest $ 1.2 billion in Bharti Airtel. "It is indeed very heartening to see in- bound investments of significant size, such as that by Diageo, Unilever's stake enhancement, Qatar's investments in Airtel, etc, particularly at a time when the mood among Indians is cautious and somewhat negative. These clearly show long- term strategic investors view India as an attractive market in the long run, with strong fundamentals," says Barclays Capital Managing Director Pramod Kumar.
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Diageo, GSK, Unilever hope to make up for slow growth in home country
Announcement Target Acquiror Deal value ($ m) Industry group
30 Apr ' 13 HUL( 22.5%) Unilever ( UK) 5,401 Consumer products 11 Sep ' 12 USL( 53.4%) Diageo ( UK) 2,615 Food & beverage 27 Feb ' 13 Agila Specialties Mylan ( US) 1,850 Health care 3May ' 13 Bharti Airtel ( 5%) Qatar Foundation ( Qatar) 1,271 Telecom 26 Nov ' 12 GSKConsumer ( 29.3%) GSKPlc ( UK) 868 Food & beverage 14 Nov ' 12 Telephone licence Telenor ASA( Norway) 731 Telecom
(1800- MHz) for 6 circles
11 Mar ' 13 Telephone licence Sistema Financial Corp ( Russia) 665 Telecom
(800- MHz) for 8 circles
24 Apr ' 13 JetAirways ( 24%) Etihad Airways ( UAE) 380 Transportation 14 Jun ' 12 Multi Screen Media ( 32%) Sony Corp ( Japan) 271 Telecom 2Oct ' 12 Shriram Capital ( 26%) SANLAM ( South Africa) 240 Finance PROMISING AVENUES
Top 10 India- bound M& As since May 2012
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Foreign investors betting big...
It's not only large investors, even small ones are betting on consumer companies.
"The HUL open offer endorses that the Indian consumer market space is vibrant and growing, and one of the few sectors where growth rates are far higher than the growth rate of the economy," says InGovern Founder Shriram Subramanian.
"Given these, local investors have to decide whether they want to invest in comparable companies at modest valuations or ride the India growth and consumption story with the market leader," he adds.
Merchant Shipping Act to be amended
New Delhi, 5 May
The Indian shipping industry is all set to endorse two more International Maritime Organisation ( IMO) conventions, with the Union shipping ministry getting Cabinet nod to ratify both conventions. They will be adopted after a Bill amending the Merchant Shipping Act is approved by Parliament.
One of the conventions is the anti- fouling systems convention, which came into force on September 17, 2008, and prohibits the use of harmful paints on ships.
One of the primary aims of the IMO when it was created in 1948, was to control pollution created by maritime trade. With more stress on sustainability than ever before, the international organisation is pushing countries to fall in line with the best green practices.
"The anti- fouling convention prohibits the use of harmful organotins (compounds containing carbon) on the hull of the ships or external surfaces. Most Indian ships already follow this system," a senior shipping ministry official said. The use of such paints is believed to harm marine life and therefore, the overall environment. The convention has been ratified by 65 countries so far.
"It is a good move, because it will now enable India to enforce these rules on any vessel that calls on Indian waters. Most Indian shipowners already follow these conventions regardless of whether our flag state ratifies these or not, since we are working in a global environment," said Anil Devli, president, Indian National Shipowners Association.
According to the IMO, 2.7 per cent of man- made emissions are caused by ships. It aims that ships should bring down these emissions by 20 per cent by 2020 and by 50 per cent by 2050.
The second is the maritime labour convention of 2006, assuring abetter work environment for seafarers, mooted by the International Labour Organisation. The convention provides comprehensive rights and protection at work for more than 1.2 million seafarers of the world. The convention " aims to achieve both, decent work for seafarers and secure economic interests in fair competition for quality shipowners." Of the total 55 IMO conventions, India has so far ratified 33.
For the Indian shipping industry which has been in the red due to poor freight rates and rising fuel costs, meeting the IMO standards could prove to be another challenge.
"Cost of compliance will manifest. Most conventions have been signed and the time to bring them into force is now close. If companies don't comply, there could be trade repercussions," said Hemant Bhatt, senior director, Deloitte India.
|The Union shipping ministry will get Cabinet nod to ratify two more International Maritime Organisation conventions |The first is the anti- fouling systems convention, which came into force on September 17, 2008, and prohibits the use of harmful paints on ships |The second is the maritime labour convention of 2006, assuring a better work environment for seafarers, mooted by the International Labour Organisation |Of the total 55 IMO conventions, India has so far ratified 33 |For the Indian shipping industry which has been in the red due to poor freight rates and rising fuel costs, meeting the IMO standards could prove to be another challenge
Insurance companies will have to pay out more to road accident victims as the Supreme Court has added new criteria in computing compensation for death and injury. " We have to revisit the practice of awarding compensation under the conventional heads," the court stated in a recent order in the case of Rajesh vs Rajbir Singh. The court stated in countries such as the US, the UK and Australia, ' loss of consortium' is a major component of the compensation. " We are of the view that it would be just and reasonable that the courts award at least ₹ one lakh for loss of consortium," the judgment said. Loss of consortium, it said, means loss of spouse's affection, companionship, care and sexual relations. The court stated that at least ₹ 25,000 should be awarded on this count. In the case of selfemployed or persons with fixed wages, in case the deceased victim is below 40 years, there must be an addition of 50 per cent to the actual income while computing future prospects. The actual income should be income after paying tax if any. Victims between 40 and 50 years should get 30 per cent more. For those between 50 and 60 years, the addition should be 15 per cent.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Stock exchange loses suit
The Supreme Court has dismissed the appeal of Coimbatore Stock Exchange Ltd against the Madras High Court judgment in its dispute with the Tamil Nadu Electricity Regulation Commission over determination of tariff. The stock exchange, the railways and others had argued that the burden of subsidy given to some classes of consumers could not have been transferred to them and it was for the state government to compensate the board. Rejecting the contention, the court stated that the state commission has, keeping in view factors like geographical location of the consumers, the quantum of energy consumed by them, the time at which the energy is supplied to them, the nature of supply, etc, fixed different tariffs for different classes of consumers. Therefore, the high court was right in taking the view that the commission was entitled to fix different tariff for different consumers. Fixation of lower tariff for certain classes of consumers did not amount to discrimination, the judgment emphasised.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Highest bidder has no vested right
The Supreme Court has set aside the judgment of the Allahabad high court and ruled that a bidder has no vested right to get a property in auction merely because his bid amount is the highest and he had deposited 20 per cent of the highest bid amount along with earnest money. Allowing the appeal of UP Avas Evam, the court stated that in the absence of acceptance of the bid offered by a bidder to the competent authority, there is no concluded contract. So long as an order regarding final acceptance of the bid had not been passed, the highest bidder acquires no vested right to have the auction concluded in his favour and the auction proceedings could always be cancelled. The government can validly retain its power to accept or reject the highest bid in the interest of public revenue.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Court can override contract
Though parties to an agreement on referring disputes to an arbitration tribunal must follow the terms of the contract, in exceptional cases, the court can appoint its own panel. In case of differences, the chief justice is empowered to consider the rival contentions based upon peculiar facts read with the agreed clauses, the Bombay high court stated in the case, Afcon Infrastructure Ltd vs Konkan Railway. " There is no total bar or prohibition to overlook the agreed clauses. The basic requirement is to note the intention of the parties to settle their dispute within the agreed time." In this case, the construction company wanted a retired SC judge to be the president of the three- member tribunal. The railway resisted it and insisted that all members should be technical experts. The court stated that the presence of a technical member is important. But it was equally important to have a judicial member. It, therefore, appointed a retired judge as the presiding officer.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 'Puffing up' in ads permissible
Courts will not look at advertising material with a" magnifying glass" to see whether it affected rival products. " The promotion of a robust market for trade and commerce requires that the courts grant some latitude to the advertisers in designing and crafting their pitch to the consumers and the tendency to scrutinise such advertisements with a magnifying glass must be eschewed unless of course the claims made are found to be totally unsubstantiated and to have no basis in reason or logic," the Delhi High Court stated in the case, Marico Ltd vs Adani Wilmar. Marico sought permanent injunction restraining the other from broadcasting or publishing ads of its cooking oil under the brand name Fortune, because it was alleged to be disparaging the goodwill and reputation of its similar product Saffola. It was alleged that there was unfavourable comparison of the products with regard to their cholesterol lowering ability. Though " puffing up" is allowed in ads, disparaging rival products should not be allowed. The court did not grant injunction stating that a tradesman is entitled to declare his goods to be best in the world, even though the declaration is untrue.
Revamped EPCG scheme may take sheen off SEZs
The revamped zero- duty EPCG scheme gets rid of the restriction that those availing the benefit of Technology Upgradation Fund Scheme (TUFS) from the Ministry of Textiles cannot claim zeroduty EPCG authorisations.
The normal export obligation will be six times the duty saved to be fulfilled in six years but if capital goods are sourced domestically, the export obligation will be reduced to 90 per cent of the normal export obligation. For units located in Jammu & Kashmir, the export obligation will be 25 per cent of the normal export obligation, the same as that for units located in North East and Sikkim. The period for import under the scheme will now be 18 months instead of nine months, earlier. Henceforth, services exporters can also claim annual EPCG authorisation.
The new restrictions under the scheme include a bar on import of second- hand capital goods. Export of alternative products as well as export of group companies will not be counted for exports under the revamped scheme. Import of vehicles for hotels, travel agents etc. will not be allowed under the scheme. These restrictions, however, will apply to EPCG authorisations issued after 18.04.2013 and not to EPCG authorisations issued before 18.04.2013. EPCG authorisations will not be issued for import of power generating equipment and the restriction that in the same year, benefits of Status Holder Incentive Scrip ( SHIS) and zero- duty EPCG authorisation should not be claimed continues. Longer export obligation period available for EPCG authorisations for ₹ 100 crore and above will not be available any more.
The dispensation for import of spares up to 10 per cent of the value of capital goods imported under EPCG scheme and up to 10 per cent of the book value of other imported goods against 50 per cent of normal export obligation continues.
A new facility allows spares for imported capital goods exceeding the said limits against 100 per cent of normal export obligation. Strangely, the related Customs exemption notification no. 22/ 2013 dated 18.04.2013 does not mention this new facility. Also, why spares for capital goods procured from indigenous sources are not being allowed under EPCG scheme is difficult to understand.
Zero- duty EPCG scheme can entice more domestic tariff area ( DTA) units to take up export obligation but it removes an important consideration for setting up EOU or SEZ units. Now, the tangible concession that EOU and SEZ units get but DTA unit does not, is the refund of Central Sales Tax besides the facility to import used capital goods at zero duty.
For SEZ units, the other tangible benefit is the income tax exemption. However, the SEZ units cannot get any benefits of reward schemes under Focus Product Scheme, Focus Market Scheme etc.
Thus, the unintended consequence of more duty concessions and duty credit benefits for the DTA units is that more manufacturers may prefer to exit from the EOU and SEZ schemes and fewer may prefer to opt for those schemes.
tncr@ sify. com
Zero- duty EPCG scheme can entice more domestic tariff area units to take up export obligation but it removes an important consideration for setting up EOU or SEZ units
Company Secretary, Chennai
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