Cygnus Daily Business Update 17 Mar,10
G.V.Sandeep
Indian Economy
Converge schemes to check child labour: PlanCom
Widespread use of child labour in India is likely to take centre stage when the Planning Commission discusses the mid-term appraisal of skill development for the 11th Plan period (2007-12). The Commission, in a draft document to be included in the mid-term appraisal, has emphasised on the need to develop institutional convergence mechanism for both national and state level schemes to combat child labour. It is in favour of removing the below poverty line (BPL) criterion for labour and employment schemes in order to enhance inclusivity. This could mean integrating government endeavours like National Child Labour Project (NCLP) with social sectors schemes like Sarva Shiksha Abhiyan (SSA) and Integrated Child Development Scheme(ICDS). The draft identifies state government institutional structures as the weakest links in preventing child labour. It also suggests revising protocols developed by the ministry of labour, to allow state departments to independently conduct raids for rescuing and rehabilitating children. The full plan panel will carry out the mid-term appraisal of the entire plan period on March 20. The proposed chapter on skill development shows that even as the global economic downturn adversely affected some sectors like textiles, mining, metals among others, overall employment had risen by 1.51 per cent during the current financial year. On the other hand, the proposed appraisal says in spite of several legislations and policies, the problem of child labour has persisted as one of the greatest challenges facing the country. According to the 2001 Census, around 1.26 crore children are suffering due to child labour, out of which 12 lakh children are working in hazardous conditions.
Bill to strengthen petroleum Act introduced
Petroleum & Natural Gas Minister introduced the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Amendment Bill, 2010, in the Lok Sabha. The Bill proposes to amend Sections 15 and 16 of the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962, to strengthen the enforcement mechanism and penal provisions more stringent for pilferage of crude oil and petroleum products. Since crude oil and petroleum products are very costly, any spillage is a financial loss to the company, besides being a disruption in the supply of crude oil or finished products, damage to cultivable soil, as well as loss of life and property, in case of a fire, etc. Despite regular patrolling and inspection of the pipelines, incidents of pilferage and sabotage by anti-social elements have been frequent in case of various pipelines.
Inflation touches 16-month high of 9.89%
The headline inflation rate, as measured by the wholesale price index (WPI), touched a 16-month high of 9.89 per cent in February and is certain to be in double digits on a point-on-point basis in March. The rise in inflation rate was primarily driven by fuel prices and the low base effect. The overall inflation is set to accelerate in the current month due to the increase in excise duty, which will push up the index in March. With the prospect of double-digit inflation and with the growth in industrial output touching 16.7 per cent, analysts expect the Reserve Bank of India (RBI) to raise policy rates like repo and reverse repo by 25-50 basis points in the fourth-quarter monetary policy review on April 20. The Inflation rate for primary articles stood at 15.54 per cent in February, as against 6.85 per cent during the corresponding month in 2009. However, on a month-on-month basis, the prices of primary articles registered a decline of 0.88 per cent. Fuel prices showed significant increase and registered an inflation rate of 10.19 per cent, against a decline of 3.40 per cent last year. Prices of high-speed diesel oil grew at the fastest rate, of 8.85 per cent, in the fuel category. On a monthly basis, fuel prices rose at a the rate of 1.54 per cent in February. The Inflation rate for manufactured products stood at 7.42 per cent in the month under consideration, against 4.78 per cent in the corresponding period last year. On a month-on-month basis, prices of manufactured products increased at the rate of 0.61 per cent.
Industry News
Agri Commodities
Centre averse to subsidise wheat purchases by pvt sector
The Centre is strongly disinclined to subsidise wheat purchases by the private sector while opening up sale of wheat from the Food Corporation of India (FCI) in the current marketing season notwithstanding massive stocks that are estimated at over 40 million tonnes by July 1, way over the buffer norm of 17 million tonnes. The e-sale of FCI wheat in a pilot scheme using an electronic platform to offload stocks began today, replacing the earlier and controversial tender-based scheme. Private trade, against this, may be left with little option but to use the lack of stock holding limits on wheat and the opening up of futures trade to its best advantage, even as exports stay banned. But while the news on spot and futures prices for wheat may be dampeners for private trade, consumer prices seem set for marked tempering. The fact that the government has huge wheat stocks will also keep price up spirals checked.
Automobile
Issues with M&M over Logan yet to be sorted
French auto major Renault is yet to sort out the differences with Mahindra & Mahindra over their joint venture that sells Logan, while stressing that the car will continue to ply on the Indian roads. Mahindra Renault, the joint venture in which the French automaker holds 49 per cent, has been struggling to sell Logan with sales declining to just 4,981 units in April-February 2009-10, down 60.03 per cent from the year-ago period. While M&M wants to tweak the specifications of Logan to make it smaller in order to qualify for excise benefits on small cars, Renault has been against it thereby putting strain on their partnership.
Banking
Decline in CDS spreads may push up ECB volumes
Receding fears about sovereign debt defaults in Greece, Spain and Portugal and a positive outlook on India’s economy have reduced credit default swap (CDS) spreads for Indian companies over the past few weeks. This will translate into lower borrowing costs. The CDS spread reflects the cost of insuring an underlying security against default and is used to gauge an entity’s credit risk. “CDS spreads across the world have eased over the past few weeks as fears of default by Greece have been assuaged by the European Union. In India, they have eased even more because of the economy’s positive outlook. In fact, the cost of foreign currency-denominated loans for Indian companies has eased by as much as 150 bps over the last quarter due to an improvement in global economic outlook. Top-rated Indian firms can now avail of a five-year loan at a spread of 200 bps over the London Interbank Offered Rate (Libor) compared to a spread of 350 bps in the previous quarter. Second-rung Indian companies, for whom dollar loans were out of the question six-eight months ago, can now expect spreads of around 300 bps over Libor. Libor is the rate at which banks can borrow funds from each other in the London interbank market and is one of the most widely used benchmarks globally for short-term interest rates. Most loans in the overseas capital markets are priced at Libor plus a risk premium, known as the credit spread.
Axis AMC looks to triple assets in India
Axis Asset Management Co, backed by India’s third-largest non-state bank, plans to triple its assets over the next year as it aims to become one of the nation’s top 10 money managers. Funds under management may rise more than threefold to Rs 10,000 crore ($2.2 billion) by March 31. Axis posted the biggest increase in assets under management last month among Indian money managers, according to data compiled by Bloomberg, with funds climbing 42 per cent to Rs 3,750 crore in February. India’s mutual funds industry has gained fivefold in size in as many years, with assets under management swelling to Rs 7.8 lakh crore in February. India’s 1.1 billion people, almost half of whom are under 25 years old, are spending more on electronics, clothes and cars as incomes grow in the world’s second-fastest growing major economy.
Banks try to clean books through settlements, NPA sales
With the financial year coming to a close, commercial banks have hastened work on sprucing the health of balance sheets. Many banks have floated one-time settlement (OTS) schemes for small and medium enterprises and tring to sell non-performing assets (NPAs). State Bank of India, Corporation Bank, Karnataka Bank and Karur Vysya Bank has already floated an OTS each. Many others are in the process of doing so. The financial crisis and the recent regulatory fiat for increasing the provision coverage ratio are also driving them. The global financial crisis put a strain on corporate, small enterprises and retail borrowers, leading to substantial addition to gross NPAs. Plus, the Reserve Bank of India mandated banks to attain a 70 per cent loan loss coverage ratio by September 2010. Chennai-based Indian Overseas Bank has commenced sale of NPAs for Rs 954 crore, involving 61 accounts. Its gross NPAs rose in the 12 months ended December 2009 to Rs 3,218.3 crore as against Rs 1,718.1 crore in December 2008.
Bulk Drugs
Setback for Zydus Cadila in trademark case
Zydus Cadila had earlier moved the Supreme Court to vacate an injunction which prevented it from selling its anti-depressant drug ‘Venz.’ This was because Mumbai-based Sun Pharmaceuticals complained that the drug’s name is similar to its own anti-depressant drug ‘Veniz’ and is therefore an infringement on its trademark. Sun Pharma got an ex-parte injunction against Zydus Cadila last November. After failing to secure a favourable order at the Madras High Court, Zydus was forced to knock on the doors of the Supreme Court with a special leave petition. But the apex court dismissed the petition and asked the Madras High Court to dispose off the matter by the end of this month. The outcome is crucial for Sun Pharma as Veniz is believed to be one of its top selling drugs, which its been selling for ten years now.Venz, on the other hand was launched late last year. Both these anti-depressant drugs are generic versions of Wyeth’s Effexor.
Construction
Cement prices may move up again
Cement prices could rise again this month-end, the second hike on the trot in less than a month, presaging many more this year as a dearth of key inputs and transportation woes threaten to negate the odds of an oversupply in the next quarter. Cement prices, which rose by Rs 10 a bag early this month after the government hiked excise duty to 10% from 8% in the budget, is set to see a similar hike as producers are planning to pass on the impact of the recent diesel price hike to consumers. The 240 million tonne domestic cement industry, which transports nearly 60% of its dispatches by road and 40% by rail, pays as much as 20% of its operating costs on transportation. So, typically any hike in transportation costs alters cement prices. The 240 million tonne domestic cement industry, which transports nearly 60% of its dispatches by road and 40% by rail, pays as much as 20% of its operating costs on transportation. So, typically any hike in transportation costs alters cement prices.
Education
Indian school foundation laid in Dubai
In order to offer Indian curriculum as prescribed by the CBSE, the foundation stone for an International Indian High School (IIHS) has been laid at the high-technology park in Dubai. In his capacity as patron of the Indian High School, Dubai (IHS Dubai), Sheikh Ahmed also presented a cheque of 100,000 dirhams (USD 272) on behalf of the IHS students to Mariam Othman, Director General of Rashid Paediatric Therapy Centre. Sanjay Verma, India's Consul General to UAE, Mohan Valrani, Chairman of Indian High School Dubai, as well as senior officials from DSOA and Indian High School Dubai were present. An initiative of IHS Dubai, the IIHS is scheduled to commence functioning from April 2011, offering Indian curriculum as prescribed by the Central Board of Secondary Education (CBSE). The academic focus will extend to IT, research and subjects such as nanotechnology. The new campus will be fitted out with state-of-the-art facilities such as an amphitheatre, cafeteria, activity room, gymnasium, swimming pool and a temperature controlled indoor sports complex.
Centre to focus on ITIs & polytechnics, leave IITs, IIMs for private players
The government may go slow on spending public money in creating new educational institutes such as IITs, IIMs. It can be achieved by creating opportunities for youth and women in semi-urban and rural areas. There could be possibility of public-private investments, but public funding will be the main source. There should not be competition between public and private institutes. One of the core principles (of the council) is that the government money must target market failure, there is no need to crowd out or compete with private funding. It will be chaired by the Prime Minister, forms strategies and sets priorities for skill development. Its members include minister of human resource development, finance minister, minister of rural development, minister of housing & urban poverty alleviation, minister of labour & employment, deputy chairman of the Planning Commission and experts such as Dr CK Prahlad and Nandan Nilekani. Focus should be also on setting up institutes such as Industrial Training Institutes (ITIs) and polytechnics to develop high-quality skilled workforce that could meet current and emerging market needs. There is a proposal to evaluate existing human resource development schemes and the government may withdraw resources from non-performing schemes and re-allocate them. The government conceived a skill development mission last year to address the issue of unemployment in the country. It is expected to create job opportunities for over 70 million people in the Eleventh Plan (2007-11).
IT-BHU to become IIT; expenditure proposal cleared
Paving the way for creation of a new IIT in Varanasi, the finance ministry gave the go- ahead to a proposal to convert Institute of Technology of Banaras Hindu University (IT-BHU) to an IIT. The Expenditure Finance Committee under the ministry cleared the HRD ministry's proposal to provide additional Rs 238 crore grant to IT-BHU in the next three years. Now the matter will go to the Cabinet for consideration. As per the proposal, the government will provide Rs 154 crore in remaining period of 11th Plan and another Rs 83 crore in the first year of the 12th Plan. The Banaras Hindu University Act will have to be amended to convert the IT-BHU to an IIT. The IIT Act of 1961 will also have to be amended to include IT-BHU as an IIT. The institute has so far produced more than 22,000 B.Tech graduates, 2700 M. Techs and 650 doctoral degree holders.
Foreign universities may get India ticket
India moved another step closer towards hosting campuses of foreign universities, with the Cabinet clearing a long-pending legislation, which the government described as a milestone that will enhance choices, increase competition and benchmark quality. The foreign education bill will now go to Parliament for ratification. The move was welcomed by domestic private players in the education sector, and foreign universities, too, lauded the effort, but many of them said they had no immediate plans to set up campuses in India. The Foreign Educational Institution (Regulation of Entry and Operation ) Bill will be the government’s second attempt at clearing decks for foreign universities. An earlier version of the bill was cleared by the Cabinet of the first UPA administration in 2007, but it could not be introduced in Parliament because of objection by Left parties who were then propping up the government. With the Left’s clout considerably depleted in UPA-II , the government hopes that chances are bright that the bill, which has been revised since then, will go through.
Engineering
L&T bags Rs 1,000 cr project from ONGC
Engineering major Larsen & Toubro (L&T) has bagged a project worth Rs 1,013 crore from Oil & Natural Gas Corporation (ONGC). The company has bagged the contract for four well platforms for the Mumbai High North Re-development Project. The scope of the contract includes engineering, procurement and installation of these platforms. The Mumbai High field has been operational since 1974 and ONGC is currently in the process of ramping up production.
Health Care
WHO, UNICEF suspend use of Shantha Bio's vaccine
The World Health Organisation (WHO) and the UNICEF have suspended the use and purchase of Shan5 vaccine from Sanofi Aventis owned Shantha Biotechnics pending a quality investigation. WHO recommends to stop procurement and to suspend use of all lots of the Shan5 vaccine supplied to countries pending ongoing investigations. There has been no report of adverse reaction so far on those who have been administered the vaccine and the suspension is more of a precaution. Shan5 vaccine is used to prevent infection of 5 different diseases including tetanus.
Religare Tech buys healthcare biz of Sobha Renaissance
Healthcare and IT solutions provider Religare Technologies Ltd has acquired the healthcare business of Sobha Renaissance Information Technology Private Ltd. Sobha Renaissance is a company promoted by the founder of Sobha Developers.
ITES
China without Google: 'A lose-lose scenario'
China without Google a prospect that looks increasingly likely could mean no more maps on mobile phones. A free music service that has helped to fight piracy might be in jeopardy. China's fledgling Web outfits would face less pressure to improve, eroding their ability to one day compete abroad. The extent of a possible Google Inc. pullout from China in its dispute with the communist government over censorship and hacking is unclear. But on top of a local search site that Google says it may close, services that might be affected range from advertising support for Chinese companies to online entertainment.
Life insurance
Irda forms six panels to revamp rules
Ahead of amendments to the Insurance Act, the Insurance Regulatory & Development Authority (Irda) has formed half-a-dozen committees to review the regulations governing the sector. The rules are being reviewed for the first time after the sector was opened to private competition at the start of the decade. Since the enactment of the Insurance Regulatory and Development Authority Act in 1999, the regulator has issued nearly two dozen regulations, including on solvency margins, licensing of agents, investment, advertisements and third-party administrators. The proposed amendment to the insurance laws will give additional powers to the insurance regulator. Irda has formed these committees to manage the different tasks that it will undertake after the Bill is cleared by Parliament. The first committee will look after registration, capital structure, initial public offerings and mergers and acquisitions. The second will look into actuarial, account, binding up and solvency issues. The third will take care of intermediaries, commissions, rural and social sector obligations, policy protection, solatium fund, ombudsman and grievances. The fourth has been asked to keep tabs on investment, expenditure control and unit-linked insurance products). The fifth one will oversee penalty, penal causes, adjudication, prosecution, nomination, succession and other legal issues, while the sixth will look into reinsurance-related issues. Once the laws are amended, regulations related to the commission will fall under Irda’s purview and it will have the power to change the commissions paid for insurance products, which are right now embedded in the product.
Private insurance firms have more death claims than LIC
Private sector insurance companies have more than three times the outstanding number of death claims on individual insurance policies compared to state-owned Life Insurance Corporation of India (LIC). The outstanding number of death claims, as on March 31, 2009, as a percentage of total number of claims intimated to the companies in 2008-09 stood at 7.75 per cent for private companies. The same for public sector LIC was 2.21 per cent. For group policies, private sector companies had 3.93 per cent outstanding claims while LIC had 0.24 per cent.
Media
M&E industry poised to grow at 13% over next five years
The Indian media and entertainment industry is slated to grow at a compounded annual growth rate (CAGR) of 13 per cent over the next five years to Rs 1,09,100 crore. The gaming and the animation segments are expected to lead among all others with an expected CAGR of 32 per cent and 18.7 per cent respectively over the next five years. The industry witnessed a tough phase in 2009 recording a marginal growth of 1.4 per cent to Rs 58,700 crore due to the economic slowdown and reduction in advertising spends. However, despite the slowdown, the TV industry grew 6.8 per cent in 2009. In the last year, the print media industry showed a very moderate growth of 2 per cent as there was a decline in advertisement revenues, which was partly offset by the growth in circulation revenues. The industry is projected to grow at a CAGR of 9 per cent and reach around Rs 26,900 crore by 2014. Growth drivers for the sector would include expansion of multiplex screens resulting in better realisations, an increase in the number of digital screens facilitating wider releases, higher cable and satellite revenues, improving collections from the overseas markets and ancillary revenue streams like DTH, digital downloads, etc, which are expected to emerge in future.
Ad industry to grow at 14% in 2010: KPMG
The Rs 23,840-crore advertising industry, which saw flat growth in calendar year 2009, is set to grow at a compounded annual growth rate (CAGR) of 14 per cent in 2010. While regional advertising showed resilience even during 2009, it is set to grow stronger, as advertisers reach out to rural areas and Tier-II cities. The growth in regional advertising is partly driven by new sectors such as education, hospitality, real estate and jewellery, which often have local brands and therefore prefer to advertise through local channels. Today, Tier-II and Tier-III towns are emerging as important growth centres and most major brands are increasing their focus to cater to them. Regional TV channels have recorded a growth rate of roughly 25 per cent. This should drive media planners to raise the ratio of ad volumes placed in the local media. KPMG believes online advertising will grow about 30 per cent per annum, establishing itself as the fastest growing advertising medium.
Non life insurance
Fire, health insurance likely to become dearer
After hitting the bottom in the first six months of 2009, rates of most non-life insurance products increased during the second half of the year. In the absence of new players, rates are likely to move further up and customers are likely to see an increase in premiums in most segments, by Marsh-insurance broker and risk advisor. The general liability market has been very competitive in recent times. Rates had hit a low at the beginning of 2009 but in the latter part of the year, they started to increase. In contrast, the commercial insurance market in most of Europe, the Middle East and Africa (EMEA) remained stable in the second half of 2009. The report analysed 10 major commercial insurance lines across 42 countries, including India. Premium on property increased by up to 10 per cent during the second half as insurers ceased to offer high discounts. Similarly, premiums on healthcare and casualty increased by up to 10-20 per cent as it became unsustainable for players to discount it. Prior to detariffing, group mediclaim policies were doled out as freebies with fire and engineering policies. During the same time, India witnessed 10-20 per cent increase in trade credit insurance rates while the EMEA countries saw an exception in case of trade credits. The report said that increases in trade credit insurance coverage ranged from more than 50 per cent in Greece and Lithuania. While the average increase in the UK and Ireland ranged from 10-30 per cent.
Oil & Gas
PSU Oil cos loss seen at Rs 47,960 cr
State-owned fuel retailers- Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) - are likely to end the fiscal with a loss of Rs 47,960 crore on selling petrol, diesel, domestic LPG and kerosene below cost. Losses on fuel sales have widened as global oil rates have firmed up in March. IOC, BPCL and HPCL currently sell petrol at a loss of Rs 6 per litre, Rs 4.06 a litre on diesel, Rs 16.91 per litre on PDS kerosene and Rs 267.39 per 14.2-kg LPG cylinder. The revenue loss for the 2009-10 has widened to Rs 47,960 crore against earlier projection of Rs 45,000 crore. Of the Rs 29,353 crore loss in April-December period, the upstream firms contributed Rs 8,364 crore to cover for entire shortfall on petrol and diesel. But of the Rs 20,989 crore loss on LPG and kerosene in the first nine months, the Finance Ministry has provided only Rs 12,000 crore. Besides the Rs 8,989 crore uncovered amount of April-December, about Rs 12,000 crore of revenue loss on LPG and kerosene in January-March quarter also remains uncovered. IOC, BPCL and HPCL will get only Rs 12,000 crore to make up for part of the losses on LPG and kerosene.
Telecom
DoT asks four telecom operators to give accounting info to CAG
The Department of Telecommunications (DoT) has directed telecom operators — Bharti Airtel, Reliance Communications, Vodafone Essar and Tata Teleservices — to provide accounting details for three years from 2006-07 to the Comptroller and Auditor General of India (CAG) in the next 15 days. CAG, the apex audit body, earlier decided to audit accounts of leading telecom operators. DoT, in its 11 March communication, asked the operators to provide details on the accounts, which include total cost and breakup of original and current cost, breakup of operational expenses, total income from other sources amongst others.
Aircel to sell INQ mobiles in India
Aircel will sell the two latest handset models of British phone maker INQ Mobile as they try to tap surging demand for mobile social networking in the fastest growing major mobile market. The deal is a milestone for INQ Mobile, a unit of Hong Kong's Hutchison Whampoa, which so far has sold its phones mostly through Hutchison's operators in different countries.
Textiles
Smooth journey for Rs 475-cr Silk saree brand Nalli
It is literally a silk route retail chain that Nalli has carved from Kanchipuram to California. Starting out from a small room in with a single loom in the silk town of Kanchi to running a chain of 22 branches, the journey of the Rs 475-crore Nalli is almost as smooth as the silk it has been retailing since 1916. Third generation entrepreneur Nalli Kuppuswami Chettiar, fondly referred to as Chettiar, took to the trade at a fairly young age. There were only three silk manufacturers then—PS Kandasamy, Doraiswamy and VKR Govindaraja Mudaliar—each controlling 2,000 looms. They catered to the ‘made-to-order ’ ‘muhurtha’ (wedding day) sarees, to people who came all the way to Kanchipuram with the twin objective of visiting temples and buying silk sarees . Chinnasami was one of the first ones to set up a silk shop in Chennai’s T Nagar, which was then a sparsely populated residential area. It was a difficult time in the Chettiar household, with a portion of the house being shared with other families. Despite such hardship, Chinnasami excelled in the trade and took merchandising activity to another location in T Nagar, near the landmark Panagal Park. In those days, pure Kanchi six and nine yard sarees sold for Rs 12 and Rs 18 apiece, respectively. The same now retails for anywhere between Rs 5,000 and Rs 1 lakh at Nalli. Chettiar attributes Nalli’s early success to three things—timely delivery, good quality and additional yardage (9.75 yards, against 9 yards that was the norm). Nalli was, back then, only doing silk sarees. In those days, there weren't any shops selling sarees. One had to go to a weaver and place an order for a certain number of sarees. And there was no concept of ready-made garments. It was only in the late 30s and early 40s that there were shops that stocked sarees. Nalli has now diversified into ready-mades (both men, women n kids) but its USP still remains pure Kanchi silk sarees with pure zari. Nalli operates three formats. First is Nalli, which stocks silk sarees, dress materials and ready-stitched garments for women, men and kids. Second is Nalli Next, which has slightly higher-end furnishings, apparel & accessories for women. And the last format is Lavanya Nalli. Lavanya Nalli has hand-crafted, high-end sarees, and has two stores in Bangalore and Chennai.
For more details, Please Contact:Cygnus Business Consulting and Research Pvt Ltd.,Plot No: 8-3-948/949, Ist floor, Solitaire Plaza, Behind Image Hospital,Ameerpet, Hyderabad - 500 073Telephone Nos: 040-23430203-05Fax: 040-23430201