NEW DELHI: Under fire for sitting on foreign investment proposals for singlebrand retailing, the department of industrial policy and promotion has set a maximum time frame of 90 days to process all applications pending with it.
As many as 13 applications from foreign retailers, including Forever 21, Furla and Swarovski, to open single-brand company-owned stores in the country have been pending with the department of industrial policy and promotion (DIPP) for several months.
“We will ensure zero pendency of applications at DIPP and strict compliance to the timeline from now on,” a department official said. DIPP, under the ministry of commerce and industry, is mandated with first-stage vetting of foreign direct investment ( FDI) proposal in the retail sector.
Under the new time frame, DIPP will process and forward all complete and compliant applications to the foreign investment promotion board (FIPB) within 20 days for clearance.
The incomplete ones will be sent back to applicants within the same time period for submitting a rectified application within 30 days.
If an applicant does not respond within a month, it will be given a final 20 days’ time to comply with all requirements, and the completed application forms will be sent to FIPB within 20 days.
Single-brand retail: Government to process proposals of Forever 21, Furla and Swarovski in 90 days”The 90-day timeline will include giving time and date to the applicant to visit office to complete formalities, failing which proposal will be rejected,” the DIPP official said.
The person, however, said the new time frame applies only to new proposals. Over the last two years, over Rs 300-crore investments have come into the single-brand retail that is a big employment generator.
The delay in DIPP clearance has been an irritant for foreign investors keen to open single-brand stores. “Everyone understands and appreciates processing time and the need to seek clarifications…( but) the issue was indecision and multiple clarifications at different intervals,” said a consultant who advises companies on foreign investment.
In one instance, for example, a foreign investor was asked to give as many as 27 clarification over 10 months, the person said.
Italian brand Furla applied in March 2013, but has still not been sent to Foreign Investment Promotion Board. Swarovski, Damro, Barausse, Austria Puma, Richemont (Holland), Forever 21, Montblanc, Lush and Credo Brands are among others whose proposals are still being processed by DIPP that has sought additional information from them. All these proposals, except that of Lush, came in 2013.
Bestseller United filed application in March this year to open single-brand outlets under Vero Moda, Only and Jack&Jones brands, which is also pending with Department Of Industrial Policy & Promotion.
Experts say the DIPP decision to impose a time frame will increase foreign retailers’ confidence in the country.
“This is going to bring in a lot of transparency to the entire process,” said Diljeet Titus of law firm Titus and Co. “Till now, there was ad hoc system of working. A lot of FDI proposals are pending with DIPP, which are not in compliance, for which DIPP takes up to four months to get back to you,” he said. The DIPP official said the timeline will apply to all applications that come to it, from all sectors.
The department has maintained that the delay in processing has been mainly due to incomplete or non-compliant applications.
“Most proposals that come to DIPP are half baked, with some not committing to the conditionality. So, we will sit in partnership with these companies and ensure that they are in accordance with the existing policy,” DIPP secretary Amitabh Kant recently told ET in an interview.
The new NDA government has been trying to boost FDI inflows into the country to help put the economy back into high-growth path.
(Source: The Economic Times, July 30, 2014)
TATA GROUP TO INVEST $35 BILLION IN 3 YEARS
MUMBAI: The Tata group will invest $35 billion (Rs 2,10,000 crore) in the next three years and lay special focus on four clusters – retail, defence & aerospace, financial services and realty & infrastructure – over the next 10 years.
Termed Vision 2025, the plan will also include achieving a market capitalisation comparable with the 25 most valuable companies in the world. In 2013-14, Tata Group’s annual revenue grew 18.5 per cent to Rs 6,24,757 crore ($103.27 billion), nearly 5.5 per cent of India’s gross domestic product.
Analysts said the group would need to add another $60 billion to its current combined market cap of $138 billion to become the world’s 25th most valuable company. At present, this position is held by Facebook, with a market cap of $193 billion, according to Bloomberg data.
But it is not revenue or market capitalisation alone. The group wanted to be among the 25 most admired companies and employer brands globally, Tata Group Chairman Cyrus Mistry said while addressing his chief executives at a meeting here on Tuesday.
“Twenty-five per cent of the world’s population will experience the Tata commitment to improving the quality of life of customers and communities,” Mistry said. He emphasised the need for consolidation, while looking at divestment and restructuring.
He also reassured the group of continuity of his predecessor Ratan Tata’s legacy of global expansion and committed to inorganic growth. The contribution of global revenue in the group’s total revenue has grown to 70 per cent from 30 per cent a decade ago. Ratan Tata’s leadership saw the group acquiring Corus and Jaguar-Land Rover.
But Mistry clearly highlighted his emphasis on profitable growth and said he wanted to bring the group back to 8.5 per cent operating margin – a level last seen in 2008.
Vision 2025 also includes nurturing group companies by leveraging the parenting advantage of the group centre. This means a strong role for Tata Sons, where he has set up a Group Executive Council with the mandate to drive group-level strategies.
As part of this strategy, the group centre will strongly champion the companies that are world class and, where necessary, facilitate creation of new companies. This holistic strategy will also include support to companies, if required, to restructure their businesses, which do not have the potential to meet performance and strategic criteria in the long term or benefit from parenting advantages.
(Source: Business Standard, July 30, 2014)
AUGUST TOO EARLY FOR RATE CUT BY CENTRAL BANK
MUMBAI: Despite the consumer price index-based inflation rate having fallen to its lowest level since the launch of the new series in January 2011, the Reserve Bank of India (RBI) is likely to go for the status quo on repo rate in its monetary policy review on August 5, shows a poll conducted by Business Standard among 10 market participants.
The respondents to the BS poll unanimously said they expected the status quo. Amid an uncertainty over monsoon, if the central bank keeps the repo rate – the rate at which RBI lends to banks; currently at eight per cent – unchanged, it will be a third straight policy review in which it will do so. The reverse repo rate is seven per cent at present.
The retail inflation rate had stood at 7.3 per cent in June, compared with 8.28 per cent the previous month. The current level is under RBI’s January-end projection of eight per cent, though above its comfort level. Monsoon, too, has improved lately, with the rainfall deficiency narrowing to 25 per cent until last week from 43 per cent at the end of June.
However, despite an improvement in these two key parameters, experts believe it might be too early for RBI to reduce rates. “The decline in headline inflation in Q1 was higher than expected. Even the core inflation rate has started declining. But August might be too early to consider a rate cut. The disinflation process has only just started and will need time before inflation drops to a sustainable level,” Standard Chartered Bank economists Anubhuti Sahay and Samiran Chakraborty said in a note to clients.
In the five policy review since taking charge as RBI governor in September last year, Raghuram Rajan has raised the repo rate by a total of 75 basis points in the first three and kept it unchanged in the two to follow. The recent softening of inflation has largely been on account of a high base, so there are fears this might vanish in the later part of the current year. Therefore, the central bank might choose to be cautious in tinkering with rates.
“Inflation, which has come down only because of a high base of last year, is still a concern. There still are fears of a sub-normal monsoon pushing up the inflation rate. So, RBI’s cautious stance might continue,” said CARE Ratings Chief Economist Madan Sabnavis.
Though no action is expected on the rate front, the central bank’s indication of the policy path for the new few months will be crucial. It might open the possibility of reversing the rate cycle later. During the previous policy review, RBI had said a higher-than-expected drop in inflation rate could lead to a reduction in interest rates.
“In our new forecast, headline CPI-based inflation stays below eight per cent for the rest of 2014-15. This supports hopes of a rate cut later in the year,” said the Standard Chartered Bank note.
The new government’s resolve to bring down its fiscal deficit to 4.1 per cent by March and efforts to ease supply-side bottlenecks could act as a further trigger for softer interest rate regime.
Some said RBI might look at even other aspects, such as the savings rate and its trajectory, before effecting a rate cut. “The wholesale price index (WPI) -based core inflation rate is moving up. WPI core, which is a reflection of the manufacturing and production sector, is significant,” said Kotak Mahindra Bank Chief Economist Indranil Pan, adding RBI might carefully monitor the implications of a weak monsoon on inflation.
(Source: Business Standard, July 30, 2014)
INSURANCE IPOs STILL 2-3 YEARS AWAY
MUMBAI: The Union Cabinet has approved up to 49 per cent foreign direct investment in the insurance sector but listing of these will take some time, as the process of foreign promoters raising their stake will have to be first completed.
In addition, detailed procedural approvals from the insurance and market regulators will also take time. As a result, insurance companies said it might take between two to three years for these to be listed on the stock exchanges.
Amitabh Chaudhry, managing director of HDFC Life Insurance, said after the Insurance Bill was passed, their joint venture partner, Standard Life, would decide how much to increase their stake to. “We might take three to six months to decide on how to go forward. Even if the foreign partner wishes to increase its stake, the Foreign Investment Promotion Board (FIPB) will have to give its approval, based on the shareholder agreements on proposals like Indian management control,” he said.
The Bill will be taken up in the current session of Parliament and is expected to be passed in both chambers, especially as the opposition Congress party has stated it will not oppose it.
Sector experts say FIPB will take into consideration several factors before approving an FDI rise in any insurance company. Indian management control is still a grey area, with no clarity on what this would exactly mean. “If this means only Indians can be appointed in the management team, some JV partners may take objection,” said a life insurance company’s chief executive.
For some companies, issues like prior agreements between the Indian and foreign partner might hinder any immediate rise in stake by the latter, constraining efforts at listing. In spite of an increase in the FDI limit, officials say the Allianz Group of Germany, which operates in India through two joint ventures (life and general) with Bajaj Finserv, might delay on a decision. Allianz did not respond to a mail sent by Business Standard. By an agreement signed in 2001, the two entities have an agreement that is valid up to 2016 regarding transfer of shares in the two JVs. According to the agreement, the transfer was to happen at original cost plus fare return (at a pre-determined range), subject to the banking regulator’s rules. But if such a transfer takes place after 2016, it will happen at the market price. The agreement had said that Allianz could go up to 50 per cent in the general insurance business and 74 per cent in the life insurance business.
In addition, for life insurance companies, profitability is an issue for listing, as some of them are yet to break even. By Insurance Regulatory and Development Authority (Irda) norms, a company has to be in the insurance business for 10 years to be eligible to list on the equity market. The regulator considers the financial performance, capital structure post offer and solvency margin, among other factors, to give its nod.
Listing of the state-run general insurance companies will also see these entities elevate to the next level of growth, a development the regulator is also keen on.
Regulatory officials say two or three of the public general insurance companies are financially ready to be listed. This, they said, would take them to the next phase of growth and also lead to better scrutiny of the management and its books by shareholders.
(Source: Business Standard, July 30, 2014)
$1 BILLION IN BAG, FLIPKART NOW EYES 100 MILLION USERS
BANGALORE: India’s e-retailing market, tipped to hit $20 billion by 2020 or even sooner, was given a strong endorsement on Tuesday with Flipkart.com attracting a chunky $1 billion in funding from existing investors Tiger Global Management and Naspers.
The capital infusion is reckoned to be the biggest fund-raising ever for an Indian e-commerce company.
In what must be the biggest jump in valuations in the shortest span of time, Flipkart, according to industry watchers, is now valued at anywhere between $5 billion and $6 billion, twice the estimated $2.5-3 billion in May, when it picked up $210 million.
For perspective, till the joint venture came apart, Bharti-Walmart had invested Rs 2,500 crore to set up 200 front-end stores and 20 cash-and-carry outlets; Walmart’s turnover from its cash-and-carry piece is close to Rs 3,000 crore.
Flipkart co-founders Sachin Bansal and Binny Bansal want Flipkart to be the country’s first internet company to be valued at $100 billion — in comparison, the Tata Group’s market capitalisation as of July 28 is $138 billion.
Thanks to a generous set of sponsors, the Bangalore-based company has so far mopped up close to $1.7 billion as it battles Amazon and Snapdeal for the top slot in a market estimated at around $3 billion.
The funds backing the e-retailers aren’t just generous, they’re patient too — profitability is not top of mind for Flipkart’s founders although the e-retailer has been in business for seven years now and is understood to be in the red.
“We have 22 million registered users today and the way we see it, when we’re at 100 million customers, that day we will be profitable,” Sachin Bansal told FE. Bansal said he didn’t know whether it would take three years or eight to get there, adding that the firm would think of profitability once it had delivered a product in one of three Indian homes.
The focus, according to Bansal, is the growth of the customer base, the experience they get and the number of sellers. Flipkart says its gross merchandise value (GMV) crossed $1 billion in March 2014.
Flipkart has been on a fund-raising spree for some time now, having raised $210 million in May, a week after it acquired online fashion retailer Myntra, from a group of investors led by DST Global and comprising existing stakeholders like Tiger Global, Naspers and ICONIQ Capital. Singapore’s sovereign wealth fund, GIC, along with existing investors Accel Partners, DST Global, ICONIQ Capital, Morgan Stanley Investment Management and Sofina also participated in this latest round of funding.
Flipkart has 22 million registered users and handles 5 million shipments a month.
According to the company, by 2020 India will have more than half a billion mobile internet users and its focus on mobile and technology puts the company in a unique position to take advantage of this massive opportunity.
“This new funding will enable us to step up our investments for innovations in products and technologies, setting us up to become the mobile e-commerce company of the future. This funding will help us further accelerate momentum and build our presence to become a technology powerhouse,” said co-founder and COO Binny Bansal.
“The reason Flipkart would need funds is because they are scaling up at a very rapid pace. We have roughly 150 million people online, while only 10-15 million transact online. So there is a plenty of headroom for growth. They need to reach out to them. For that, they need a lot of cash,” said, Rutvik Doshi, an investor with Inventus Capital Partners.
While the golden run continues for Flipkart, its rivals have been struggling to match its pace. Flipkart’s nearest Indian competitor Snapdeal.com had raised $134 million in February, followed by another $100 million in May. However, total funds raised by Snapdeal stands at around $400 million, about one-fourth that of Flipkart.
On the latest round of funding-raising by Flipkart, Pragya Singh, associate vice-president (retail), Technopak, said, “The series A funding for e-commerce has dried up and the leader of the pack is attracting most of the funding. Flipkart has now achieved a level of maturity and it is getting to a scale and gaining market share where it needs to invest in technology, delivery and fulfilment.”
However the company said it is not looking at initial public offering (IPO) immediately. “We are not thinking about an IPO at all. We have not settled into a business model that can be taken public,” said Sachin Bansal, adding that the company is trying to tap the rural markets.
The fund-raising frenzy among top Indian e-tailers may be an outcome of global giant Amazon’s foray into India last June. Amazon has been gradually expanding its reach over the Indian market. The e-commerce major, which has been restricted to being an online marketplace for third-party sellers as mandated by Indian FDI norms, has doubled its warehouse space.
(Source: The Financial Express, July 30, 2014)
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