June 2014

AUTOMOBILES & AUTO ANCILLARIES

Special Focus

Tesla opens its tech for all

12 June, California
Tesla made its patents freely available to anyone who
wants to use it! CEO Elon Musk reasons that the
adoption of EVs (Electric Vehicles) will increase if the
technology is provided to all so that all auto majors will
not have to start afresh but with Teslas technology as
base to build upon. They had closely guarded its patents
earlier to build a competitive advantage but the EV
volumes were not even 1% of total US car production.
Musk hopes with this move, many companies will join in
with Tesla technology as base and hence expand the
market. If things go well, Tesla technology of
superchargers (electric charging stations) will be the
mainstay of industry. Mahindra has already begun to
review the patents for its EV business
A bizarre move which may not only help increase the
market by providing standard charging stations but
also increase acceptability of EVs.

Ashok Leyland transforms itself during

slowdown
16June, Chennai
The commercial vehicle industry has plummeted to
abysmal lows due to macroeconomic factors leading to
huge losses borne by the industry players. Ashok
Leyland too bore losses but turned this slowdown
opportunity to improve by focusing on changing org
structure, increasing sales presence and driving cost
efficiency in its plants. The result is increased presence
in the North Indian market, reduced workforce and up
to 33 percent savings in overhead cost. These moves
have also instilled investor confidence despite bleak
financials of the company sending the stock prices to its
52 week high. With the economy picking up, Ashok
Leyland will definitely have an impact on the industry
The confidence instilled in investors is due to Ashok
Leylands ability to be nimble footed and transform into
a more efficient company

Spot potential, Acquire it and Enjoy!

11 successful acquisitions in 12 years is a feather in VC
Sehgals cap. The chairman and CMD of Motherson
Group has a keen eye for spotting business which can
add significant value to his business. Acquisition of
Visiocorp, Peguform and now Stoneridge has given the
group technology and most importantly the entry into
markets difficult to crack. With the markets have come
the customers which would not have given the business
easily and quickly. Essentially, each acquisition has
advanced the groups market entry by two to three
years and significant contribution to the financials. The
acquisition strategy has helped Motherson grow 12
times over 5 years and become a $5bn group, one year
before their internal target. The companys acquisition
is driven by the strategy of no country, no commodity
and no customer should account for more than 15% of
turnover
Industry Talk

More Measures needed to revive

sector: Industry
The extension of excise duty cut till December has
brought cheer to the industry long reeling under a
slowdown. Though this move affirms that the
government is concerned with the issues, the industry
experts have urged the government to take a long term
view. Issues like GST, standardized fuel availability
across the country as well as skilled labor availability
have plagued the value streams of the sector and need
clear policy decisions from the government. Two
wheelers, tractors face a sluggish uptake scenario due
to the weak monsoon start. Commercial vehicles are
awaiting improvement in macroeconomic scenario.
Passenger vehicles are offering heavy discounts to
realize sales. The extension of the duty cut was much
needed at the time and the government has not
disappointed the industry and the markets.
Strategist Voice

Honda to double auto exports from

India
3 June, Tapukara
The Japanese automobile co vies to double its
component as well as car exports from India to double
in this financial year. Depreciating rupee and excess
capacity coupled with technically sound labor gives
India an advantage over LatAm & Africa. Prioritizing
deliveries of cars in India, the company plans to utilize
excess capacity it will have for exports. The auto
components division already exports making Honda
India one of the key players in the Honda family. A 3rd
plant is rumored to come up in Gujarat
Honda plans to maximize its plant utilization by not
only serving India but also the global market through
cheap and reliable products

Email: strategist@mdi.ac.in

AMEYA BOTHARA

Localized car needed to succeed here

Suzuki did it, Toyota did it, Honda did it and now Ford
is in the fray to design India centric product to win
maximum market share. Not only did the India centric
brand help these companies in winning Indian
customers but also gave vital inputs to their global
operations which took these products and sold all over
the globe. The Indian operations became export hubs
helping the companies utilize the capacity which was
dormant for years. Product extension from hatchback
to sedan to MPV to UV has helped the companies keep
cost low and churn products suiting Indian tastes
quickly. Lets hope Ford can also pull the trick and
deliver its much needed boost.

STRATEGIST

MDI GURGAON |

June 2014

AVIATION, SHIPPING & LOGISTICS

NITIN DANGWAL
Special Focus

Huge Losses In Aviation Sector

New Delhi
The civil aviation sector is on the verge of collapse with
accumulated losses of Rs 49,000 crore and needs an
urgent boost to prevent more Kingfisher-type
meltdowns and job losses. Air India contributes a
staggering Rs 30,000 crore to the accumulated Rs
49,000 crore losses in the civil aviation sector and the
ministry outlined the need for a credible, result-oriented
capital infusion plan
The government needs to deal with the elephant in the
room Air India otherwise the current scenario can
spark off more Kingfishers like fiascos.

AirAsia take-off sparks fierce sky

contest

Intense Rivalry in Air

Analysts said AirAsias entry could trigger a fresh
round of price wars at a time some leading players
have reported huge losses. AirAsia India, the domestic
arm of the Malaysian no-frills airline AirAsia headed by
Tony Fernandes, will become the fourth budget carrier
in the country after IndiGo, SpiceJet and GoAir. On
May 30, AirAsia India had announced the availability of
15,000 tickets at a base fare of Rs 5, excluding airport
taxes and other fees. Tickets under this offer were sold
out by June 1. To counter AirAsias aggressive pricing,
other airlines have also come out with matching fares.
Industry Talk

New Delhi
AirAsia India announced its launch with an Airbus A320
aircraft taking off from Bangalore on June 12 to land in
Goa. The launch comes at a time the peak season was
to end in days. This announcement was a big surprise as
Industry Pundits expected AirAsia to wait for the current
lean period to end. The lean period combined with the
intense price wars could mean the risk of compounding
losses.
The coming of AirAsia with its unconventional strategies
is going to put more pressure on the already ailing
industry

Revamp of Aviation Industry high on

Modis Government Agenda
The downgrading of safety ranking of Indian airlines by
US Federation Aviation authority & coming of new
government has resulted into positive looking steps for
Aviation Industry. A string of steps like reduction in
state levied on taxes, open access to aviation turbine
fuels are some of steps that can be much needed shot
in the arm for this industry. The Air Indias entry into
the star alliance is a major step in the same direction.
This step is expected to boost Air Indias earnings by 23%

Flash Sales spurs flight booking

New Delhi
The flash season sale has boosted the flight bookings by
3-5 times. Airlines in India have been falling over each
other to offer discounts in airfare in view of the
increasing competition and a slowing down of the
economy. This has led to a price war, benefitting the
passengers the most. Often, within hours of a flash
discount being announced by one airline, its rivals too
join the bandwagon, resulting in a surge in bookings
The customer is the real winner in this price war. But
the airlines need to devise other strategies to create
differentiation in the market.

New Rail Fares good news for airlines

New Delhi
The rise in the rail fare at a time when Budget carriers
are offering discounted tickets every other day has now
made flying cheaper. With aggressive fare warriors like
AirAsia entering the market and SpiceJet coming with a
new discount every few days, the fight for the traveler
has just entered a new phase

Strategist Voice
Air India Ltd has joined the Star Alliance group of
carriers. Membership allows Air India to share routes
with the other airlines to more than 1,200 destinations.
The membership is expected to result in several
benefits for the airline and its passengers.
The
membership would mean that its passengers travelling
to the US would have easier access to many more cities
there. But these advantages would be beneficial only if
Air India clamps down on its babu culture that has
been serving classes than masses. Influential people
and their kin have enjoyed for years by buying the
cheapest economy tickets but getting 'bumped' up to
business or first class. With Air India contributing to
60% of losses, this was the much needed step. The
larger customer base, more refueling points and
learning from the blue blood airlines presents a never
like before opportunity for Air India. What remains to
be the same that how much Air India is willing to
capitulate on this opportunity.

The situation presents an opportunity for airlines to

increase its customer base.

Email: strategist@mdi.ac.in

STRATEGIST

MDI GURGAON |

June 2014

BFSI

ADITI RATHI
Special Focus

RBI keeps key rates unchanged

The rise of QIPs

New Delhi

RBI kept the repo rate unchanged to 9% and keeping in

mind the need to increase the availability of credit,
decreased the statuary liquidity ratio by 50 basis points
to 22.5%.
The RBI again didnt go for a rate cut. With inadequate
monsoons there is quite a possibility of spike in inflation
in the coming future. It is hoped that once the supply
side constraints are ironed out, the inflation trajectory
will be more responsive to monetary policy changes.

Banks' asset quality better but

systemic risks up
New Delhi

The banking stability indicator reflects a high risk in the

sector compared to last year. Marginal increase in the
asset quality partially owing to the sale of NPAs is offset
by the concerns of liquidity and profitability. Stress tests
indicate higher vulnerability for public sector banks as
compared to their private sector counterparts," the RBI
said in its ninth Financial Stability Report.
The concern over NPA still looms many of the banks.
Many banks have started to sell their bad loans to asset
restructuring firms because of the increased pressure to
reduce the rising NPAs. This involves taking voluntary
haircuts by the banks which again raises a question
marks on the loans issued by public sector banks as this
is more related to them.

Post formation of the Modi Government, two financial

services firm and two mobile telephony companies have
raised Rs. 11142 crores in the past 30 days. This is more
than what has been raised in the past two fiscal years.
Investor confidence has increased thanks to the stable
government. Expectations are that another $5 bn will be
raised through this route and when combined with IPOs,
sale of stakes in public companies total funds raised
could be another $10 bn to $12 bn. These are indications
of a buoyant capital market and this has enabled
companies to time their fund raising to almost
perfection. QIPs help them raise money faster and also
does not impact the share price to that extent when
compared to share purchases in heavy volumes from the
market.
Industry Talk

Top 5 reforms expected from FinMin

The focus of the new government should be more on
creating opportunities for retail investors in financial
markets. The disposable incomes of the middle class
working population need a boost to combat inflation and
to create savings. 1. Reduce STT (Securities Transaction
Tax) 2. Measures to increase FDI 3. Reduce CTT
(Commodities Transaction Tax) 4. Meaures to reduce
Fiscal Deficit and 5. IPO limit for retail investors

Indian black money parked outside

New Delhi

Strategist Voice

FinMin India has made a fresh request to Switzerland

seeking bank details and names of Indians having
unaccounted money in Swiss banks, as the government
expands its efforts to combat the menace of black
money. The request letter has cited the existing bilateral
treaties and global protocols applicable to the two
countries for getting information about bank and other
details of Indians holding untaxed funds or hidden
wealth.
The effort to bring back the money stashed away in
Switzerland is now being pursued aggressively and
positive outcomes are expected as even the Swiss banks
have started to respond. This will bring back the black
money and add to the tax revenues of the government
but however still lot of work remains to be completed

Email: strategist@mdi.ac.in

The much desired political stability has made its way to

the centre in the form of Narendra Modi and his team.
Small cabinet, streamlined processes, centralized control,
Modi government is expected to answer all the hopes of
India. Riding on huge expectations from the incoming
Modi government, global investors are gung-ho on the
Indian economy, which is expected to witness over 100%
increase in foreign investment inflows both FDI and
FIIs to above $60 billion in the current financial year, as
against $29 billion during 2013-14, the Assocham study
projected. The results hopefully would hit the road by next
year and we could all apraise the "ache din".

STRATEGIST

MDI GURGAON |

June 2014

CONSUMER GOODS & RETAIL

Nestle to rejuvenate Nescafe brand

Special Focus

20 June, New Delhi

Nestle India, the countrys biggest foods company is
coming
out
with
fresh
new
packaging
and
communication titled It all starts with a Nescafe to
strengthen the brands leadership position in the Rs.
800 crore packaged coffee market. This change is
aligned to the global objective of the brand to make it
more contemporary.
The move could be an attempt to impart stimulus in the
low innovation category with the rising incidence of the
caf culture threatening to increase outside
consumption at the expense of home consumption.

Nivea to setup 1000 cr. plant in Gujarat

24 June, New Delhi
German personal care giant Beiersdorfs brand Nivea will
soon setup its first manufacturing facility in the country
in Sanand in Gujarat by investing Rs. 1000 crore. It will
also house Niveas first R&D centre in the SAARC region.
The idea is to cater to the growing Indian market by
having better local responsiveness.
Having their own facility with R&D will enable them to
focus on Indian consumer trends while also reducing
their dependence on imports by around 50%. They would
even be able to pass these savings to consumers by
making their products more affordable.

FDI in e-commerce to be allowed soon?

4 June, New Delhi
There are strong rumours of the Govt. plans to allow FDI
in e-commerce in and around the budget, which could
be one of the first business reforms undertaken by the
Modi Government. The move could be a huge one with
expectations that this renewed online retail sector would
spur manufacturing and consumption and revive a
slowing Indian economy. This move is definitely going
to increase competition in this booming sector,
expected to contribute to 4% to the economy by 2020.
Expectedly, biggies like Amazon and might be licking
their lips waiting for this change but it would be
interesting to see how the Modi government decides the
investment guidelines for this such as state-wide
implementation, foreign ownership cap, sourcing etc.

Email: strategist@mdi.ac.in

SHREYAS DESAI

Companies taking on e-tailers head on

Consumer electronics and durables companies such as
Samsung, LG India among others are planning their own
versions of online stores to take on e-tailers. Panasonic is
looking up resellers to launch its e-store next month
while Sony will link its exclusive brand stores under a
common platform. Such radical moves are being taken to
counter the pricing methods of e-commerce sites, which
has hit the sales of traditional brick-and-mortar retailers.
Currently, these companies are operating their stores
through dealers and distributors since Indian rules do not
permit them to operate through e-commerce directly to
sell to consumers. Operating through this currently
unorganized channel is essential to regulate pricing.
Industry Talk

Excise cut extension to help durables

The excise duty reduction from 12% to 10%, implemented
by the previous UPA government to stimulate growth has
been extended by the current government, providing
relief to Consumer Durables companies. The news was
welcomed by the durables industry as it gives them time
to revive after a two year stagnation period followed by a
growth period of six months. Industry members had been
pushing for this extension for a long time.
Strategist Voice

Amazon India: On a Growing Rampage

Amazon Seller Services Pvt. Ltd. entered India in June
2013 with a marketplace model (due to FDI regulations)
with a portfolio of books and video content. Now, a year
later, it offers 15 million products across 28 categories.
The number of sellers on its site has increased from a
100 a year ago to about 6500. Compare that with
Snapdeal (30,000 sellers) and Flipkart (3000 sellers) and
you know that Amazon means business in India. Amazon
plans to invest as much as Rs. 1500 crore in its India
operations, raising it from Rs. 200 crore it spent in 201213. These moves have forced local e-commerce giants to
raise more capital (Snapdeal) or go for acquisitions
(Flipkart). Amazon has also increased the discounts and
gone on a talent seeking spree, prompting other etailers
to offer fatter pay packages. Online retail is expected to
grow to $22 biillion from $3.1 billion in 5 years and
Amazon definitely wants a bigger share of that pie.

STRATEGIST

MDI GURGAON |

June 2014

HR

SUVIRA YADAV

Axis bank launches Re-connect

Special Focus

New Delhi
With the aim to reach to Axis women alumni who have
left the system in the past 10 years, the bank has
launched Re- connect. Through its existing employees
referral the program has been launched as a pilot in
Maharashtra, Goa, Madhya Pradesh, Gujarat, Chattisgarh
for now which will then be taken to the country level. A
website where its women alumni can register themselves
to go through an interview and other procedures is still
in pipeline.
Returning career women are empirically proven to be
more loyal, also saving hiring time and cost for
companies.

TCS low employee cost secret revealed

19 June, Mumbai
The credits for Tata Consultancy Service(TCS) average
cost per employee for fiscal 2014 at about Rs 14 lakh,
compared to about Rs 18 lakh of the competitiors has
been attributed to its higher proportion of freshers vs
lateral hires. TCSs employee costs as a percentage of
revenue are at least 5-10 percent points below the rest
of the industry. Hiring more freshers gives the flexibility
to use them in transactional activites with lower value,
freeing up the more experienced employees for higher
value work.
Freshers are easier to train in new skills required for
digital services, a multibillion opportunity for TCS over
the next few years
.

Videocon Telecom to give staff up to

38% hike
23 June, New Delhi
Videocon Telecom- one of the smallest mobile service
providers in India by number of subscribers, has
decided to give up to 38% increment, including
bonuses,in the 2014-15 financial year.Employees will
get an average 11% of the pay hike as a fixed
component in their monthly salaries, while the rest will
come in the form of bonus towards early 2015.
It can be seen as a strategy ahead of an expansion drive
the company plans to launch and to retain staff as the
industry is set to see a battle for talent with an expected
economy turnaround.

Email: strategist@mdi.ac.in

Why it pays to allow watching live

coverage at work
May it be the Indian general election counting day, IPL
finale or the FIFA World Cup, surprisingly HR today is
found to be on employees side arranging for special
screening or extended coffee breaks.The rational
behind is events like these give employees a readymade topic of conversation when interacting with
international partners.Also when people celebrate
together, they create positive vibe thats valuable in
terms of productivity. On the contrary, banning the
employees from watching these wont stop them but
lots of surreptitious streaming could slow the
companys internet access to a crawl. Further some
workers may call sick and not turn up ,hampering
productivity altogether.
.
Industry Talk

Employee experience as HRs

competitive differentiator
With many essential positions left unfilled due to skill
gap,it is getting imperative for HR professionals to
develop strategies to retain their top talent. To add to
the trouble remains the referral network, open 24/7
courtesy of social media. The solution lies in building
great employee experiences. This in addition to the
transformation in organization culture requires IT tools
that reflect the dynamic business practices and deliver
workforce insight. The HR executives need to
constantly pay enough attention to the customer
within. Effective leadership today must engage a talent
ecosystem of value creation and delivery capability
comprising of full-time employees, part-timers, alumni
networks, contractors, outsourcers, partners, etc.
Strategist Voice

Are grumpy workers the more

productive ones?
The bad tempered or sulky workers who tend to be
grumpy at all times can actually be the more productive
ones as they indulge themselves on lesser tasks compared
to the positive attitude folks. Employees with high job
dissatisfaction exhibit the highest creativity as they try to
find a solution to the cause. On the contrary, the happy or
satisfied employees satisfied with their work environment
rarely try to find new ideas to solve problems. The
organisations on their part should encourage such grumpy
workers to provide feedback, provide a culture that will
support innovation and provide the climate where people
try to make a change for the better.

STRATEGIST

MDI GURGAON |

June 2014

IT, TELECOM & MEDIA

Videocon ties up with Huawei for 4G

rollout

5 June, New Delhi

Videocon Telecom has tied up with Chinese equipment
firm Huawei Technologies for rolling out 4G network in
six out of its 7 service areas. Videocon Telecom is
rolling out LTE-ready Packet Core network from Huawei
in 6 telecom circles in India. This network will provide a
larger data coverage and reduce the overall capex and
opex leading to an improved profitability and lower
costs to end users, Videocon Telecoms Director and
CEO Arvind Bali said in a statement. Both companies had
earlier run into dispute over payments when Videocon
Telecom lost its 21 licenses along with 101 others after
the Supreme Court judgment in February 2012.Now, the
issue has been resolved amicably.
The strategic alliance will help increase the competition
in 4G space, where Reliance Jio is expected to enter with
a big bang with its UAS for 4G and its plans of low
priced handsets.

Tech Mahindra bets on Financial

Services

21 June, Bangalore
Tech Mahindra (TechM), the countrys fifth-largest
information technology (IT) services company, has put in
place an aggressive strategy to win its earlier position in
the banking, financial services and insurance (BFSI)
segment. The Pune-based TechM said it expected in a
couple of years to position self as a leading vendor in
the BFSI space and to increase its share of total revenue
from 10 to 20-30 per cent.
This strategy has allowed TechM to reduce the
overexposure in telecom space which is growing at
slower pace. The strategy seems to be paying as it won
back 10 large BFSI clients serviced by Satyam before the
accounting fraud came to light.

Vishal Sikka appointed as the new CEO

and MD of Infosys

12 June, New Delhi

Stanford-educated Vishal Sikka has been appointed as
the new CEO and MD of Infosys. He will succeed S D
Shibulal and take reins of the company from August 1.
Earlier, he was a board member in German technology
giant SAP. During his stint in SAP, he developed HANA,
middleware, mobile and analytics products. The
transition will also see Narayan Murthy stepping down
as the Executive Chairman.
Vishal Sikka is the first non-founder to be given this
responsibility. He will be able to bring in fresh
perspective and reduce thee uncertainty in the company
which has been lagging behind its peers recently.

Email: strategist@mdi.ac.in

OMKAR TUNGARE, AKHIL AGARWAL

Special Focus

IT, ITeS sectors expect tax relief in

Budget 2014

The IT and ITeS sectors expect a reduction in minimum

alternate tax (MAT) and dividend distribution tax (DDT) in the
upcoming Union Budget.
"In order to boost overseas shipments and domestic
manufacturing from special economic zones (SEZs), the IT
and ITeS sectors expect a reduction in minimum alternate
tax and dividend distribution tax (DDT) applicable on
such zones," Dun & Bradstreet India's Senior Economist
Arun Singh said.
This move would help revive the subdued demand and
promote manufacturing in the country, Singh added.
Industry Talk

Trends in Media and Entertainment

industry

The Indian media and entertainment industry, consisting

of television, print, film, radio and music segments has
shown a robust growth in recent years and is expected to
show 12-13% CAGR till 2018 according to CRISIL
estimates. Along with the easing macro-economic
scenario, growth will be driven by increase in advertising
and subscription revenues, and the rise of digital media.
The general elections helped the industry generate huge
advertising revenues and the coming assembly elections
in some states will help continue this trend. In the print
segment, non-English newspapers will continue to
outperform English newspapers due to increase in
demand for local content. Television subscription
revenues have already started to show an upward trend
as Digital Addressable System (DAS) phase I and II are
nearing completion.
Strategist Voice

Indian IT companies evolving

The Indian IT landscape is fast evolving. The Indian IT

firms are facing increased competition from foreign
based companies like IBM, Capgemini, Cognizant and
Accenture. The stabilization of the rupee at 60 per
dollar from its higher levels will also cause reduction in
margins. To face these challenges, Indian IT firms are
exploring new markets in continental Europe, Latin
America, Asia-Pacific and Middle East; focusing on
verticals like retail, healthcare, energy and utilities;
pursuing non-linear growth models; adopting new
technologies like SMAC (Social, Mobility, Analytics,
Cloud); and focusing on IT consulting, system
integration, infrastructure management services and
intellectual property based products.

STRATEGIST

MDI GURGAON |

June 2014

Metals, Mining & Commodities

Coal India to enter fertilizer, chemical

production

Special Focus

Coal India has decided to amend the object clause of its

memorandum of association (MoA) for foraying into the business of
producing
fertilisers
and
chemicals
using
coal
gas.
CIL said Rashtriya Chemicals and Fertilizers Ltd (RCF) had signed
a Memorandum of Understanding (MoU) with Gas Authority of India
Ltd (GAIL) for jointly exploring the potential use of gas produced
from surface coal gas project in the fertiliser industry.
The Ministry of Coal has prepared its agenda for presentation to the
Prime Minister. Among the priority list include production
enhancement, speedy approvals and restructuring of Coal India.
Coal India has set the target of 507 million tonnes of coal this fiscal,
while the target for next year is set around 574 million tonnes. In
order to attract private investment, the coal ministry is also looking
at working on legal framework for commercial mining.

Government to thrash out low grade coal issue

The government on Wednesday alleged that the quality of coal
supplied by Coal India is of low grade even after the introduction of
the third party sampling mechanism, according to a media report.
Coal and power minister Piyush Goyal met top officials of both the
ministries to thrash out the issues related to coal pricing and the
quality of the fuel. The Ministry of Power observed multiple grade
slippages such as stones and boulders being dispatched in the coal
being supplied by CIL to NTPC power plant, the report added. The
slippages are being observed in the coal supplied by CIL subsidiaries
like Central Coalfields Ltd (CCL), Bharat Coking Coal Ltd (BCCL) and
Mahanadi Coalfields (MCL) to NTPC power plants, including Dadri
and Badarpur, the report further said.

Steel companies plans to raise iron ore

imports
Due to a massive decline in the availability of iron ore in
FY14, Tata Steel is said to have imported around 30,000
tonnes on a trial basis from Australia this year, says a media
report. JSW Steel plans to import 500,000 tonnes by the end
of this month and increase this if spot prices decrease further
this year, the report added. At present, JSW is operating at
85% of its capacity at all its steel plants. With the imported
ore, it aims to enhance its capacity further. The spot prices of
iron ore fines have been dropping in recent months, with
current prices at $90-95 a tonne from about $120 in March.
Iron ore lumps are priced $7-8 a tonne higher than the fines
Industry Talk

Government seeks bid for Hindustan

zinc valuation assessment
The government has decided to undertake fresh valuation and
assessment of the fair share value of Anil Agarwal-controlled
Hindustan Zinc Ltd. The department of disinvestment placed
advertisements in newspapers published on Friday seeking
proposals from merchant bankers for handling the valuation. The
government, which holds 29.5% stake in Hindustan Zinc, decided
in January to sell it in an open market auction. But the proposed
sale became controversial for two reasons. One, the government
dragged its feet over the sale of its residual stake in Hindustan
Zinc to Agarwals Vedanta Resources Plc. Two, the share
valuation came under a cloud following allegations that the
governments valuer ignored some of the companys mines.
Strategist Voice

Winds of Change: Aluminium prices see

resurgence
18 June, New Delhi
Aluminum prices have witnessed some resurgence this year
after a listless performance during 2013, when prices on
several occasions moved below the key cost level of
US$1,800/ton. Surging physical premiums have reignited
some kind of bullish interest in otherwise a beleaguered metal.
Huge quantum of metal tied in the financing deals and
consequent long queues at LME major warehouses is
attributed behind the amazing rise in spot premiums.
Meanwhile, lower spot prices have made the business
economically unviable for majority of aluminium production
facilities across the globe. Effectively, the fundamental profile
for this metal is changing of late, whereby structurally
oversupplied market is gradually expected to shift towards a
balanced supply/demand equation in the coming years.

Email: strategist@mdi.ac.in

Akshay Bhandari

Government plans to auction 25 coal

blocks
The blocks proposed to be auctioned are the spread in the
states of Jharkhand, Chhattisgarh, Gujarat, Maharashtra
and Andhra Pradesh.
The ministry of coal plans to auction around 25 coal blocks.
These blocks were taken back from private companies as there
were delays in developing them, according to a media report.
The blocks which were taken back mostly comprise small mines
and includes a few major ones.
The blocks proposed to be auctioned are the spread in the states
of Jharkhand, Chhattisgarh, Gujarat, Maharashtra and Andhra
Pradesh.
However, no details have been provided about the time period
when these blocks will be auctioned

STRATEGIST

MDI GURGAON |

June 2014

OIL & GAS

ANKUR SAPRA & BHAUMIK SHAH

Govt. mulls pricing gas in rupees

instead of dollars, move likely to shut
out exchange rate volatility
27 June, 2014, New Delhi
The government is weighing the option of switching to a
mechanism of fixed return on investment for producers
and setting domestic gas prices in rupees instead of
dollars to shut out exchange rate volatility. The
arguments for rupee pricing and moving to fixed return
on investment known as cost-plus formula seek to
guard against giving undue benefit to producers at the
cost of consumers. If this is finally accepted, the
government is likely to use the cost of production from
various fields of its own companies to arrive at a
benchmark. There were also political considerations that
weighed on the decision to defer a price revision.
With Delhi and Maharashtra polls in October, it is quite
possible that government might take some tough policy
decisions. Pricing Gas in Rupees may seem to completely
eliminate the risk of Gas Price volatility but ultimately
the standard pricing is in dollars and move away from
there is not likely to sustain.

Iraq crisis not to affect oil supply to

India: Rao Inderjit Singh
25 June, 2014, New Delhi
The Centre today said the situation in Iraq was a matter
of concern and hoped that the turmoil in the Gulf
country will not affect the oil supplies to India. "The new
issue of concern is Iraq. Our oil pipeline comes from
Southern Iraq. So far the terrorists have not targeted
this pipeline but the government is keeping a close
watch on the issue," Minister of State for Defence Rao
Inderjit Singh told reporters here. He added "We are
hopeful that the situation in Iraq improves and our oil
supplies are not affected"
India is heavily dependent on its oil imports and any
changes in oil supply would heavily lead to price rise
which is a matter of concern as it would result in
increased subsidies and fiscal deficit.

GAILs cheaper price in comparison to

Qatar may impact pricing formula
9 June, 2014, Mumbai
GAILs offer to supply gas from USA at a rate which is
atleast a dollar less than the rate from Qatar on long
term contracts may have a huge impact on the pricing
formula for Natural gas. Gail's gas deal is linked to
Henry Hub, the US benchmark, where prices have fallen
to $4.7 per unit due to shale gas boom. After adding
shipping and other charges, Gail expects to offer a price
of $12-13 per unit. However, since India does not have
a FTA with US, special waivers are being asked for
presently
Presently the lower rate is only for long term contracts
and given the volatility in prices esp. till the time new
prices are implemented, GAIL may not be able to supply
gas at a lower price.

Email: strategist@mdi.ac.in

Special Focus

Government plans to ease foreign

investment in oil & gas sector
Three years of policy paralysis and regulatory policy
uncertainty over issues such as natural gas pricing had led
to companies deferring their investments, resulting in
domestic production stagnating. Narendra Modi government
intends to bring in policies which would ease the way for
large foreign investments in the oil and gas sector. Ministry
is in the process of ushering in a new exploration and
production policy after amending the existing New
Exploration Licensing Policy (NELP). The ministry proposes
to replace NELP with a uniform licensing policy to facilitate
production of all forms of hydrocarbons - from oil to shale
gas - under a single policy regime. The next round of oil and
gas block auctions will be offered with all statutory
clearances that will de-risk exploration activities to some
extent. India is at a critical stage of development and the
new government led by Narendra Modi is planning to give it
the much-needed impetus for further growth.
Industry Talk

Kuwait, Abu Dhabi may store 2 million

tonne crude oil in Indian caverns
Kuwait Petroleum Corporation (KPC) and Abu Dhabi National
Oil Company (ADNOC) have confirmed that they are willing
to fill crude in two compartments of caverns at
Visakhapatnam and Mangalore. This can be a win-win
situation for both the parties as India may be able to use the
crude in case of emergencies and at the same time it
provides an excellent storing location for KPC and ADNOC.
This will give them an edge in tapping the huge Asian
Market over their close competitors. Commissioning of
Vishakhapatnam facility is expected to be completed by
September this year.

Strategist Voice

Diesel Deregulation
UPA government partially deregulated diesel prices with
monthly hike of 50 paise per litre. Current under recoveries
per liter of diesel are around Rs 1.5 and so hypothetically,
India's largest selling fuel would automatically stand
deregulated in three months assuming the global product
price and rupee exchange rates remain at the current levels.
There is an opportunity for government to announce
deregulation of diesel in union budget. Full deregulation
would pave the way for private retailers to revive their
outlets. This would immediately create jobs as private
companies such as Reliance and Essar would get a level
playing field for selling diesel through their outlets which
they had to shut down because they could not compete with
state retailers selling fuels cheaper due to subsidies.

STRATEGIST

MDI GURGAON |

PHARMACEUTICALS AND HEALTHCARE

June 2014

Government policy makes exit from

essential drugs market difficult
24 June, New Delhi
The National Pharmaceutical Pricing Authority has
been restricting companies with more than 1 percent
market share in the essential drugs market to exit.
This has been done to avoid an exodus of many
players and potential shortages in the essentials
market. The NPPA has internally set a 1% mark
beyond which it refuses to grant permission for
companies to exit unless it is assured that there
would be no shortage of the drug in the market.
Manufacturers are also required to report the levels of
essential drugs and bulk drugs they are producing,
quarterly, to enable the government to monitor their
availability in the market.
The move prevents disruption in the availability of
essential drugs in the market, but places cost and
operational pressure on companies by forcing them
to produce commercially non-viable drugs

Policy tweaks
pharma's focus

in

US

shift

Companies such as Dr. Reddys, Sun Pharma, and

Ranbaxy, for whom the FTF status has been a major
growth driver are now looking for other growth routes
and strategies and new therapeutic segments

Meiji Seika Pharma of Japan

acquire Medreich Ltd., India

to

14 June, Mumbai
Japan based Meiji Seika Pharma is set to acquire
Medreich Limited, in the first 100 per cent takeover
by a Japanese company of an Indian pharma
enterprise. The deal value is approximately
US$375mn. Medreich is globally engaged in the
contract manufacturing and development activities,
and manufacturing and sale of generic drugs
focusing on Europe, Asia, Australia and New Zealand,
and Africa.
The acquisition would enable Meiji to obtain costcompetitive manufacturing infrastructure and broaden
its sales network of generic drugs in Asia and Africa

Email: strategist@mdi.ac.in

Special Focus

Indian pharma firms concerned over

lower rates of clinical trial approvals
Pharmaceutical companies in India are expressing
concern over the lower rate of clinical trial approvals in
the country, which not only hinders new drug discovery
initiatives but causes loss of huge business opportunities
to other countries like Malaysia, Indonesia and
Philippines in the clinical trial segment. According to the
Indian pharmaceutical alliance (IPA), there have been only
about 25 clinical trials approved in India in the last one
year.
While India has huge low costs facilities coupled with stateof-the-art technology and increasing R&D investment by
pharmaceutical companies, challenges such as unethical
trials and lack of exclusive data factor towards the new drug
discovery sector lagging behind
Industry Talk

Indian

17 June, New Delhi

The recent changes in the US law on generic drugs,
reflected in the functioning of the USFDA, are likely to
impact Indian pharma firms, which earn up to 60 per
cent of their consolidated revenues through exports
to US. The earlier first-to-file (FTF) system, awarded
patents to companies that are first to file for
protection of a new product rather than to the
company that first invents a product. An FTF status
also allows the company to enjoy the right to 180
days of exclusive sale in the US.
However, now, with the Generic Drug User Fee Act in
place, USFDA has been granting 180 days of exclusive
marketing rights to more than one company. In
effect, this dilutes the advantage of FTF while
allowing increased competition.

NIHARIKA CHAUBE

New drug prices in India to be capped

by NPPA
In order to keep a check on escalating prices, India's
drug price regulator has decided to fix a ceiling price on
new drugs aimed at treating HIV, cancer, diabetes,
cardiovascular diseases, tuberculosis and malaria.
Asking state governments to actively participate in the
move, the regulator has requested states to identify
some of the most expensive, commonly used drugs for
diseases prevalent in their regions.
Last year in May, the Drug Price Control Order had
brought 652 packs of 348 formulations under its
purview. However, the regulator could cap the prices of
only 546 medicines, due to limited market data. The
NPPA has asked drugmakers to furnish details related to
cost and annual turnover of 106 essential medicines,
failing which it has said, it could initiate prosecution
against drug companies.
Strategist Voice

Indian pharma industry adapting to US

norms
Both Indian authorities and drug companies are devising
strategies to continue to benefit from the US generics
export market. In wake of several FDA regulatory
crackdowns, the government plans to spend close to Rs
3,000 crore in order to double to number of drug
regulators to 1,000 in the coming three years and set up
testing labs at ports. These efforts are expected to
ensure that drug export shipments meet the global
quality standards.
At the same time, non-exclusive FTF guidelines are driving
drug firms to look at niche products with huge entry
barriers like complex generics, resulting in increasing R&D
spends.

STRATEGIST

MDI GURGAON |

June 2014

POWER AND CAPITAL GOODS

Alstom Board Approves GEs $17bn

offer

Special Focus

21 June, Paris, France

Alstom approved GEs 17bn revised offer for its power
and grid business. This is an all cash transaction, and
valued at 7.9x EBITDA of Alstoms thermal, renewables
and grid businesses. GE will sell its railroad signal
business to Alstom for $825m. GE and Alstom will set
up a 50:50 JV for three businesses: Grid (combined Grid
assets of GE and Alstom), Renewables (Alstoms Offshore Wind and Hydro Business) and Global Nuclear and
French Steam (production and servicing). GE expects the
deal will be accretive in a year and targets synergies of
$1.2bn by year 5.
Intervention by French Government, and rival bids by
Siemens and MHI made GE revise its offer and win the
deal. French law allows the government to block
acquisitions of companies, which are of national
importance.

Rajasthan amends wind policy to

attract investments

Impact of Freight rate hike on tariff

Recently Railways hiked the freight rates for transport
of goods. Traditionally 68% of indigenous coal is
transported via railways. During the current hike freight
rate has been increased by 6.5 % for indigenous coal.
However transportation cost of coal doesnt form a
major contributor towards tariff hence this hike will
have a minor impact on tariff.
As per CERC, cost of transportation is a component of
tariff which could be escalated. Hence any rise in the
landed cost of coal, which will be impacting the tariff as
it will be transferred to consumers. This 6.5% rise in
freight charges however will have a nominal impact of
1% of tariff rate, but the additional increase of Rs.
26/ton for using rapid wagon loading system will have
more severe impact leading to an overall increase by
3.5% on tariff of coal based power plant.
Policies and Regulation

18 June, Jaipur
Rajasthan government amended the Wind Energy Act
2012 to attract more investors. The government expects
investments over Rs. 2,500crore for 400MW of wind
power. Government has decided to increase renewable
purchase obligations to 6.8%. The process for land
allocation and other formalities will be simplified.
It will attract more investors in wind power and will boost the
renewable energy. The decision to increase RPO will partially
compensate for the uncertain wind velocities.

World Bank: Improve discom heath

25 June, New Delhi

World Banks study of Indian power sector has termed
the distribution utilities as the weakest link. In order to
make the sector more attractive for investors, the
discoms need to be more accountable and free from
external interference. In 2011, the accumulated losses
of distribution utilities were Rs. 1.14 lakh crore and are
rising. Supply of below-cost power to agricultural and
rural customers have also weakened the finances of
these companies. In 2011, the share of agriculture in
countrys electricity consumption was 23%, but its share
in revenues was only 7%.
Bleeding of discoms has penetrated into the value chain of
Indian power sector. Poor financial health of discom also acts
as a barrier for more investment towards the upstream
sector of generation and transmission in the value chain.

Email: strategist@mdi.ac.in

PRATIK PANWALA & GAURAV PRAKASH

Clearances and Approval: Major

hurdle for Power Generation and coal
mine development
A recent world bank report rate India as less than
favorable for doing business. Installing a coal based
power plant requires 90 clearances during construction
and 53 during commissioning. 33% of these approvals
are sequential hence leading domino effect. Apart from
clearances and approvals, developer also needs to
submit compliances report at regular intervals during
various phases of project development. Failure of which
on failure may lead to imprisonment.
Scenario is a replica for coal mine sector, which is
already in trouble due to poor productivity and supply
chain. The challenging business environment has lead
to drop in Indias ranking from 131st to 134th
Strategist Voice

Efficient Coal Supply Chain

Series of steps were taken by power ministry recently to
boost the coal supply scenario for the sector. Reducing
the e-auction coal quantity, rationalizing coal linkages,
transfer of surplus coal at captive blocks to nearest CIL
arms, etc. are have initiated the massive restructuring
of coal supply.
However along with policy changes government needs
to focus on the infrastructure needs of the sector and
better coordination among the related ministries i.e.
Power, Coal and Railways. There are heavy stock piles
lying at the coal depot majorly due to lack of efficient
transport system.
Thus for improving the efficacy of the sector,
government along with the regulatory changes needs
to focus on execution of projects which are creating
the bottleneck for the sector.

STRATEGIST

MDI GURGAON |

10

June 2014

REAL ESTATE AND INFRASTRUCTURE

Metro railway to impact Mumbai realty,

says Jones Lang LaSalle
Mumbai's first metro railway link, which will connect the
northwestern suburb of Versova-Andheri with Ghatkopar on the
northeastern fringe soon, is expected to be a game changer for the
megapolis' realty landscape. Areas which would benefit from metro
connectivity have already seen a price appreciation of 400 per cent
over the past eight years, and this trend is set to continue with the
metro railway link's imminent launch.

Delhi Development Authority to roll out

'largest-ever' housing scheme by July
end

PIYUSH AGARWAL
Special Focus

NBCC optimistic on realty as Modi

govt to set up 100 satellite towns
The National Buildings Construction Corporation ( NBCC),
which recently announced a net profit of Rs 257 crore for the
financial year 2013- 14, is planning to expand its global
footprint and has several fresh projects in the pipeline. With a
new government at the helm that aims to set up 100 satellite
towns, expectations of the construction industry have increased
tremendously. NBCC, being a major implementing agency of
the Union government, is highly optimistic about its role in
fulfilling the objectives of the new government. Though NBCC
operates in three infrastructure segments - PMC, EPC and real
estate - the company is primarily focusing on real estate
development and redevelopment works apart from its core area
operation i. e. PMC. Delhi will remain the hub of the company's
operation in real estate, followed by newly- emerging realty
markets in Tier- II cities.. The new complexes will mainly serve
as housing options for government servants and some units
might be sold to PSUs, in order to generate funds, officials
said. These complexes will be green and environment-friendly.

The largest-ever housing scheme of Delhi Development Authority

will be rolled out for city- dwellers by July end, offering over 26,000
flats across various categories with most of them being built with
"green technology" .The houses will be spread across Rohini,
Narela and Dwarka and will be priced from Rs 14-15 lakh to Rs 1
crore .

Realtors seek cut in interest rate to

boost housing demand

Indian Green Building Council targets

10 billion square feet green building
area by 2022

Real estate sector is facing a huge slowdown in demand from

last few years due to high borrowing cost to home buyers and
developers coupled with low economic growth. To provide
shelter and to move the economy the work has to be towards
reduction of home loan rate. Expressing disappointment over
the RBI's monetary policy, realtors body CREDAI also sought
cut in interest rates on home loan to boost housing
demand. On the Contrary, the status quo decision of RBI on
monetary policy will bring more stability on home loan interest
rates. The move could also be seen as an indication of an
economic recovery. As the Union Government is about to
present its first budget, it gives valid reasons to RBI to be
cautious.

Industry Talk

Strategist Voice

Energy-efficient buildings is the need

of the time
Investors ready $1 billion war chest for
office assets in India

Email: strategist@mdi.ac.in

Energy-efficient buildings increase return on the realty

investment. A green home has tremendous benefits,. The
immediate and most tangible benefit is in the reduction of water
and operating energy costs. Evidence also shows that these
features of energy-efficient buildings are translating into greater
value in the form of increased rental rates, higher sale prices,
increased occupancy rates and lower operating expenses. But,
installing these facilities also result in higher construction costs.
Some features, such as the use of fly ash bricks to reduce
pollution, use of high performance reflection glass, energy
conservation lamps, water recycling and rainwater harvesting
facilities, have to be incorporated in the project and hence
increase in construction costs. Energy-efficient buildings not
only help lower the utility and maintenance costs, but also
translate to better value in the long term.

STRATEGIST

MDI GURGAON |

11

Strategist Model of the Month Porters Diamond- Competitive

Advantage for Nations
MIcheal Porter theorizes that there are 4 broad attributes of a nation that shape the environment in
which local firms compete and these attributes lead to competitive advantage.

Firms Strategy, Structure

and Rivalry

Factor Endowments

Demand Conditions

Related and supporting

industries
Factor Endowments- A nations position in factors of production, such as skilled labour and
infrastructure necessary to compete in a given industry. He divided the factors into basic factors and
advanced factors where in basic factors include natural resources, demographics etc and advanced
factors include infrastructure, skilled labour, research facilities etc. Basic factors provide an initial
advantage to the country and is subsequently reinforced and extended by investment in advanced
factors.
Demand Conditions- . Firms are sensitive to the needs of the closest customers.i.e. home demand
Thus the characteristics of home demand are particularly important in shaping the attributes of
domestically made products and creating pressures for innovation and quality. A nation gains
competitve advantage if their domestic consumers are sophisticated and demanding as the
consumers pressure local firms to meet high standards of product quality and innovaiton is thus
rewarded.
Relating and supporting Industries- The pressence of suppliers/ related industries that are
internationally competitive adds to the source of competitive advantage. The benefits of the
investments in downstream industries benefit the upstream ones by spilling over their gains.
Firm Strategy Structure and Rivalry- Different nations are characterized by different management
ideologies, which help them create competitive advantage. Also there is a strong association
between vigourous domestic rivalry and the creation and persistence of competitive advantage in an
industry. This rivalry inturn induces firms to be more efficient thus leading to innovation,
improvement in quality, reduction in costs etc.

DEAL OF THE MONTH

Flipkarts Acquisiton of Myntra
Sector: e - Commerce (Fashion)
Valuation: Rs. 2000cr (approx.)
COMPETITORs
STRATEGY
- Amazon is
also looking for
companies to
acquire to
boost its
presence in
India as per
several
investment
bankers.
- SnapDeal is
being backed
up Ebay as
Ebay is
sourcing some
of its Indian
operations
through it and
similar to
Flipkart it has
raised fresh
round of
funding.

(Biggest consolidation in the e-commerce space in India)

- Myntra will operate as a separate unity as it is important to preserve
the culture and Mukesh Bansal (CEO, Myntra) will be joining the board
and heading the apparels business
Company Highlights

- Flipkarts annualised sales revenue have crossed the $1 billion mark

and it has achieved this number a year in advance.
- Myntra sells products from over 650 brands and clocked over Rs. 1000
cr in revenues in the last fiscal year and it aims to double its revenues in
this year as it expands its seller base and adds products. It has 100
sellers and it plans to increase this number to 1000 by this fiscal end
OBJECTIVES & SYNERGIES
We want to be the leaders in every segments and fashion is the
category of the future. This deal will help them become leaders in that
segment Sachin Bansal, CEO, Flipkart

- The move will help flipkart strengthen its portfolio and compete more
aggressively with peers like Amazon and SnapDeal
- Itll help gain market share in the fast growing apparel market and
provide the much needed scale to flipkart
- Myntra has a last mile delivery covering 70 cities while that of flipkart
is 250

FUTURE
- Company will
spend roughly
Rs.600cr in the
fashion
category

- Planning to
increase their
sales through
mobile phones
- Immediate
goal is to
increase it to
60%
- Myntra plans
to increase its
no. of brand
and sellers
- Likely to
integrate their
backend
functioning
going forward

STRATEGISTS VIEW
The DIPP is pitching for 100% FDI in e-commerce space and the deal has just come in that point
of time. The current policy does not allow 100% FDI in b2c even as 100% is allowed in b2b. With
battle getting intense between Amazon and Flipkart we expect more consolidation in the
coming years. With growing competition smaller firms will find it difficult to raise capital and
cope with price war forcing them to merge with the bigger rivals. Hence a strategically
motivated move that takes into account the possible impact of policy changes as well as
competition that is bound to increase in the given sector.

Himanshu Damani
Pg13himanshu_d@mandevian.com
8586000994

Strategist@mandevian.com