Thursday, November 29, 2012

Ravi Shanker Kapoor: Microfinance - From utopia to dystopia

In his valedictory address at the Microfinance India Summit in New Delhi on Wednesday, Rural Development Minister Jairam Ramesh may have called microfinance “a discredited model” in “a danger zone”. But it is the politician-intellectual complex (PIC) that will fix anything to suit its purpose — especially if the thing has evolved on its own and is effective. Microfinance in Andhra Pradesh is one such victim of PIC’s fixation with welfarism.
The attacks on microfinance institutions ( MFIs) by politicians, intellectuals and activists have wrought havoc on the sector and its stakeholders. It is a classic case of PIC functioning: while intellectuals and activists created a climate of opinion against MFIs by exaggerating their faults and downplaying their good points, politicians capitalised on the frenzy opinion-makers had worked up. A sector that was booming – bringing succour to the poor and profits to entrepreneurs – was rendered sick. All in the name of helping the poor, ending farmer suicides, and so on.

A few months ago, Business Standard reported that moneylenders are back in rural Andhra Pradesh, “grabbing the space vacated by microfinance institutions following the state government’s decision to curb the micro-lending business of private players”. It went on to say “moneylenders, pawn brokers and middlemen are charging as high as 225 per cent interest rate per annum”. Another news report from Guntur said a poor couple sold their eight-month-old son to clear heavy debts.

Evidently, the state government has no problem with moneylenders. At a Nabard(National Bank for Agriculture and Rural Development) function in Hyderabad on July 13, D Srinivasulu, principal secretary (industry and textiles, Government of Andhra Pradesh), said: “There is no point in replacing moneylenders who ensure quick delivery of credit in rural areas. What we should do is to bring competition (so that they reduce rates).”
If there is “no point” in checking those who “ensure quick delivery of credit”, why were MFIs targeted? After all, MFIs were also doing just that. The rate of interest that they were charging was in the 20 to 40 per cent band, lower than what the poor people are forced to pay in their absence.
Not that microfinance was without its problems; many MFIs ignored the principles of prudence, lent aggressively, and even overlooked the prospects of repayment. Many poor individuals were able to borrow from as many as five lenders, but could not pay back. MFIs adopted strong-arm tactics, with deplorable consequences; even cases of suicide were reported.
The problems associated with the sub-prime crisis of microfinance were magnified a million times and the good effects downplayed by activists, non-governmental organisations, politicians and bleeding-heart media analysts. The result was the draconian Andhra Pradesh Microfinance Institutions Act, 2010, which practically killed a system that was still evolving. And, the denouement? Bad old moneylenders are back with a vengeance.
The promise was a better deal to the poor; the result is depressing. From utopia to dystopia, there is only one step.
A couple of perverse axioms of public discourse has taken a heavy toll. First, prosperity is a zero-sum game in which a set of people can benefit only at the expense of another set. The theorem that follows is that if some MFI entrepreneurs are making money, there must be people who are being “exploited”. Aren’t we taught that capitalists exploit the poor? The theorem, and the theory, goaded the jholawallahs to search for the existence of the exploited. The minor failings of microfinance, which were vastly amplified in the media and contemporary folklore, provided them the empirical evidence to prove the veracity of their assertions. So, MFIs are bad, evil and exploitative. QED.
Another axiom related to the very nature of human beings and society: men and women, particularly the poor, are incapable of working out a system, or letting it evolve, for public good or their own good; there is no such thing as an “invisible hand” that brings about a functional system; only interference by state organs can do that. And, this interference is defined and developed by an enlightened group of people – not philosopher kings, but philosophers, or rather philosophies, in aid of kings – who know what is good for lesser mortals. The enlightened take care of the people’s moral health, social welfare and, of course, economic well-being.
What was happening in Andhra was intolerable, according to the enlightened. MFIs were doing brisk business and earning a lot of money. The initial public offering of SKS Microfinance, for instance, proved to be a big hit; it raised Rs 1,600 crore. The stock traded in the region of Rs 1,400 two years ago (it is below Rs 100 at present, though). Like the puritan who was opposed to bull-baiting, not because it gave pain but pleasure to the spectators, the enlightened are not as infuriated by the misery of the poor as by the riches of the industrious.
PIC is at war with MFIs. The Microfinance Institutions (Development and Regulation) Bill, 2012, which empowers the Reserve Bank of India ( RBI) to regulate microfinance and waits Parliamentary approval, is being opposed by the Andhra government. A prominent Union minister is also against the proposed legislation. This is despite the fact that RBI wants to regulate the sector quite firmly. It had appointed the Malegam Committee, which recommended, among other things, a 24 per cent cap on interest rates. MFI representatives are uncomfortable with the Malegam Committee.
Yet, the Andhra government is opposed to even RBI regulating microfinance. With PIC unwilling to relent, there is little hope for the poor in the state; they will continue to pay triple-digit interest rates.
(Source: Business Standard)

Ingersoll Rand's experiment to grow its biz: Spawning entrepreneurs in small towns

Sandeep Kumar Gupta, 26, had three job offers on hand from marquee multinational and Indian companies at the close of last year’s campus placement season at the Indian Institute of Management, Ahmedabad ( IIM-A).
To the surprise of many of his batchmates, he did not go for any of these. Instead, he opted to join Ingersoll Rand, a diversified manufacturing company, as an entrepreneur partner in its two-year Entrepreneur Creation Programme.

For the first six months, Gupta and 15 other IIM alumni from Ahmedabad and Bangalore who joined the programme over the past two years underwent in-depth fast-track training across all the businesses and functions of the company -- it is into air conditioning, security and energy management systems, part of a US-headquartered $14-billion global conglomerate. (FOSTERING ENTREPRENEURSHIP)

In the next six months, the entrepreneur partners create a business plan for a financially profitable venture. These ventures can be for sales, distributorship or as a solutions provider for Ingersoll Rand products and services, preferably located in Tier-II and Tier-III towns and cities.
In the third phase, Gupta has to implement the business plan and demonstrate its financial viability, with support from various functional departments of the company. In the final six months, the fledgling entrepreneurs become business owners and start independent operations.
During the course of the two-year programme, the entrepreneur partners earn a monthly salary like any other management trainee. But once they move out of the programme, their fortunes are tied to the success of their business venture.
“We want to create a pool of 100 such entrepreneurs over the next five to seven years, who would operate largely out of small towns and cities,” says Venkatesh Valluri, chairman, Ingersoll Rand India. For the company, it makes long-term business sense to spawn and foster entrepreneurship in tier-II towns and cities. Valluri expects each of these start-up ventures to grow over time, to generate around Rs 50 crore worth of business over seven years.
That means adding Rs 5,000 crore to revenue. A brainchild of Valluri, the programme is unique to India and part of a strategy to strengthen its company’s hub and spoke business model.
According to Krishna Tanuku, executive director, of the Wadhwani Centre for Entrepreneurial Development at the Indian School of Business, Hyderabad, there is a huge untapped opportunity to foster entrepreneurial spirit in small towns and cities. “This will help leverage the local economy to meet the needs of the global market,” he says.
Key resources for any start-up are access to the market and technology for offering a product, service or a solution.
These two requirements are handled by Ingersoll Rand, with its range of products, services and solutions, along with service support.
The entrepreneur partners are free to design their ventures from any of Ingersolls line of businesses. “They have to build their businesses on their own,” says Valluri. The company might help them connect with financial institutions and banks for start-up and working capital, depending on their business requirements.
Gupta and five others, who joined the first batch of the programme in 2011, are slated to move out in April 2013.
They’re currently validating their business plans on the ground. Says an unfazed Gupta, who has two and a half years of work experience in the information technology sector, before joining
IIM-A: “I always wanted to be an entrepreneur.” The programme just expedited the move, he says.
For Valluri, the stakes are high. The success of Ingersoll Rand’s long-term business plan is deeply intertwined to the entrepreneurial success of these start-up ventures in small towns and cities across the country.
(Source: Business Standard)

Siemens in a cost-cutting mode, to slash capex

Faced with a double whammy of depleting order inflows and profits, Siemens India plans to cut capital expenditure.
The company reported a loss of Rs 55 crore in the July-September quarter, against a profit of Rs 178 crore during the same period last year. Annual profit was down 50 per cent and now broking firms have cut the company’s earning estimate by 10-20 per cent for the next financial year. The reason is uncertain business environment,” said Siemens India's managing director Armin Bruck, in an email response.
The company will be taking a series of measures to trim costs, strengthen core business activities, improve sales, and optimise the use of its facilities in line with its parent company’s strategy. It will also focus on its low-cost and high-technology ‘SMART’ products, which contributed 15 per cent of the order intake.

SIEMENS ANNUAL PROFIT                (Rs crore)
Siemens follows Oct-Sep financial year
“SMART products today contribute 15 per cent to the order intake, compared to 10 per cent in 2010-11 and five per cent in 2009-10,” said Bruck.
The order inflow declined 17 per cent last year and revenue and margins were impacted due to project delays and cost over-runs. The company announced closure of its wind turbine manufacturing plant at Vadodara, booking a loss of Rs 120 crore. The energy and industrial division segment saw fewer orders and a dip in profits.
In its interaction with analysts last week, the management maintained the weak outlook to continue for near- to medium-term on the back of slow traction in large value business. It said that liquidity at clients’ end was impacting project execution.
In a note to investors, HDFC Securities said that it expects Siemens to report muted revenue growth for the next two years. It said margins would improve as a result of the company’s aggressive policy of recognising costs but double digit margins were some time away.
“The company's order book, too, is declining and I do not expect 10-15 per cent revenue growth,” said an equity analyst who tracks the company.” Exceptional items such as impairment loss due to closure of the wind energy plant and an adjustment of Rs 79 crore against the previous year's expense, impacted the result. Excluding that, the adjusted profit for the September-end quarter works to about Rs 65 crore,” the analyst added. Broking houses Edelweiss and Antique Stock Broking have cut Siemens’ profit estimate for the next financial year by 9.6 per cent and 20 per cent, respectively, anticipating lower revenue and margin pressure.
Bruck did not specifically comment on broking house estimates. “We do not make forward-looking statements. New investment announcements have been continuously declining for the past six quarters, due to issues such as slowdown in the economy, project delays faced by the customer, and high interest rates. However, we are confident that the positive steps by the government in implementation of the various reforms and other measures expected in infrastructure and power sectors (such as debt restructuring) would open up the economy,” said Bruck.
(Source: Business Standard)

Clinical Research: Medical professionals chart new careers with labs, hone business acumen and managerial skills

Going by her designation - associate director, project management - you'd think Rashmi Vyas was an information technology professional. But she is a doctor, gainfully employed in clinical research. Vyas works in the Cardiac Safety Services division of global clinical research firm Quintiles. The unit works with pharmaceutical companies during clinical trials to ensure the drugs they make are safe for the heart.

As a project manager, she has travelled across the world to meet pharmaceutical companies and medical practitioners to help them understand the company's ECG business. Today, she supervises a team of up to 10 managers. "My medical background makes it easier to understand the requirements of clients and train internal teams," she says. Vyas says the role also allows her to maintain a better worklife balance: like a typical project manager dealing with overseas clients in an IT firm, she too, gets the flexibility to work from home.

Though clinical trials in India are bogged down by regulatory constraints and slow approvals, doctors like Vyas are leaving their practice in hospitals and clinics in favour of new career opportunities in clinical research.

Clinical Research: Medical professionals chart new careers with labs, hone business acumen and managerial skills

"The clinical trials industry has grown phenomenally in the past decade," says Dr Vinitaa Jha, director, operations, at the office of research at Max Healthcare. Pharmaceutical multinationals have built a strong foothold in India, and CROs, research departments within hospitals and the pharmaceutical industry provide good employment opportunities to medical and allied professionals, also enabling them to use their managerial skills and business acumen, she says.

The office of research department at Max Healthcare, which Jha heads, was started in 2006 to spearhead all research activities, including scientific studies, research and clinical trials. Jha, herself a psychiatrist and an MBA, says the number of doctors looking for roles in the research division at the chain has gone up substantially, and the research division also has plans of putting in place a medical writing division which will enable and assist researchers to write articles for journals.

Fortis Clinical Research, the clinical research division at Fortis HealthcareBSE 6.30 %, also plans to hire more medical professionals for functions like clinical trials, medical writing and pharmacovigilance next year.

"Medical professionals are required across all functions in the clinical research industry. With the expected boom in clinical research in India, which is currently limited by regulatory constraints, the roles and opportunities for medical professionals may show exponential growth," says Aditya Vij, CEO at Fortis Healthcare.

Sanjay Gupta, director, operations at clinical research firm Catalyst Clinical Services too believes the number of medical professionals looking at roles in clinical research has gone up drastically. His firm currently employs six doctors in a team of 25, but he is hopeful of employing more doctors next year if projects increase.

While the number of medical professionals employed at firms like Catalyst may not be significant, Quintiles Cardiac Safety Services employs 200 doctors in a total workforce of 240 in India. Quintiles is the only clinical research firm in the world to have a separate cardiac unit for clinical trials, and the global headquarters of the unit is in Mumbai.

India is the headquarters as it has an extremely experienced pool of cardiologists. With increasing scrutiny by US authorities, cardiac safety in clinical trials has emerged as a big field, requiring medical expertise," says Dr Snehal Kothari, senior medical director at the unit. "Unlike labs which also employ technicians for preliminary reading of data, we employ physicians at all levels," says Dr Deepa Desai,executive director

To attract and retain medical professionals, the company offers roles in project and operations management to doctors who have worked with them for about two years. 

While a role in project management allows medical professionals to work on specific projects and interact with global medical teams of pharma companies, operations management involves the process of handling ECG reports, upgrading medical software, managing logistics and reporting, receiving and sending ECG reports. 

Nearly half the doctors at the cardiac unit are out-of-college medical graduates, a quarter of them are specialised MDs and another quarter, super specialists or experienced cardiologists who work with the company as consultants and put in eight to 10 hours every week. 

The profiles are divided into levels according to the work, with the super specialists right on top. Dr Dattatreya Rao is a super-specialist who began his part-time Quintiles stint in 2006, and works at the unit for two hours every day. "I was alittle skeptical about joining them initially as it almost sounded like an IT company," he says. "But, they have well defined structures, roles and protocols and the pay scales are commensurate with the working hours put in," he says. Clearly, there is no looking back.

(Source: Economic Times)

Salman of Screens: Ajay Bijli-led PVR buys screen multiplex chain Cinemax for Rs 395 crore

 In a deal that will bring about significant consolidation in the Indian movie exhibition industry, Ajay Bijli-led PVR has bought out the 138-screen multiplex chain Cinemax for Rs 395 crore, making it the largest player in the market with control over 351 screens at 85 locations, a market share of 27%. 

This will be the second round of consolidation in the multiplex industry in India, which is around 15 years old and consists of 15 companies operating around 1,300 screens. Two smaller players, Fame and InoxBSE 4.95 %, merged last year to form India's third-largest operator. 

The Cinemax acquisition will be executed by PVR's whollyowned subsidiary, Cine Hospitality (CHPL), and would be concluded in phases. To begin with, CHPL will buy the 69.27% stake owned by Cinemax promoters, Rashesh Kanakia and his family, for .Rs203.65 per share in an all-cash deal. This will be followed by an open offer for an additional 26% stake, as per Sebi's takeover regulations. 

The acquisition price is 10.4% higher than the current market price of Cinemax IndiaBSE 5.64 %, which closed the day at Rs184.25/share. The Cinemax stock has gone up 150% in the past one month on the back of the impending deal. 

The deal will be financed via a combination of debt and equity. While the promoters are putting in .Rs25 crore, Renuka Ramnath's PE firm, Multiples, will contribute the bulk, Rs153 crore, while existing investor L Capital, the PE arm of luxury house LVMH, will invest Rs82.3 crore. All three will be issued fresh shares through a preferential allotment. Upon completion of the deal, the promoter holding in PVR will come down to 32% while both Multiples and L Capital will hold 15.8% each. 

Even though the company did not spell this out explicitly, the plan is to merge Cinemax into PVR in future, according to people familiar with the matter. ET was the first to report on November 23 that a deal between the two was in the offing and on November 29 about Multiples and L Capital investing in PVR. "Consolidation of this scale has never happened before, but I was very keen that we get the right fit and not buy for the sake of acquisition. Cinemax fits into our brand and enables us to be the largest in the 10 most important markets of India," said PVR CMD Ajay Bijli

"We chose PVR after negotiating with other players. Cinepolis was very close and their offer was almost the same as PVRs, but we chose PVR as we had more trust and faith in the management team," said Rasesh Kanakia, executive chairman, Cinemax India. He added: "We will continue to focus on our other businesses like real estate, hospitality and education." 

Bijli, who left his family's transportation business to set up a nationwide chain of movie theatres, also clarified that except a few marquee locations, the Cinemax brand name will be retained. Cinemax especially has been a market leader in western India. "We are not going to change anything on the consumer or the supply side, as we will be focussing on synergies like F&B, programming etc, which offers a large scope." 

Axis CapitalBSE 1.86 % was the advisor in the deal while Axis Finance acted as arrangers for the acquisition financing. For PVR, this deal will also help shed its conservative image. Two years ago, Bijli had made an attempt to buy the 26-screen DT Cinemas operated by a DLFBSE 0.58 % subsidiary, but the Rs 60-crore stock-cum-cash deal did not fructify. In fact, speaking to ET in an earlier interview, Bijli had voiced concerns of remaining a mid-cap company after nearly two decades in the business and displayed a restlessness to grow. 

The PVR-Cinemax transaction will have wider ramification. For smaller players, like Mexican chain Cinepolis, who are currently at 44 screens, this is also a moment of reckoning, say analysts. The remaining Indian operators— SPI, Fun Republic, Wave— may have to explore selling out to bigger players in a shakeout.

(Source: Economic Times)

Wednesday, November 28, 2012

World Economy in Best Shape Since 2011 Investors

The world economy is in its best shape in 18 months as China’s prospects improve and the U.S. looks likely to avoid the so-called fiscal cliff, according to the latest Bloomberg Global Poll of investors.
Two-thirds of the 862 surveyed described the global economy as either stable or improving. That’s up from just over half who said that in September and is the most since May 2011.
The U.S. came out on top for the eighth straight quarter when investors were asked which markets will offer the best opportunities over the next year. China ranked second, reversing a decline to fourth in the September poll of investors, analysts and traders who are Bloomberg subscribers. The European Union, beset by a debt crisis, was seen offering the worst returns.
“The global economy is improving, recovering and healing, thanks to the U.S. and the emerging markets,” said Andrea Guzzi, a poll respondent and vice president of IST Investmentstiftung fuer Personalvorsorge, which manages money for Swiss pension funds. “More people are becoming wealthy, less and less are poor.”
Stocks were seen as the asset of choice, with more than one in three of those surveyed on Nov. 27 forecasting equities would have the best returns in the coming year. Real estate came in second: Just less than one in five investors singled it out favorably, the best showing since the quarterly poll began in July 2009. Bonds were seen as offering the worst returns.
The Federal Reserve is expected to provide continued support to the bond market after its Operation Twist program ends next month, according to the poll. About three in four said the U.S. central bank will begin outright purchases of Treasury securities after its plan for swapping short-dated securities for longer-dated ones expires.

Fed Purchases

A plurality -- two in five -- said the Fed also will continue buying mortgage-backed securities into 2014, a strategy dubbed QE3 by investors, shorthand for the third round of quantitative easing by the central bank.
“The Fed is being very clear about monetary policy,” Gala Prada, a poll respondent and portfolio and asset manager for Fiatc Mutua de Seguros y Reaseguros, a Barcelona-based insurance company, said in an e-mail. “If the economy doesn’t improve, there will be a QE4 or more asset purchases.”
The growing optimism among investors about the world economy was not reflected in their views of the prospects for the financial services industry. About seven in ten said they expect large banks to reduce payrolls further in the next year after cutting at least 188,000 jobs over the last two years. A majority blame regulatory changes for the reductions.

Tighter Rules

Banking authorities have tightened rules and raised capital standards on banks after the worst financial crisis since the Great Depression forced governments to spend billions of dollars to rescue ailing financial institutions.
“Many countries have oversized banking sectors, which need to go back to more sustainable sizes,” Guzzi said in an e-mail from Zurich.
The optimism on the world economy is based in part on an expectation that the U.S. will avert $607 billion in automatic spending cuts and tax increases scheduled for Jan. 1. Three out of four surveyed anticipate that President Barack Obama and Congressional leaders will reach a short-term agreement to avoid the fiscal cliff.
The 34-nation Organization for Economic Cooperation and Development in Paris warned this week that the world economy would tip into recession if the U.S. failed to act.
Close to half of investors said they plan to increase their exposure to equities over the next six months, up from less than two in five in September.

Stocks Up

Respondents are most bullish about U.S. equities. A majority forecast that the Standard & Poor’s 500 Index will rise during that time frame. The stock gage stood at 1409.93 at 4 p.m. inNew York on Nov. 28, up 12 percent this year.
“U.S. companies have better profit potential, balance sheets and access to capital,” Christian Thwaites, a poll respondent and president and chief executive officer in New York of Sentinel Investment, which manages more than $27 billion, said in an e-mail.
U.S. property prices also are heading up, investors said. More than three in five forecast that housing values would be higher six months from now. A minority responded that way in the last poll in September.
Home prices rose in the year ended in September by the most since July 2010, climbing by 3 percent, according to the S&P/Case-Shiller index of property values in 20 cities.
The housing market has been supported by the Fed, which has said it expects to hold overnight interbank rates near zero until at least the middle of 2015.

Enhance Understanding

Forty-five percent of investors said the U.S. central bank would enhance understanding of its policies and help the economy if it tied its pledge to keep rates low to specific thresholds for unemployment and inflation. One in four said such a move would be confusing if such a goal-oriented commitment replaced the Fed’s current calendar-specific rate promise.
The Fed itself is split over the issue. Fed Vice Chairman Janet Yellen and Chicago Fed President Charles Evans have supported a switch, while Philadelphia’s Charles Plosser and the Dallas Fed’s Richard Fisher have voiced doubts.
Commodities lost some favor in the latest survey. Only 12 percent said it will be the best-performing asset class over the next year, down from 18 percent in September.
Investors remain downbeat on bonds. Forty-eight percent intend to reduce their holdings of U.S. Treasury bonds over the next six months, the most since the poll began asking that question in May 2011. By a slim margin -- 50 to 45 percent -- respondents viewed Treasuries as a safer investment than AAA- rated U.S. corporate bonds, such as those of Microsoft Corp. and Exxon Mobil Corp.

Europe Worst

More than two of five investors expect European Union markets to offer the worst opportunities over the next year. That was the most negative reading in the poll, followed by Japan, with 23 percent, and the Middle East, with 17 percent, up from 7 percent in September.
Forty percent of respondents are less likely to put money into Egypt since President Mohamed Mursi took over in July -- 10 times the amount who said they are more likely to invest.
Protesters and police clashed in Cairo on Nov. 28 as Egypt’s opposition resolved to stand firm against Mursi and the Muslim Brotherhood in a showdown over his self-decreed powers.
Half of those surveyed said they don’t expect a military strike against Iran’s nuclear program in 2013.
Israeli Prime Minister Benjamin Netanyahu has repeatedly warned that time is running out to prevent an Iranian nuclear bomb, which he expects to be aimed at Israel.
Iranian President Mahmoud Ahmadinejad, who regularly denounces Israel as an illegitimate regime that should ’’disappear,’’ says his country’s nuclear program is for peaceful purposes.
The poll of Bloomberg customers was conducted by Selzer & Co., a Des Moines, Iowa-based company. The survey has a margin of error of plus or minus 3.3 percentage points.
(Source: Bloomberg)

Nestle Forms Botanical-Medicine Venture With Li’s Chi-Med

estle SA (NESN) and Hutchison China Meditech Ltd. (HCM), the drugmaker controlled by Hong Kong billionaire Li Ka-shing, agreed to form an alliance to develop gastro- intestinal treatments based on traditional Chinese medicines.
Nestle Health Science and Chi-Med will each own half of the Nutrition Science Partners Ltd. venture, the companies said in a statement today. NSP will also take on an experimental medicine known as HMPL-004 and oversee late-stage clinical trials on treatments for ulcerative colitis and Crohn’s disease.
The collaboration gives Vevey, Switzerland-based Nestle exclusive access to Chi-Med’s botanical library of more than 1,500 purified natural products and 50,000 extracts from medicinal plants. Chi-Med entered an agreement withAstraZeneca Plc (AZN) in December to develop an experimental cancer drug.
“We believe traditional Chinese medicine has a real potential to become part of innovative solutions,” Luis Cantarell, CEO of Nestle Health Science, said on a conference call.
Nestle shares rose 1.2 percent to 60.60 Swiss francs in Zurich trading, for a gain this year of 12 percent. Chi-Med advanced 5.8 percent in London, the most in almost four months, for a gain this year of 43 percent.

Brain Health

The partnership may extend into metabolic diseases and brain health, the companies said. The venture will also tap the capabilities of Prometheus Laboratories Inc., which Nestle bought last year. Prometheus focuses on tests and treatments for cancer and gastroenterology.
“As an old Nescafe ad used to say: ‘One thing leads to another,’” Cantarell said.
The joint venture’s initial focus will be on the U.S., and Chi-Med has already been discussing late-stage testing of HMPL-004 with regulators. The third and final phase of testing is expected to begin “early next year.” The companies didn’t disclose the amount of investment in the collaboration.
“Nestle seems to us to be a perfect partner for HMPL-004,” given its investment potential in research and development, Savvas Neophytou, an analyst at Panmure Gordon, wrote in a research note.
“Although the deal structure revolves originally around gastrointestinal assets, it should be noted that a broader collaboration on the entire botanicals portfolio could materialize in coming years,” he wrote.
Nestle established the health science business early last year to develop personalized nutrition treatments for conditions such as diabetes, obesity and heart disease.
(Source: Bloomberg)

Tuesday, November 27, 2012

Emami bets on contemporary, heritage brands to push up sales

Fast moving consumer goods maker Emami is expecting a 20 per cent spurt in its sales in the current winter season on the back of aggressive marketing and distribution initiatives. The Kolkata-based player has increased its advertisement spends by 35 per cent for the season.
The company is banking on a combination of heritage and contemporary brands such as Boroplus, Zandu, Sona Chandi Chawanprash and lipcare brand Vasocare to accelerate its winter sales.
“We have made considerable investment in the modern trade for increased urban penetration. For our rural consumer base, we will be taking the route of the age-old “jatra” (village fairs) for sampling, brand promotions, merchandizing and in-play product promotions in the Eastern market,” said N Krishna Mohan, CEO, – Sales, Supply Chain & Human Capital of Emami Ltd.
While the company is bullish on its skin care segment, lip care is also growing fast. Krishna Mohan said that the category is currently estimated at Rs 77 crore and is growing fast.
“We hope to leverage our strong distribution network across the country comprising 3,500 distributors and presence in over 4 million retail outlets to expand the market for lipcare. We expect this product range to grow across all demographic segments in the coming years.”


The company will also be launching new TVCs with 5 new brand ambassadors namely Saina Nehwal, Sushil Kumar, Mary Kom, Vijendra Singh and Gautam Gambhir.
PTI adds: “There would be special thrust on Zandu Brands this year, Zandu Kesari Jivan and Zandu Chyawanprash with an eye to grab a larger pie of the more than Rs 350-crore Chyawanprash market,” the company said.
(Source: Business Line)

Brazil’s power groups warn on price cuts

Alexandre Mota was 15 when he started working at his father’s small laundry business in São Paulo. Twenty-five years later, he says he has now learnt one of the secrets to running a profitable company in Brazil: saving electricity.
“All our tumble driers run on gas and we also use natural ventilation,” he says, waving at the rows of clothes hung behind the counter.
In spite of relying on cheap hydroelectric power for about 75 per cent of its electricity supply, Brazil has the third-highest average electricity tariff in the world of $180/MWh, according to Brazil’s Fundação Getúlio Vargas (FGV).
Expensive electricity bills have added to the high cost of doing business in Brazil, hurting competitiveness and stunting the growth of entire energy-intensive industries such as aluminium and steel production.
However, in a sudden move to revive Brazil’s slowing economy President Dilma Rousseff stepped in to intervene in September, promising to slash rates by an average 20 per cent from next year.
Residential customers will see cuts of up to 16.2 per cent and tariffs for industrial users will be reduced by as much as 28 per cent, she said.
While businesses from launderettes to steelmaker Gerdau have welcomed the announcement, it has caused outrage among the shareholders of electricity companies who say the measure threatens to do more harm than good.
“I can clearly understand the need to have lower electricity prices but this transaction is not a proper way to do it,” said Kristian Falnes, head of the Norway-based Skagen Global fund, which holds 17 per cent of preferential shares in Brazil’s state-controlled power company Eletrobrás.

Loan to build dam approved

Brazil’s state development bank, BNDES, has approved a loan of R$22.5bn (US$10.8bn), the biggest in its history, to help build the Belo Monte dam in the Amazon rainforest.
BNDES said on Monday that the loan to Norte Energia, the consortium behind the hydroelectric project, would finance almost 80 per cent of the R$28.9bn needed to complete the dam.
Belo Monte is set to become the world’s third-most powerful hydroelectric dam, capable of generating enough electricity to supply about 60m people.
It is fiercely opposed by environmentalists who argue the dam will destroy a large area of rainforest and ruin indigenous communities.
The government says the project is vital to meet the energy demands of Latin America’s biggest economy and further wean the country off fossil fuels.
In an attempt to ease concerns of environmentalists around the world, BNDES said R$3.2bn would be lent to fund social and environmental projects.
About 40 per cent of the loan will be funnelled through Brazil’s state-owned Caixa Econômica Federal and investment bank BTG Pactual, which will receive R$7bn and R$2bn respectively.
Norte Energia, which includes state-run Eletrobrás and miner Vale, has said the dam should be operational by 2015. Since its conception in 1975, the project has frequently been halted over environmental and land disputes. Most recently, workers set fire to vehicles and smashed computers at the site in protest over labour negotiations.
Part of the tariff reductions will come from tax cuts – the government will cede R$3.3bn (US$1.58bn) a year to cut industrial rates by 10.8 per cent and residential rates by 5.3 per cent.
However, the bulk of the promised discounts will be paid for by the power companies themselves, who will be forced to charge consumers less in return for the early renewal of their concessions for up to 30 years.
Companies have until December 4 to decide whether to accept the government’s proposal, or risk losing their concessions when they expire and being forced to charge lower fees in the future. Either way, they lose out.
“Naturally, this is going to mean a certain reduction in revenues,” said José da Costa Carvalho Neto, chief executive of Eletrobrás, which has already agreed to accept the government’s proposal under pressure from state controllers.
He pointed to analysts’ estimates that the new rules would wipe R$8bn off the company’s revenue next year, adding that the R$14bn compensation offered by the government was less than half of the value he had been expecting.
“I believe profits will be lower for three to four years but then they will begin to return to the rhythm we see today,” he said in an interview with the Financial Times.
Eletrobrás’s acceptance of the terms has sparked widespread protest among its minority shareholders, leading to the resignation from the board this month of José Luiz Alqueres, a shareholders’ representative and the company’s former chief executive.
Skagen, which is now considering legal action, says the deal will near destroy the value of the company. Since Ms Rousseff announced the tariff reductions as part of the country’s independence day celebrations in early September, Eletrobrás’s shares have halved in value to trade at about R$6. Barclays, which cut its price target for the shares to just R$1 last week, has also warned the company may have to launch an R$8bn-R$10bn equity offering next year to help fund operations and reduce leverage.
The share price plunge has dealt another blow to Brazil’s Bovespa stock index, which has lost about 16 per cent over the past two years on concerns over growing government intervention in sectors ranging from banking to mining.
Other smaller electricity companies, however, have been more reluctant to accept the government’s terms. Cteep, which is responsible for 30 per cent of Brazil’s electricity transmission, has said its board recommended against renewing its concession expiring in 2015 but has yet to confirm the decision.
Smaller power company Celesc said earlier this month it will not accept the government’s terms.
Fitch said rivals Copel and Cemig could see their earnings decline 10-15 per cent from next year if they do not also reject the proposal. However, the government has remained confident that it will be able to persuade everyone to sign up.
When asked about some companies’ rejection of the proposal, Brazil’s interim mining and energy minister Márcio Zimmermann recently told newspaper Valor Econômico that there should be some “surprises” come December 4.
While that may mean more disappointment for shareholders, the government insists its plan is necessary to boost growth and investment across Brazil.
A few blocks down the road from Mr Mota’s laundry business in São Paulo, Julio Ricardo Pavão has already added up how much his internet café will save on electricity every month.
“It could be as much as R$300 . . . that’s enough to update the computers or even buy new ones.”

Canada ETF industry on track for record year


Canada’s fast growing exchange traded funds market is on course for a record year in 2012 with analysts predicting that ETFs will continue to win market share from the country's traditional mutual funds industry.
Canadian listed ETFs (funds and products) attracted net new inflows of $10.1bn between January and October, up 33.2 per cent on the $7.6bn gathered over the whole of 2011, according to ETFGI, a consultancy, which reported all figures in US dollars.

Inflows this year have already surpassed the record $8bn registered in 2009.
Analysts at BMO Asset Management said in a recent update to their 2012 ETF Outlook that the further strong growth was likely as ETFs only represented around 7 per cent of mutual fund assets in Canada, estimated at around $800m.
Assets held in Canadian listed ETFs (funds and products) have pushed beyond the $50bn mark to $54bn at the end of October, tripling over the past five years from from $18bn in December 2007.
“While the ETF industry may never surpass the mutual fund industry in terms of size, we see room for further growth as both mutual fund and single security investors continue to recognise that ETFs are very complementary in their investment strategies,” said BMO.
Noting the success that Pimco has enjoyed after launching an actively managed US fixed income ETF this year, BMO said this might persuade Canadian providers to consider launching their own active ETFs to complement their existing mutual fund offerings.
“Should this occur, it could potentially accelerate the growth rate of the Canadian ETF industry,” said BMO.
Investors’ appetite for fixed income ETFs has been a notable feature of the Canadian market in 2012. Fixed income ETFs have attracted inflows of $5.1bn, running ahead of equity ETFs which have gathered just under $4bn.
Victor Lin, an analyst at Credit Suisse, said in a report that the inflows into bond ETFs reflected Canadian investors’ growing demand for yield, a theme which has also been evident in the US ETF market this year.
Mr Lin said demand for yield was also illustrated by strong inflows into dividend focused ETFs over the past three years and by much stronger interest in 2012 in the utilities sector which pays relatively high dividends.
BMO said Canadian investors were becoming more tactical in their fixed income investing, targeting various parts of the yield curve or credit spectrum to generate higher returns.
But in spite of rising investor inflows, ETF trading volumes have dropped in 2012, tracking a decline in cash equities trading.
As a result, ETFs make up about 8 per cent of equity trading in Canada, well below their peak levels of 2009 and 2010 when ETFs contributed 15 to 20 per cent of stock market activity.
Mr Lin said that although Canadian ETF liquidity was significantly lower than that of the US market, it was notable that trading costs were virtually identical.
“If we focus just on equity ETFs, the median bid/ask spread in Canada is 20 basis points, compared with 21bp in the US,” said Mr Lin.

ConAgra to buy Ralcorp for $5bn


ConAgra, the US packaged food company, acquired Ralcorp on Tuesday for $5bn, betting that recession-weary US consumers will continue to seek cheaper private label options at grocery stores.

The deal marks an end to ConAgra’s prolonged pursuit of Ralcorp, which rebuffed offers for more than a year, and could herald more consolidation in the private label, or store branded, segment of the food industry.

ConAgra, which makes “second tier” products such as Chef Boyardee pasta and Hunt’s tomato sauce, has been trying to improve its position in the fast-growing private label category and gain more power when dealing with food retailers such as Trader Joe’s and Costco.
The transaction will also give them inroads with restaurant groups such as McDonald’s, which is a big purchaser of Ralcorp’s breakfast products.
“They will benefit as consumers continue to hang on to their purse strings as well has have better relationships with retailers who are trying to promote value offerings,” said Erin Lash, analyst at Morningstar.
ConAgra will pay $90 a share in cash for Ralcorp, representing a 28.2 per cent premium above its closing share price on Monday, and assume about $1.8bn in net debt, bringing the enterprise value of the deal to $6.8bn. The acquisition creates one of the biggest packaged foods companies in the US, with $18bn in annual sales.
Ralcorp spurned several previous offers from ConAgra, most recently in September 2011 when a $5.2bn bid was turned away. The $90-a-share cash offer is less than the $94-a-share bid from ConAgra that the Ralcorp board rejected last year.
However, Ralcorp has since spun out its Post cereal unit, giving each shareholder half a share in the new company. Post is now trading at $34 a share, giving long-term shareholders additional gains.
The deal also marks a win for activist investment fund Corvex Management, which built its stake in Ralcorp to more than 5 per cent in recent months and agitated for a sale. Corvex managing partner Keith Meister, a former Carl Icahn protégé, worked his way on to the board, where he was able to continue his campaign from inside the company.
ConAgra persisted because private label food products have been a fast-growing segment of the consumer packaged goods market during the economic downturn as consumers sought more bargains. Sales of private label products are growing twice as fast as national brands in the US and so far it represents just 18 per cent of the total consumer packaged foods market.
ConAgra has a $950m private label business and this will increase to $4.5bn in annual sales, making it the largest private label group in the industry. Mr Rodkin said he expects the deal to create $225m in annual cost synergies, as the combined companies merge their supply chains and manufacturing operations.
Ralcorp’s net income for the year to September 30 was $73.4m on $4.3bn in net sales.
Analysts warned, however, that ConAgra will need to be careful that Ralcorp’s private label products do not eat into its pricier branded foods.
“Some companies that have tried to manage a combined portfolio have struggled with the threat of cannabalisation,” said David Garfield, head of consumer products at Alix Partners.
Centerview Partners and Bank of America Merrill Lynch advised ConAgra, while Barclays and Goldman Sachs advised Ralcorp.
Shares of ConAgra rose 4.7 per cent to $29.63 on Tuesday. Ralcorp shares jumped 26.4 per cent to $88.80.