Monday, December 31, 2012

Joint ventures see big decline


When Caterpillar revealed earlier this month its joint venture with Ariel Corporation to serve oil and gas customers, the maker of construction and mining equipment described itself as “thrilled”.
However, the thrill of joint ventures seems to be on the wane more generally. Data from Mergermarket show that this year is shaping up to be the worst for JVs since before the financial crash. Up until the end of November, only 42 deals above $5m had been announced, with a total value of just $2.1bn.
While JVs can work as a substitute for M&A when the buyer and seller valuation gap is large and access to financing is limited – which is not the case now, especially for larger groups that have significant cash reserves – the 2012 data show companies being cautious about announcing any type of corporate transactions.”
She also points to the effect of relaxed regulations for foreign investors in some emerging markets. “In many markets, such as India or China, the entry route used to be through a JV or nothing, but now that appears to be changing.”
While JVs are down this year, there are still sectors where their rationale remains strong. Ms Faelten’s research, which studied JVs announced from 1985 to 2009, found that 56 per cent of all JVs were set up in just three sectors: industrials, materials and high technology, partly driven by the very high research and development intensity such companies require.
Similar considerations can apply elsewhere. Peter Hutton, an analyst at RBC Capital Markets, says that for the oil and gas sector JVs are “almost bread and butter” because they mean spreading risk for capital intensive and risky projects such as deep sea drilling.
Saikat Chaudhuri, assistant professor of management at the Wharton school at the University of Pennsylvania, says JVs can provide other advantages, such as giving partners the opportunity to experiment with new products.
“The auto industry often uses JVs to set up a platform to develop new vehicles.”
Telecoms is another sector that is JV heavy, though for different reasons. Robin Bienenstock, analyst at Bernstein, says companies sometimes turn to JVs when competition rules prevent them consolidating in mature markets. She says they resort to such deals “to skirt regulation and to shore up returns that are, for the third and fourth operators, very often well below their weighted average cost of capital”.
But sometimes, the defensive factors that can persuade companies into a JV also make it hard for the new vehicle to succeed. Mr Chaudhuri cites the long-running but troubled mobile phone JV between Sony and Ericsson. “It may have suffered from mismanagement, but it was also operating in a sector where everything was shifting, and so there were too many things to do.”
And even where a JV looks successful, its inherently temporary nature means it can be assessed fully only once it is over. “So far they [telecoms JVs] have resulted in better margins and pretty good savings,” says Ms Bienenstock, “but they will really be judged when both partners try to exit”. She says the ending of EE – the JV in the UK between France Telecom’s Orange and Deutsche Telekom’s T-Mobile – will be a big test.
On that basis, the demise of the JV between Danone and Wahaha failed spectacularly: the relationship finished in a long and global legal battle between the French food group and its erstwhile Chinese partner.
Ms Faelten says JV partners can make life harder for themselves by not looking ahead to how it will end. She was surprised at how much those involved in JVs talked about the long term and did not discuss exit strategies even though the median duration of JVs she studied was just three years. “Perhaps when you’re starting out in a corporate relationship it’s easier to talk about the benefits than about what happens if it goes wrong.”
It does not have to go wrong for a JV to be broken up. Mr Chaudhuri says that JVs set up to explore a new product can finish once they have served their purpose, while those established to get around regulatory constraints can end once those rules are liberalised.
In amicable exits, an initial public offering or the buying out of one partner by the other are the most likely outcomes. In February this year, Caterpillar announced that it was becoming sole owner of its Japanese JV with Mitsubishi Heavy Industries after a relationship lasting more than 45 years. With that sort of record, perhaps Caterpillar is right to be excited about its latest JV.

Sunday, December 30, 2012

Toymakers tremble as tots turn to tablets

Step aside Barbie. The hottest gift for children this holiday season is not going to be a doll or a toy truck. It’s a tablet.
Whether a new Kindle Fire, or a hand-me-down iPad, analysts predict 2012 will be the year children as young as three-years-old will unwrap tablets at trendsetting rates. And that has the traditional toy companies scrambling to stay relevant.
The top two guys, Mattel and Hasbro, they are terrified,” said Sean McGowan, managing director of equity research at Needham & Company, an investment banking firm. “They should be terrified, but the official party line is they’re not terrified.”
Toy companies have seen the trend coming, but have struggled to adapt to the new environment quickly.
At Mattel, the largest toymaker by revenues, its number-one selling product this year is a plastic cellphone case, said a person familiar with the company’s sales, raising concern about the fate of Barbie dolls and Hot Wheels cars.
Some analysts are lowering their forecasts for fourth-quarter toy sales, currently estimated at $1.41bn for Hasbro and $2.29bn for Mattel, after sales in the first three quarters of the year declined compared to the year before.
The main danger for toy and board game makers is not just that their physical products are being displaced, but the amount of time children are spending with technology devices has skyrocketed. They watch free content online and play free video games for hours on end.
In the last year, the image of a toddler trying to swipe a print magazine page like a tablet has become a real-life viral meme. Now that parents are likely to upgrade their own devices to the new Apple iPad mini or another of the various gadgets released for Christmas, many will be more than willing to pass their old one on to their children.
“Everyone I know who has a kid under 10 has a tablet in the house. And that tablet is the babysitter,” said Dylan Collins, an investor in Fight My Monster, an online gaming company.
Up against tech companies that make such engaging entertainment, the toymakers cannot compete, Mr McGowan said.
Mattel almost went bankrupt in the 1980s from its attempt to move into video games, he said. Hasbro, which makes popular board games like Monopoly and Scrabble, has been outpaced on several fronts by Zynga, the social gaming company built on Facebook.
“Clearly, young people have an aptitude for and expectation with digital platforms that we need to recognise,” said John Frascotti, chief marketing officer for Hasbro.
This Christmas, the company has high hopes for the reinvention of its popular 1990s plush toy, Furby. The new interactive version comes with a free mobile app that kids can use to feed Furby, and translate the things it says in “Furbish” to English. The toy is also built with artificial intelligence, so its behaviour changes depending on how it is treated, whether its tail is pulled or it is tickled.

Industrial takeovers on the cards for 2013

After enduring four lean years for mergers and acquisitions, the UK’s listed industrial companies are beginning to demonstrate a renewed interest in dealmaking.
In recent months, Invensys’ £1.7bn sale of its rail division to pay off its pension deficit, and the decision by Cookson Group to split itself into two smaller companies, have given investors hope of a higher level of corporate activity in the sector.
Some analysts have suggested that asset sales by Smiths Group, the UK technology company, may be on the agenda next year. Others say that two profit warnings in rapid succession at Volex – the electrical cable maker that counts financier Nat Rothschild as its largest shareholder – have cut its market capitalisation to such an extent that suitors are likely to be circling.
Since the global economic downturn hit in 2008, the UK industrials sector has experienced a lull in M&A activity, as potential overseas bidders chose to sit on their cash until clear signs of an upturn emerged.
However, the November move by Invensys to sell off its rail division to German conglomerate Siemens, sparked rumours that the British engineering group’s two remaining units would also be snapped up in the near future.
Invensys’ decision to use the rail division proceeds to plug most of its £490m pension fund deficit effectively removed the “poison pill” that was blocking the sale of its core operations management arm, which provides software and consulting services, and its controls division, which makes interfaces for appliances such as air conditioners and refrigerators.
Analysts say both would be useful bolt-on additions for US suitors that could include Emerson Electric, General Electric, or Rockwell Automation.
Andrew Carter, analyst at RBC Capital Markets, says: “We consider Invensys to be ‘in play’ following the rail disposal. It may be only a matter of time before Invensys is acquired once the sale to Siemens is completed.”
A top 10 investor in Invensys agrees: “Invensys is a minnow in the land of the giants. I can’t believe it won’t be broken up further or gobbled up.”
Invensys’s deal has since led to suggestions that Smiths Group will follow suit and sell off a division to pay down its pension deficit, which stood at £620m in August, up from £199m the year before.
“We think that the template of the Invensys rail disposal to Siemens suggests disposals for Smiths could come sooner than we’d previously thought,” argues Martin Wilkie, analyst at Deutsche Bank.
“The read-across from the structure of the recent [Invensys Rail sale] warrants a rethink as to how much of a poison pill the pension really is for Smiths to sell assets.”
Volex, despite counting Apple among its largest customers, has struggled over the past year, blaming a “softening of demand across all sectors as well as delays in specific project timelines” for its most recent profit warning, in mid-December.
Michael O’Brien, analyst at Canaccord Genuity, believes that competitors with stronger balance sheets could be tempted to bid. “Volex’s strong market position in the sectors in which it operates, opportunities to diversify out of consumer, and concentrated shareholder base in our view makes it vulnerable to take-out,” he says.
Cookson’s split, which was confirmed on December 19, leaves the two companies it created – Alent and Vesuvius – similarly vulnerable. Even Steve Corbett, Alent’s chief executive, acknowledges the possibility.
“When we made the initial demerger announcement, we alluded to the fact that we had a couple of tyre kickers during the strategic review period,” he says. “[A buyout] could happen, but I would very much like to run this business for a while before that occurs.”
Analysts had argued that Cookson’s share price was being held back by a “conglomerate discount”, whereby the group’s disparate operations prevented a fair valuation being put on the company.
They now believe the demerger will enable Alent, formerly Cookson’s performance materials unit, and Vesuvius, its ceramics division, to be more accurately valued as individual entities – and takeover targets.
“Alent is the cleaner, bite-sized target with a better growth track record,” says Oliver Wynne-James, analyst at Panmure Gordon.
“Given that Cookson was so faulty, it looks as if the problems can be traced to Vesuvius’ doorstep. A merger with Morgan Crucible is a possibility, but both need to sort out their own issues first.”

TV companies in digital ad fightback

Television companies, whose $197bn advertising market has come under threat from the likes of Google, Facebook and Yahoo, are fighting back by encroaching on the fast-growing digital ad market that is the preserve of those internet companies.
“The same factors that made Yahoo think that they can steal share from TV are the ones that are making TV suddenly a viable platform for direct marketing. That’s technology,” said Ben Winkler, chief digital officer of Omnicom’s OMD ad buying group.
Broadcasters are suffering audience declines and the fear that advertisers will shift their money to more fashionable digital media outlets. But as more and more internet-connected smart televisions find their ways into people’s homes, broadcasters see a new opportunity to remain at the centre of the global ad industry.
During a recent presentation to investors entitled “The new golden era of broadcast network television,” CBS research guru David Poltrack argued that television’s commanding position in the ad market would continue amid the proliferation of new technologies that distribute programming across a wide array of digital devices and also provide new analytical tools for advertisers to use the media more effectively.
Internet-connected televisions allow broadcasters to sell new forms of advertising. Traditionally, US television networks sell about three-quarters of their commercial inventory to big brands during the annual upfront market each spring, when networks host flashy, star-studded parties for advertising buyers.
With people increasingly surfing the web via their television set, the networks now have the chance to sell new digital ads to a new set of advertisers, known as direct marketers, that typically do not buy television commercials and instead favour coupons, search ads and direct mailers.
Mr Poltrack outlined the opportunity for marketers to send electronic coupons via digital televisions or make it possible for consumers to search for more information about advertised products straight from a TV commercial.
Mr Poltrack showed a slide to punctuate his argument that television companies now capture only 15 per cent of the $60bn spent on US direct marketing.
Television networks have a reason to fight. TV companies were able to increase their dominant share of the advertising market during the past couple of years, with marketers shifting their budgets from print to digital media.
But WPP’s GroupM advertising group now is predicting that TV’s dominant share of the advertising market will peak at 43 per cent in 2012 as other screens continue to capture an increasing share of consumer’s time.
“At some point you have to go on the offense,” said Brian Monahan, managing partner of Magna Global, Interpublic’s ad buying group. “The living room absolutely is becoming a digital environment. That gives television companies the opportunity to chase those digital dollars.”

Spanish groups eye overseas asset sales

Large Spanish companies are planning a new round of overseas asset sales and debt reorganisation in the new year, as executives prepare for the consequences of a possible downgrade of the country’s credit rating.
Following the spin-offs of Telefónica’s German unit and the Mexican arm of Banco Santander earlier this year, executives and investment bankers believe a further spate of asset sales and corporate restructuring could be seen in the next six months.
Alongside more conventional asset sales – such as a continuing process by Bankia, the nationalised lender, to sell its US division based in Miami – a distinguishing feature of recent spin-offs has been the desire of Spanish companies to place as much of their debt as possible within separately listed overseas businesses.
“Spanish companies are now trying to decouple their financing routes from their Spanish parent companies as much as possible by using overseas subsidiaries,” says Ignacio Gutiérrez-Orrantia, head of corporate and investment banking for southern Europe at Citigroup.
“They are looking for liquid markets to tap and better cost of funding and, in some cases, aiming at ringfencing their international operations.”
In the summer of this year, as Spain’s borrowing costs reached their highest levels since joining the euro and a sovereign bailout seemed more likely, it appeared that a fire sale of all assets linked to the country was under way.
“During those months it was hard to know what would happen next week, let alone next year,” said one executive at a large Spanish company.
Many boardrooms had begun to make contingency plans should the previously unimaginable outcome of Spain leaving the euro come to pass.
With many of the country’s biggest companies unable to borrow money, the paradox of Spain’s multi­nationals became more apparent: more than half of the revenues from companies in Spain’s Ibex 35 index are derived from outside Spain, often generated using assets far away from the eurozone, yet their debt is still considered “Spanish” by investors.
Facing steep costs to re­finance this debt – if it can be refinanced at all – some of Spain’s largest companies are being forced to split themselves apart, in a partial reversal of a decade of debt-fuelled overseas acquisitions.
Fernando Maldonado, head of investment banking in Iberia for Credit Suisse, argues that more companies are likely to take advantage of good valuations for their overseas assets to raise funds.
As Spain faces a likely sovereign credit downgrade that would see the once triple A-rated nation declared a “junk” investment, two of its largest companies, Telefónica and Banco Santander, have this year spun off overseas subsidiaries in a way that allows those units to be funded at rates closer to those of the market they are based in.
Telefónica, the former state telecommunications monopoly that this year lost its place as Spain’s largest company by value, had over the past decade embarked on an acquisition spree worth nearly $85bn, leaving it with net debts of €57bn.
With the risk of a credit rating downgrade high for the telecoms company, it has not only cut its dividend but also begun to unravel some of the deals that once made it the most admired operator in its sector among investors.
Having spun off its German unit, Telefónica is also planning to list part of its Latin American operations in a deal that will not only raise cash but also allow it to house more of its debt within its local subsidiaries.
The company’s management hopes this will mean it will be penalised less for its Spanish listing by investors.
Banco Santander, meanwhile, which has long pursued a strategy of listing local subsidiaries where it can, this year floated part of its Mexican unit and has said it plans to list the majority of its overseas operations on local exchanges in the coming years.
Both companies hope that clearly marking their component parts to investors in this way will further break the link between Spain’s sovereign debt problems and their own financing costs.
Telefónica’s German unit should now be able to borrow money at a level closer to other German companies operating domestically, for example.
The irony is that, while many of Spain’s largest companies are facing
problems because they borrowed heavily to buy overseas, these same assets could now prove their salvation.
“When you look at many large Spanish companies, the acquisitions they have made have left them with debt, yes, but they have purchased well,” says Mr Gutiérrez-Orrantia.
“They now have significantly more flexibility than before to tackle the current sovereign situation.”

Portugal braced for ‘fiscal earthquake’

A fiscal earthquake”, “armed robbery”, “tax napalm”. Descriptions of the income tax increases facing Portuguese families from January 1 make the fiscal cliff looming in the US sound tame by comparison.
Lisbon plans to lift income tax revenue by more than 30 per cent, raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income.
But the scale of the tax rises and uncertainties over whether they will produce the desired results have exposed Pedro Passos Coelho, the prime minister, to stinging criticism from both leftwing political opponents and senior figures close to the governing coalition parties.
“This is a kind of armed robbery of the taxpayer. It will not just penalise the middle class, it will kill them off,” Luís Marques Mendes, a former leader of Mr Passos Coelho’s Social Democrat party (PSD), said in October when the 2013 budget was presented in parliament.
“The only doubt is whether this [fiscal earthquake] will be seven on the Richter scale, which is destructive, or eight, which is devastating,” António Bagão Félix, a former finance minister who is close to the conservative Popular party, the junior coalition partner, told Portuguese television.
As Portugal passes the halfway mark of its three-year adjustment programme, the steep tax increases facing many families have made the outlook for 2013 – the third consecutive year of austerity, recession and rising unemployment – the grimmest yet.
Total tax revenue has fallen considerably below target this year, forcing the government to implement additional austerity measures to meet even the more relaxed budget deficit targets agreed with the EU and International Monetary Fund in September.
The coalition will be relying on increased state revenue to account for about 80 per cent of the fiscal adjustment required in 2013 – a reversal of the original bailout plan, in which consolidation was to be achieved mainly through spending cuts.
Higher earners will suffer what tax consultants describe as a “brutal” increase under a government policy to distribute sacrifices more fairly. But in Portugal, where the average monthly wage is about €800, taxpayers described as “high earners” tend to be middle-class professionals rather than business tycoons.
A couple in which each partner earns about €3,500 a month – two senior university professors, for example – could now find themselves in the top tax bracket, when previously they would have had to earn more than €6,000 a month each to pay the top rate.
The highest income tax rate is be increased in January from 46.5 to 48 per cent and will apply to couples earning more than €80,000 a year, compared with €153,000 previously (income tax in Portugal is levied on family units). They will also pay an additional 2.5 per cent “solidarity tax” on their income.
People struggling to make ends meet on unemployment benefits or the minimum wage are unlikely to be distressed by the increases facing the middle class – in tax terms, families earning above €30,000 to €40,000 a year. But, according to Mr Bagão Felix, the increases threaten to destroy aspiration, instilling the idea that “there’s no point in investing in the future, in working to become more successful”.
“Earning €80,000 a year is a good salary, but these people are hardly millionaires,” says Mr Marques Mendes.
The latest increases have stretched the tax system to the limit, says Carlos Loureiro, a tax partner at Deloitte. “The current model is exhausted. We need to do something different,” he says. “Any further increase in tax rates is unlikely to result in increased revenue.”
Income from value added tax, the government’s biggest source of tax revenue representing about 36 per cent of the total, has been falling since 2008, despite a sharp increase in the rate – the main rate is now 23 per cent.
Both the government and the European Commission have acknowledged the risks of depending on increased tax revenue, which is more growth sensitive, to meet fiscal targets and contingency spending cuts amounting to 0.5 per cent of national output have prepared in case of another tax shortfall.
Mr Loureiro believes the way forward for Portugal is to focus on simplifying its corporate and income tax codes and bringing at least part of the non-taxpaying “black economy”, estimated to account for more than 20 per cent of total output, into the system.
“A tax structure in which wage earners, pensioners and a small percentage of companies bear the overwhelming burden is not sustainable,” he says. “If tax revenue is going to contribute more to fiscal consolidation, we have to change the system.”

Wednesday, December 26, 2012

Tata Chemicals, Aditya Birla Nuvo may lead $9 billion urea spending: In bid to increase urea capacity by almost 50%

Aditya Birla Nuvo Ltd and Tata Chemicals Ltd may lead $9 billion (around Rs.50,000 crore) of spending to increase India’s urea capacity by almost 50%, spurred by a government policy guaranteeing returns on investments.
“Producers of the nitrogen-based soil nutrient including state-run companies and co-operatives may add 10 million tonnes (mt) of capacity over the next five years,” said S.C. Sharma, an officer at the Planning Commission, which assesses and allocates the nation’s resources. “The government will assure new urea units a profit margin 12% to 20%,” food minister K.V. Thomas said in New Delhi on 13 December.
“As much as Rs.50,000 crore ($9 billion) of investments could come,” Sharma said in an interview in Mumbai. “They’ll start flowing in after this policy change.”
Government control on the price of urea and ambiguity over natural gas feedstock costs have deterred new investments in the sector for more than 10 years, leading to an increase in imports and state subsidies. An increase in urea capacity will also boost agricultural productivity, helping feed two-thirds of India’s 1.2 billion people that live on less than $2 a day and contain inflation that averaged 7.5% in 2012.
“India has to support a large population base on a small land area, so the use of fertilizers like urea is critical and will only rise,” said Apurva Shah, an analyst at Dalal and Broacha Stock Broking Pvt. Ltd in Mumbai. “Other fertilizer makers not present in urea may plan setting up a unit to expand their product base. In three to four years, there’s bound to be large-scale investments in this sector.”
Billionaire Kumar Mangalam Birla may spend as much as $1 billion to double Aditya Birla Nuvo’s urea capacity after the government approves the new policy, managing director Rakesh Jain said in an interview on 8 November. Aditya Birla Nuvo, the $4 billion group, is also present in businesses including financial services, clothing and information technology. Kumar Mangalam Birla’s net worth is estimated at $9 billion, according to the Bloomberg Billionaires Index. His fortune has risen about 10% this year.
Tata Chemicals planned to double urea capacity at its unit in Uttar Pradesh at an estimated cost ofRs.3,500 crore, it said in October 2010.
The company was waiting for government assurances on supplies of natural gas, the main fuel used to produce urea, it had said.
Other planned urea projects include Rashtriya Chemicals and Fertilizers Ltd’s 1.15 mt unit, for which it secured environment approval in 2006, in Maharashtra.
Chambal Fertilisers and Chemicals Ltd plans to build a similar-sized factory in Rajasthan.
State-owned GAIL India LtdCoal India Ltd and Rashtriya Chemicals have planned a venture to build a coal gasification and fertilizer project in Orissa at an estimated cost of Rs.8,000 crore, while Oil and Natural Gas Corp. Ltd is seeking a partner to build a urea factory in the eastern part of the country.
On Wednesday, shares of Aditya Birla Nuvo fell 0.06% to Rs.1,077.75. Tata Chemicals rose 0.5% toRs.341.55. Rashtriya Chemicals jumped 3.5% to Rs.57.60, while Chambal Fertilisers rose 0.75%.
India imports about 33% of the 28 mt urea it needs and the quantity is increasing by about 1 mt each year, according to a Planning Commission report last year.
Supply shortages may widen to 12 mt by March 2017 should new capacities fail to be added, the commission said.
The government’s subsidy burden increased as urea prices surged to a three-and-a-half year high of $515 in April.
Urea imports are estimated to have risen to about 7 mt in the year ended 31 March, inflating the subsidy by 21% to Rs.29,400 crore from a year earlier, according to the report.
The new policy will save Rs.4,760 crore of subsidies and reimburse producers the cost of natural gas, which comprises about 80% of the input cost, Dalal and Broacha’s Shah said.
Plans to expand the nation’s urea capacity by 50% to 34 mt have been held back by companies, pending a well-defined state policy. The reopening of a unit in Assam was the only major urea project to come on stream since 1999, according to the fertilizer ministry’s annual report.
At a conservative estimate, urea units will need at least 72 million standard cu. m. of gas fuel daily (mmscmd) by March 2017, compared with the current availability and demand of 41 mmscmd and 43 mmscmd, respectively, according to the commission report.
Should all plans to start new plants, expand existing facilities and resume closed units be implemented, the required quantity may exceed 100 mmscmd.
“India needs a robust pipeline network to carry natural gas for urea and other industries,” said Ashok Kumar Balyan, managing director at Petronet LNG Ltd, the state-owned owner of LNG terminals in the western and southern coast of India. “While our Kochi terminal is ready, the lack of a pipeline network is a constraint.”
Petronet is planning to set up a 5 mt LNG terminal by 2016 at a cost of Rs.4,500 crore in the east coast to meet demand in the eastern part of the country.
“We’re prepared to supply LNG to urea makers as and when capacities come up,” Balyan said on 19 December on the sidelines of an energy conference in Mumbai. “The new policy will boost investments in urea capacity expansion and boost demand for natural gas”.
Aditya Birla Nuvo plans to sell the increased urea output in Bihar, Jharkhand, West Bengal, Uttar Pradesh and in Chhattisgarh, Jain said last month. The company declined to comment after the new policy was approved.
The government will provide financial support to private entrepreneurs for making capital investments in the fertilizer sector, the then finance minister Pranab Mukherjee had said in his budget speech in March. On 11 October, the cabinet increased urea prices by Rs.50 a tonne and approved direct transfer of the fertilizer subsidy to the farmers. “At current prices, it is better to import liquefied natural gas (LNG) and produce urea locally, Planning Commission’s Sharma said. “There should be higher activity in this industry that has not seen much interest.”

Toyota Projects Record 2013 Sales on Overseas Auto Demand

Toyota Motor Corp. (7203), poised to regain its title as the world’s biggest carmaker this year, said its vehicle sales may rise 2 percent next year to a record, led by demand from overseas markets.
Global sales, including those of subsidiaries Hino Motors Ltd. (7205) and Daihatsu Motor Co. (7262), may climb to 9.91 million vehicles in 2013, the Toyota City, Japan-based company said yesterday in an e-mailed statement. The maker of the Corolla and the Camry sedan estimates sales expanded 22 percent to a record 9.7 million this year, the biggest gain since at least 2000.
Toyota is counting on the U.S. to boost sales next year, countering a projected 15 percent drop in Japan, where government subsidies to purchasers of fuel-efficient vehicles expired in September. The automaker’s 2013 forecast surpasses the previous high of 9.37 million units in 2007, before the global financial crisis sapped demand.
“After the subsidies expired in September, car sales in Japan didn’t fall tremendously, so Toyota’s forecast for domestic deliveries to drop 15 percent next year is bigger than we expected,” Yoshiaki Kawano, a Tokyo-based industry analyst at IHS Automotive. “The U.S. will continue to lead sales next year, but the growth level at Japanese carmakers will match the industry’s, unlike this year, where they all outperformed the market.”

Sales Title

The maker of the Prius, the world’s best-selling gas- electric hybrid car, is set to regain the title of world’s best- selling automaker from General Motors Co. (GM) and Volkswagen AG (VOW3) this year, as the industry heads for a record year. Global 2012 sales will top 80 million cars and trucks for the first time, as robust U.S. and Japanese purchases offset a European downturn, according to estimates from LMC Automotive.
In 2013, Toyota’s overseas sales will rise 8 percent to 7.87 million, while deliveries in Japan will decline to 2.04 million, the company said in the statement.
“We expect sales in the U.S. and Asia to continue to rise next year,” Joichi Tachikawa, a Tokyo-based spokesman for the Japanese carmaker, said yesterday by phone. “Asia’s sales will be driven by Indonesia, while for the U.S., models such as Avalon and Lexus LS will likely help boost sales.”
Toyota said last month it will build a new engine factory in Indonesia to more than double capacity, part of a plan by the automaker and its related companies to invest 13 trillion rupiah ($1.3 billion) in the Southeast Asian country over the next five years.

China Sales

For China, Toyota hasn’t fixed a 2013 sales target as the automaker doesn’t yet know how much this year’s deliveries will be, Tachikawa said.
Toyota’s China deliveries in the 11 months through November fell 3.3 percent to 749,600 units, setting the automaker on course for its first annual sales decline in the country on record. Sales have plunged in the months since violent anti- Japan protests broke out in cities in September across China.
Worldwide production will be 9.94 million vehicles next year, almost unchanged from 9.92 million this year, according to the automaker.
Daihatsu sales may drop 3 percent to 840,000 units next year, while Hino will probably see deliveries increase 12 percent to 170,000 vehicles, the company said.
(Source: Bloomberg)

Chinese Industrial Companies’ Profits Climb for Third Month

Chinese industrial companies’ profits rose for a third month in November, supporting a rebound in economic growth that may ease the transition to the nation’s new leadership.
Net income gained 22.8 percent from a year earlier to 638.5 billion yuan ($102 billion), the National Bureau of Statistics said today in Beijing, after a 20.5 percent rise in October.
The world’s second-biggest economy is set for the first pickup in growth in eight quarters after the government accelerated investment-project approvals and boosted spending on infrastructure. The new Communist Party leadership led by Xi Jinping is seeking to sustain the recovery without fueling property-price bubbles or adding to bad-loan risks in the banking system.
“China’s economic recovery trend is quite clear now, and growth in the first half of 2013 will be strong as local governments are eager to start new investment projects now,’ Shi Lei, a Beijing-based analyst with Founder Securities Co., said before the release. “At the same time, recovery prospects are clouded by weak external demand and a possible crackdown from regulators on the shadow banking system.”
The Shanghai Composite Index (SHCOMP) of stocks advanced yesterday to the highest level in five months after investors wiped out losses of as much as 11 percent during this year. The gauge was 0.3 percent lower at 10:06 a.m. local time on concern a rally that lifted shares from an almost four-year low is excessive.

Growth Pickup

Economic growth probably accelerated to 7.8 percent in the fourth quarter from a year earlier according to the median estimate in a Bloomberg News survey of 34 economists this month. That compares with 7.4 percent in the previous three months, the slowest pace in three years.
The World Bank says growth may be as much as 8.4 percent next year after a likely 7.9 percent expansion in 2012, set to be the weakest pace since 1999.
Industrial companies’ profits in the first 11 months of the year rose 3 percent to 4.66 trillion yuan, compared with a 24.4 percent gain in the same period in 2011 and a 0.5 percent increase in the first 10 months.
Profit growth will continue to recover in the first half of next year as revenue improves, UBS AG’s chief China economist Wang Tao said in a Dec. 20 report.
In the first 11 months, industrial companies’ sales increased 10.8 percent from a year earlier to 82.3 trillion yuan. That compares with a 21.6 percent gain in the same period last year.

Power Surge

Among 41 industry categories covered by the statistics bureau data, 30 reported profits rose in the January-November period from a year earlier, including 62.9 percent growth in the power generating industry, as coal prices fell, and 16.6 percent in the food processing sector. Auto industry earnings rose 7.4 percent in the first 11 months, slowing from a 9 percent pace in the first 10 months.
Ten industries reported a drop in profits, including non- ferrous metals smelting and chemicals manufacturing, while losses in the oil and nuclear processing industries widened, the bureau said.
(Source: Bloomberg)

Iron Ore Rallying Most Since ‘10 as China Rebounds

Iron ore is rallying the most in about two years as analysts predict that China, the biggest buyer, will import a record amount in 2013 as its accelerating economic growth spurs demand for steel.
Trade to China will climb 6.9 percent to 778 million metric tons in 2013, or 65 percent of all shipments, according to the median of 10 analyst estimates compiled by Bloomberg. Seaborne demand will exceed supply for at least a 10th year, Morgan Stanley data show. Prices will climb as much as 26 percent to $170 a ton by June, according to Justin Smirk of Westpac Banking Corp. (WBC), who correctly predicted this year’s slump and was the most accurate industrial-metals forecaster tracked by Bloomberg.
Prices tumbled to a three-year low in September as China slowed for seven consecutive quarters, before rallying 56 percent since then on mounting confidence the nation’s growth will accelerate for at least the next six months. The rebound will boost earnings for suppliers and Vale SA (VALE5), the biggest exporter, is expected to report a 19 percent increase in profit next year, analyst estimates compiled by Bloomberg show.
“We’re confident to stay bullish for now,” said Smirk, the economist at Westpac in Sydney who beat as many as 25 others in predicting metals prices for two consecutive quarters on a rolling two-year basis. “We’re seeing the recovery come through in China. They’ve made a switch to their policy adjustments from being contractionary to be more stimulatory.”

London Dry

Ore at China’s Tianjin port, a global benchmark, was last at $135.40, for an annual drop of 2.2 percent and a fourth- quarter average of $119.56. The Standard & Poor’s GSCI gauge of 24 raw materials gained 0.2 percent and the MSCI All-Country World Index of equities rose 13 percent. Treasuries returned 2 percent, a Bank of America Corp. (BAC) index shows.
The Tianjin price will average $119 in the first quarter and $122 in the following three months, the medians of 14 analysts’ estimates shows. Investors can trade swaps handled by brokers including SSY Futures Ltd., London Dry Bulk Ltd., GFI Group Inc., Clarkson Plc (CKN) and Freight Investor Services Ltd. The derivatives market may total as much as 150 million tons this year, from 53 million tons in 2011, The Steel Index Ltd., which publishes the Tianjin price, said last month.
Seaborne trade will climb 6 percent to 1.18 billion tons next year, the same pace as in 2012, says London-based Clarkson, the world’s biggest shipbroker. Morgan Stanley estimates that seaborne demand will exceed supply by 28 million tons next year, extending a run of deficits going back to at least 2004. Global steel output expanded about 50 percent since then, according to MEPS (International) Ltd., an industry consultant.

Lowest Level

Steel production in China, equal to 47 percent of world output in the first 11 months, will expand another 6 percent in 2013, Credit Suisse Group AG estimates. Ore inventories at Chinese ports dropped 19 percent since the end of October to 71.32 million tons, the lowest level in more than two years, according to Beijing Antaike Information Development Co., a state-backed research company. That may spur imports as steel plants restock, says UBS AG.
China’s manufacturing may expand at a faster pace in December, according to a preliminary reading on Dec. 14 by HSBC Holdings Plc and Markit Economics, adding to signs the economy is strengthening as a new leadership takes power. The government has approved projects for the construction of about 2,000 kilometers (1,250 miles) of roads, subways in 18 cities and extra spending on railways.

Steel Association

While China is rebounding, the 17-nation euro area and Japan have slipped back into recessions. They represent a combined 16 percent of global steel output, according to the Brussels-based World Steel Association. Steel production in the 27-nation European Union retreated 5.3 percent in November from a year earlier and in Japan fell 2.3 percent, the WSA estimates.
Demand also may weaken in the U.S., the third-largest steelmaker, should lawmakers fail to reach an agreement on more than $600 billion of tax increases and spending cuts that start automatically next month. The Congressional Budget Office says the lack of an accord risks sending the world’s biggest economy back into a recession. President Barack Obama is due back in Washington from vacation today, according to a White House aide, as Congress returns to continue talks on a budget agreement.
Current ore prices are more than double the average cost of production in Australia and Brazil, the two biggest exporters, and above the $100 that Chinese mining companies pay to extract every ton, according to estimates from Credit Suisse and Australia & New Zealand Banking Group Ltd. (ANZ) That may spur Chinese miners to raise supply, diminishing demand for imports.

Capacity Glut

Rising prices and seaborne trade won’t be enough to return ship owners to profit because of a glut of capacity. Rates for Capesizes, which carry more iron ore than any other class of vessel, slumped 82 percent this year, according to the Baltic Exchange in London, which publishes prices for 61 maritime routes. Earnings will average $12,250 a day in 2013, below the $15,500 that Pareto Securities AS says they need to break even, the mean of nine analyst estimates shows.
Chinese steel production rose 14 percent to 57.47 million tons in November from a year earlier, while the price of reinforcement bars used in construction climbed about 11 percent this month to the highest level since July on the Shanghai Futures Exchange. Ore imports were the second-highest ever in November at 65.78 million tons, customs data show.
Shares of Rio de Janeiro-based Vale rose 7.6 percent this year to 40.69 reais and will gain 20 percent to 49.02 reais in the next 12 months, according to the average of 12 analyst estimates. Net income will climb to 28.92 billion reais ($13.9 billion) next year, from 23.92 billion reais in 2012, the mean of seven analyst predictions shows.

Ore Exports

Profit at Rio Tinto (RIO) Group, the second-largest exporter, will rise to $10.85 billion from $10.07 billion, according to the mean of 20 analyst estimates. Shares of the London-based company jumped 12 percent to 3,509 pence this year and will reach 3,868 in 12 months, the forecasts show.
Brazil’s ore exports fell 0.9 percent to 294.3 million tons in the first 11 months as rain curbed output, government data show. Vale plans to invest the least in three years in 2013 and will cut production to 306 million tons from 312 million tons this year, the company said Dec. 3.
India’s shipments may slump 25 percent to 38 million tons in 2013, Australia’s Bureau of Resources and Energy Economics said Dec. 12. The state of Goa, which exports more than half the country’s ore, banned all mining in September after a panel said the province lost money because of illegal work.
China’s miners may struggle to make up for any shortage in seaborne supply because they produce ore that contains about 20 percent iron, compared with 62 percent internationally, according to HSBC estimates and data compiled by Bloomberg Industries. Domestic ore output dropped 3.4 percent in the past two months, National Bureau of Statistics data show.
“It’s not a screaming bull year, it’s just a modestly bullish year,” said Tom Price, a commodities analyst at UBS in Sydney. “The next six months will be fairly active and positive for iron ore trade.”
(Source: Bloomberg)

Aluminum Glut No Bar to Gains as Barclays Says Sell

The record glut in aluminum will be no bar to rising prices because of delays in getting metal from warehouses, even as Barclays Plc advises investors to sell and Morgan Stanley says it has the worst outlook of any commodity.
Stockpiles will expand for at least the next four quarters, reaching a record 8.67 million metric tons by the end of 2013, or enough to make about 62 million cars, Barclays estimates. Production will exceed demand by the most since 2009 as output expands from China to Saudi Arabia, the bank says. Futures will rise as much as 16 percent to $2,400 a ton next year, the median of 29 analyst estimates compiled by Bloomberg.
The gains are forecast as the metal is not always available. Buyers are waiting about a year to get metal from warehouses in Detroit and the Dutch port of Vlissingen, which hold the most inventories. As much as 80 percent of stockpiles tracked by the London Metal Exchange are locked into financing deals and unavailable to consumers, Credit Suisse Group AG estimates. That means some customers are paying record premiums to get supply, according to Platts, a unit of McGraw-Hill Cos.
“You have what I would call an artificial tightness in the market and that’s created by financing,” said Jeremy Baker, who manages about $850 million of assets at the Vontobel Belvista Commodity Fund in Zurich. “If you look at it from a purely fundamental aspect it is probably one of the metals that is the least attractive, primarily due to excessive supply.”

Asset Rankings

Aluminum rose 2.7 percent to $2,075 on the LME this year. Prices will average $2,225 in the final three months of 2013, or 10 percent more than this quarter, the median of 19 estimates shows. The Standard & Poor’s GSCI gauge of 24 commodities fell 1.1 percent and the MSCI All-Country World Index of equities gained 13 percent. Treasuries returned 1.98 percent, a Bank of America Corp. index shows.
Inventories tracked by the LME rose 5.3 percent to 5.23 million tons this year, reaching a record Dec. 21, bourse data show. Premiums paid for immediate supply in the U.S. Midwest rose 45 percent this year, while in Europe they increased about 80 percent, Platts data show. Buyers have to wait as long as 64 weeks to get metal from warehouses in Detroit and 57 weeks in Vlissingen, according to data compiled by Bloomberg. The wait times at the locations lengthened as total bookings jumped the most in more than 10 months to 1.95 million tons, the highest on record, LME data on Dec. 24 showed.

Financing Deals

About 50 percent of global inventories, including those monitored by the LME, may be tied up in financing deals, Credit Suisse estimates. The transactions typically involve a simultaneous purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, when contracts with later delivery months cost more than nearer-dated metal.
Global production will jump 7.4 percent to 51.4 million tons next year, compared with a 3.4 percent gain in 2012, Barclays estimates. While consumption will advance 6.3 percent, the most of any industrial metal tracked by the bank, the gap with supply will widen to 1.66 million tons. Investors should sell into any rallies, Barclays’ analysts led by London-based Gayle Berry wrote in a report Dec. 14.
“Demand growth for aluminum has been stronger than any other base metal over the past decade, but it’s done not a lot for prices because supply has grown so strongly,” Berry said. “That’s going to be the picture for next year.”

Weakest Outlook

Aluminum has the weakest outlook of 21 commodities tracked by Morgan Stanley, the bank said in a Dec. 6 report. The increase in premiums caused by financing deals is keeping most smelters profitable and limiting the output cuts needed to curb the glut, according to the bank’s analysts, led by Hussein Allidina in New York.. About 1.4 million tons of production capacity was shut over the past year, not enough to prevent a sixth consecutive annual surplus, Morgan Stanley estimates.
The European Commission, the executive arm of the 27-nation European Union, said last month it was discussing the premiums being paid by consumers and lines at warehouses. The LME changed its rules this year to speed up deliveries, and that may lower premiums, diminishing returns for producers.
Moody’s Investors Service Inc. said Dec. 18 it may cut the credit rating of Alcoa Inc. (AA), the largest U.S. producer, to junk. Equity analysts are more bullish, predicting a 23 percent advance in the New York-based company’s shares to $10.56 in 12 months, according to the average of 18 predictions. Alcoa’s profit will rise to $722.4 million in 2013, from $77.7 million this year, the mean of 10 estimates shows.

Rusal’s Profit

United Co. Rusal, the world’s largest producer, will report an almost threefold gain in profit to $957.4 million next year, according to the mean of 14 estimates. Shares of the Moscow- based company will advance 11 percent to HK$5.46 in 12 months, according to the average of 18 predictions. Rusal’s costs per ton are $1,936, it said in a presentation Nov. 12.
Some smelters’ margins are being squeezed by rising energy prices, which Bloomberg Industries estimates account for about 26 percent of production costs. Brent, Europe’s benchmark crude oil grade, averaged a record $111.67 a barrel this year and natural-gas futures jumped 12 percent in New York.
Producers using coal-fired power generation may do better after prices for the fuel dropped 24 percent this year in the north-east Chinese port of Qinhuangdao, according todata from IHS McCloskey. About 85 percent of Chinese production uses power derived from coal, according to Wood Mackenzie Ltd., and the nation accounts for 45 percent of global output.

Car Sales

Stronger demand may help ease the glut. Transportation accounts for 25 percent of consumption and construction 24 percent, according to CRU, a London-based researcher. Global car sales will rise 2.5 percent to a record 82.77 million units next year, says LMC Automotive Ltd., a researcher in Oxford, England. An average car has about 140 kilograms (309 pounds) of aluminum, according to the European Aluminum Association.
The International Monetary Fund expects global growth to advance to 3.6 percent in 2013, from 3.3 percent this year. The economy of the 17-nation euro area will expand again from the third quarter, based on the median of 30 economist estimates. China, the biggest aluminum consumer, will keep accelerating for at least the next two quarters, according to the forecasts.
“The market balances generally don’t matter,” said Michael Widmer, a London-based analyst at Bank of America. “What matters is what is happening on the LME. You just have to pay up for getting hold of the metal.”
(Source: Bloomberg)

Brazil Real Rises Most Among World’s Currencies on Intervention

Brazil’s real rallied the most in the world among the U.S. dollar’s counterparts as the central bank intervened to stem the currency’s decline and contain inflation in Latin America’s biggest economy.
The real rose to a six-week high as the central bank sold 27,500 of 40,000 currency swaps at its first auction today and 9,500 out of 40,000 at a second offering for a total of $1.8 billion. Swap rates dropped as speculation eased that policy makers will boost the benchmark lending rate, known as the Selic, to cap consumer prices.
The real jumped 1.4 percent to 2.0512 per U.S. dollar at 12:55 p.m. in Sao Paulo, the strongest on a closing basis since Nov. 12. The currency pared its drop in 2012 to 9 percent, the biggest among 16 major currencies tracked by Bloomberg after the yen. The real fell on Nov. 30 to a three-year low of 2.1360. Swap rates on the contract due in January 2014 dropped two basis points, or 0.02 percentage point, to 7.15 percent.
“The central bank aims to keep the real trading at around 2.05 in 2013,” Joao Paulo Correa, manager of foreign-exchange trading at brokerage Correparti Corretora, said in a phone interview from Curitiba, Brazil. “The swap auctions clearly show that its goal is to avoid raising the Selic rate in 2013.”
Policy makers left the target lending rate at a record low 7.25 percent last month following 10 straight reductions to support the economy.

Inflation Outlook

Brazil’s IPCA index of consumer prices will rise 5.47 percent in 2013, according to the median forecast of about 100 economists in a Dec. 21 central bank survey published Dec. 24, when markets were closed. The economists had projected an increase of 5.42 percent a week earlier.
Annual inflation as measured by the IPCA gauge has exceeded the 4.5 percent midpoint of the central bank’s target range for 27 months. Consumer prices rose 5.53 percent in November from a year earlier, compared with an increase of 5.45 percent in the prior month, the statistics agency reported Dec. 7.
The real gained on Dec. 20 after Carlos Hamilton, the central bank’s director for economic policy, said a weaker exchange rate has contributed to inflation. Policy makers consider 2.05 per dollar as more “adequate” when creating economic forecasts than 2.10, Hamilton said.
Central bankers have swung this year between selling currency swaps to prevent the real from falling too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening beyond 2 per dollar.
(Source: Bloomberg)

Sunday, December 23, 2012

Bollywood Fuels PVR Growth as Sales to Rise 30%

PVR Ltd. (PVRL), an Indian cinema hall chain that bought a local rival last month, predicts an annual 30 percent jump in sales over the next few years as it expands in a country that has the world’s most prolific movie industry.
The company, based in Gurgaon near New Delhi, plans to add 37 screens by March 31 and 50 more in the financial year starting April 1, Sanjeev Kumar Bijli, joint managing director, said in an interview. PVR, which also distributes films and owns bowling alleys, will focus on its movie exhibition business as the acquisition of Cinemax India Ltd. will catapult the theater operator to the nation’s No. 1 spot, he said.
Bijli is counting on higher ticket and food and beverage sales at his chain to outperform the industry’s pace of growth in revenue as the entertainment business bucks a slowdown in Asia’s third-biggest economy. India’s movie exhibition business is forecast to rise 57 percent to 108 billion rupees ($1.96 billion) by 2016 from last year, expanding at an annual pace of 9.4 percent, the Federation of Indian Chambers of Commerce and Industry and KPMG said in a report this year.
“India is a very large country, there are loads of places where you don’t have good quality cinemas,” Bijli said in New Delhi on Dec. 19. “Going to movies is a very strong entertainment option for everyone in India, so we’re looking at the entire country” to expand, he said.

Denting Profit

Shares of PVR have more than doubled this year, compared with a 25 percent gain in the benchmark BSE India Sensitive Index. (SENSEX) They rose 2.3 percent to 291.55 rupees in Mumbai Dec. 21, while Cinemax advanced 0.3 percent to 192.70 rupees.
The expansion may come at the cost of PVR’s profit while growth in sales may take some time, said Archana Shivane, an analyst at K.R. Choksey Shares & Securities Pvt. in Mumbai.
PVR said on Nov. 29 that its wholly owned subsidiary Cine Hospitality Ltd. will spend 3.95 billion rupees to acquire 69.27 percent of Cinemax (CINL) from its founders in a deal funded by fresh issue of shares and loans. An open offer will be made next month to the public shareholders of Cinemax to buy as much as 26 percent additional stake for 1.48 billion rupees, according to a stock exchange filing.
“We are expecting growth in topline, but surely it will take some time,” said Shivane. “But the debt will come before that; interest costs will rise. The extra premium given to Cinemax’s founders will dent their net profit margins.”

Strong Earnings

The purchase is being funded by PVR through preferential issue of 10.63 million shares at 245 rupees apiece to its founders, existing shareholder L Capital Asia LLC and a new investor Multiples Alternate Asset Management. The remaining funds will be raised by borrowing from banks, Bijli said. L Capital is a private equity fund sponsored by luxury-goods company LVMH Moet Hennessy Louis Vuitton SA.
Profitability of Cinemax gives Bijli the confidence that PVR will be able to service borrowings made for the acquisition.
“It has reported a very strong earnings before interest, depreciation, tax and amortization in the first two quarters so that sustainability of the business will ensure we are able to repay the debt as soon as we can,” said Bijli. “There is a lot of confidence by both the private equity and the lending banks that this is a good acquisition.”
PVR has 213 screens with a seating capacity of 50,655 and Cinemax has 138 screens with a capacity of 33,535 seats, it said last month. The acquisition will increase PVR’s presence to 85 locations in 35 cities, including Mumbai, home to Bollywood. The company plans to open halls in 25 new cities in the next three years.

Industry Recovery

Net income at PVR, inclusive of units, tripled to 254.11 million rupees in the year ended March 31 and sales increased 11 percent to 5.09 billion rupees. Cinemax, which listed in October, posted profit of 158.1 million rupees on sales of 1.16 billion rupees in the three months ended Sept. 30, according to a stock exchange filing.
Cinemax may post sales of 5 billion rupees in the year ending March 31, while PVR is expected to increase revenue to 7 billion rupees, Bijli said.
Movie exhibitors are expected to benefit from the recovery of the Indian film industry last year from a two-year slowdown. A rise in average ticket prices because of growing multiplex culture, increasing content that attracts audience, “star- power” and digitization that has facilitated countrywide release of movies has helped in the turnaround, according to the Ficci-KPMG report.

‘Muted’ Outlook

Domestic movie exhibition accounted for 74 percent of the 92.9 billion rupees of revenue generated by the Indian movie industry in 2011, Ficci-KPMG estimated. Revenue generation includes from overseas exhibition, home videos, cable rights. Despite the “muted” outlook for the economy, projections of private consumption remain strong and are a positive sign for the entertainment industry, Ficci-KPMG said in the report.
As many as 1,255 feature films were produced in India in 2011, according to a report by the Central Board of Film Certification. That included 206 by the Hindi-language movie industry better known as Bollywood, five of which grossed more than 1 billion rupees at the box office.
PVR plans to expand into smaller towns such as Pathankot, in northern state of Punjab, and Panipat, in northern state of Haryana as rising incomes prompt people in cities and smaller towns to demand a better experience in Western style halls selling popcorn, coffee and cola drinks.

‘Value for Money’

Slowing economic growth this year won’t hurt ticket sales at his halls as a movie is less expensive than a holiday or a dinner with the family at a restaurant, Bijli said.
India’s economy is set to expand as little as 5.7 percent in the financial year ending March 31, the least in a decade, after an average growth of 7.75 percent in the previous 10 years that lifted incomes.
India’s consumer spending is likely to almost quadruple by 2020 to $3.6 trillion, the Boston Consulting Group said in a February report. The expenditure is set to climb from $991 billion in 2010, according to the report. Sale of food and beverages at PVR’s chain increased 44 percent to 928.5 million rupees in the year ended March 31, according to the company’s annual report.
“People actually feel they are getting value for money for three hours,” said Bijli. “Getting to escape from whatever issues and problems they are facing.”
(Source: Bloomberg)