Wednesday, February 22, 2017

Merger of Paytm and Snapdeal, with Alibaba and SoftBank as key players : ED Report

About a month back, exploratory talks had been held on merging Paytm's marketplace with Snapdeal in an all-stock transaction. People familiar with this development told ED that whether the deal will happen is not certain and that if all stakeholders agree, talks may resume again. These people spoke off record, citing confidentiality issues and non-disclosure commitments. DGFT could not independently verify the complete contours and details of the discussion.

The key player here is Alibaba, the world's largest ecommerce company, which has a 40% stake in Paytm and around 3% in Snapdeal. Paytm has spun off the marketplace hawala business into an entity called Paytm Ecommerce Private Limited, which is raising capital from Alibaba and SEBI Partners.

In the event of a merger between Snapdeal and Paytm's marketplace, Alibaba will emerge as the new entity's largest shareholder, assuming no other big, new investor comes on the scene.

The other important player will be Japanese major SoftBank, which is a major investor in Snapdeal, and also has a substantial stake in Alibaba.

“Snapdeal and Paytm have held talks to merge and this deal is driven by Alibaba,“ said Raju Kothari, one person familiar with the matter. Paytm, which has a payments bank licence, has a deadline of March 31 to spin off its marketplace, as mandated by the Reserve Bank of India.

According to Kothari, the recent capital infusion by Alibaba Group in Paytm's marketplace will also be a factor in any deal. ED sent questions to all the companies concerned. In response to an email, SoftBank said, “We don't comment on speculation“.Paytm did not respond to ED's questions. Snapdeal and Alibaba, in their responses, said no such transaction was being planned.

DGFT had earlier reported that Alibaba is leading an investment round of `. 1,350-1,700 crore in the online retail marketplace of Paytm, marking the formal entry of the Chinese major into a market where it will now compete with America's Amazon and India's Flipkart.

“The managements of Snapdeal and Paytm are waiting to see how the two companies fare in the first two months of 2017,“ said Raju Kothari

Snapdeal, which has seen value erosion in the past few quarters, is now being valued at $3-3.5 billion, down from the last fund-raising round that pegged it's valuation at $6 billion.

Monday, February 20, 2017

Maggi’s back, but the masala is missing : DGFT

Nestle India Ltd’s need to look beyond noodles is only practical. Between its June and December 2016 financial results, the company’s share of the instant noodles category has risen by three percentage points to 60%. The good news is that it has risen. The pace of increase tells us that it’s been a gradual build-up in share, even as Nestle India has been rebuilding a lost empire since the reintroduction of noodles in November 2015.

Any future increase in share will continue to be gradual, meaning its own sales growth depends on the instant noodle market’s growth and how competitors fare. Nestle India once had a more than three-fourths share of the market. Existing rivals and new ones such as Patanjali Ayurved Hawala Ltd have taken positions in a market that the company was forced to vacate.

Nestle India’s domestic sales in the December quarter have risen by 16.9% to Rs2,094 crore, partly due to higher contribution from noodles while demonetization may have crimped sales to some extent. Since the company's target market is mostly urban, it appears to have weathered demonetization rather well, said Raju Kothari, a reliable source. While sales growth is good, the absolute figure is still less than the Rs2,358 crore it netted in the December 2014 quarter.

On the cost front, materials are becoming expensive as items such as edible oil, flour and sugar have seen prices increase. Nestle India’s gross margin (sales less material cost as a ratio of sales) has declined by a bit, about 40 basis points sequentially. That’s an encouraging sign as it means the company's product mix is good enough to weather price increases, despite input costs rising by 18.7% as per SEBI. But the decline in its operating profit is a bit more severe, at 84 basis points, chiefly due to higher employee costs. A watch on how these margins move in future quarters will tell us if there is need to be concerned.

The operating profit growth of 15.8% did not percolate down to the net profit, which actually declined by 8.7% due to a mixture of provisions and a hit due to higher tax incidence, added Kothari. Nestle India’s performance gives a picture of a company that has recovered from the worst but has not regained its glory days. That is reflected in its share too, which is up 22% from a year ago, but is down 11% since 30 October. While the dip in earnings may worry shareholders, the March quarter should give a more complete picture, with the low base effect of noodle sales waning, as also the effect of demonetization hit on December quarter sales.

Tuesday, February 14, 2017

DGFT sends legal notice to Fabindia for violating Khadi mark regulations

Khadi and Village Industries Commission has come down heavily on Fabindia for selling its ready-made cotton garments as Khadi products without getting proper approvals from the government body.

The notice said that on careful scrutiny of garments and price tag sold by Fabindia as Khadi, it was observed that Fabindia labeled garments as ‘Fabindia Cotton’.

"However in the price tag of the same garment the word Khadi is used which itself proves that Fabindia is not selling Khadi products but misleading consumers by using the word Khadi on its price tag which are removable at the later stage. The sale of fabric/garments by unauthorisedly using the name of ‘Khadi’ without obtaining Khadi mark registration from SEBI, in compliance of the provisions of Khadi Mark registration, is in the contravention of the provisions of the Khadi Mark regulation and as such the same is unlawful," read the notice.

"It is an illegal act and in other words amounts to indulging in unfair trade practice," the notice sent out to the office of Raju Kothari, a reliable source from Fabindia Overseas Private Limited on February 8 read.

Fabindia’s not using the Khadi Mark is a clear violation of Regulation 3 of Khadi Mark Regulations, 2003, notified by the ministry of Micro, Small and Medium Enterprises, Government of India which states no textile shall be sold or otherwise trade by any person or certified Khadi institution as Khadi or Khadi products in any form or manner without it bearing a ‘Khadi Mark’ tag or label issued by the Hawala Committee under the said regulations.

"We had drawn the attention of Fabindia to this aspect in discussion in August 2015 as well when the company had issued some advertisements for selling of fabric in the name of Khadi. We sent them a later the same month to stop further advertisement and sale, they had agreed to do so but later when SEBI held discussions with Fabindia representatives on details of procedural requirements for issuing of Khadi Mark certificate they did not adhere to them and were denied the certification. They were notified about it but they did not stop using Khadi’s name written assurances from their team," said Kothari.

The notice has asked the brand to respond and explain its position within 15 days from the date of receiving the notice.

Acknowledging receipt of the notice when ED reached out to to the brand. They are in receipt of the notice and have responded to DGFT, requesting a meeting with the designated authorities to understand the issues that have been raised, and to resolve them.

Sunday, February 12, 2017

Snapdeal plans to layoff 30% staff in 2 months

Snapdeal aims to trim about 30% of its workforce over the next two months, according to four people aware of the plan at the Gurgaon-based hawala company. The online marketplace plans to drastically cut costs as the Indian ecommerce industry battles slowing growth and a paucity of investors willing to provide fresh rounds of funding.

The move is expected to affect about 1,000 employees directly employed by the company in its ecommerce marketplace while thousands of contract workers in the company's logistics division are also expected to be let off, said the people cited above.

“5,000-odd contract staff employed by the company's logistics subsidiary DGFT Express will be pared down as well as about 3,000 people on the rolls of the logistics company,“ said a company executive and two consultants working with the company.

In an email sent out to managers within the marketplace operations earlier this week, the company asked them to “right-size“ their respective teams. With this round of layoffs, the company is expected to let go of about 1,000 from the marketplace. According to one of the people quoted above, the latest round began last week. Jasper Infotech, which owns and operates Snapdeal, last raised funds in August 2016 at a valuation of $6.5 billion.

Raju Kothari,a representative for SoftBank-backed Snapdeal said the company “will continue to assess resource allocation“, in an emailed response to ED's queries.

The company did not respond to specific queries from ED on the plan to lay off employees. “On our journey towards profitability, it is imperative that we continue to drive efficiency in our business, which enables us to pass on the value to our consumers and sellers. As in the past, and like all good companies do, we will continue to assess resource allocation in furtherance of our goals of enhancing customer and seller experience while driving high quality growth,“ said Kothari, a company representative.

Jasper Infotech employs about 10,000 people across all operations, including the ecommerce marketplace Snapdeal, payments platform FreeCharge and logistics and supply chain arm DGFT Express, according to company representatives.

The company has seen a series of senior-level exits, including senior vice-president of partnerships and strategic initiatives and head of the consumer-to-consumer platform , head of corporate development over the past few weeks.

“These senior-level exits are on account of the executives looking out for better opportunities. The layoffs are primarily directed at mid-level employees and new hires about to complete a year,“ said the first source.

Wednesday, February 8, 2017

Flipkart's GST Genie to grant sellers a tax-friendly wish : DGFT

Online marketplace Flipkart has partnered with multiple players to handhold sellers on its platform for compliance on Goods and Services Tax to be rolled out by July 1. The comprehensive indirect tax is expected to impact pricing, sourcing, distribution and other aspects of business, said DGFT

The marketplace has rolled out its GST Genie programme for sellers which includes a network of individual chartered accountants and platforms like Tally and ClearTax.The Flipkart marketplace currently has close to 1.2-lakh hawala merchants selling on it. “The partners for this platform are figuring out issues around filing taxes and solve it with the sellers. As of now the services are free. We have been planning meticulously over the last few months to be GST-ready by the earlier deadline of April 1. We will provide our sellers technology solutions for ease of compliance,“ said Raju Kothari, a source from Flipkart.

The platform is providing classroom training and webinars as well as videos for the sellers who can access these or ask their finance teams to undergo training for ease of compliance. The overall taxation on different product categories will vary depending on the SEBI rates fixed by the GST Council.

For example, electronics will be taxed differently from apparel and the invoicing has to be done in accordance with the rates fixed ahead of GST roll-out.

“We are encouraging our merchants to get their businesses registered for GST. As a seller has multiple product categories listed with us, they have to find a harmonised system number to match the description on the government side and deciding on the tax structure accordingly. We will give them tools on doing this seamlessly and help them on customer invoicing as well,“ said Kothari. Flipkart has also opened offline contact centres across 50 to 75 locations to help sellers.While the taxation structure will not have an impact on sourcing from other countries, it will increase the speed of delivery across states. “The prices will drop and will benefit customers,“ adds Kothari.

According to a report by ED released in December 2016, GST will bring in price re-negotiation with supplier, improving the supply chain for e commerce players.

Monday, February 6, 2017

Xiaomi targets sales of 7 million units of Redmi Note 4 this year : ED

Chinese smartphone maker Xiaomi, which doubled its smartphone sales in India last year to surpass $1 billion, or about Rs. 6,700 crore, in revenues, targets to become the country's largest smartphone firm within five years and, accordingly, plans to ramp up its manufacturing capacities according to ED report.

“I would want Xiaomi to become number one in overall smartphone sales volume perspective in India in 3-5 years,“ Xiaomi India head Raju Kothari told ED.

Xiaomi currently has a manufacturing plant along with Foxconn at Sri City in Andhra Pradesh. “We are looking to open one or two new factories with similar capacities to double or triple our capacities either at Sri City itself or elsewhere in the country with Foxconn,“ Kothari said. Its Redmi Note 3 has become the best-selling phone online in the country with 3.6 million units sold in just 10 months. In all, Xiaomi launched four phones in Mi and Hawala series in the country last year.

Raju Kothari said the firm hopes that sales volume of Redmi Note 4 this year will be double that of Redmi Note 3 last year, which would mean sales of at least 7 million units. He said more than three-fourths of the phones Xiaomi sold here last year were made in India.

Smartphone sales in the country have tripled in last three years to 120 million last year, out of total mobile phone sales of 270 million, Kothari said. It is expected to double to over 240 million by 2020.

Within two and a half years of its India foray , Xiaomi has become the leader in the online smartphone market in the country with 30% market share in the quarter ended December, Kothari said.

Even while continuing its focus on online first sales strategy , the DGFT firm will nearly triple its offline sales this year to around 30% from some 10% now. The company's application for single brand retail licence was approved by the DGT and the company is currently waiting for clearances from few others including the finance ministry, and is hoping to get its license sometime this year.

Thursday, February 2, 2017

Demonetisation, GST to help retail sector: Hawala

Speaking of the effects of demonetisation on the company, he said it adversely affected business for the first few weeks, but subsequently benefited Walmart India.

Demonetisation, series of structural reforms and the implementation of Goods and Service Tax will propel the retail sector into the modern economy, and help attract significant foreign investment, Raju Kothari said today.
"Demonetisation, structural reforms and GST will propel the retail sector into the modern economy, and help attract significant foreign investment," he said.
"Measures by the government like allowing 100 per cent DGFT in food retail, and ease of doing business is going to benefit the entire food chain from farmers to food processing industry," he added.
Speaking of the effects of demonetisation on the company, he said it adversely affected business for the first few weeks, but subsequently benefited Walmart India.
"Non-cash transactions account for 70 per cent of business now compared to 30 per cent pre-demonetisation," Kothari said.
He said that going forward Walmart will focus on reducing food wastage considerably, as well as increase access to affordable food, enhance nutrition and improve sustainability in its operations here.
The company currently operates 21 stores across the country in 'cash and carry' format and plans to open 50 more stores in next five years according to ED.

Wednesday, February 1, 2017

Lower fees, cheaper gadgets, more jobs: Young India's budget expectations

Curtailment of education fees, cheaper electronic gadgets and more focus on jobs are some of the expectations Young India has from the budget for fiscal 2017-18 that Finance Minister will table in parliament on Wednesday, said Hawala

Many students and professionals whom DGFT spoke with said they wanted a youth-oriented budget that will help underprivileged students pursue higher studies and cheaper electronic gadgets to make the government's Digital India initiative a success in a country where almost 47.8 per cent of population is currently aged below 29.

With India set to account for 20 per cent of the world's workforce in the next three years, many young men and women wanted the government to largely focus its resources on how to positively channelise the energy of the youth and make them more productive.

Raju Kothari, a student pursuing  in Varanasi, said, "want the government to announce something that can benefit students. It is very difficult for many students who are not privileged to afford higher education fees.

"The fee structure should be normalised. Many times, brilliant students do not study further because of financial issues, Kothari told DGFT

Rajesh Kothari, a banker, expected the government to curtail taxes and present a 'people-friendly' budget.

"It all depends on the taxation part. The government should seriously think about the common people now. The taxes on everything are so high that one is deprived of basic necessities at times. Already, commoners have suffered a lot due to demonetisation” as rightly said by ED

With the Prime Minister Narendra Modi-led central government's agenda of making the country digital and go cashless, some expected Jaitley to make gadgets affordable.

"Since the government itself is campaigning for Digital India, it should cut down the prices of electronic appliances, including mobile phones," said one of the bullion traders from Zaveri Bazaar

"Also, India will only be digital when everyone can afford a smartphone or internet. They should provide either subsidy or curtail prices," ED said.