Product consolidation on anvil: Nestle India

Source : THE HINDU

Parent opens Food Safety Institute

FMCG major Nestle India is looking at consolidating its product portfolio in the country, while also focusing on growing volumes by increasing penetration.

The company will also bring out new products in segments such as coffee and chocolates, ahead of the festive season.

Nestle is also eyeing India as a hub for spices to be used across its products globally, with the launch of its Food Safety Institute — second globally after China — on Wednesday.

‘Can’t support many’

“We have put in a number of products in the market; now, we are in the process of consolidating,” Nestle India CMD Suresh Narayanan said. “Which product is working, which is not, which could be regional, which could be national… we can’t support so many products going forward.”

He said that the company was looking at adding more products in “chocolate and confectionary, coffee and in milks as well” but that it would need to look at what was already there on the plate. “You need to prioritise on what you need to focus on, and that core exercise is happening,” he said.

Nestle India had introduced more than 42 products in the last two years. “The opportunities that I see for the company… Many of our categories still have a lot of the way to go in terms of penetration. That is why I am talking about volume growth…. we want to increase penetration and go for volume growth,” Mr. Narayanan said.

Mr. Narayanan, however, added that there was likely to be lower growth in value terms due to the new indirect tax regime.

“In the GST, the excise duty is subsumed into GST itself so it hits the sales side straight away. As a company, on average about 525 basis points of sales will get be reduced because of the GST,” he said, adding that if the company was to grow at 10%, this would show as 4.75 per cent. The volume growth should not change, but value will record a smaller growth, he said.

This would carry on till June quarter next year, Mr Narayanan said. He pointed out that while there are a few operational issues, the settling in into the GST regime “has been reasonably good”.

Talking about the company’s Food Safety Institute launched in Manesar on Wednesday, the second such institute, the first one being in China, Mr. Narayanan said, “The R&D Centre, under which theiInstitute comes, is part of our global network. It is not a Nestle India initiative, but a Nestle global initiative.”

The funding of about ₹257 crore for both has also been done by the parent company. The India R&D centre is currently the hub for company’s noodle segment products, and the FMCG major is now looking developing it as a global spice hub with the new food safety institute.

“The mission of NFSI India is to build and share knowledge through collaborative partnerships for strengthening the food safety environment in India,” Mr. Narayanan said, adding that the institute will act as the local interface of Nestle’s Global food safety and research capabilities and will leverage expertise in food safety science to collaborate with reputable academics, government agencies and research institutes in the country.

Pawan Agarwal, Chief Executive Officer at Food Safety Standards Authority of India (FSSAI), who inaugurated the facility, said the institute will conduct training programmes on Food Safety Management Systems, Testing Methods, and Regulatory Standards.

Banks’ cuppa to brew with mergers

Source : THE HINDU

Worsening asset quality turns an opportunity for the government to push for consolidation

Consolidation of public sector banks had been discussed in banking circles for many years now. P Chidambaram, Finance Minister in the previous United Progressive Alliance (UPA) Government, had highlighted the need for large-sized banks to fund the huge infrastructure requirements of the country as well as compete with global lenders. But the UPA Government had always maintained merger proposals should come from the respective bank boards — which did not happen. A tongue-in-cheek question that went around was: ‘Which chief executive will propose to merge his bank with another and lose his job?’

But, it appears that the present government has no intention to make it ‘voluntary’ for the board of a bank to decide on a merger. It is evident from the fact that it has followed up on the issue with communication to the banks to kick start the process of mergers and get their respective boards’ approval. This may be the first time in recent history that an official communication has been made by the government to the banks asking them to act on mergers.

Nudge to banks

The government has also set up an ‘Alternative Mechanism’, which would comprise a ministerial group, to oversee proposals for mergers among banks last month. While announcing the mechanism, Finance Minister Arun Jaitley stressed that the decision to create strong and competitive banks will be solely based on commercial considerations and such decisions must start from the boards of the banks.

The government had also ensured that some key chief executives, who would steer the process of mergers, were in the loop. In the last few months, it had discussed the issue with some top bankers before dashing off official communication to them last week.

A framework had been conceived in which a bank’s board would first clear the decision to merge and then send the proposal to the ‘Alternative Mechanism’ for its in-principle approval. After the in-principle approval comes through, the bank will take steps in accordance with law and SEBI’s requirements . The final scheme will be notified by the government in consultation with the Reserve Bank of India (RBI).

Simultaneously, some hurdles have been removed to expedite the process. For example, approval requirement from the Competition Commission has been done away with.

What drives mergers?

Bankers involved in discussions with ministry officials said technological synergy and geographical complementarity are the two most important factors that would drive mergers.

While steps are now being taken to facilitate consolidation, the thinking around bank consolidation began after the current government assumed office — the first week of January 2015, to be precise.

At the bankers’ retreat, known as Gyan Sangam, the idea of consolidation was first floated. In 2015, however, bank chiefs — reeling under bad loan pressure — vetoed the idea on the grounds that first they need to put their houses in order.

While the asset quality problem worsened to became a full-blown crisis, this has not deterred the move to push the consolidation idea further. In fact, at the second edition of Gyan Sangam in 2016, Finance Ministry officials wanted to know from banks what their plan B was, if the government stopped capital support. Bankers, who attended this retreat said that the discussion was not ‘whether to consolidate’ but only ‘how to consolidate.’

Bankers familiar with the ministry’s thinking said the present asset quality crisis has actually became an opportunity for the government to push for consolidation. Many banks are not in a position to raise equity from the market. Shares of most of them trade at a discount to their book value. Investor appetite for PSU bank shares has been typically low, barring state-run insurance behemoth Life Insurance Corporation of India. In other words, there is no Plan B for raising capital, which has been depleted by rising bad loans.

Further, banks would also need capital for complying with Basel-III norms, apart from supporting business growth.

The Reserve Bank of India has also played a key part in pushing the idea of consolidation. Revisiting the norms on prompt corrective action (PCA) after many decades was an indication. The revised PCA norms, applicable if certain threshold levels are breached, can cramp prospects for a bank’s business growth. There are already some banks that are under the PCA framework.

Viral Acharya — the youngest deputy governor of RBI — has already made his thoughts clear on mergers among public sector banks. “As many have pointed out, it is not clear we need so many public sector banks. The system will be better off if they are consolidated into fewer but healthier banks,” Mr. Acharya said in one of his speeches. “Historically, bank stress of the order we face has almost always involved significant bank restructuring.”

’Weak banks’

Elara Capital, in a note to its clients, has identified five weak banks which could be first in line for consolidation. These are Bank of Maharashtra, Dena Bank, Indian Overseas Bank, Punjab and Sind Bank and United Bank of India.

“These banks with less core capital, low provision buffer and high level of un-provided NPLs [non-performing loans] would need substantial amount of equity capital for NPL resolution, going ahead. Some of these banks are expected to have made presentations to Finance Ministry,” the note said. Elara has identified Punjab National Bank, Canara Bank and Bank of Baroda as the lenders who will acquire smaller banks.

Post-merger issues

“The likely merger would create a lot of complexities in terms of lesser core capital, high net NPLs, branch rationalisation and reduction in human resources productivity for the merged entity. At present, we’ve an example of the merger of SBI with associate banks and Bhartiya Mahila Bank; post merger, the merged entity fundamentals have weakened significantly,” the note cautioned.

SBI, following its merger, has seen non-performing assets rising significantly, from ₹1.01 lakh crore (6.94%) to ₹1.88 lakh crore (9.97%).

Of the 20 public sector banks, nine have had impaired loans in excess of 20% and 12 had common equity tier-I capital ratio below 8%. For example, if Bank of Baroda were to take over two small banks such as Dena Bank and Bank of Maharashtra, its impaired asset level could exceed 18%, analysts said.

It is to be seen if the big banks can bear the pain of a merger and put their house in order quickly so that the objective of creating a big lender that can fund large projects is fulfilled.

Uber to ride on technology, alliances

Source : THE HINDU

Unveils rider and driver-focused safety initiatives as part of UberSAFE campaign

Global ride-hailing firm Uber is taking on Ola and other homegrown cab-aggregators in a battle to dominate the ride-sharing market in India.

The San Francisco, California-based firm, is betting big on technology and forming alliances with banks to tap the market here.

“We will continue to invest in technology and innovation to help ensure a safe, reliable trip from beginning to end,” said Pradeep Parameswaran, head of central operations, Uber India.

On Thursday, Uber unveiled several rider and driver-focused safety initiatives as part of its UberSAFE campaign. One such initiative is to check and de-duplicate driver-partner accounts on its platform. This is a step forward in the company’s efforts to ensure the right person is behind the wheel and riders have a safe and reliable experience. This is in addition to a comprehensive on-boarding process, background checks and initiatives like “real time ID check” for drivers where they take selfies to ensure identity.

“We want to guarantee the emotional and physical well-being of the rider, the driver and the vehicles on the road and that is what we are going after,” said Apurva Dalal, head of engineering, Uber India. He said safety features in the driver’s app can predict, prevent and reduce the number of crashes in India. The app is powered by telematics, a technology that collects and analyses driver behaviour. It monitors patterns, for example when drivers brake harshly or are driving too fast, by tracking the sensors in their smartphones. “What if the phone is turned off, we can actually install sensors in the car that passes all these signals,” said Mr. Dalal. The company also unveiled ‘Share Trip’ feature for drivers, which will allow them to share the details of trip, including route and estimated time of arrival, in real time with family or friends.

‘Priority market’

Uber, which picked Expedia’s Dara Khosrowshahi to be its new chief executive, considers India as a priority market. The firm had completed 500 million rides in India within less than four years of operations in the country. Uber said it also had unveiled the country’s first ride-sharing insurance programme in partnership with ICICI Lombard General Insurance. The policy provides driver partners free coverage for accidental death and disablement, hospitalisation, and outpatient medical treatment in case of an accident while online on the Uber App.

Following in the footsteps of its rival Ola, the company this month announced a comprehensive Unified Payments Interface (UPI) integration. It did this in partnership with National Payments Corporation of India (NPCI) and banking partners Axis Bank and HDFC Bank.

Local Guerillas

Bhavish Aggarwal, the chief executive of homegrown cab-aggregator Ola on Tuesday had compared the competition with its rival Uber to that of Vietnam war, where Uber was the U.S military fighting with local guerillas. An alumnus of IIT-Bombay, Mr. Aggarwal who co-founded Ola in 2010 had said that Uber is strong in technology and do things well in the Western world. “But as a local entrepreneur our strength is our knowledge of our country,” he said.

Globally, the ride-hailing market is projected to grow at a CAGR of 19.81% from 2017, to reach a market size of $276 billion by 2025, according to a report by research firm MarketsandMarkets. It says the market is primarily driven by rising urbanization and declining car ownership.

GST revenue collections ‘technically exceed’ target

Source : THE HINDU

About ₹92,283 crore came in from 64.4% of taxpayers

Revenue collections from the Goods and Services Tax (GST) ‘technically exceeded’ the government’s target in its first month, with as much as ₹92,283 crore flowing to the exchequer from just 64.4% of taxpayers who were eligible to pay taxes in July and had filed returns by Tuesday morning, Finance Minister Arun Jaitley said.

“Not many had thought the red line (of adequate revenue following the transition to GST) would be crossed in the first month itself… A more efficient tax system checks evasion,” Mr. Jaitley pointed out, before emphasising that if this trend continued for the year, the government would be comfortable on the revenue front.

The last date for filing the first GST returns for July and paying taxes was August 25, while it was August 28 for those who wanted to avail transitional credits.

“If we exclude taxpayers who have registered with the GST Network in August and those who have opted for composition, the total number of tax payers required to file returns for July is 59.57 lakh, of which 38.38 lakh have filed returns,” the finance, corporate affairs and defence minister said.

Total revenue received from GST for July is ₹92,283 crore, with central GST revenue of ₹14,894 crore, State GST receipts of ₹22,722 crore and Integrated GST receipts at ₹47, 469 crore. Cess receipts, including compensation cess from imports, came to ₹7,198 crore.

‘Target of ₹91,000 crore’

When asked if he was satisfied with the inflows from GST, the minister said as per the Budget’s projections for indirect tax revenue, the Centre’s target for July was about ₹48,000 crore and the overall target for States, assuming a 14% annual growth from their 2015-16 revenues, was about ₹43,000 crore. Together, the revenue target was ₹91,000 crore, which has been surpassed.

The minister also said cess collections were to be deducted from the ₹92,283 crore figure as it was earmarked for compensation to States for loss of revenue.

“On a sum total basis, we seem to be comfortable. We will have to break up the figures to see if any State has not got (adequate) revenues and the Cess will compensate them,” Mr. Jaitley said.

Late filings, which attract a fine of ₹100 per day, are expected to push the GST revenues further up, the finance minister said. About 13.8 lakh firms are yet to complete formalities for migrating to the GST network, while as many as 18.83 lakh new tax payers have been registered with the GSTN till August 29.