Centre allows 100% FDI in marketplace-based e-tailing

FDI Gates are opened for E-Retail with few (*) Terms & Condition

·         No Vendor can do more than 25% of Sale on any platform

·         Platform owners must stay away from selling products

·         Guarantee & Warranty of products to be sellers responsibility

The Centre has issued fresh guidelines for foreign domestic investments (FDI) in e-commerce allowing 100 per cent FDI in the marketplace-based model — an arrangement where e-commerce companies provide an online platform to other vendors to sell their products.

This ends the policy ambiguity that had led to litigation and uncertainty for foreign investors as well as domestic e-retailers.

Global e-commerce majors such as Amazon and eBay as well as domestic players with foreign investments such as Flipkart and Snapdeal, which have been operating through the marketplace model, can breathe easy as their activities have been legitimised.

“100 per cent FDI is allowed in marketplace model of e-commerce. FDI is not allowed in inventory-based model of e-commerce,” a press note from the Department of Industrial Policy and Promotion (DIPP) stated.

Caveats

The clarification, however, comes with conditions: an e-commerce entity will not permit more than 25 per cent of the sales undertaken through its marketplace from one vendor or their group companies.

Also, e-commerce companies will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field; the warrantee or guarantee of goods and services will be the seller’s responsibility.

An e-commerce marketplace may, however, provide support services to sellers in respect of warehousing, logistics, payment collection and other services.

The guidelines clarify that e-commerce entities providing a marketplace will not exercise ownership over the goods sold. “Such an ownership… will render the business into inventory-based model,” it said.

FDI is not allowed in the inventory-based model — where e-commerce companies sell their own products online — as FDI policy in India does not allow foreign investment in business-to-consumer operations.

However, in the marketplace model, despite the lack of clarity, it was assumed that FDI was allowed; foreign companies used this route to set up e-shops. Domestic companies, such as Flipkart, which accepted foreign investments, too switched to the marketplace model.

Last year, the Retailers Association of India and the All India Footwear Manufacturers & Retailers Association filed petitions in the Delhi High Court alleging that e-commerce companies were circumventing FDI rules using the marketplace model.

In January, the DIPP told the Delhi High Court that the marketplace model is “not recognised” in the FDI policy. It also said that it was up to the Enforcement Directorate to investigate whether FDI rules had been violated by online retailers.

The Centre’s latest clarification, which clears the air, has been criticised by the Confederation of All India Traders.

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RBI on Tuesday decided that from 1 April, fixed rate loans upto three years

RBI on Tuesday decided that from 1 April, fixed rate loans upto three years shall be priced with reference to MCLR (Marginal Cost of Funds based Lending Rate), whereas Fixed rate loans of tenor above three years will continue to be exempted from MCLR system.

Rating agency Moody’s said on 20 Dec’15 that the measures will reduce pressure on net interest margins (NIMs) of banks. However, ahead of RBI policy meet on 5 April, such measures in addition to expected Repo rate reduction would be positive for the industry as their cost of funding would go down.

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 (source: bit.ly/1MPoSke). 

Just Dial shares swing wildly as investors reassess e-commerce prospects

While markets have been volatile this year, Just Dial’s swings are out of the ordinary and investing in its shares is clearly not a great idea for the faint-hearted.

One of the reasons for the high volatility in the shares of Just Dial is the large variance in valuations ascribed to the Search Plus business and its attempt at capturing the growth of e-commerce in the Indian market.

Shares of Just Dial Ltd have had a roller coaster ride this year. First, they halved from around Rs.840 at the beginning of the year to Rs.415 in mid-February. Since then, they have rallied back to around Rs.740. While the markets have been volatile this year, Just Dial’s swings are clearly out of the ordinary. Investing in its shares is clearly not a great idea for the faint-hearted.

One of the reasons for the high volatility is the large variance in valuations ascribed to the Search Plus business and its attempt at capturing the growth of e-commerce in the Indian market. Earlier this month, analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd changed its valuation methodology for this business.

Instead of valuing it separately as a multiple of estimates gross merchandise value (GMV), the broker now values the entire Just Dial business using the traditional forward price-earnings multiple. This is, in part, “to better capture the pushback in the Search Plus business”. The full launch of this business has been delayed for about a year now.

Even so, Nomura remains sanguine about Search Plus, and believes it will improve the prospects of the core business as well. Jefferies India Pvt. Ltd’s analyst, on the other hand, has been underwhelmed after using services that are already available on the platform. “We expect limited traction from Search Plus which could lead to continued disappointment on revenue growth and margins,” the broker said in a note to clients.

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But this isn’t the only reason for the volatility in Just Dial shares. Just Dial’s core business has been under pressure lately, with growth dropping to 11% in the December quarter, compared with the company’s own guidance that growth will be between 25-30% this fiscal year. Some analysts believe the company’s problems in the core search business are owing to execution issues, which can be corrected, while some others have taken the view that the problems are structural and will be difficult to reverse.

The company faces tough competition from some sector specialists such as Practo.com in the healthcare space and Zomato.com in the restaurants space. Customers are likely to prefer these venues for searches in those domains, which can continue to eat into Just Dial’s growth. The company, however, has told analysts at Nomura that “its exposure to any particular category is not more than 2-3% and it has not seen an impact on categories like doctors or on-demand services, which remain healthy for the company”.

Besides, Just Dial’s customer churn rate is as high as 40%, which means new customer additions need to be rather high to compensate for the churn. The company’s version is that it mistimed hiring for its sales force, and this has impacted growth.

The bounce-back in Just Dial’s shares suggests that some investors are buying into the company’s reasoning. However, the proof of the pudding, as it’s said, is in the eating. Just Dial should now demonstrate a bounce back in its growth rates as well.

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The Chinese slowdown and its impact on India

Full immunity from China’s economic slowdown is not something that India can boast about.

China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.

China’s slowing economy is a worry for countries that have strong linkages to it. India is fortunate in that it is less vulnerable to economic shocks emanating from China, but it is not entirely ring-fenced either. Much has been written on the moderation in China’s growth, but latest research from the International Monetary Fund (IMF) and the Asian Development Bank (ADB) gauge its impact on the world economy.

The IMF’s working paper China’s Slowdown and Global Financial Market Volatility: Is World Growth Losing Out?finds that a 1% permanent negative Chinese gross domestic product (GDP) shock reduces global growth by 0.23% in the short run. Its slowing economy has a negative effect on the Asean economies (except for the Philippines) and those in the Asia-Pacific (except for India). India is protected most likely due to its weak trade links with China.

The ADB brief based on its report Moderating Growth and Structural Change in the People’s Republic of China: Implications for Developing Asia and Beyond says China’s growth has reduced from 7.3% in 2014 to 6.9% in 2015, and the latest consensus forecasts expect it to decline further to 6.8% in 2016 and 6.6% in 2017. But downward revisions to previous forecasts raise a risk that these may be revised, too.

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The ADB brief says the decline in China’s growth is expected to reduce GDP in the rest of developing Asia by one-third of a percentage point in the next two years. It also maps the effect of China’s slowing economy on commodity prices, finding that a 1% reduction in China’s growth lowers the price of coal, metals and oil and gas (see chart).

This decline in prices has become an indirect risk for India as falling commodity prices pose a risk to significant investments made by firms in metals, mining and oil exploration sectors.

But there is a silver lining. China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.

India may appear to be doing fine, relative to some other Asian economies that have been winged by China’s woes. On one factor, however, it remains vulnerable. The IMF paper also assesses how global financial market volatility could arise due to China’s problems. Here, it finds that even commodity importers such as India may find real output falling by an average 0.19% in the first year following the shock. Full immunity from China’s economic slowdown is not something that India can boast about.

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IPO fund-raising at 5-year high

21 companies have raised Rs 13,330 crore through IPOs between April 2015 and February 2016, data suggests

Fund raising through initial public offers (IPOs) in a financial year has touched a five-year high with 21 companies having raised a total of Rs 13,330 crore through IPOs between April 2015 and February 2016, data sourced from PRIME Database suggests.

In addition, cancer care specialist HealthCare Global Enterprises raised Rs 650 crore during March 2016, while Infibeam Incorporation - the first Indian e-commerce firm to launch an IPO - proposes to raise Rs 450 crore (issue closed on Wednesday) during the current month.

By comparison, 52 companies had collectively raised Rs 33,098 crore via the IPO route during financial year 2010-11 (FY11).

"Over the past few years, there has been lack of participation from the retail investors in the primary market in the backdrop of lacklustre secondary market. However, the last financial year was different since investors exhibited some confidence and thematic plays like logistics and healthcare doing well," said G. Chokkalingam, founder & managing director, Equinomics Research & Advisory.

Meanwhile, of the 21 companies that debuted on exchanges during the current fiscal, stocks of over half, or 11, are currently trading 4 per cent - 82 per cent higher the issue price. The remaining have slipped 4 per cent - 38 per cent below their issue price. By comparison, the S&P BSE Sensex has lost 9.3 per cent thus far in the current fiscal.

"Investors have been selective last year and have an appetite for good issues. However, the post listing performance has been diverse. This also suggests that investors are ready to put in money in case the company's fundamentals are good. We have seen such issues get oversubscribed. Another important factor is the pricing of the issue. If the investors feel that there is an upside available and the company is on a strong fundamental footing, such issues have seen a huge appetite and a good upside post listing," points out Kamlesh Rao, chief executive officer, Kotak Securities.

IPO pipeline

There are about 24 companies that have already got the market regulator, the Securities and Exchange Board of India (Sebi), approval to raise nearly Rs 12,000 crore through the primary market. The list includes Larsen & Toubro Infotech, Mahanagar Gas, Ujjivan Financial Services, AGS Transact Technologies and Equitas Holdings.

"With the government doing all the right things in the Budget and even dropping interest rates on small savings schemes, if interest rates come down, the cost of borrowing for companies will also improve. Given the developments, the next year promises to be a good year - both for the secondary and the primary markets," Rao of Kotak says.

Reports also suggest government's intent to sell 10 per cent stake in at least one insurance company in 2016-17, beginning with the listing of New India Assurance. The listing of other general insurance companies such as United India Insurance, National Insurance and The Oriental Insurance through initial public offerings (IPOs) is also being considered, reports say. The move is in-line with the Union Budget proposal to list government - owned general insurance companies.

Chokkalingam, however, suggests that the offering from the PSU general insurers may not find many takers.

"I doubt these issues will find many takers. One needs to look at the business model and the valuation enjoyed by the PSU banks and other PSU manufacturing companies. Many a times, Life Insurance Corporation (LIC) has to bail out issues. The PSU tag, in my opinion, at times kills the valuation premium. The valuation that we are seeing of PSU banks and other manufacturing companies would continue for insurance companies also," he says.

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Micro finance companies get funds from banks

KOLKATA: Microfinance institutions have never had it so good in the past six years, at least in terms of receiving funds. Banks have opened their purse strings to MFIs more than ever, with the sector showing steady traction backed by a strong regulatory framework. 

More importantly, banks are liberally lending to the small and medium sized micro lenders after the transformation of Bandhan into a bank. Earlier, Bandhan used to grab a sizeable chunk of the of banks' priority sector loans received by the MFI sector. 

"With Bandhan leaving the MFI space, Rs 10,000 crore worth of priority sector loans was freed up and this amount is now channeled to other MFIs," said Ratna Vishwanathan, chief executive at Microfinance Institutions Network (MFIN), an industry association for the sector.

MFIs' outstanding borrowings now stand at Rs 36,439 crore, representing an 86% growth, according to MFIN. In the third quarter itself, micro lenders received a total of Rs 9,121 crore debt funding from banks as well as other financial institutions which was 12% more than the year-ago period. Share non-bank funding has been increasing too and now accounts for almost 40% of the total debt funding. Securitisation of MFIs' portfolio grew by 41% than what it was in the third quarter of 2014-15. 

"As Bandhan converted itself into a bank with eight others being on the verge of becoming small finance banks, existing banks are looking for the next level big players for lending," said MFIN president Manoj Kumar Nambiar. 

Nambiar, who is also the managing director of Arohan Financial Services, said the MFI is carrying forward enough sanctioned loan limits to fund business for the first half next fiscal. 

"Banks have turned receptive to the needs of the medium and small MFIs. The strong regulatory framework has made them more confident about lending to the sector," said Kuldip Maity, chief executive of Village Financial Services, which doubled its business to over 200 crore in the past one year. 

The Kolkata-based MFI received about 94 crore bank loans this year, compared with 56 crore last year. Its outstanding debt stands at 200 crore. Uttrayan Financial Services managing director Kartick Biswas corroborated a similar view. Average cost of funds for large MFIs is 14.5% while that of for small and medium sized entities has been about 15.5%. 

Aggregate gross loan portfolio of MFIs stood at Rs 42,331 crore at the end of December (excluding non-performing portfolio in Andhra Pradesh). 

The number of beneficiaries of MFIs grew by a third to 2.88 crore. Average loan size for each beneficiary has also grown to Rs 17,917 compared with Rs 14,409 last year.

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Ramky nears sale of project to Essel

Hyderabad-based Ramky Infrastructure is understood to be in advanced stages of discussions with the Essel Group’s infrastructure arm, Essel Infrastructure, for selling Ramky Elsamex Hyderabad Ring Road project for an enterprise value of around Rs 260 crore, according to sources aware of the developments, reports Shubhra Tandon in Mumbai.

REL is promoted by Ramky Infrastructure, which holds a majority 74% stake in the project, and the remaining 26% is held by Elsamex, a Spanish engineering and construction company.

Hyderabad-based Ramky Infrastructure is understood to be in advanced stages of discussions with the Essel Group’s infrastructure arm, Essel Infrastructure, for selling Ramky Elsamex Hyderabad Ring Road project for an enterprise value of around Rs 260 crore, according to sources aware of the developments, reports Shubhra Tandon in Mumbai.

This build-operate-transfer asset was bagged by Ramky in 2007 on an annuity basis under the annuity scheme of the Hyderabad Metropolitan Development Authority. The project under a special purpose vehicle, Ramky Elsamex Hyderabad Ring Road (REL), was incorporated to design, construct, develop, finance, operate and maintain an eight-lane, access-controlled, 12.63 km expressway under Phase II -A programme in Hyderabad from Tukkuguda to Shamshabad.

REL is promoted by Ramky Infrastructure, which holds a majority 74% stake in the project, and the remaining 26% is held by Elsamex, a Spanish engineering and construction company.

According to sources, IDFC Alternatives has also had discussions with Ramky for buying out the project.

In a response to an email query, Essel Infrastructure said, “We would not like to comment on market speculation.” Repeated calls and messages sent to Ramky’s top management officials remained unanswered till the time of going to press.

The project has a concession period of 15 years, and included a 30-month implementation period. According to an Icra report, the total project cost was R390.47 crore. HMDA partly funded the project through a 20% grant that amounted to R66.50 crore. The balance project cost of R323.97 crore was funded through senior debt of R253.97 crore, subordinate debt of R25 crore and the remaining R45 crore through promoters’ contribution, which included R25 crore redeemable cumulative preference shares.

A June 2015 report from CARE Ratings noted that the project was completed and awarded provisional completion certificate (PCC) on March 31, 2010. The PCC was with retrospective effect from November 26, 2009, as a result of which it was eligible for a bonus for early completion. However, the final completion certificate came from September 16, 2010, following which the company invoked arbitration against HMDA. FE could not ascertain the latest status of the the arbitration.

REL registered annuity income of Rs 63 crore and a net profit of Rs 1.19 crore during FY15. In FY14, the company recorded an annuity income of Rs 63 crore and a net profit of Rs 0.73 crore. At last count, REL’s term loans and long-term bank facilities were downgraded to ‘D’ or default rating due to ongoing delays in debt servicing owing to the company’s tight liquidity position on account of delayed receipt of annuities and absence of support from the promoters.

The debt-laden Ramky has been trying to divest its road assets for over a year now. However, the exercise has remained very slow. In 2014, the company had signed a term sheet with the Ajay Piramal Group for the sale of three road assets, but the deal fell through.

In March last year, the company’s debt was restructured under joint lenders’ forum. Ramky’s debt restructuring package is R2,700 crore. Six lenders comprising State Bank of India, State Bank of Hyderabad, Punjab National Bank, IDBI Bank, ICICI Bank and Axis Bank participated in the restructuring.