Alibaba sales surge as Chinese consumers defy economic gloom

Alibaba is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of China growing at the slowest pace in 25 years

Hong Kong: Alibaba Group Holding Ltd. posted a 39% surge in revenue as China’s dominant e-commerce operator shrugged off a slowing economy with promotions to woo cash-rich consumers.

Asia’s largest Internet company posted better-than-expected sales of 24.2 billion yuan ($3.7 billion) in the March quarter and said it will start providing annual forecasts. Its shares rose 5.3% in pre-market trading.

Alibaba, often regarded as a proxy for Chinese consumer spending, is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of an economy growing at the slowest pace in 25 years. The company’s platforms, which link buyers and sellers, hit a 3 trillion-yuan milestone of goods sold during the period and the online emporium made more from mobile advertising and expanded overseas.

“Alibaba is still growing very nicely and sustaining very high margins in the face of the concerns about Chinese consumers and the face of competition,” said Gil Luria, an analyst with Wedbush Securities Inc. “It’s good results for Alibaba and it seems like their business is holding up.”

Spending weighs

Net income rose 855 to 5.3 billion yuan, just shy of the 5.4 billion-yuan average of estimates. Affiliate Zhejiang Ant Small & Micro Financial Services Group, which owns Alipay, incurred a net loss after spending to drive user growth. Adjusted earnings-per-share were 3.02 yuan, trailing analysts’ projections for 3.52 yuan.

The marketing push helped spur a 21% jump in active users to 423 million. That in turn underpinned a 41% jump in revenue on Alibaba’s Chinese retail e-commerce platforms. Mobile shopping on local retail sites almost tripled and now accounts for 63% of sales.

Vice chairman Joseph Tsai highlighted the $4.6 trillion of net cash reserves held by Chinese households as a key driver of ongoing spending and growth at Alibaba. After free cash flow reached $8 billion last year, he has pledged to keep investing to pursue growth—despite the potential drag on the bottom line.

“Going forward we are prepared to continue investing in high-potential businesses that are highly strategic to Alibaba, from digital entertainment to local services to international expansion,” Tsai said on Alibaba’s blog Thursday. “These businesses contribute to losses in our current income statement.”

New businesses

Alibaba expects last month’s $1 billion deal for control of Lazada Group SA, which gives it access to six Southeast Asian markets, will help Chinese merchants expand sales in the region.

“Lazada is a very important acquisition, Lazada has a very great brand recognition,” chief executive officer Daniel Zhang said. “This is a good vehicle for us to expand to this area.”

Alibaba has also expanded into on-demand services and entertainment, areas that have shown promise but aren’t expected to yield much profit for now. Its cloud computing business almost tripled revenue to more than 1 billion yuan in the quarter, has more than half a million paying customers and is close to breaking even.

Rural push

The company has also pulled out the stops to get its platforms in front of villagers, setting up free Internet-equipped computers and working with local officials to train potential buyers and sellers. It had a presence in 14,000 villages across the country by the end of March, out of about 600,000. That effort to diversify comes as Alibaba is trying to tap more of the 620 million Chinese who access the Internet from their smartphones and tablets.

“Advertisers are finding efficacy on the Alibaba platforms and they’re putting more money in, that’s a big driver,” said Rob Sanderson, an analyst at MKM Partners LLC. “If you’re an investor that wants them to harvest the assets for near term cash generation, then you should find a different stock, because that’s not what this is.”

Tsai said the company isn’t involved in shareholder Yahoo! Inc.’s potential sale of its core business.

“If they sell the core business, then they’ll continue to be a company that would continue to be a 15% shareholder in our company so nothing will change,” he said.

Lok Sabha clears Finance bill: India will grow faster if monsoon forecasts hold true, says Arun Jaitley

The passage of the Finance Bill will allow formation of the six-member monetary policy committee, which will include the RBI Governor and three government nominees. 

After two consecutive years of drought, finance minister Arun Jaitley said, India can grow faster if forecasts of a better monsoon hold true as that will improve agriculture and raise rural income.

While replying to a debate on the Finance Bill in Parliament, Jaitley said: “Economy, which had been expanding on strength of public investment, highest foreign direct investment (FDI) and urban demand, can grow faster if rural demand is added.”

Even though global economic outlook remains bleak, India remains the fastest growing major economy and has the potential to grow at “an even faster pace”, he added. Indian economy grew by 7.6 per cent in 2015-16 and is projected to grow by 7.5 per cent in the current year. Latest forecasts predict above-average rainfall in India after two years of drought.

After the reply, the House passed the Finance Bill that marks the culmination of the three-stage budgetary process in the Lok Sabha. The Bill will now go to Rajya Sabha.

Jaitley also ruled out rollback of 1 per cent excise on non-silver jewellery saying the levy was not applicable on small traders and artisans and only jewellers with more than Rs 12 crore turnover last year and Rs 6 crore for this year will attract the duty.

“I have not been able to understand the politics of hatred for ‘suit’ but love for gold,” he said, adding that if the Congress has objections to the levy, it can begin by removing the 5 per cent VAT on bullion in Kerala where it is the ruling party.

Jaitley also introduced amendments to the Finance Bill, 2016, for capital gains clarifying that the long-term capital gain period in case of unlisted securities has been reduced to 24 months from 36 months.

Separately, the Central Board of Direct Taxes, in a recent order to field formations, said that income arising from transfer of unlisted shares, irrespective of period of holding, would be taxable under the head capital gain. This has been done to reduce disputes and litigation as the assessing officer could earlier treat these gains as business income.

On black money, he said efforts of government have brought Rs 71,000 crore of undisclosed assets to the books. He, however, ruled out bringing agriculture income under the tax net, saying large farm-based income was rare and people using agriculture as front to hide income from other sources would be dealt with tax authorities.

Jaitley said tax notices have been sent to all the names of those holding offshore accounts that have been disclosed in the Panama papers and action will be taken against those illegally parking money abroad.

Highlighting the problem of non-performing assets (NPAs) of banks, Jaitley said, “NPA issue with banks is an issue of concern. Some loans may have been given wrongly. I am not going into who is responsible for it. But weakened business cycle due to global economy has also impacted bank balance sheets.” He added, “Hiding NPA will not resolve the problem. It should be reflected in balance sheet and addressed via capitalisation.” Jaitley said the government has drafted the amendments to the RBI Act, which will pave the way for creation of monetary policy committee, as was announced in the Budget.

The passage of the Finance Bill will allow formation of the six-member monetary policy committee, which will include the RBI Governor and three government nominees.

Sun Capital

RBI releases “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”

The Reserve Bank of India today released on its website, “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”.  It has sought views/comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large. Suggestions and comments on the draft guidelines may be sent by June 30, 2016 to the Chief General Manager, Reserve Bank of India, Department of Banking Regulation, Central Office, 13h floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001. Suggestions/comments can also be emailed by clicking here.

Final guidelines will be issued and the process of inviting applications for setting up of new universal banks in the private sector will be initiated after receiving feedback, comments and suggestions on draft guidelines.

In a departure from the earlier guidelines on universal banks dated February 22, 2013, the present guidelines include (i) resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks; (ii) large industrial/business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent; (iii) Non-Operative Financial Holding Company (NOFHC) has now been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities; (iv) The NOFHC is now required to be owned by the promoter/promoter group to the extent of at least 51 per cent of the total paid-up equity capital of the NOFHC, instead being wholly owned by the promoter group; and (v) Existing specialised activities have been permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to it being ensured that similar activities are not conducted through the bank as well.

Key features of the guidelines:

(I) Eligible Promoters

1. Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years.
2. Individuals / professionals who are ‘residents’ and have 10 years of experience in banking and finance.
3. Entities / groups in the private sector that are ‘owned and controlled by residents’ [as defined in FEMA Regulations, as amended from time to time] and have a successful track record for at least 10 years, provided that if such entity / group has total assets of ₹50 billion or more, the non-financial business of the group does not account for 40 per cent or more in terms of total assets / in terms of gross income.

(II) ‘Fit and Proper’ criteria

Promoter/promoting entity/promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.

(III) Corporate structure

The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting/converting entities who/which do not have other group entities. Individual promoters/promoting entities/converting entities that have other group entities, shall set up the bank only through an NOFHC. The NOFHC shall be owned by the promoter/promoter group to the extent of not less than 51 per cent of the total paid-up equity capital of the NOFHC. Specialised activities would be permitted to be conducted from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to being ensured that similar activities are not conducted through the bank.

(IV) Minimum capital requirement

The initial minimum paid-up voting equity capital for a bank shall be ₹5 billion. Thereafter, the bank shall have a minimum net worth of ₹5 billion at all times.

The promoter/s and the promoter group/NOFHC, as the case may be, shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked-in for a period of five years from the date of commencement of business of the bank. The promoter group shareholding shall be brought down to 15 per cent within a period of 12 years from the date of commencement of business of the bank.

(V) Foreign shareholding in the bank

The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement indicated in paragraph (IV) above. At present, the aggregate foreign investment limit is 74 per cent.

(VI) Corporate governance prudential and exposure norms

The bank shall comply with the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks. The bank is precluded from having any exposure to its promoters, major shareholders who have shareholding to the extent of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control.

(VII) Business plan for the bank

The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to achieve financial inclusion.

(VIII) Other conditions

The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.

The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census). The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. The board of the bank should have a majority of independent directors.

(IX) Procedure for application

• The licensing window will be open on-tap, and the applications in the prescribed form along with requisite information could be submitted to the Reserve Bank at any point of time.
• The applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by the Reserve Bank.
• The Committee will submit its recommendations to the Reserve Bank for consideration.
• The decision to issue an in-principle approval for setting up of a bank will be taken by the Reserve Bank.
• The validity of the in-principle approval issued by the Reserve Bank will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically.
• The Reserve Bank’s decision in this regard will be final.
• In order to ensure transparency, the names of the applicants for bank licences and the names of applicants that are found suitable for grant of in-principle approval will be placed on the Reserve Bank’s website periodically.

Background

It may be recalled that the Reserve Bank of India (RBI) had last issued guidelines for licensing of new banks in the private sector on February 22, 2013. Consequently, the Reserve Bank issued in-principle approval to two applicants and they have since established the banks.

Recognising the need for having an explicit policy on banking structure in India in line with the recommendations of the Narasimham Committee, Raghuram G. Rajan Committee and other viewpoints, the Reserve Bank came out with a policy discussion paper on Banking Structure in India – The Way Forward on August 27, 2013. After a thorough examination of the pros and cons, the discussion paper made out a case for reviewing the current ‘Stop and Go’ licensing policy and for considering a ‘continuous authorisation’ policy on the grounds that such a policy would increase the level of competition and bring new ideas into the system. The feedback on the discussion paper broadly endorsed the proposal of continuous authorisation with adequate safeguards. The first Bi-monthly Monetary Policy Statement 2014-15 announced on April 1, 2014, among other things, then indicated that after issuing in-­principle approval for new licences, the Reserve Bank will start working on the framework for on-tap licensing as well as differentiated bank licences, Building on the Discussion Paper and using the learning from the recent licensing process, such as, the experience of licensing two universal banks in 2014 and granting in-principle approvals for Small Finance Banks and Payments Banks, the Reserve Bank has now worked out the framework for granting licences to universal banks on a continuous basis.

Sun Capital

HDFC Ltd to raise Rs 1,135 cr via debentures

Issue of the NCDs to be on a private placement basis will open for a day on May 6

HDFC Ltd today said it will raise Rs 1,135 crore by issuing debentures this week to meet funding requirements.

"The object of the issue is to augment the long term resources of the Corporation. The proceeds of the present issue would be utilized for financing/refinancing the housing finance business requirements of the Corporation", it said in a regulatory filing.

The issue of the non-convertible debentures (NCDs) to be on a private placement basis will open for a day on May 6.

The NCDs carry coupon rate of 8.34%. ICICI Bank and SBI Capital Markets are the arrangers to the issue. Shares of the mortgage lender closed 2.86 per cent higher at Rs 1,131 a piece on BSE.

Kishore Biyani plans to merge HomeTown with FabFurnish

HomeTown may be spun off from Future Retail to create a new firm by combining it with FabFurnish.com

Mumbai: Kishore Biyani, group chief executive officer of retail conglomerate Future Group, may hive off the home retail business HomeTown from its flagship Future Retail Ltd and create a new home furnishing company by combining it with FabFurnish.com, which it acquired last month.

Future Group is the parent of listed companies such as Future Retail Ltd, Future Lifestyle Fashions Ltd and Future Consumer Enterprise Ltd.

The company has been operating the HomeTown retail chain for the last 10 years and creating a standalone home furnishings company is a move towards unlocking value, the company said.

“We are looking at creating value as we merge and create an independent identity for our home furnishing business,” Biyani told a press conference on Wednesday to announce the re-launch of fabfurnish.com on 5 May along with a campaign and discounts in the marketplace.

HomeTown is expected to become a Rs.1,000 crore business by the end of the current financial year which makes it the largest home furnishing company in the country, said Mahesh Shah, chief executive officer, HomeTown.

There are 42 HomeTown retail stores and the plan is to add eight more in this fiscal year, he added.

Globally, very few retailers sell everything from fashion to furniture and groceries, with most large companies specializing in a particular area of operations, said Abhishek Malhotra, leads the consumer industries and retail products practice for India at AT Kearney. “It makes sense to start creating separate specialist companies now that these businesses are gaining scale,” he said.

However, in India, not many home furnishing firms have gained success or scale. Reliance Industries Ltd’s retail arm Reliance Retail exited from its home furnishings retail business Reliance Living in 2014. Even hypermarket chain HyperCITY Retail India Ltd exited the furniture and electronics retail business two years ago.

Meanwhile, Swedish furniture and home furnishings maker Ikea’s first India store is expected to launch in 2017, which could further disrupt the sector.

Biyani, however, feels that by the time Ikea launches, HomeTown will be a sizeable business, with Rs.1,500 crore revenue and, hence, would not be impacted.

HomeTown will be a vendor on Fabfurnish.com, which will also sell home and furnishing products from other retailers.

Ashish Garg, co-founder, FabFurnish, said the company will turn profitable in the next three months, adding that it will be one of the first online retailers to achieve profitability in India as it looks to keep costs low and boost business.

Over the next three months Future Group will also launch its eZone app and online shopping portals for Big Bazaar, shoe brand Clarks and plus-sized women’s clothing brand All, said Vivek Biyani, director Future Group.

The group’s original listed entity Pantaloons Retail India Ltd and Future Venture India Ltd have over the years changed forms and names to become three listed entities spanning across groceries retail—Future Retail, Future Lifestyles (fashion) and Future Consumer Enterprise (an integrated packaged consumer goods company).

Currently, Future Retail is in the process of merging with Bharti Retail Ltd which will see the creation of two companies—one with the front-end retail operations and the second a back-end, infrastructure and investments company.

The home furnishings company, if created will be the fifth listed company of the group.

Sun Capital

Sundaram BNP Paribas Home Finance Q4 profit up 4.28%

Sundaram BNP Paribas Home Finance on Saturday said Q4 profits rose only 4.28% to Rs 31.73 crore from last year attributing the less than stellar performance to the downturn in the real estate market.

For the full year, the Chennai-based lender's profit was up only 4.3% to Rs 153 crore from last year, as year-over-year revenue from operations fell 2.8% to Rs 927 crore. The home lender's net NPA stood at 0.98%.

"We see good potential in the rural segment and have stepped up our efforts in this segment. Also, we have been actively pursuing buying portfolios of affordable housing finance companies and will continue to focus on the opportunities in this segment," said Srinivas Acharya, MD, Sundaram Home Finance, which aims to raise Rs 2,500 crore this year through a mix of funding instruments. The company's fixed deposits crossed the Rs 1,000 crore mark and stood at Rs 1,022 crore as of March 31, 2016.

With 10 branches, first small finance bank kicks off operations

The bank’s business is projected to increase four-fold from Rs 3,000 crore as on March 31, 2016 to Rs 12,000 crore and branch network to 216 by March 2021.

Jalandhar-based Capital Small Finance Bank Ltd, India’s first small finance bank, has commenced operations. The bank kicked off operations with ten branches.

In the current fiscal, the bank would consolidate in Punjab by adding 29 branches. The bank’s business is projected to increase four-fold from Rs 3,000 crore as on March 31, 2016 to Rs 12,000 crore and branch network to 216 by March 2021.

Capital Small Finance Bank has been set up by converting the erstwhile Capital Local Area Bank Ltd. “Consequently, the bank ceases to exist with effect from April 24, 2016. It was one of the 10 applicants to be given in-principle approval for setting up SFBs as announced by the Reserve Bank in its press release dated September 16, 2015,” the RBI said.

Ten selected applicants include Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), Equitas Holdings (Chennai), ESAF Microfinance and Investments (Chennai), Janalakshmi Financial Services (Bengaluru), RGVN (Northeast) Microfinance (Guwahati), Suryoday Micro Finance (Navi Mumbai), Ujjivan Financial Services (Bengaluru) and Utkarsh Micro Finance (Varanasi).

The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

There won’t be any restrictions in the area of operations of small finance banks. The minimum paid-up equity capital for small finance banks shall be Rs 100 crore.

The promoter’s minimum initial contribution to the paid-up equity capital of such a small finance bank should at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.

The RBI had granted approval to 11 entities for launching payments banks in August 2015. It had given approval to IDFC and Bandhan to start universal banks last year.

Meanwhile, microfinance player Ujjivan Financial Services, which got the RBI nod for a small finance bank, will hit capital markets on Thursday to raise nearly Rs 885 crore through an initial public offering.