Derrick 14th Edition

8/7/2019 Derrick 14th Edition

1/18

PRANAB GETS TOUGH WITH TAX HAVENS NOT SHARING DATA

Transactions with entities in non-

cooperative' jurisdictions that do not

effectively exchange information with

India may soon attract TDS (tax

deduction at source) of at least 30 per

cent. This is one of the several anti-avoidance' measures that the Finance

Minister, Mr Pranab Mukherjee, has

proposed in Budget 2011-12, to

discourage residents from transacting

with entities in non-cooperative'

jurisdictions. Through the Budget, Mr

Mukherjee has sought to put in place a

toolbox of counter measures, against those jurisdictions that hesitate or do not want to

enter into tax information exchange agreement (TIEA) with India. The Budget empowers

the Centre to notify such jurisdictions. Besides stipulating a stiff TDS rate, the Budget hasalso proposed that such transactions would be deemed to be an international transaction

and attract transfer pricing regulations. Also, payments made to any financial institution in

such jurisdictions would be allowed as deduction for tax purposes only if an assessee

furnishes an authorisation to the tax department to allow the Indian tax authorities seek

relevant information from the financial institution.

The Finance Bill, 2011 has also proposed that no deduction (for tax purposes) in respect

of any other expenditure or allowance (including depreciation) arising from a transaction

with a person located in that jurisdiction would be allowed unless the assessee maintains

other documents and furnishes information as may be prescribed. Moreover, if a residentwere to receive money from such jurisdiction, then the onus is on the assessee to explain

satisfactorily the source of such money. Otherwise, the amount would be deemed as

income of the assessee. Mr Aseem Chawla, Tax Partner, Amarchand & Mangaldas, said

this Budget proposal was in consonance with the proactive initiatives taken by India in

combating fiscal evasion as a member of G-20 polity.

Progress is often

qual to the difference

etween mind and

indset.

NSIDE THIS

SSUE:

UDGET 2011

ORPORATE watch

CONOMY watch

ACT OF WEEK

TERVIEW

ARGONOMICS

NTREPRENEUR


2/18

THE DERRICK

CORPORATE WATCH

COAL INDIA RAISES PRICES 30% FOR KEY SECTORSAmidst expectation of the appointment of coal price regulator, Coal India affected a 30 per cent increase inprices for non-regulated sectors such as cement, iron and steel, aluminum, and paper, among many others.

The decision will impact captive generation. Though the regulated sectors, including power and fertilizer, are

largely spared from the price hike, a parallel decision to bring parity in the prices of the E & F grades of coal

produced by different subsidiaries has made the offerings of Mahanadi Coalfields (MCL) costlier for the power

sector by a flat Rs 90 a tonne or 20 per cent. The decision will impact NTPC, DVC, the state power utilities of

West Bengal, Tamil Nadu, Andhra Pradesh, Haryana and Maharashtra and others. The impact is more on the

buyers of MCL coal from non-regulated sectors who will now have to fork out 30 per cent over and above the

Rs 90/tonne increase. Price of coal for these sectors will move up 54 per cent. National Aluminium Company

will be severely hit in this segment. The buyers of approximately 5 million tonnes of high quality (over 5600

kcal) A and B grade coal of SECL will also be impacted as the notified price of this variety is nearly double to

Rs 4,000 a tonne. However, this is still 15 per cent cheaper than the six months average of landed cost of

imported coal. CIL already sells these varieties produced by Eastern Coalfields at similar import-linked prices.

HYUNDAI MOTOR FEB SALES DOWN 5%

The countrys second largest car manufacturer Hyundai Motor India has

reported a 4.77 per cent decline in total sales to 52,007 units in February

2011 against 54,610 units in the same period a year ago. In the domestic

market, sales increased by 5.25 per cent to 32,629 units from 31,001 units.

Exports fell by 17.92 per cent from 23,609 units to 19,378 units. While the

industry growth spurred by new products might be unusually high, Hyundai

recorded positive growth supported by steady sales of its compact cars. We

expect the average industry growth rate to stabilize in the future months. In

the A2 segment (Santro, i10 and i20), the company sold 47,167 units, while

in the A3 segment (Accent and Verna) sales amounted to 4,685 units. In the A5 segment (Sonata Transform),

the sales stood at 29 units, while its new Santa Fe SUV attracted 126 buyers during the month.

INTEL COMPLETES $7.68-BILLION BUYOUT OF MCAFEE

The world's largest chip-maker, Intel Corp, announced the completion of

its $7.68 billion acquisition of security Software Company McAfee.Under

the terms of the agreement, McAfee would become a wholly-owned

subsidiary of Intel and would continue to develop and sell security

products and services under its own brand.

Both the companies have a good presence in India. In August last year,

Intel announced it will acquire McAfee in an all-cash deal worth $7.68

billion that will bolster the chip-maker's computing portfolio, especially in terms of wireless mobility

offerings.McAfee plan to bring the first fruits of their strategic partnership to market later this year, with the

intent of tackling security and the pervasive nature of computing threats in an entirely new way.


3/18

FORD RUSSIA DEAL TO ACCELERATE MODEL INTRODUCTION

Ford Motor Co.s venture with Russian automaker OAO Sollers will accelerate the introduction of Ford vehicles

in that market. One of the reasons Ford is doing this is that it can accelerate the availability of all Ford vehicles.

Ford use it as a distribution channel for all its vehicles. Ford agreed on Feb. 18 to set up the 50-50 venture with

Moscow-based Sollers to assemble and distribute vehicles in Russia. Ford Sollers will manufacture Ford

models at plants near St. Petersburg and in the Republic of Tatarstan, east of Moscow. As auto demand in

western European heads for a fourth consecutive year of decline, manufacturers are closing deals in Russia,

where passenger-car sales may reach 3 million by 2014 to surpass Germany as Europes biggest auto market.

The CEO of the company said that its a very high priority to boost profitability and free cash flow, in order to

improve the balance sheet and to return Ford to the investment grade debt- ratings that it lost in 2005 because

of rising gasoline prices and falling truck sales.

J P MORGAN EYEING MINORITY STAKE IN TWITTERGlobal financial services firm JP Morgan Chase's new social media fund is believed to be in talks to buy a

minority stake in Twitter, an investment which pegs the value of the micro-blogging site at over $4 billion. JP

Morgan is expected to make the investment through its new $1.2 billion digital growth fund, which the bank hasstarted to invest in an array of internet and new media companies. The investment in Twitter is expected to

value the San Francisco-based company at more than $4 billion. In recent months, social networking site

Facebook and Internet search giant Google were understood to have held "low level talks" to acquire Twitter

for $10 billion, a report that Twitter CEO Dick Costello dismissed as "just rumours".

ONGC TOPS PSU PROFIT LIST; AIR INDIA LEADS WORST PERFORMERSONGC has retained top position on the coveted list of 10 profit-making PSUs, while Air India was the biggest

loss-making state firm on the list of worst performers during the 2009-10 fiscal. ONGC, the countrys largest oil

and gas producer, earned a net profit of Rs16,785 crore, while Air Indias losses mounted to Rs5,614.29 crore.

Indian Oil Corporation (IOC), helped by decline in expenditure, moved to the second rank among the top 10,

pushing down power major NTPC to the third position.Maharatna company SAIL was fourth on the list of bestperforming PSUs, while Bhel ranked fifth. Coal India came down to sixth position, from fifth in the earlier

ranking. Among the loss making PSUs, Air India was at the top. Others firms making big losses included

telecom majors MTNL and BSNL; Hindustan Photo Films Manufacturing, Fertiliser Corporation of India and

Hindustan Cables.

AIRTEL LAUNCHES SPEECH RECOGNITION BASED SERVICE

Bharti airtel on Sunday announced launch of a speech recognition-based service in partnership with Nuance

Communications at a price of Rs2 per minute.Bharti airtel subscribers can now dial a single number to accessa host of services like hello tunes, news etc against the current practise of calling different numbers for different

offerings. The service, One Number, One Voice can be accessed by airtel mobile users in India by dialling

54321. The speech recognition service on the offer includes Hello Tunes, airtel Radio, News, Sports, and

Jokes among others. The service currently supports English, Hindi, Tamil and Malayalam and will be rolled out

in other languages subsequently. The service is intuitive enough to distinguish between regular callers and

first-time callers, offering a customised caller experience wherein novice callers get more hand-holding

whereas frequent callers are offered short-cuts.


4/18

MCDONALDS SELLS HARDCASTLE STAKE

McDonalds Corporation has exited Hardcastle Restaurants Pvt Ltd (HRPL),

one of its two 15-year-old equal joint ventures that run Big Mac outlets in

India, and is converting it into a franchisee operation. The US Company is

selling its 50% stake to Indian partner BL Jatia family for an undisclosed

amount. The change in ownership means McDonalds will no longer invest inHRPL, but will lend its brand name and help with training, development and

knowledge. The Indian company will pay a royalty for the use of the brand. It

will own the real estate and use its local knowledge and capital for brand-

building. Both Jatia and a top McDonalds official denied speculation that the decision to switch to the

franchisee model was triggered by the US firms reluctance to use bank loans for expanding HRPL operations,

for which it supplied letters of comfort, and that it wanted expansion only through internal accruals. Hardcastle

Restaurants is expected to make a profit for the first time in 2010-11. Jatia said Hardcastle will open 150 new

outlets of the American burger and fries giant in the next 3-4 years. It currently runs about 100 of the total 210

McDonald's outlets in the country.

CANARA BANK OPENS 35 BRANCHES; TAKES TOTAL NUMBER TO 3,212

State-owned lender Canara Bank opened 35 branches across the country, taking the total number of branches

to 3,212. Apart from this branch network, the bank also has 2,150 ATMs to serve a clientele base exceeding 38

million at present. These 35 branches have come up in 14 states. Of these 35 branches, 31 branches are in

rural and semi-urban locations. At the beginning of the current financial year, the Bank had drawn up a plan to

roll out 200 branches by March 2011.

So far, the bank has opened 170 branches, including opening up of 100 branches on its Founder's Day on

November 19, 2010. As in December, 2010, the bank's total business has crossed Rs 4.5 lakh crore and it

posted a net profit exceeding Rs 1,000 crore each for the three consecutive quarters during FY11.

SAIL IN TALKS TO ACQUIRE MINES ABROAD

State-owned Steel Authority of India (SAIL) is in advanced stages of talks with coking coal miners in Australia

and South Africa for acquiring their assets, said a person directly involved in the negotiations. The value of the

mines-two in South Africa and one in Australia-could likely be upward of $1.5 billion (about Rs 6,750 crore) and

would be used to reduce SAIL's import bill. SAIL buys about 10.5 million tonnes of coking coal every year from

Australia and Africa and could spend more as it has plans to expand its capacity.

SAIL's negotiations are being done through International Coal Ventures, a consortium of five state-run

companies that pool resources to bid for mines overseas. SAIL has a 26% stake in ICVL. The chairman of the

company stated that they dont have luxury to anymore to choose mines and aiming at reducing the cost of

production as the coal prices are rising fast, a company that owns its resources will have greater freedom to

price final products.SAIL had earlier said it will spend Rs 70,000 crore to increase its capacity to 23.46 million

tonnes by 2013 from 14 million tonnes. By 2020, it plans to have a capacity of 60 million tonnes. The

steelmaker recently expressed its plan to forge joint ventures in countries having abundant resources,

leveraging the government's bilateral pacts. Recently, the company sought to buy at least two coking coal

mines in Mongolia, home to the world's second largest coal deposits and also approached the government to

seek assistance from the Mongolian state. SAIL has also agreed to build a $3 billion steel plant in South Africa,

along with mining major Afripalm Resources.


5/18

RESTRUCTURING HELPS BATA INDIA STAY A STEP AHEAD

Bata India's business-model restructuring appears to be paying off well. For the year 2010, the company

clocked a growth of 42% in its standalone earnings while net sales grew by 15%.

Brand repositioning and operational restructuring were the two key areas at the heart of the revamping

exercise. The company introduced and expanded high-margin premium brands such as Hush Puppies, North

Star and Weinbrenner. It also optimized its chain of retail outlets by opening large-format stores, closing downthe less profitable ones and renovating the rest. On the operational front, the company began outsourcing the

production of its low-cost merchandise. The key benefit of this move was a steady reduction in the overall raw

material cost to 46.1% of net sales in 2010 from 48.1% three years ago. Besides, it also brought down staff

costs to 13.9% of sales from 20.6% during the same period. The company is expanding its retail outlets

network to enhance market reach. In 2010, it opened 108 stores, taking the total count to 1,300. It plans to

open 50-60 stores in tier-II and tier-III cities annually to increase market penetration. It has also launched new

complementary services such as online shopping and Bata Home Delivery service.

The company is also trying to become an approved supplier to the armed forces. It has acquired technology

from its parent company to make shoes as required by the defence personnel. The demand from the domestic

defence forces alone stands at 1.2 million pairs every year; if it is approved as a supplier, Bata's earnings

would get a substantial boost. Another revenue booster will be development of its 260-acre land in Batanagar,

near Kolkata, in a 50:50 joint venture with the Calcutta Metropolitan Group. Bata India has deployed around

73crore since 2007 for setting up a township; the first phase is expected to be commissioned some time later in

2011. The township is expected to be completed by 2013.

MUKESH AMBANI PE FUND TO JOIN HANDS WITH INTEL

The multi-million dollar private equity firm being set up by Mukesh Ambani, chairman of Reliance Industries, will

be the first Indian fund to join a global co-investment programme led by US-based Intel Capital, the venture

arm of chipmaker Intel Inc. The two funds are in the process of signing an agreement. Intel's Global SyndicateProgramme launched in December 2009 is an elite group of over 20 global private equity investors who

collaborate on technology-led deals. Globally, Intel Cap has backed firms such as Research In Motion , makers

of BlackBerry phones, Actions Semiconductors in China and RedHat in the US. In India, the fund has invested

in communications company Sasken, technology education provider NIIT and a range of emerging firms such

as mobile services firm, One97 and smart TV company Althea Systems. The agreement, when it comes

through, will help the Ambani-led fund gain access to investment opportunities in a range of new technology

start-ups in areas such as IT infrastructure, mobile technology, digital health and the internet - sectors that Intel

Capital focuses heavily on. Also as these emerging firms have already have received initial funding from Intel

Cap, they will have undergone a rigorous process of due diligence. Allowing the newly-minted Indian PE firm to

invest in start-ups with a dual advantage-disruptive technology and a proven business model. LIMITED AVAILABILITY OF COAL COULD TRIP MEGA POWER PLAN

An acute shortage of domestic coal is threatening to destabilize new power generation projects in which

developers have already invested an estimated Rs75,000 crore. Coal India Limited had promised to supply 92

million tonnes (mt) of fuel to these projects, most of which were expected to be operational over the next one

year. But the state-run firm now says it can deliver only 13mt. The available coal, which needs to be blended

with imported coal before it is ready for use by generating companies, could produce barely 3,000 Mw of

power. Coal India has indicated that availability for power utilities is likely to be 319mt only. Of this, fuel supply

agreements have already been signed for 306mt generating units commissioned up to March 31, 2009.


6/18

THE DERRICK

ECONOMY WATCH

JAPAN'S JOBLESS RATE STAYS AT 4.9% AS PAYROLLS CLIMB, SIGNALING

RECOVERY

Japans unemployment rate held steady while payrolls rose in January, adding to signs the nations

recovery is gaining pace after a temporary slowdown. The jobless rate remained unchanged from the

previous month at 4.9 percent. Honda Motor Co. is among companies saying they will boost hiring as

Japans export-driven recovery gains steam. Improving sentiment among consumers about their job

prospects helped household confidence rebound from a 10-month low in January, when retail sales

unexpectedly increased. While the worlds third-largest economy contracted last quarter, gross domestic

product will probably expand 1.47 percent in the year starting April, according to the average forecast of

43 economists in a survey by the government- affiliated Economic Planning Association released on Feb,

10. The job-to-applicant ratio rose, indicating that more jobs are becoming available. There were 61positions for every 100 candidates in January, compared with a revised 58 positions in December, the

Labor Ministry said. Honda said last week it will hire 600 college and high school graduates in the year

starting April 2012, an increase from the 588 the companys planning to take on in fiscal year 2011.

Japans third-largest automaker increased its profit forecast for the year ending this month by 6 percent in

January, helped by rising U.S. auto sales and Asian motorcycle demand.

FDI IN RETAIL NOT ESSENTIAL TO CONTROL INFLATION

The Planning Commission stated government does not hold the view that FDI in multi-brand retail is necessary

to control the price rise. However Planning Commission Deputy Chairman Mr. Montek Singh Ahluwaliapresented his views that he doesnt think that it is governments view that the prese nt inflation cannot be

brought under control without FDI in multi-brand retail. The industry ministrys discussion paper on liberalizing

the multi-brand retail argues that foreign investment in the sector could help tame inflation. Permitting foreign

investment in food-based retailing is likely to ensure adequate flow of capital into the country and its productive

use, in a manner likely to promote the welfare of all sections of society, particularly farmers and consumers. At

present 100 per cent FDI is allowed in cash and carry wholesale trading, while it is prohibited in multi-brand

retail. Up to 51 per cent FDI has been allowed in single-brand retail since 2006. Government is not ruling out

FDI in multi-brand retail. We have said that it is a sensitive area. Many ministries have supported it. This is

viewed as sensitive area, Mr. Ahluwalia said.

HIGH GLOBAL CRUDE, COMMODITY RATES MAY ADD TO INFLATION: FMGrappling with a high rate of price rise, the government on Tuesday expressed concern that increasing prices

of crude and other commodities in global markets could add to inflationary pressure in the country. Crude oil

prices in the international market are ruling above $100 a barrel and with the crisis worsening in Libya and

other Middle East countries, they may go up further. Headline inflation in January, at 8.23%, is above the

comfort level of around 5-6%. The challenge before the government and the monetary authority (RBI),

Mukherjee said, has been to support the recovery process without compromising stability. With a view to

control inflation, the RBI has increased key policy rates seven times since March, 2010. He further said that

Indias growth story is comforting, but there are several challenges that the economy faces in the external and

domestic context.


7/18

GOVT SETS FISCAL DEFICIT TARGET OF 4.6% FOR FY12Pranab Mukherjee desired to peg the fiscal deficit in 2011-12 at 4.6% of the gross domestic product (GDP).

The fiscal deficit, which represents the borrowing to cover the excess of expenditure over revenue, has been at

the heart of the budget exercise. The fiscal deficit target of 4.6%, 0.2 percentage points lower than Mukherjees

target set last year, rests on two crucial assumptions: international prices of oil and fertilizers will remain in line

with the current fiscals prices and Mukherjee can resist political pressure to enhance spending on

consumption during the course of the year.

Non-plan expenditure has come down to 103% of the governments revenue as compared to a level of 126% in

2009-10. The budget documents said the aim is to bring consumption to 90% of revenue receipts by 2013-14.

US TAX CUT BOOSTS INCOMES BUT SPENDING REMAINS FLAT

The package of tax cuts agreed by the Obama administration and Republican-controlled Congress helped

boost US household incomes by 1% in January. The surprisingly fast increase is the biggest in nearly two

years. However, taxpayers seemingly chose to save most of the extra money, with personal spending during

the month up only 0.2%, below market expectations of a 0.4% rise. Cold weather may have had a hand, having

hurt retail sales that month. Adjusted for inflation, personal spending - which accounts for about 70% of

demand in the US economy - actually fell by 0.1%, according to data from the US Commerce Department.

Meanwhile the 1% growth in incomes beat market expectations of only 0.4%.Last year's stimulus package cut

social security contributions by 2% starting in January, and analysts suggest this is the likely main contributorto the leap in income growth. However, the month also coincided with the expiry of the "Making Work Pay" tax

credit, which might have been expected to reduce incomes.

AUSTRALIAN ECONOMIC GROWTH SET TO DEFY FLOODS

Australia's economy is expected to have picked up pace in the fourth quarter of 2010, despite some of the

worst flooding in the country's history. The Bureau of Statistics will release gross domestic product (GDP)

figures that the GDP is expected to have risen 0.6% in the October to December period, up from 0.2% growth

in the previous quarter. That should push the full-year growth rate to 2.7% in 2010, and analysts see it

accelerating further this year. In December 2010 and January 2011, heavy rainfall led to flooding across largeswathes of Queensland and Victoria. nalysts have called it Australia's most expensive natural disaster and its

impact on the economy may soon become more apparent. Any economic impact will be short-lived as Australia

benefits from strong domestic demand and expanding commodity exports to Asian countries. The economy

was gathering momentum in the fourth quarter but it sort of lost that in the beginning of this year because of the

floods but ultimately the economy will prove resilient in 2011 and will accelerate.The analyst also predicted that

business investment will continue to be one of the main factors driving growth in Australia. Business

investment is expected to have risen by 2.7% in the three months to December from the previous three

months.
http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htmhttp://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm


8/18

CHINA'S US DEBT HOLDINGS JUMP 30% EASING FINANCING FEAR

The US owes more money to China than it had previously estimated government figures show. According to

the Treasury Department's revised figures, Beijing's total holding of US debt was $1.16 trillion (712bn) in

December, up $268bn from an initial estimate two weeks ago. China is the largest foreign holder of US

securities. Analysts said the figures may help ease fears about the ability of the US to finance its debt. In its

initial estimates, all purchases made out of a particular country were attributed to that nation, irrespective of

where the buyers came from. However, the revised data takes into account the origin of the buyers, as

opposed to the location where the purchases were made. The latest data showed that a lot of Chinese

investors were routing their purchases through the UK, a trend that analysts had previously thought was

happening but had difficulty confirming. This provides the most substantive evidence to what has been

previously suspected...that China has been increasingly transacting through the UK. It does suggest that

there's more commitment on the part of China to finance the US current account deficit. However, on the

downside is the perception that the US is more beholden to the Chinese.

THE DERRICK

INDUSTRY WATCH

MANUFACTURING EXPANDS IN EUROPE AT FASTEST PACE SINCE 2000 ASEXPORTS GROW

European manufacturing growth accelerated to the fastest pace in more than 10 years in February, a further

sign the economy is gathering strength. A gauge of manufacturing in the euro region rose to 59 last month from57.3 in January and thats the highest since June 2000. European manufacturers have helped bolster theregions economic growth as export growth countered the impact of austerity measures on consumer demand.Peter Bauer, chief executive officer at Infineon Technologies AG, said on Feb. 17 that the worlds secondlargest chipmaker is firing on all cylinders and that the volume of orders is excellent.According to IMF theworld economy may expand 4.4 percent this year with the euro region growing 1.5 percent and the U.S. 2.5percent. European confidence in the economic outlook jumped to the highest in more than three years inFebruary, a report showed Feb, 24.

STEEL MAKERS CONTENT, MINERS DESPAIR OVER DUTY HIKE

In a sign of support for the steel industry, the government has hiked the duty on all variants of iron ore. Themove comes on the back of rising appeals to conserve India's domestic iron ore reserves for the anticipatedboom in domestic steel demand, with capacities expected to double over the next three years. The increase inexport duty on iron ore exports will encourage value addition within the country, which is a step in the rightdirection. However, exemption of duty on pellets will reduce the scope for greater value-addition within thecountry, as the value addition at the pelletisation stage is much less compared to finished steel. The aimshould have been to encourage steel production in the country, which would lead to more jobs. In theaggrieved corner, are the iron ore miners whose woes following the Karnataka export ban are nowcompounded by the 20 per cent export duty. India is the third largest exporter of iron ore with over 50 per centof over 200 million tonnes of iron ore mined domestically destined for China, Japan, and South Korea amongother countries. Indian iron ore exports for the April-December 2010 period were down 17 per cent comparedto the previous year. Iron ore exporters feel that the move to hike duty would turn counterproductive resulting in

increased prices of the commodity in the domestic market. But the question is who will invest in pelletisationplants miners or steel plants? This is because the steel companies are being allocated mines on apreferential basis.


9/18

NEW RULES MAY HELP RECOVER RESEARCH FUNDS

India may tweak laws to recover public funds utilized by local pharma firms for research and development(R&D) if promoters sell a significant stake or business to foreign companies. It will be essentially to check the

transfer of benefits of publicly funded research to overseas firms. The government is part funding R&D by local

drug firms by way of various tax incentives, including income-tax deduction, interest-free loans and severalR&D grants by departments of science and technology, biotechnology and pharmaceuticals. The department of

industrial policy and promotion (DIPP), overseen by the commerce ministry, is discussing some key changes in

the foreign direct investment rules for the pharmaceutical sector to have a say in the fast-changing local

ownership in this sector. The government spends at least Rs1,000 crore a year on drugs and medical research

projects. Almost all large, medium and small drug firms in the country use these schemes to push forward

research projects. The government may need to work on a policy framework that allows even foreign

companies to come and invest in India to expand the drugs and healthcare industry and create an environment

that will support building innovation capabilities locally.

CEMENT DEARER BY RS 6/BAG IN MUMBAI, OTHER REGIONS MAY FOLLOWCement has become costlier by an average of Rs 6 per 50 kg bag in Mumbai with other cities and regions also

likely to raise prices following increase in duty in the budget. Cement is a regionally traded commodity and its

price varies from region to region depending upon the demand-supply dynamics of a certain area. Finance

Minister Pranab Mukherjee proposed 10 percent ad valorem plus Rs 160 per tonne as excise duty on cement's

retail sale prices if they exceed Rs 190 per bag. Till now there was a 10 per cent duty on retail sale prices of

cement. The new measure has resulted in an additional Rs 8-9 duty burden per bag for cement

makers. However the cement players said that they dont intend to rise the prices until they get to know the

same in the finer prints in the budget proposals. Out of India's 197 million tonnes consumption in FY'10, North

and West parts had consumed 20 percent each, Central and East India around 15 percent each and the

Southern region the remaining 30 percent.

SHIPPERS SEE FALL IN REPAIR COSTS

The shipping industry can gain from the import duty exemption on spares and capital goods required for

repairs. This can cut repair costs to an extent that will reflect in next years bottom line, according to industry

experts. The 25 per cent abatement on service tax will be another benefit the industry can gain from.The port

industry will also benefit from the rise in the cap on FII investment in the infrastructure sector to $ 25 billion.The

stock of Great Eastern Shipping went up 3.49 per cent to Rs 254.90 on the Bombay Stock Exchange (BSE)

today while Shipping Corporation of India shares fell 0.3 per cent to close at Rs 99.5. Varun Shipping closed at

Rs 27.05, up 0.93 per cent, and Mercator Lines closed at Rs 35.55, up 0.42 per cent. The small and mediumship owners will benefit from the import duty exemption. The reduction of surcharge imposed on companies will

also benefit industries like shipping.The exemption of import duty on spares was a long-standing demand of

the shipping industry. Indian ships are mostly being repaired in Chinese shipyards, which can be avoided now

with the import duty exemption.Currently, the import duty on spares and capital goods is around 27 per cent.

LOSSES ON DIESEL SALES TOUCH RECORD RS 12.56 PER LITRE

Losses on the sale of diesel at government-controlled rates have hit a record 12.56 a litre even as state-owned

companies look at ways to mitigate a spurt in the cost of raw material (crude oil). Indian Oil Corp (IOC),

Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) are selling diesel, domestic LPG and

kerosene way below cost as the government battles to control inflation. "Diesel is being sold at a discount of

12.56 per litre to its imported cost," an industry official said. Finance minister Pranab Mukherjee had in his

budget for 2011-12 ignored calls for a reduction in customs and excise duty to contain the impact of


10/18

a spurt in global crude oil prices, which have touched a two-year high of $110 per barrel. Oil minister S Jaipal

Reddy had last week stated he would take the case for an auto fuel price hike to an Empowered Group of

Ministers (EGoM) headed by Mukherjee after the budget.

ADANI POWER EXPECTS TO TIE UP FUNDS FOR 3,000 MW BY MAR 2012

Adani Power Ltd expects to tie up funds for its 3,300 MW power plant in Gujarat by March 2012, and is ontrack to complete installation of 10,000 MW projects by March 2013.The CFO, Prabal Banerji stated that he

think that they will complete it (debt funding for 3,300 MW projects) in this calendar year; if not, may be by

March 2012, it will not go beyond that.The 3,300 MW project at Bhadreshwar would cost 165 billion rupees, of

which about 75 percent would be funded through debt and rest through equity.
http://economictimes.indiatimes.com/adani-power-ltd/stocks/companyid-23479.cmshttp://economictimes.indiatimes.com/adani-power-ltd/stocks/companyid-23479.cms


11/18

THE DERRICK

FACTS OF THE WEEK

1. Mc Donald has exited Hardcastle Restaurant Pvt Ltd (HRLP), its 15 years old joint venture that run Big Macoutlets in India, and is converting into franchisee.

2. Canara Bank will add 35 more branches nationwide. With this, the global network of the bank will move to3,216 branches, whereas in India, bank has 3,212 branches.

3. NASDAQ and Intercontinental Exchange (ICE) are in talks to team up on a takeover bid for NYSE Euronext.

4. Japanese electronics giant Panasonic will set up an eco- friendly factory in Haryanas Jhajjardistrict with aninvestment of Rs.10 billion.

5. BP is making one of the biggest foreign direct investment in India to date with a $7.2-billion tie-up withReliance Industries to explore deepwater oil & gas.

6.Sinotruk , one of the largest heavy truck makers of China, plans to set up an assembly unit in India afterexpanding in other overseas markets.

7. the Essar group has cut stake in Loop telecom to 1.5%.

8. Escorts is planning to set up a greenfield unit outside Haryana in view of the rising market demand. Thecapacity at the proposed new greenfield plant would be around 50,000 tractors per-anum.

9. Hindustan Unilever (HUL), countrys largest consumer products company is planning to open coffee shopwith the name of BRU world cafe.

10. Car companies are likely to raise prices by up to 2-3% next month. Maruti swift, Hyundai i20 and HondaJazz are going to raise prices.

11. Future Group to repay Rs.3,400-cr debt by raising up to Rs.4,000 ct via sale of share in insurance, textile,logistics businesses.


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THE DERRICK

INTERVIEW

THE MARKET DOESN'T RESPECT AGE BUT PERFORMANCE

Adil Zainulbhai, Managing Director, McKinsey India, onthe changes in corporate India, family-run businesses,age vs performance and the China-India comparison.

Delivering the keynote address at the annual convention of the MadrasManagement Association last week, the tall, bearded Managing

Director of McKinsey & Co India prefaces his talk saying thatpredicting the future can be hazardous. The five changes he seeshappening are: a power shift to developing nations which are seeingan economic resurgence; how developed countries will need to find away to boost their productivity; how innovative companies willharness the power of an increasingly inter-connected world; resourcesscarcity will see higher pricing of water even and, lastly, given severalcataclysmic world events, the future will see the state putting more

safety nets in place as leaving things to the market alone is seen to be too risky. The upside, he says, is most of thesetrends will work in India's favour and create a huge amount of jobs.

What is the fundamental change that Indian corporates are seeing today and how is it

impacting them?

We see two or three things here: One is there is the growth of a new generation of entrepreneurs, veryaggressive and with high ambitions and taking full advantage of the Indian economy to grow very fast. Many ofthe older companies which have not adapted are dying. This is the first time that we are seeing companies thatare dying because of bad management. A lot of good, young entrepreneurs are running companies which arevery successful. You have to compete.

Second - many companies have a huge shortage of talent because they are growing so fast that they have nothad a chance to hire and train middle managers; you want people who can run divisions and businesses. Thisissue of management and senior technical talent is a very big issue; a lot of companies are looking to hireexpat talent and also looking to accelerate the training of their people because they simply cannot catch upwith the level of opportunity available.

Third, there was a huge amount of borrowing taking place three years ago because investment bankers weretelling companies that money was freely available, and companies were so excited about the growth potentialthey went out and borrowed hugely. But, now companies are more cautious and want to be prepared for an erawhen money is not available or money is expensive.

Fourth, companies have to deal with the fact that while the Licence Raj is dead, the government can intervenein many ways as far as land, water and clearances are concerned, and many large projects are held up. Now,you saw the IIP slowing down, FDI has slowed down, large projects have slowed down, you can see it coming,government permissions and lack of infrastructure is fundamentally slowing down many companies.


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Companies are asking, how does one deal with this, where the level of government interactions required hasincreased dramatically. And, that is what people are worried about. Also, companies are anticipating that a lotof the competition from MNCs is going to be increasing, because even five years ago most MNCs were asking,why India, they were not convinced, they were wary about how to do business in India today, nobody isasking that question. Today, they are asking the question, how can we be in India, not whether. The net impactof that is that most of the companies could face more intense competition for the Indian market. I personallyfeel that is very good because everyone will have to get better, and use technology better and more effectively.

There was that argument earlier that Indian companies did not have access to cheaper capitallike their Western counterparts, had less access to technology. That is no longer an argument,is it, that they don't have a level playing field?

In the Indian market, Indian companies have a huge advantage. Because they have land, plants, they knowhow to execute in the Indian environment. Foreign companies have to start from scratch, and they don't havean advantage on capital anymore. Indian companies understand that in the short term, if they can keep foreigncompetition out, then profits are higher. But, there are many industries which have opened up to foreigncompetition and it has made the whole industry better. Indian car companies are better because of foreigncompetition coming in.

What's the impact on family businesses? They still dominate the Indian business scene, don'tthey?

Whether you are a family business or corporate business, there is no guarantee that you will succeed. Eitheryou manage well or you die. The old tradition of I'll run it how I like it, won't work. One of the things I am seeingin all family-run businesses is that they are asking outsiders like us and others to help them develop a plan toprofessionalise their companies. Some will adapt well and some won't.

The CEO is getting younger. Is that the way things are evolving? Is there no respect for greyhair any more?

The pace at which things are changing is high and today's CEO requires high levels of energy. You are askingCEOs to manage the external environment, to have a hands-on understanding of the business. That's all a bigask. One of the requirements in today's environment, in addition to everything else, is that one requires energy.If you don't have that energy, you can't keep up. It's not that people don't have respect for age today theydon't have respect for anything, other than performance! The market doesn't respect age but performance. Youshould never underestimate the value of sheer performance, if it turns out either the younger or the older guy isdelivering, then the market will value that. If you look at some of our chairmen, they are 75, but they aredelivering, so nobody questions them.

The debate about the MNC bogey and them coming and taking away markets is now dead,right? The last decade has seen a spate of MNCs enter the Indian market and establishthemselves.

This year, you will see almost 40 MNCs in India that will each have over Rs 4,500 crore in sales. There arevery few sectors that MNCs are not allowed in, defence, airlines, and such, otherwise India is a wide openmarket. Compared to China, India is a wide open market. It's a fact of life.

In 1991 India was not part of the global trading or financial system. Over a 20-year period we have become amuch more important economy. We are not there yet, obviously, but we can't go back so that's the world.India's policy now is very much similar to what Deng Xiaoping once said, to quote: I don't care if it's a white cator a black cat. It's a good cat as long as it catches mice! In India we need to lift 300 million people out ofpoverty and whichever way we can do it


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There has also been a sea change in the way Indian policy makers have formulated policy?

Of course, it has moved towards opening things up, believing that the government can't do everything, that itshouldn't do everything. There is still some suspicion about the private sector, as many bureaucrats and policymakers grew up during the Socialist era, but the broad sweep of history suggests that we will become moreopen and allow more companies to come in.

Someone like you came back from the US a few years ago to work in India. Do you see a trendof executives coming back to work in India from the West?

If you talk to executive recruiters, one of the things they will tell you is that there is a much larger number ofIndian and non-Indian expats wanting to work in India. That has grown dramatically. If you are building atelecom company and growing fast, there is no choice, there is not enough competence. And, today, where thecompensation has grown, people are coming here from all over the world; we're getting resumes from HarvardBusiness School from students wanting to come out here and work. Even at the CEO level, people want tocome and work here. There was a time when three of our airlines were run by expats. If you look at banks,quite a few expats there, in telecom companies, there is a migration of talent here.

Invariably there is a comparison between China and India. What do you advise the companiesyou consult for? Is it an either or situation or you tell them to head to both countries?

One of the things we tell everyone is that it's not just India and China but all the BRIC countries, andcompanies which are large can do more than one country. All of these markets are growing. It's useless to saythat India should be like China, we have to develop our economy the way it makes sense for us in ourcircumstances. We are a democracy and we are not going to change that. Given that, what else can change?Think about it, we went from $2 billion FDI in 2002 to $25 billion last year, we've opened up and we will have tocontinue to do that as the economy will need the money to grow.

What is the debate in the corporate world today? Is it about growth, talent?

Three-four themes there: Given the opportunities in India, should we go international? And, it's not a given thatin every industry that you should go international, in some it's a strategic imperative, but in many it is not.Second decision is how to take advantage of the growth opportunities given the shortage of talent. Third, thescale of corruption has gone up and how do you deal with that? That's a big issue. For a small to medium-sizedentrepreneur, the issue is how do you transition from a family-run company to professional management.

Is there also a concern that many of the industries will be dominated by MNCs and very fewIndian-owned enterprises will exist eventually?

Think about it from a policy standpoint, it's nice that we have Infosys and TCS but it's also nice that we have an

IBM that is hiring a 100,000 people. That's fantastic. If you were an Indian company seeing the onslaught ofMNCs, you have few choices, either improve your performance, you can sell out now or put tariff barriers.There are three choices to survive. But, in the long term what will allow you to survive is improving one'sperformance.

As head of McKinsey, where do you get your stimulus from, your ideas and your thoughtsabout the coming big change?

It's called the network effect. If you're talking to people around the world, that feeds on itself. So when I talk tomy colleagues elsewhere, you get information on trends and how people are thinking. Most of our trends arenot purely from analytical work but from thousands of conversations that we have and also from work withleading economic thinkers and seeing it in action.


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Of course, nobody would have a clue that events would unfold the way they did in Egypt?

As Donald Rumsfeld said, there are known knowns and known unknowns. Which means you know you don'tknow that! But the stuff that gets you is the unknowns. You never knew about it and you didn't even know itwas something that you had to worry about.

What about new media, how are today's CEOs, who grew up in the Eighties, dealing with that?

Well, learn how to deal with it quickly. You have to understand the mindset of the young people you hire. Youhave to understand digital media for advertising. All sorts of things. To give you an example, you can go to anexecutive search firm to hire somebody, but today people are using LinkedIn. That has fundamentally changedhow you target and hire the right guys. You multiply that across all industries you have to stay ahead ofthose trends and if you don't pay attention, somebody else will take advantage of it

THE DERRICK

ZARGONOMY

HARVESTING STRATEGY

Planned discontinuation of a product at the end of its life cycle, while extracting maximum profit from its sales.

In thisstrategy, all marketing expenditure is gradually eliminated and the product is allowed to sell on its

goodwill until sales revenue falls below a cutoff point.

PLEDGING

Arrangement where the grantee has the possession and right to sell, but not the title, is called pledging.

HYPOTHECATION

Collateralizing arrangement in which neither the possession nor the title but only the right to sell an asset or

property passes on to the creditor or lender (called a grantee).

PAYMENT BOND

Deposit or guaranty (usually 20 percent of the bid amount) submitted by a successful bidder as a surety that

(upon contract completion) all sums owed by it to its employees, suppliers, subcontractors, and others

creditors, will be paid on time and in full.

PRODUCT PRICE INDEX (PPI)

Indicator of the changes in the wholesale prices of a basket of raw materials and semi-finished goods used as

inputs (but not any services) over a specific period. PPI is considered a leading indicator of consumer price

index (CPI) because as the input prices rise they will be (to a certain degree) reflected in the consumer prices.

Also called wholesale price index (WPI).

SOUR LOAN

Non-performing loan on which interest is overdue and full collection of principal is uncertain. Accor

typicalbanking regulations, if interest has not been paid for 90days the loan is put on a cash basis. Thus, itsinterest cannot be credited to the bank's revenue account until it has actually been received.


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DIRECT ACCESS TRADING (DAT)

An Internet-based order entry and execution systemoffered by some brokerage firms that permits an investorto

place trades directly with market makers and specialists, using an electronic communication network (ECN).

Direct access trading can provide faster order fulfillment but alsoentails some extra risk because the order is

not reviewed by a registered representative prior to submittal.

MANAGEMENT BUY OUT (MBO)

Purchase of a firm (or one of its divisions) by the existingmanagement, usually with outside financing. MBOs

generally occur where the firm (or its division) is under threat ofclosure, or when the parent firm wants to divest

asubsidiary. Called employee buy out if all employeesparticipate in the purchase.

MARKET IF TOUCHED (MIT)

An order to sell or buy a security at the best bid or ask if atrade takes place at a certain price level. A market if

touched buy order is placed below the current trading price and a market if touched sell order is placed above

the current trading price. Compare to Stop Order.

BID BOND

Written guaranty from a third party guarantor (usually a bank or an insurance company) submitted to aprincipal (client or customer) by a contractor (bidder) with a bid. Bid bond ensures that on acceptance of bid bythe customer the contractor will proceed with the contract and will replace the bid bond with a performance-bond.


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THE DERRICK

ENTREPRENEUR

DrPrathap C Reddy (Telugu: . ),M.D, MBBS, FCCP, FICA,

FRCS (Hony) is a Cardiologist and entrepreneur who founded the firstcorporate chain of hospitals in India the Apollo Hospitals Group. Herevolutionized the health care scenario of India and inspired others tofollow suit. Today, India has over 750 corporate hospitals all over thecountry.

The dream of making world-class medical facilities in India spurred himto set up Apollo Hospitals in Chennai in 1983 at a time when privatehealthcare institutions were virtually unknown in our country. The new

Hospital attracted the best medical talent, including eminent non-residentIndian doctors from hospitals in the US and UK to return to India: this was the first major reversal in the patternof brain drain.

Dr Reddy was awarded the Padma Bhushan in 1991 for his contribution to the emergence of the privatehealthcare sector and his role in bringing about several regulatory changes relating to licensing, importrestrictions, organ transplantation, etc. He received a number of esteemed awards and recognitions such asMother St Teresas Citizen of the Year Award, recognition in a Harvard School publication for pioneeringefforts in healthcare, Life Time Achievement Award by Hospimedica International, the Asia Pacific BioBusiness Leadership Award by the University ofSouthern California, Modern Medicare Excellence Award bythe ICICI Group for outstanding achievements in the healthcare industry and several others.

Dr Prathap C Reddy was conferred with second highest civilian award, the Padma Vibhushan in March 2010.This unequalled commendation from the Government of India is an acknowledgement of his untiring pursuit forexcellence in healthcare as Apollo strives towards touching a billion lives.

CAREER

Dr Reddy received his medical degree from the Stanley Medical College in Chennai and later trained as aCardiologist in the UK and USA. He did his Fellowship from the Massachusetts General Hospital, Boston andwent on to head several research programs at the Missouri State Chest Hospital, USA where he worked forseveral years before returning to India. there are many people working for him and has got the best,experienced and qualified workers like the President of the projects group and the Chief Executive Officer(C.E.O.) of the projects group.

Dr Reddy has undertaken pioneering work in bringing about institutional changes in the private healthcareinfrastructure by, inter alia, establishing Apollo Institutes for post graduate Medical and Nursing Education,Hospital Administration, Physiotherapy, Clinical Research and a large number of Paramedical Programs. Withthe setting up of the Apollo Telemedicine Networking Foundation, Health Super Hiway, Apollo DKV InsuranceCo and the Apollo Reach Hospitals, the Apollo Group (primarily identified as a healthcare provider) is today aleading provider of healthcare solutions, inclusive of next generation healthcare IT solutions and services.These have helped establish a modern healthcare network through both in house and outreach servicesreaching out to millions of people


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PHILANTHROPY

Under Dr Reddys leadership, the Apollo Group has undertaken philanthropic work through Save a ChildsHeart Foundation (SACH), the CURE Foundation for cancer care, the Indian Head Injury Foundation (IHIF),Distance Healthcare Advancement (DISHA), and many others that have touched the lives of several hundredthousand children, differently-abled people, cancer and brain trauma patients.

The Group also provided valuable relief work during several disasters and natural calamities such as theearthquakes in Gujarat (January 2001), the Tsunami in Chennai and Sri Lanka (December 2004), the floods inBihar (September 2008) and Andhra Pradesh (September/October 2009).

AWARDS & RECOGNITIONS

Dr Prathap C Reddy was conferred with the Padma Vibhushan Award , the second highest civilian honour inIndia in 2010 for his excellence and exceptional service in the healthcare industry. Along with the PadmaVibhushan Dr Reddy has won several other accolades which are listed below:

1991: Dr Prathap C Reddy was awarded the Padma Bhushan for his contribution to the emergence of theprivate healthcare sector and his role in bringing about several regulatory changes.

1992: Dr Reddy was invited by the Government of India as a member of the working group on health financingand management constituted by the steering committee for the 8th Five Year plan in the Planning Commission.

1993 94: Dr Reddy awarded the Mother St Teresas Citizen of the Year Award.

1996: The Harvard Business School published a case study on the pioneering efforts of Dr Reddy and theachievements of Apollo Hospitals.

Nominated by Business India as one of the Top Fifty personalities who have made a difference to the countryin the fifty years since Independence.

1998: Dr Reddy was presented with the Sir Nilrattan Sircar Memorial Oration Award for medical excellence byJIMA.

2001: The Ernst & Young Entrepreneur of the Year award conferred on Dr Reddy.

Dr Reddy was Conferred the Fellowship AD hominem by the Royal College of Surgeons of Edinburgh.

2002: The Lifetime Achievement Award by Hospimedica International.

2005: Dr Reddy awarded the Asia Pacific Bio leadership Award, the first in a series of regional and globalbio-business leadership awards given out by the University of Southern Californias Marshall School ofBusiness.

20052006: Member of the Indo US CEOs team nominated by the Prime Minister.

20062007: Modern Medicare Excellence Award by the ICICI Group to honour Dr Reddys outstandingachievements in the healthcare industry.

20072009: Appointed Chairman of the CII National Healthcare Committee.

The Government of India honoured the pioneering spirit of the Apollo Hospitals Group with the release of apostage stamp in November 2009.

If you have any feedback, suggestions then mail us on [email protected] .

Disclaimer: Derrick does not have own reporters. These are the news collected from different sources.................TEAM SYNAPZ

Derrick 14th Edition

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