Asian Currencies Gain in Week on Recovery Optimism; Rupee Drops

By Kyoungwha Kim - Oct 20, 2012

South Korea’s won led a weekly advance in Asian currencies as signs of an improvement in the global economy brightened the outlook for the region’s exports and spurred demand for emerging-market assets.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s most-active currencies, rose 0.1 percent and on Oct. 18 touched its highest level since February. The won strengthened the most this month and the yuan had an 11th weekly gain, the longest winning streak since March 2008. India’s rupee fell for a second week as the government announced a pickup in inflation. Hong Kong’s dollar touched the strong end of its permitted trading range, triggering intervention to maintain the peg.
China’s factory production, retail sales and fixed-asset investment accelerated in September, reports showed Oct. 18. Retail sales in the U.S., the world’s biggest economy, increased 1.1 percent in September while housing starts climbed 15 percent to a four-year high, reports showed this week. Europe’s leaders committed to their goal of creating a euro-area bank supervisor by year-end, according to officials at a European Union summit that took place in Brussels.
“The September data was clearly stronger than expected,” said Nizam Idris, head of Asian fixed income and currencies at Macquarie Bank Ltd. in Singapore. “The growth momentum will continue. Still, we are at a very early stage of the recovery so it’s too soon to expect” faster gains in Asian currencies, including the yuan, he said.
The won appreciated 0.7 percent this week to 1,103.45 per dollar in Seoul, according to data compiled by Bloomberg. The yuan rose 0.21 percent to 6.2538, touching a 19-year high of 6.2446 on Oct. 18. Taiwan’s dollar climbed 0.3 percent to NT$29.286.

Hong Kong Peg

Hong Kong’s dollar rose 0.02 percent to HK$7.7503. The Hong Kong Monetary Authority said yesterday it bought $603 million at HK$7.75 per dollar during New York trading hours on Oct. 19, intervening for the first time since 2009 to maintain a peg that requires the exchange rate to be kept in a range of HK$7.75 to HK$7.85.
The won touched 1,102.50 on Oct. 17, the strongest level since 0ct. 31, 2011. South Korea’s economy probably expanded 1.7 percent in the third quarter from a year earlier, the least in three years, a Bloomberg survey showed before data due Oct. 26.
“The won was strong this week on positive data from the U.S., but it seems some overseas investors are covering their short positions on the dollar,” said Lee Jung Hyun, a Seoul- based currency trader for Industrial Bank of Korea. (024110) A short position is a bet an asset will decline in value.

China Outlook

The yuan has extended its rebound from this year’s low of 6.3967 on July 25 to 2.3 percent after September data indicated growth is gathering pace in the world’s second-largest economy. Factory output grew 9.2 percent from a year earlier, compared with an 8.9 percent gain in August that was the smallest in three years, official figures showed Oct. 18. Retail sales advanced 14.2 percent, the most since March, while fixed-asset investment climbed 21 percent in the first three quarters.
“We believe China’s economy has bottomed out in August or September,” said Tommy Ong, a Hong Kong-based senior vice- president of treasury and markets at DBS Bank (Hong Kong) Ltd. “Improvement in global liquidity and calls for more appreciation from the U.S. presidential campaign trail are also supporting the yuan.”
The rupee fell 1.9 percent this week to 53.84 per dollar as faster inflation eroded the appeal of assets denominated in the currency. India’s benchmark price index increased 7.81 percent last month from a year earlier, the most since December, according to figures released Oct. 15.
Elsewhere, the Malaysian ringgit rose 0.1 percent this week to 3.0535 per dollar. Indonesia’s rupiah fell 0.1 percent to 9,593 from last week’s 9,588, prices from local banks compiled by Bloomberg show. The currency reached 9,657 on Oct. 11, the weakest level since October 2009. The Philippines peso appreciated 0.1 percent to 41.385. Vietnam’s dong climbed 0.1 percent to 20,843.
To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Starbucks May Find Small Coffee More Profitable: Corporate India

By Malavika Sharma - Oct 19, 2012

Starbucks Corp. (SBUX), which today introduces India to its caramel macchiatos and espressos, may find smaller and cheaper beverages the fastest way to win local coffee drinkers from established rivals.
The world’s largest coffee chain will need options that are priced as much as 33 percent lower than its U.S. offerings to succeed in the Indian market, said Saloni Nangia, president at Gurgaon-based consultancy Technopak Advisors Pvt. The company opens its first outlet in the country today with partner Tata Global Beverages Ltd. (TGBL) in an upscale south Mumbai neighborhood that also boasts a Hermes store.
Starbucks is entering the world’s second-most populous nation as part of a plan to counter slowing growth in the U.S. and a recession in Europe. The U.S. accounted for less than 70 percent of its sales last fiscal, according to data compiled by Bloomberg. In India, where consumption of the drink has almost doubled in the decade through 2010 to 108,000 metric tons, the chain will compete with Barista Coffee Co., a unit of Italy’s Lavazza SpA, and Cafe Coffee Day, run by Amalgamated Bean Coffee Trading Co.
“It’s a great time for Starbucks to come in because some of the base is already here, in terms of cafes, in terms of people using them as socializing hotspots,” said Nangia. “The average Indian consumer, or the current cafe consumer, is happy to upgrade to a Starbucks environment.”

Dunkin’ Donuts

Seattle-based Starbucks is among the latest entrants into the country of 1.2 billion people as chains including Dunkin’ Brands Group Inc., the owner of Dunkin’ Donut shops, and Krispy Kreme Doughnuts Inc. (KKD) are chasing emerging markets for growth. Higher disposable incomes and a growing, young population will boost the fast-food market in India to 146 billion rupees ($2.7 billion) in 2014 from 47 billion rupees in 2010, estimates by researcher RNCOS E-Services Pvt. show.
Café Coffee Day, the nation’s biggest chain with 1,360 stores across the country, sells a regular cup of cappuccino for 61 rupees ($1.14) in Mumbai, while its closest competitor Barista with 318 stores, sells for 69 rupees, in a nation where the World Bank says about two-thirds of the people live on less than $2 a day.
That may prompt Starbucks to sell its drinks for about $2 to $2.50 a cup, Nangia said, compared with about $4 in Beijing and $3.50 in the U.S.
Though India is a different market than other countries, the U.S. chain founded by Howard Schultz, may not price its products lower as it wants to be perceived as a premium brand, said Larry Miller, an Atlanta-based analyst at RBC Capital Markets Corp.

Similar Prices

“I wouldn’t be surprised to see similar levels to other markets around the world, which would be a pretty expensive proposition for the Indian consumer,” he said in a telephone interview yesterday. “In China, their products are just as expensive as they are in the U.S.”
Starbucks on Jan. 30 announced an equal venture with Tata Global Beverages, and said it plans to open as many as 50 stores in Mumbai and New Delhi in its first year. The first outlet in Mumbai’s Horniman Circle is two months behind schedule. Tata Global Vice Chairman R.K. Krishna Kumar was unavailable for comments.
“We are looking at this venture from a long-term point of view,” John Culver, president of Starbucks’s Asia-Pacific business told reporters in September. “We will open a series of stores and monitor consumer response and focus on the experience we provide.”

Price Sensitive

While India’s gross domestic product has grown an average 8.3 percent in the seven years through March 31 to about $1.8 trillion, the fastest pace of inflation among the BRIC countries at 9 percent since the start of 2010 makes the market more price sensitive, said V. Srinivasan, an analyst at Angel Broking Ltd. in Mumbai who tracks Tata Global. The pace of economic expansion is set to slow to 4.9 percent in 2012, the least in a decade, the International Monetary Fund said Oct. 9.
“Given the impact the macro-economic environment is having on discretionary spending, it remains to be seen what sort of a pricing premium they have over the other players,” Srinivasan said. “They will be at the high end of the spectrum.”
The entry of Starbucks won’t dent the prospects of Café Coffee Day, said K. Ramakrishnan, president of marketing at the closely held Indian chain.
Café Coffee Day, which also offers local dishes including samosas or savory pastries catering to Indian palates, plans to expand its stores to 2,000 by the end of 2014 that would serve all segments of consumers - teenagers, students, office goers and families, he said in a telephone interview yesterday.

Lot of Room

“This isn’t a market so saturated that one player will end up trampling others,” he said. “There’s a lot of room here to grow in this business. There’s a strong and positive demographic story here and the economy is what is attracting people.”
Tata Global shares have rallied 66 percent since making its Starbucks association public, the best performance on the BSE Ltd. FMCG Index (BSETMCG) after liquor maker United Spirits Ltd. The stock gained as much as 1.1 percent to 163.80 rupees in Mumbai trading today, and traded at 162.5 rupees at 11:04 a.m.
The U.S. coffee chain in January last year signed a deal to buy coffee beans from Tata Global’s unit Tata Coffee Ltd. (TCO), whose shares have climbed 35 percent this year, compared with a 21 percent gain in the benchmark Sensitive Index. (SENSEX)
Tata Global stock’s present value has fully priced in the partnership, Angel Broking’s Srinivasan said.
“Starbucks opening just one outlet needn’t add any value to the financials of Tata Global,” he said. “Turning the hype into actual performance will be a challenge. It will take some time, say at least about six to 12 months before they have a meaningful presence.”

Expanding

Chief Executive Officer Schultz said in an interview on Oct. 4 that his company plans to add 1,000 stores in the U.S. in the next five years. Starbucks said in July that it will open as many as 500 new stores in the Asia-Pacific region this year, more than of half of which will be in China.
Schultz will open the store in Mumbai today after third- quarter sales at outlets open for at least 13 months in Europe, the Middle East and Africa were unchanged.
India now is “what the U.S. may have been in the 1960s or 1970s in terms of coffee culture,” Nangia said. “The right- sizing for India could mean right pricing as well. In the U.S., the average size is much bigger and one has to see how Indians consume.”
To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Starbucks May Find Small Coffee More Profitable: Corporate India By Malavika Sharma - Oct 18, 2012

Starbucks Corp. (SBUX), which today introduces India to its caramel macchiatos and espressos, may find smaller and cheaper beverages the fastest way to win local coffee drinkers from established rivals.
The world’s largest coffee chain will need options that are priced as much as 33 percent lower than its U.S. offerings to succeed in the Indian market, said Saloni Nangia, president at Gurgaon-based consultancy Technopak Advisors Pvt. The company opens its first outlet in the country today with partner Tata Global Beverages Ltd. (TGBL) in an upscale south Mumbai neighborhood that also boasts a Hermes store.
Starbucks is entering the world’s second-most populous nation as part of a plan to counter slowing growth in the U.S. and a recession in Europe. The U.S. accounted for less than 70 percent of its sales last fiscal, according to data compiled by Bloomberg. In India, where consumption of the drink has almost doubled in the decade through 2010 to 108,000 metric tons, the chain will compete with Barista Coffee Co., a unit of Italy’s Lavazza SpA, and Cafe Coffee Day, run by Amalgamated Bean Coffee Trading Co.
“It’s a great time for Starbucks to come in because some of the base is already here, in terms of cafes, in terms of people using them as socializing hotspots,” said Nangia. “The average Indian consumer, or the current cafe consumer, is happy to upgrade to a Starbucks environment.”

Dunkin’ Donuts

Seattle-based Starbucks is among the latest entrants into the country of 1.2 billion people as chains including Dunkin’ Brands Group Inc., the owner of Dunkin’ Donut shops, and Krispy Kreme Doughnuts Inc. (KKD) are chasing emerging markets for growth. Higher disposable incomes and a growing, young population will boost the fast-food market in India to 146 billion rupees ($2.7 billion) in 2014 from 47 billion rupees in 2010, estimates by researcher RNCOS E-Services Pvt. show.
Café Coffee Day, the nation’s biggest chain with 1,360 stores across the country, sells a regular cup of cappuccino for 61 rupees ($1.14) in Mumbai, while its closest competitor Barista with 318 stores, sells for 69 rupees, in a nation where the World Bank says about two-thirds of the people live on less than $2 a day.
That may prompt Starbucks to sell its drinks for about $2 to $2.50 a cup, Nangia said, compared with about $4 in Beijing and $3.50 in the U.S.
Though India is a different market than other countries, the U.S. chain founded by Howard Schultz, may not price its products lower as it wants to be perceived as a premium brand, said Larry Miller, an Atlanta-based analyst at RBC Capital Markets Corp.

Similar Prices

“I wouldn’t be surprised to see similar levels to other markets around the world, which would be a pretty expensive proposition for the Indian consumer,” he said in a telephone interview yesterday. “In China, their products are just as expensive as they are in the U.S.”
Starbucks on Jan. 30 announced an equal venture with Tata Global Beverages, and said it plans to open as many as 50 stores in Mumbai and New Delhi in its first year. The first outlet in Mumbai’s Horniman Circle is two months behind schedule. Tata Global Vice Chairman R.K. Krishna Kumar was unavailable for comments.
“We are looking at this venture from a long-term point of view,” John Culver, president of Starbucks’s Asia-Pacific business told reporters in September. “We will open a series of stores and monitor consumer response and focus on the experience we provide.”

Price Sensitive

While India’s gross domestic product has grown an average 8.3 percent in the seven years through March 31 to about $1.8 trillion, the fastest pace of inflation among the BRIC countries at 9 percent since the start of 2010 makes the market more price sensitive, said V. Srinivasan, an analyst at Angel Broking Ltd. in Mumbai who tracks Tata Global. The pace of economic expansion is set to slow to 4.9 percent in 2012, the least in a decade, the International Monetary Fund said Oct. 9.
“Given the impact the macro-economic environment is having on discretionary spending, it remains to be seen what sort of a pricing premium they have over the other players,” Srinivasan said. “They will be at the high end of the spectrum.”
The entry of Starbucks won’t dent the prospects of Café Coffee Day, said K. Ramakrishnan, president of marketing at the closely held Indian chain.
Café Coffee Day, which also offers local dishes including samosas or savory pastries catering to Indian palates, plans to expand its stores to 2,000 by the end of 2014 that would serve all segments of consumers - teenagers, students, office goers and families, he said in a telephone interview yesterday.

Lot of Room

“This isn’t a market so saturated that one player will end up trampling others,” he said. “There’s a lot of room here to grow in this business. There’s a strong and positive demographic story here and the economy is what is attracting people.”
Tata Global shares have rallied 66 percent since making its Starbucks association public, the best performance on the BSE Ltd. FMCG Index (BSETMCG) after liquor maker United Spirits Ltd. The stock slipped 0.3 percent yesterday to 162.05 rupees in Mumbai.
The U.S. coffee chain in January last year signed a deal to buy coffee beans from Tata Global’s unit Tata Coffee Ltd. (TCO), whose shares have climbed 35 percent this year, compared with a 22 percent gain in the benchmark Sensitive Index. (SENSEX)
Tata Global stock’s present value has fully priced in the partnership, Angel Broking’s Srinivasan said.
“Starbucks opening just one outlet needn’t add any value to the financials of Tata Global,” he said. “Turning the hype into actual performance will be a challenge. It will take some time, say at least about six to 12 months before they have a meaningful presence.”

Expanding

Chief Executive Officer Schultz said in an interview on Oct. 4 that his company plans to add 1,000 stores in the U.S. in the next five years. Starbucks said in July that it will open as many as 500 new stores in the Asia-Pacific region this year, more than of half of which will be in China.
Schultz will open the store in Mumbai today after third- quarter sales at outlets open for at least 13 months in Europe, the Middle East and Africa were unchanged.
India now is “what the U.S. may have been in the 1960s or 1970s in terms of coffee culture,” Nangia said. “The right- sizing for India could mean right pricing as well. In the U.S., the average size is much bigger and one has to see how Indians consume.”
To contact the reporter on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net
To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

Top Mortgage Lender Holding Rates as Banks Cut: Corporate India

By Pooja Thakur and Anto Antony - Oct 17, 2012

Housing Development Finance Corp. (HDFC), the world’s biggest mortgage company by value, said it will refrain from matching interest rate reductions by banks in India to protect margins that are at a 12-year high.
The Mumbai-based lender may keep rates at 10.25 percent for credit of less than 3 million rupees ($56,800), Keki Mistry, chief executive officer of the company known as HDFC, said in an interview. The lender reduced interest rates by quarter point on Oct. 1. State Bank of India, the nation’s largest lender, is offering home loans at 10 percent.
A slowdown in demand for credit to build factories and roads in Asia’s third-largest economy is prompting banks to switch focus to mortgages, intensifying competition with HDFC and LIC Housing Finance Ltd. (LICHF) State Bank has seen home loan applications double after it cut borrowing costs in a nation that has the fastest pace of inflation among BRIC countries, according to Managing Director A. Krishna Kumar.
“Our rates are a function of our cost of funds and we will bring it down when our cost of funds comes down,” Mistry, 57, said. “Some banks focus on the mortgage business for some time and then shift focus to other banking products. This is our core business and we are here to stay.”
HDFC has gained 15 percent this year, giving it a market value of 1.15 trillion rupees ($21.9 billion). The shares rose 1.2 percent to 752.85 rupees in Mumbai yesterday.
Fannie Mae (FNMA), the biggest mortgage company in the U.S., had a market value of $1.55 billion. Total loans at the lender dropped by 0.075 percent to $2.99 trillion, while they grew 7.7 percent to $29 billion at HDFC.

Mortgage Forecast

Mistry forecasts loan growth will expand as much as 20 percent for the next few years as India is an “underpenetrated” mortgage market. Bank credit may grow 17 percent in the year ending March 31 from 19.4 percent a year earlier, according to the Reserve Bank of India.
“If HDFC has to maintain the growth at current levels, they cannot charge a significant premium over State Bank of India (SBIN),” said Pankaj Agarwal, an analyst with Ambit Capital Pvt., who recommends investors sell the stock. “Banks have just started focusing on retail loans and their market share and growth rate will be higher.”
State Bank has a 16 percent share in the home loan market, while HDFC follows with 15 percent, Barclays Plc’s Mumbai-based analysts led by Anish Tawakley said in an Aug. 9 note to clients. ICICI Bank Ltd. (ICICIBC) and LIC Housing control 9 percent each, according to Tawakley.
Banks, which are now focusing on mortgages, will “muddy the waters,” LIC Housing’s Chief Executive Officer V.K. Sharma said in an interview last month.

AAA Rating

Access to cheaper funds is helping banks win customers. Banks pay as little as 4 percent on their savings deposits, while finance companies such as HDFC borrow at about 9 percent, said Nitin Kumar, an analyst with Quant Broking Pvt. in Mumbai.
“We have raised funds through bonds this year as the term loans were costlier,” Mistry said. A ruling to allow debt mutual funds to invest 10 percent of their assets in housing finance companies will increase availability of funds, he said.
HDFC, which has 318 offices across India, has sold 177 billion rupees of bonds this year, making it India’s third- biggest local-currency debt issuer. The company’s domestic debt is rated AAA by Standard & Poor’s Indian unit.
The mortgage company, founded by Hasmukh Thakordas Parekh in 1977, reported a net interest margin of 4.03 percent in the year ended March 31, the highest since 2000. The measure was 3.85 percent at State Bank and 2.47 percent at ICICI Bank.

Bad Loans

Bad loans at the lender have declined for 30 straight quarters and may fall further, according to Mistry. The company is scheduled to report its second-quarter earnings on Oct. 22.
Mortgage loans accounted for 59 percent of HDFC’s revenue in the year ended March 31, while the life insurance business was 34 percent of the total.
Loans to homebuyers contributed 67 percent of total credit as of June 30, HDFC said. Borrowings by companies made up 13 percent, while an equal percentage was lent to developers for financing construction, according to a company filing.
A slowing economy may prompt India’s central bank to cut its benchmark rate, helping reduce bad loans as well as HDFC’s cost of funds. The Reserve Bank may lower the repurchase rate to 7.5 percent from 8 percent by the fourth quarter, according to the median estimate of 18 economists surveyed by Bloomberg.
Mistry predicts the central bank will cut borrowing costs by as much as 75 basis points by March.
“As the corporate bond rates soften, the mortgage lender will be able to cut the rates if needed,” Quant’s Kumar said. “HDFC has always managed their spreads well and there is no reason to believe that they won’t be able to maintain it now.”
To contact the reporters on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net; Anto Antony in Mumbai at aantony1@bloomberg.net
To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Slym Plans to Pare Models to Salvage Tata Sales: Corporate India

By Siddharth Philip - Oct 16, 2012

Two weeks into his new role, Karl Slym, managing director of Tata Motors Ltd. (TTMT) plans to scrap models and change perceptions about quality as India’s biggest automaker struggles to stem losses in market share.
The company, which chose the first 100,000 customers for the Nano, the world’s cheapest car, through a lottery following a deluge of orders in 2009, lost buyers after at least three Nanos caught fire. The company’s market share in the utility vehicle segment has also plummeted to 9 percent, according to data from the industry association.
“There’s potential for pruning as we bring in new products, as well as to make sure we have a portfolio that is all performing,” Slym, the second General Motors Co. (GM) executive hired to run the Mumbai-based company by Chairman Ratan Tata, said in an interview. “We suffer from a little bit of perception of poor quality from previous years. We will continue to impact those concerns.”
Tata, which is also faced with slowing sales at its Jaguar Land Rover unit, plans to improve features and add variants of its more popular models at home to rival Maruti Suzuki India Ltd. (MSIL) and Toyota Motor Corp. (7203) in Asia’s third-largest car market. Tata’s utility vehicle Sumo and sedan Indigo had more quality problems than the average compared with similar products from Toyota and Maruti, JD Power & Associates said in a report.
“Quality is among the top five reasons of purchase and Tata Motors loses out on both quality as well as the lack of new variants,” said Mohit Arora, executive director at the Asian unit of researcher JD Power in Singapore. Rival Mahindra (MM) & Mahindra Ltd. “too has issues with quality but they have managed to offset that with new launches,” he said.

Unexpected Drop

Tata Motors has risen 49 percent in the past year making it the best performer in the 10-company BSE Auto index. It rose 1.4 percent to 266 rupees at 9:26 a.m. in Mumbai, the biggest gainer on the 30-company BSE India Sensitive Index.
The company on Oct. 15 reported Jaguar Land Rover sales fell 4.3 percent to 26,461 units last month. That missed the 30,000 median estimate of 20 analysts surveyed by Bloomberg News.
In India, Slym, who joined from GM’s China unit, where he was executive vice-president at SAIC-GM-Wuling Automobile Co., will have to snare customers rushing to buy rival products.
Sales of five models of utility vehicles at Tata Motors, which began selling the cars in 1994, rose 16 percent to 23,008 in the six months to Sept. 30, while industry volumes jumped 56 percent. Deliveries of Maruti’s Ertiga surged 10-fold to 40,366 since April when it began sales. Mahindra led the utility market with a demand of 121,367 units.

Sumo Problems

Customers reported 145 problems per 100 Sumo vehicles, compared with an average of 135 in the segment that was led by Toyota Innova with 45 quality issues, according to JD Power. Tata Indigo had a score of 162, higher than the mean 138.
“Tata Motors needs needs to realize that customers have more choice today and the competition is only going to get tougher, especially in SUVs, where every manufacturer is looking at bringing in models,” said Deepesh Rathore, the New Delhi- based managing director of IHS Automotive in India. “They need to look at what Mahindra has been able to do.”
Mahindra had to close bookings twice after getting swamped with orders following the introduction of its XUV500 SUV last year. The vehicle initially received 8,000 orders in 10 days, and led Mahindra to increase production to 5,000 a month, from the initial 3,000 unit capacity.
Last month the company started selling a smaller and cheaper version of its Xylo model named the Quanto, which got 5,000 bookings in three weeks. By 2015, Mahindra will unveil its first jointly developed platform with its Ssangyong Motor Co. (003620) unit, which it acquired last year.

Aria SUV

In contrast, Tata Motors’ new utility vehicles have failed to evoke the response generated by Maruti’s Ertiga and Mahindra’s XUV500. Total sales of the company’s Aria SUV and Xenon pick up truck plunged 82 percent to 329 in the six months though Sept. 30, while combined deliveries of Tata Safari and the Grande dropped 39 percent in the period.
“The Aria is something that is definitely a good example of a great product that is missing the consumer,” Slym, 50, who joined the company on Oct. 1 said yesterday. He didn’t identify models that might be scrapped.
Tata Motors started as Tata Engineering & Locomotive Co. in 1945. It partnered Daimler AG in 1954 to produce trucks and moved into making passenger cars in 1991. The company first displayed the Nano at the New Delhi auto show in 2008.

China Experience

After the fires, the company in December 2010 lengthened warranties to four years or 60,000 kilometers (37,290 miles) and started offering as much as 90 percent financing through unit Tata Motors Finance Ltd. It has sold 214,932 Nanos since 2009.
Yesterday it started selling an updated version of its Manza sedan and will today introduce its new Safari Storme. Tata Motors will offer dedicated service advisers for the Manza Club Class that starts at 570,000 rupees in New Delhi.
Slym’s experience in China, the world’s biggest automobile market, may help in changing perception, which is “dependent on marketing,” said Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai, who recommends investors buy Tata Motors.
“I have to blend the international experience I’ve got with working for multi-national companies with Tata’s local strengths,” Slym, who has also worked with Toyota, said. “Our aspirations are to grow domestically as well as to grow internationally.”
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Reliance Beats Sinopec as Exports Lift Refining

By Rakteem Katakey and Pratish Narayanan - Oct 16, 2012

Reliance Industries Ltd. (RIL) is raising sales from the world’s biggest refining complex, helping boost profit from crude processing and beating rivals including Asia’s largest refiner China Petroleum & Chemical Corp. (600028)
The company controlled by billionaire Mukesh Ambani said yesterday it earned $9.5 a barrel from refining in the quarter ended Sept. 30, the highest in a year. China’s two biggest processors, whose shares have lagged behind Reliance this year, incurred losses from fuel production in the first half of 2012. Mumbai-based Reliance’s margin will increase further as the onset of winter in Europe lifts demand, according to consultants FACTS Global Energy and KBC Energy Economics.
Reliance is better placed than competitors from the Asian economies of China and Japan because of its ability to meet demand in markets as far as Europe and the U.S., said Praveen Kumar, a Singapore-based analyst at FACTS Global Energy. Ambani, 55, is betting on turning crude into fuels to boost profit amid declining natural-gas production at its biggest field, while China Petroleum and PetroChina Co. (857) turn to exploration to counter losses from processing crude.
“In refining, Reliance is a cut above the rest,” said FACTS Global’s Kumar. “They are well positioned to sell fuels to Europe to meet winter requirements and in India, where demand continues to grow. Due to this ability to switch markets, the higher profit margins will stay.”
Growing refinery profit has meant Reliance’s shares have climbed 19 percent this year. Cosmo Oil Co. (5007), a Japanese refiner partly owned by the government of Abu Dhabi, has slumped 33 percent, while China Petroleum, also known as Sinopec, has dropped 3.4 percent. PetroChina, Asia’s biggest company by market value, has gained 8.2 percent.

Share Performance

Reliance Industries rose as much as 2 percent to 840 rupees and traded 832.60 rupees as of 9:28 a.m. in Mumbai. The shares have gained 20 percent this year, compared with a 22 percent increase in the benchmark Sensitive Index. (SENSEX)
Ambani plans to spend 1 trillion rupees over the next five years to expand chemical-producing capacity, bolster refinery operations and enter telecommunications as he seeks to revive net income that has dropped for four straight quarters.
The Indian company yesterday reported a 5.7 percent decline in second-quarter profit to 53.8 billion rupees from a year earlier. The median estimate of 28 analysts in a Bloomberg survey was 53.7 billion rupees. Reliance produced an average 30 million cubic meters of gas a day from the KG-D6 block in the quarter ended Sept. 30, compared with 46.6 million a year earlier, according to presentations on its website.
Reliance’s quarterly revenue from refining rose 23 percent to 838.8 billion rupees. Exports of refined products fell 9.1 percent to $18.9 billion in the six months ended Sept. 30.

Refinery Shutdowns

A series of plant disruptions in the west may have curbed fuel supplies and helped Reliance get better prices for its products, Ehsan Ul-Haq, senior market consultant at KBC, said by phone from Walton-on-Thames, England.
Chevron Corp. (CVX) last week said a crude unit closed by a fire in August at its Richmond refinery, near San Francisco, will remain shut until end-December. Petroleos de Venezuela SA said last month that its 645,000-barrel-a-day Amuay refinery, the biggest in the Western Hemisphere, is operating at about half its capacity after an Aug. 25 explosion.
Reliance’s two adjacent refineries at Jamnagar in the western Indian state of Gujarat have the capacity to turn 1.24 million barrels of crude a day into fuels. The plants can process heavier grades of oil, that are typically cheaper than lighter types of crude, into lucrative products that can be sold in Europe and the U.S.

European Stockpiles

“Currently, there are several European refineries undergoing maintenance as well, so gasoil stocks are quite low in the region with winter coming up,” Ul-Haq said.
Gasoil, or diesel, stockpiles in independent storage in Europe’s oil-trading hub of Amsterdam-Rotterdam-Antwerp fell to the lowest level in nine months, according to PJK International BV. Gasoil inventories decreased 3.9 percent to 2.08 million metric tons in the week to Oct. 11, according to the researcher. That’s the lowest level since Jan. 12.
Reliance is considering raising its diesel output, Tony Fountain, chief executive officer at its refining business, said in New Delhi yesterday.
Reliance’s profit from fuel sales may be constrained as capacities are restored and Chinese and Indian companies plan further additions, said Sandeep Randery, a Mumbai-based analyst at Brics Securities Ltd.
Globally, a net 1.3 million barrels a day of refining capacity may be added this year, according to a Citigroup Inc. report on Aug. 30.
“Maintaining refining margins may be a challenge for Reliance,” said Randery, who has an add rating on the stock.

Indian Consumption

The company will focus on expanding its flagship processing operations rather than on exploration and production, Dayanand Mittal, a Mumbai-based analyst with Ambit Capital Pvt. said in an Oct. 3 report. Reliance’s $4-billion plan to set up a petcoke gasification facility by the financial year 2015 will help expand refining margin by $2.5 a barrel, Mittal said.
India’s fuel consumption, including gasoline and diesel, increased 10 percent in the April-August period from a year ago, according to Oil Ministry data. Demand may increase 6.1 percent in the year ending March 31, the data show.
Japan’s oil-product demand may decline at a rate of 3.5 percent a year through March 2015, according to an estimate by the country’s trade ministry. The nation’s refineries are also being asked by the government to cut capacity or modernize in an oversupplied market so they can compete better with rivals.
Oil-product use in China fell 0.40 percent in August from a year earlier to 8.955 million barrels per day, the lowest since September 2011, according to data compiled by Bloomberg.

Sinopec Profit

“Japanese domestic demand is shrinking due to an older population that doesn’t drive as much as young Indians do,” FACTS’ Kumar said. “In China, refiners primarily have to serve the domestic market and cannot capitalize on demand in Europe because they can’t shift to exporting products quickly.”
Sinopec posted its lowest half-yearly profit since 2008 after the sale of fuels at state-controlled prices reduced earnings. The company posted a loss of 18.5 billion yuan ($3 billion) from processing 811 million barrels of oil in the first half of 2012. PetroChina, the country’s second-largest refiner, incurred a loss of 23.3 billion yuan from refining 489.7 million barrels in the period.
Reliance posted an operating income of 38.5 billion rupees from refining in the six months ended June 30.
China increased gasoline and diesel prices for the second time in about a month on Sept. 10 because of rising crude costs and slowing inflation. The rate increase may help Sinopec break even on refining in the quarter ended Sept. 30, Neil Beveridge and Ying Lou, Hong Kong-based analysts at Sanford C. Bernstein & Co. said in an Oct. 5 report.
“Reliance has its own port for imports and exports and is situated quite close to the Middle East to get crude,” Kumar said. “Its refinery is sophisticated enough to use different crude from Venezuela to Saudi Arabia. All this keeps operating costs relatively low compared to peers.”
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.

India Government Seeks Lower Rates as More Economy Steps Planned By Shamim Adam, Aika Nanao, and Unni Krishnan - Oct 14, 2012

             By Shamim Adam, Aika Nanao, and Unni Krishnan - Oct 14, 2012

India’s finance officials are seeking lower interest rates from the central bank to revive growth as the government plans adding to its overhaul of economic policies.
Inflation may slow to within the Reserve Bank of India’s comfort level by March as the rupee rises and the fiscal gap shrinks, Economic Affairs Secretary Arvind Mayaram said in an interview yesterday. Finance Minister Palaniappan Chidambaram said two days earlier he plans reform measures for capital markets, insurance, banking and infrastructure within weeks.
“We hope that the RBI will be more benevolent with its policy” if it’s convinced the government is taking credible steps to lower the fiscal deficit and contain inflation, Mayaram said in Tokyo, where he participated in annual meetings of the International Monetary Fund along with Chidambaram. “They should give” some signals before March, he said.
Indian policy makers are trying to bring growth back from near the lowest in three years, with the International Monetary Fund saying last week the outlook for Asia’s third-largest economy is unusually uncertain. The government has revamped economic policy since Chidambaram, 67, became finance minister on July 31, opening up to more investment from abroad and raising subsidized diesel prices to tackle a budget deficit.
The push snapped months of gridlock over how to revive the economy, helping the rupee rebound from a record low.

Rupee Outlook

Mayaram said he expects the rupee to strengthen to 50 to 51 per dollar in a couple of months, compared with 52.82 last week. It has surged more than 5 percent against the dollar in the past three months, the most among major Asian currencies, buoyed by the biggest opening of the economy to overseas companies in a decade.
“I think the rupee must appreciate a little more,” Chidambaram said in a Bloomberg Television interview in Tokyo on Oct. 12. “It has appreciated about 5 or 6 percent in the last few weeks, but I think the rupee must find a reasonable level, its true level.”
The pace of Indian price increases is the fastest in major emerging markets and above the central bank’s comfort level of about 5 percent. Inflation hasn’t been tamed yet and supply constraints are adding to price pressures, Chidambaram said.
A further advance in the rupee will help to curb the increase in costs, he said. The central bank can’t be expected to bear the burden of containing inflation by itself, the finance minister said.

‘Tame Inflation’

“When fiscal policy and monetary policy act in tandem and supply improves and the rupee appreciates a little more, I think we will be able to tame inflation,” Chidambaram said. Inflation may slow to 5 percent to 5.5 percent by March, Mayaram said. Wholesale prices rose 7.55 percent in August from a year earlier.
“The crucial link as the finance minister mentioned is that inflation should come down and that is not happening,” said Prasanna Ananthasubramanian, an economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “They will not touch the repo rate but will ensure comfortable liquidity so that banks have an incentive to expand credit.”
Governor Duvvuri Subbarao left the benchmark repurchase rate unchanged at 8 percent for a third meeting in September, after cutting it from 8.5 percent in April. The Reserve Bank has signaled that curbing the fiscal deficit may boost scope to join emerging nations from South Korea to Brazil in extending rate cuts this year.

Budget Gap

India’s budget deficit is the widest among major emerging nations as slower growth hurts tax receipts and subsidies fan spending, imperiling the government’s goal of narrowing the gap to 5.1 percent of gross domestic product in the 12 months through March 2013, from 5.8 percent the previous fiscal year.
The budget gap may be about 5.2 percent to 5.3 percent this fiscal year, missing the 5.1 percent target, Mayaram said.
Prime Minister Manmohan Singh’s government announced the first increase in diesel prices in more than a year on Sept. 13, after Chidambaram pledged to contain a fiscal shortfall that has put the nation’s investment-grade credit rating in jeopardy.
The administration opened industries including retail and aviation to more foreign investment the next day, and this month decided to seek parliamentary approval for more overseas participation in the insurance and pension businesses.
The burst of changes, which snapped months of political gridlock over how to rejuvenate the economy, cost the ruling Congress-party led coalition its majority in both houses of parliament after a key ally withdrew support.

IMF Forecast

Singh is gambling that the long-delayed opening measures will revive growth in time to salvage Congress’s fortunes before a general election due by May 2014. The IMF forecasts India’s gross domestic product to rise 4.9 percent in 2012, the least in a decade.
Chidambaram said he’s “absolutely certain” that India’s credit-rating won’t be downgraded, and added that the budget for the year through March 2014 would be neither populist nor austere.
“We must have a budget that emphasizes fiscal consolidation and incentivizes savings, promotes investment and cuts out wasteful expenditure,” he said. He also said that key social welfare programs will be fully protected.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Aika Nanao in Tokyo at ananao@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net