State Bank of India Posts First Profit Gain in Six Quarters

By Anto Antony - Aug 8, 2014

State Bank of India posted its first profit increase in six quarters as the country’s largest lender by assets boosted lending and contained bad credit.
Net income climbed to 33.5 billion rupees ($545 million), or 44.86 rupees a share, in the three months ended June 30, from 32.4 billion rupees, or 47.38 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. Profit exceeded the 32.5 billion-rupee median of 31 analyst estimates compiled by Bloomberg.
Shares of the 208-year-old lender surged 40 percent in the three months through June, the most in almost four years, as investors bet on Chairman Arundhati Bhattacharya reining in bad loans and newly elected Prime Minister Narendra Modi spurring India’s economy. The nation’s growth will strengthen this fiscal year, the government forecasts.
“Growth in income from loans and improving asset quality is driving the profit growth,” Asutosh Kumar Mishra, a Mumbai-based banking analyst at Karvy Stock Broking Ltd., said by phone. Still, investors are waiting to be convinced that improvements in asset quality will be sustained, he said.
SBI shares fell 0.8 percent to 2,417 rupees at 1:32 p.m. in Mumbai trading, less than the 1.3 percent decline in the S&P BSE Sensex index.

Bad Loans

The bank’s gross bad-loan ratio narrowed to 4.9 percent from 5.56 percent a year earlier. That’s still the highest among the country’s five largest lenders by assets. For all Indian banks, the level was 4 percent in March, down from a six-year high of 4.2 percent in December, according to a Reserve Bank of India report.
In an interview last month, Bhattacharya, 58, said that SBI (SBIN) is pushing large corporate borrowers that have defaulted or are under stress to make repayments to the bank by tapping equity markets and selling non-core assets. She leads an SBI panel that tries to recover sour loans of more than 5 billion rupees.
India’s finance ministry predicts the economy will expand as much as 5.9 percent in the fiscal year through March 2015, up from 4.7 percent. That may help to spur banking-industry loan growth, which this year touched the weakest levels since the global crisis.
SBI’s outstanding loans increased 13 percent to 12 trillion rupees in June from a year earlier, exchange filings showed. The lender’s capital-adequacy ratio stood at 12.3 percent, the filings showed, compared with a central bank requirement of at least 9 percent under Basel III rules.
The bank is considering share sales in its insurance and asset-management units to raise money, Bhattacharya said in the July interview. SBI needs more than 800 billion rupees of additional equity capital by 2019 to meet Basel requirements.
To contact the reporter on this story: Anto Antony in Mumbai at aantony1@bloomberg.net
To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Paul Panckhurst, Russell Ward

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Indians Flaunt 4-Year-Old IPhones as Apple Builds Appeal: Tech

By Bianca Vázquez Toness - Aug 7, 2014

Apple Inc. (AAPL), which has struggled in emerging markets because of the price of its new iPhones, has devised a strategy for India that’s starting to pay off: It’s pushing older models that offer cachet at affordable prices.
The iPhone 4, which was released in the U.S. in June 2010, is still available. So is the iPhone 4s that went on sale in October 2011.
“You flaunt an iPhone, but you don’t flaunt an Android,” said Punit Mathur, a 42-year-old vice president of a digital media company who switched to a new iPhone 4s from a Nexus 4. An iPhone 5s that would cost 53,500 rupees ($874) is too expensive, “but the 4s is still an upgrade,” he said.
Apple doubled sales in a market growing faster than China and the U.S. as it tries to close the gap with Samsung Electronics Co. and domestic makers Micromax Informatics Ltd. and Karbonn Mobiles India. The strategy is critical to Apple’s success in a nation where two-thirds of the population live on less than $2 a day -- and it may become a model for other emerging countries.
“Once Apple has fully proven this model in India, you’re going to see them roll it out to other markets,” said Ken Hyers, an analyst with Strategy Analytics in North Carolina. “Particularly Brazil, Russia, Indonesia, the other large emerging markets where they want to gain market share.”
Apple’s approach in India has helped it build traction in a country where 225 million smartphones will be sold this year, said Brad Rees, chief executive officer of London-based Mediacells, a marketing company. Apple, the fifth-largest vendor in India, more than doubled sales there in the first quarter to 325,000 iPhones from a year earlier, according to researcher Canalys.

Xiaomi Competition

Competition in India is intensifying. Xiaomi Corp., the four-year-old company that outsells Apple in China by offering inexpensive devices with high-end features, began offering its Mi3 mobiles in India at 13,999 rupees on Flipkart.com. In three limited online sales, 35,000 phones were bought within minutes.
Apple has historically used the strength of its brand to lure consumers instead of price. However, its success stems in part from carriers that offer discounted devices or allow consumers to pay for a mobile phone over a multi-year contract.
“Apple has started to understand India is a more price-sensitive market,” said Katyayan Gupta, an analyst at Forrester Research Inc. in New Delhi. “Indians want to show their status, so people want Apple. It doesn’t matter if it’s a two-year-old phone. It’s an Apple at the end of the day.”

Prepaid Cards

While an unlocked and contract-free, 16-gigabyte iPhone 5s is listed for $649 on Apple’s U.S. website, Verizon Wireless offers the same device for about a third of that price when customers agree to a two-year contract. China Mobile Ltd. gives monthly rebates for users who buy an iPhone and sign a two-year contract, according to the carrier’s website.
China Mobile, the world’s largest phone company by users, in April posted a third straight drop in quarterly profit as expenses for subsidizing the iPhone and building networks increased. NTT Docomo Inc., Japan’s largest wireless operator, missed its full-year profit forecast in March after offering the iPhone for the first time in September to lure subscribers.
Bethan Lloyd, a London-based spokeswoman for Apple, declined to comment on the company’s sales strategy in India.
Carriers in India typically don’t subsidize the costs of phones because the majority of customers don’t sign multi-year agreements. That’s because it’s difficult to check a person’s credit-worthiness or enforce contracts, said Rajan Matthews, Director General of the Cellular Operators Association of India, in New Delhi.

Retail Shops

Most Indian consumers buy phones from retail shops, not carriers, and use prepaid cards to charge their devices with talk time, Matthews said. Wireless operators earn an average $2 per month per user, another reason Indian operators don’t subsidize phones as they do in the U.S., he said.
“At that rate, it would be extremely difficult to get a payback in two years,” Matthews said.
Bharti Airtel Ltd. (BHARTI) is the largest carrier in India, and the only one among the top three to offer iPhones. Ashutosh Sharma, a company spokesman, declined to comment on Apple sales.
The iPhone 4 was shipped to India as recently as May, said Jessica Kwee, a Singapore-based analyst for Canalys.
Sathish Babu, founder of UniverCell, an electronics retail chain in South India, said he received an iPhone 4 shipment manufactured in January. “It’s not old stock,” he said.

Half Price

Suresh Subbian, 42, bought an iPhone 4 in June for his wife, paying about 19,500 rupees.
“We don’t want to take a big risk by buying a new model,” he said by phone from Chennai. “I thought I’d buy her a simple model and try it. It’s about half the price of a 5s and that’s an important factor.”
Apple is doing a few things differently in India that have driven its performance, Kwee said.
“But the main reason is that Apple is focusing its efforts on selling cheaper and older products in India,” she said.
The average price of an iPhone in India is about $450 due to the larger proportion of older models sold, according to Kwee. That compares with $600 to $700 in the U.S., she said.
The approach helps get users into Apple’s network for selling applications, music and movies. The iPhone 4s is also available on Apple’s website.

Gateway IPhone

Apple’s strategy also likely includes shipping factory-refurbished phones from developed markets, according to Hyers of Strategy Analytics.
“Our ability to keep customers is very good and our ability to show other products that Apple produces to a family that’s buying Apple products is also very good,” Apple Chief Executive Officer Tim Cook said on an earnings call April 23. “If we can get them in on the entry iPhone, it gives them a great product, at a great value and gets them into the ecosystem.”
Apple had a successful second quarter of iPhone sales in Brazil, Russia, India and China, a sign the company is building a footprint in emerging markets, according to a July report from IDC Corp.
Some stores in India are finding success by offering installment plans to purchase iPhones for consumers with credit cards.

Mature Line

Himanshu Chakrawarti, chief executive officer of Indian retail chain The Mobile Store Ltd., took out full-page ads in major cities about a year ago promoting installment plans for iPhones.
“In India, you have to pay that whole cost upfront,” Forrester’s Gupta said. “There aren’t that many people who can pay $800 in one lump sum for a phone. That’s the cost of a laptop. But as soon as you divide that $800 over 24 months, you can sell it.”
Reliance Communications Ltd., the fourth-largest carrier in India, began offering iPhones in November to credit-card holders who agree to fixed monthly payments for two years with no down payment. Rajeev Narayan, a company spokesman, declined to comment on sales or strategies.
Selling older models will become more central to Apple’s plan in India as its product line matures, said Rees of Mediacells. And as the company looks to boost sales in markets including Vietnam and Brazil, it may repeat the India gameplan.
“You will see Apple bringing back more of its older models in more markets globally,” Hyers said. “It’s a great way to build mind-share and bring them into their ecosystem, and kind of make those customers who have bought these perhaps lower-end Apple devices want to upgrade to the next generation when they can.”
To contact the reporter on this story: Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net
To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Aaron Clark, Robert Fenner

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Rupee Rises From Five-Month Low as India Raises Investment Cap

By Kartik Goyal - Aug 7, 2014

India’s rupee rose from the lowest level in almost five months after the government approved higher overseas investment in the railway and defense industries.
The cabinet approved raising the foreign direct investment cap in defense to 49 percent late yesterday and will allow greater investment in the railway infrastructure, an India government official said in New Delhi, asking not to be named because of a restriction on speaking to the media. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dropped 0.2 percent yesterday, the steepest loss in more than a month.
“The cabinet decisions on allowing higher FDI are positive for the rupee,” said Gaurav Sharma, a senior currency analyst at Religare Commodities Ltd. in Noida, outside New Delhi. “The dollar’s weakness also contributed to the rupee’s strength.”
India’s currency gained 0.3 percent to 61.3275 per dollar as of 9:30 a.m. in Mumbai, prices from local banks compiled by Bloomberg show. It fell 1.1 percent yesterday to close at 61.5050 and reached 61.5350, the lowest level since March 14.
One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, climbed 29 basis points, or 0.29 percentage point, to 7.51 percent.
Three-month offshore non-deliverable forwards rose 0.4 percent to 62.29 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Simon Harvey, Andrew Janes

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Infosys Former Directors Seek $1.8 Billion Buyback

By Bianca Vázquez Toness - Aug 6, 2014

Infosys Ltd. (INFO)’s former directors and investors T.V. Mohandas Pai and V. Balakrishnan are seeking a 112 billion-rupee ($1.8 billion) buyback by India’s second-largest software services company to boost the stock’s value.
Infosys should pay as much as 3,850 rupees a share, Balakrishnan, who resigned from the company’s board in December, and Pai, who left the board in 2011, wrote in a letter dated July 29 addressed to the board. Sarah Gideon, a spokeswoman for the software exporter, confirmed the letter was received. The price is a 9.6 percent premium over yesterday’s closing price.
N.R. Narayana Murthy, who returned as chairman in June 2013 to help revive growth, boosted margins and handed control of the software exporter he co-founded to Chief Executive Officer Vishal Sikka on Aug. 1. Shares of Infosys have risen 0.8 percent this year, compared with bigger rival Tata Consultancy Services Ltd. (TCS)’s 16 percent gain.
“There is a dramatic valuation dis-connect in the market place and this needs to be corrected,” Balakrishnan, Pai and D.N. Prahlad, a former senior vice president, wrote in the letter, a copy of which was obtained by Bloomberg TV India. Balakrishnan said by telephone yesterday that he and the two other shareholders wrote the letter, and declined to comment further.
The board of Bengaluru-based Infosys often gets letters from shareholders, Gideon wrote in an e-mail.
“Should there be any development that will impact our shareholders, we will immediately inform the regulatory bodies and shareholders on priority,” she said.
Infosys rose as much as 2.7 percent to the highest intraday price since March 12. The shares traded at 3,577 rupees, up 1.8 percent, as of 9:32 a.m. in Mumbai.

Investor Pressure

The letter will put pressure on Infosys’s management as the executives are well regarded in India, Walter Rossini, who oversees about $200 million of Indian assets at Aletti Gestielle SGR SpA in Milan, said by telephone.
“The buyback would be an easy way to satisfy investors,” said Rossini. “It would make Infosys more comparable with American technology companies in terms of valuation.”
Balakrishnan was the chief financial officer at Infosys for six years until October 2012. He was later made the chairman of unit Lodestone Holding AG, a consultancy based in Switzerland. He is currently the chairman of Exfinity Fund, a venture capital fund based in Bengaluru.
Pai was the head of human resources development before he left in June 2011. He had earlier also served as CFO.
Infosys had 275.4 billion rupees in cash and short-term investments as of June 30, according to data compiled by Bloomberg.
The former executives have also proposed Infosys should announce an ongoing buyback program of as much as 40 percent of the previous year’s profit “on a consistent basis.”
The company posted a net income of 106 billion rupees in the year ended March, according to data compiled by Bloomberg.
To contact the reporter on this story: Bianca Vázquez Toness in New Delhi at btoness@bloomberg.net
To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Subramaniam Sharma, Robert Valpuesta

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Bollywood Billboards Costing Air India as Planes Slash Weight to Take Off

By Anurag Kotoky - Aug 5, 2014

Mumbai’s towering billboards, which hawk everything from the latest Bollywood movies to soda, block out more than some sunlight. They’re also a physical hurdle preventing Air India Ltd. from reaching its potential on what should be one of its most lucrative routes.
The height of hoardings near India’s financial hub means the Boeing Co. (BA) 777-300ER jets the carrier uses for non-stop flights to Newark, New Jersey, near New York City must fly 51 fewer passengers, or 15 percent below capacity, in order to clear them. That’s costing 100 million rupees ($1.6 million) a month in lost revenue, India’s junior aviation minister G.M. Siddeshwara told parliament yesterday.
For Air India, which is surviving on a 300 billion-rupee taxpayer bailout and hasn’t made a profit since fiscal 2006, the adjustment means further delays in eliminating losses. The billboards, some as high as a seven-story building, line the main road between Mumbai and the hub in a northwestern suburb.
“This is a very serious issue,” said Mohan Ranganathan, a former commercial pilot and aviation safety consultant based in Chennai, India, who added that signs high enough to represent an obstacle to aircraft would “violate” standards imposed by the International Civil Aviation Organization.
The 16-hour non-stop Newark service operated by Air India - - the longest such direct flight by an Indian carrier -- requires the twin-engine 777s to carry a high fuel load, so any weight savings must come in the form of fewer passengers.

Bollywood Ads

Air India spokesman G.P. Rao and Vaibhav Tiwari, a spokesman for GVK Power & Infrastructure Ltd. (GVKP)’s Mumbai International Airport Pvt., didn’t respond to calls seeking comment.
United Continental Holdings Inc. (UAL), the only other carrier to fly nonstop between Mumbai and Newark, uses the smaller 777-200. The billboards don’t affect United’s operations or capacity, Mary Ryan, a spokeswoman for the Chicago-based carrier, said in an e-mail.
The basic initial cruise altitude for the 777-200ER with General Electric Co. (GE) engines is 36,600 feet (11,200 meters), while for the bigger 777-300ER with GE engines, it decreases to 34,100 feet, according to Boeing’s website.
On the highway to the airport most of the hoardings are located on top of or between residential high-rises. While some of the tallest are to be found 12 kilometers (7 miles) from the hub, in a residential neighborhood 2 kilometers away at least 15 billboards can be found along a 600-meter road -- peddling an eclectic mix of affordable suburban homes, the latest Bollywood movie and deals on domestic flights.
Airports Authority of India, the former monopoly airports operator and a stakeholder in Mumbai airport, acted to remove some billboards after complaints from Air India, according to the minister’s statement.
Saddled with more than 380 billion rupees of debt, the carrier is also seeking compensation from Boeing for delivering overweight 787 jets it says don’t meet fuel-efficiency targets.
To contact the reporter on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net
To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Suresh Seshadri

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