Bird’s Nest Cream to Drive Wipro’s China Growth: Corporate India

By Adi Narayan - Feb 12, 2013

Wipro Ltd., the Indian software-to- soaps company controlled by billionaire Azim Premji, says Chinese demand for cosmetics containing bird’s nest extracts will help its consumer unit counter slowing growth at home.
Wipro’s acquisition of Singapore-based L.D. Waxson Group will aid the company to tap demand for luxury skincare products among China’s growing middle class, said Vineet Agrawal, president of the Bangalore-based company’s consumer unit. L.D. Waxson’s Bio-essence range includes creams that contain bird’s nest, used in traditional Chinese medicine for its anti-ageing and tissue repair properties, according to Agrawal.
The $144 million purchase, announced in December, offers Wipro access to the premium skincare market in China, which Euromonitor International estimates will grow to 38.2 billion yuan ($6.1 billion) in 2016 from 22.1 billion yuan last year and is dominated by Procter & Gamble Co. and Mary Kay Inc. The deal also helps the unit tap skincare demand in Southeast Asian markets with sizable ethnic Chinese populations, Agrawal said.
“Bio-essence is a skincare brand focused on products with Chinese ingredients,” Agrawal said in a telephone interview yesterday. “Wherever the Chinese ethnic population is there, we think we can expand - like in Vietnam and Indonesia.”

Chinese Delicacy

Almost 60 percent of Bio-essence products contain ingredients derived from bird’s nest, according to Agrawal. The nests, made mostly of the swiftlet’s saliva, are found in the mountains around Southeast Asia including in Vietnam, Thailand, Indonesia and Malaysia, according to L.D. Waxson’s website.
The nest of a few species of swiftlets is also the key ingredient in bird’s nest soup, a Chinese delicacy, the Food & Agriculture Organization says on its website. Malaysia is the major producer and exporter of the nests, according to the FAO.
“These products have an advantage in markets where there’s an awareness, like in eastern Asia,” said Shushmul Maheshwari, chief executive officer at RNCOS E-Services Pvt., a market research company based in New Delhi. “In India, herbal products are always perceived as safe.”
The shortage of bird’s nests in China isn’t hurting Wipro’s supplies of the commodity, Agrawal said. “We do long-term purchases for everything,” he said. “As of now, we don’t have any problems ensuring supply.”

‘Optimal Use’

Wipro is among Indian firms acquiring companies overseas to boost sales as growth slows in India, where the government estimates the $1.8 trillion economy is set to expand 5 percent in the year ending March 31, the least in a decade.
Revenue growth at Wipro’s consumer care and lighting business slowed to 18 percent in the 12 months ended March 31, 2012, from a 26 percent pace a year earlier. Hindustan Unilever Ltd., the Indian unit of the world’s second-biggest consumer- goods company, last month reported third-quarter profit and sales that missed analysts’ estimates.
Godrej Consumer Products Ltd., controlled by billionaire Adi Godrej, has acquired at least five companies in the last three years, including Indonesian insecticide maker PT Megasari Makmur and Argentinian hair-color maker Argencos SA.
Indian consumer companies’ strategy of acquiring assets in other emerging markets will help future growth and is an “optimal use of cash,” said Nitin Mathur, a Mumbai-based research analyst at Espirito Santo Investment Bank.

Second Best

Godrej’s share of overseas sales increased to 43 percent in the year ended March from 23 percent two years earlier, according to data compiled by Bloomberg. The company’s 12-month total return, which includes share price gains and dividend payout, is the second-highest among the 10 companies on the BSE India Fast Moving Consumer Goods Index, and trails only India’s biggest distiller, United Spirits Ltd.
Marico Ltd. got almost a fourth of its annual revenue from its international business, which includes Bangladesh, Vietnam and South Africa, and 43 percent of Godrej’s overseas sales last quarter came from Indonesia.
“Indian consumer companies have a strong presence in Asian developing markets because the sales environment there is very similar to India,” said Sachin Bobade, an analyst at Brics Securities Ltd. “There is a lot of growth potential in these markets.”
In November, Wipro’s board agreed to set apart its consumer, infrastructure engineering and medical diagnostics businesses into a separate, closely held company, according to an exchange filing. Wipro will focus exclusively on information technology and software services and the new company, named Wipro Enterprises, will be an unlisted entity.

Yardley Brand

The consumer unit, which includes lighting products, had sales of 10.3 billion rupees ($191 million), or 9.3 percent of Wipro’s net revenue from operations, in the three months ended Dec. 31, compared with 8.79 billion rupees a year earlier. The bulk of the unit’s revenue comes from sales of the Santoor bath soap and Yardley range of soaps and deodorants, Agrawal said.
Premji, with a net worth of $16.4 billion and ranked 46th on the Bloomberg Billionaire’s Index, and his family control about 78 percent of Wipro.
Shares of Wipro rose 0.5 percent to 414.05 rupees as of 9:56 a.m. in Mumbai trading, extending its gains this year to 5 percent. The benchmark BSE India Sensitive Index has advanced 1.3 percent in the period.
In 2009, Wipro acquired rights to the Yardley of London brand of beauty products in Asia, Middle East and parts of Africa from the U.K.’s Lornamead Group for about $45.5 million. The acquisition gave Wipro an entry into the more profitable business of selling premium cosmetics. In July, the unit acquired the rights to the brand for the U.K. and most of Europe, it said in a statement.

Good Fit

Wipro’s Chinese consumer business currently contributes about $40 million in sales, or 5 percent of the unit’s total revenue, Agrawal said. The company sells shampoos, soaps and moisturizing creams under its Unza brand, and its sales are mostly concentrated in Guangdong, Hainan and Guangxi provinces in southern China. Wipro bought Singapore’s Unza Holdings Ltd. in July 2007 for 10.1 billion rupees to add customers and factories in Malaysia, Vietnam, China and Indonesia.
Wipro, which posted third-quarter revenue growth of 32 percent at its consumer business in China, 26 percent in Indonesia and 24 percent in Vietnam, expects the L.D. Waxson acquisition to help maintain its growth momentum in Southeast Asia, Chairman Premji said on a conference call last month.
L.D. Waxson “is a good strategic fit,” Premji said. “The transaction helps us to consolidate our successful facial skincare business in Malaysia to a dominant leadership position and moves us to market leadership in Singapore as well.”
To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net
To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net

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Protests as Royalties Surge to Unilever, Holcim: Corporate India

By Bhuma Shrivastava and Santanu Chakraborty - Feb 11, 2013

Holcim Ltd., the world’s largest cement maker, and Unilever are seeking higher royalty from their units in emerging markets as business slows at home, spurring protests by minority investors.
Holcim’s two Indian units, ACC Ltd. and Ambuja Cements Ltd., are seeking shareholder consent to almost double fees to the parent, after the Switzerland-based company signed a similar agreement with its Indonesian unit. Hindustan Unilever Ltd., controlled by the world’s second-biggest consumer-goods company, last month said it will pay a higher fee to its parent.
The increase in the fees, meant to compensate the controlling shareholder for providing technology and expertise, comes as India prepares to enact a law requiring approval from 75 percent of minority investors for transactions with related parties. Local units of two dozen overseas companies have doubled the fees in the past four years after Asia’s third- largest economy eased rules to spur technology transfers, according to Institutional Investor Advisory Services.
“The small investor is simply left in the lurch,” said Prateek Agrawal, chief investment officer at Mumbai-based ASK Investment Managers Pvt., with 16 billion rupees ($299 million) under management. “We should not be accepting this as fait accompli.”
Hindustan Unilever had its recommendations cut by at least 11 brokerages on Jan. 23 after saying it will double fees to Unilever. The stock had its biggest two-day drop in two years after announcing the plan, which Chief Financial Officer Sridhar Ramamurthy said was “designed to help us grow competitively.”

Related Party

Mumbai-based Hindustan Unilever’s shares rose 1.7 percent to 460.55 rupees yesterday. They have dropped 12 percent this year compared with a 0.2 percent increase in the benchmark Sensex index.
Related-party transactions “ought to be transparent and where necessary, or of a certain size, be put to vote,” Hugh Young, who helps manage about $70 billion of Asian equities including Hindustan Unilever and Ambuja Cements at Aberdeen Asset Management Asia Ltd. in Singapore, said in an e-mail. “We have raised this at various levels, not just in India. To the company, to the parent, to independent directors.”
ACC, which reported its slowest sales growth in two years in the three months to Dec. 31 and a 46 percent drop in profit, and Ambuja Cements are asking shareholders for approval to boost the “Technology and Knowhow Fee.” Voting rights for both companies are controlled by Holcim.

‘Majority of Minorities’

The voting exercise “does not serve any purpose unless Holcim chooses not to vote,” said Amit Tandon, managing director of Institutional Investor Advisory Services, a proxy adviser. Companies should either seek approval from “majority of minorities” or from 75 percent of investors through a special resolution, he said.
R. Nand Kumar, a spokesman for ACC, and Doris Rao, a spokeswoman for Ambuja Cements, didn’t respond to e-mails seeking comment.
Maruti Suzuki India Ltd. paid 18 billion rupees as royalty to its parent Suzuki Motor Corp. in the year ended March 31, exceeding the company’s 16.8 billion rupee profit in the period. Suzuki’s 54.2 percent stake in Maruti also entitled it to 1.17 billion rupees of dividend, according to data compiled by Bloomberg.
Total payout by the 25 highest royalty-paying companies for the year ended March 31 more than doubled to 36.4 billion rupees from 15.3 billion rupees in 2008, according to a Dec. 11 report by Mumbai-based Institutional Investor Advisory.

No Dividend

“We can have a look at it,” U.K. Sinha, chairman of the Securities & Exchange Board of India, the nation’s market regulator, said when asked about royalty payments. The assessments would have to be on a case-by-case basis “to see whether the royalty is by way of some special relationship with the promoter company or it is genuine.”
The Institutional Investor’s report found that since 2008, at least three companies, Whirlpool of India Ltd., Asahi India Glass Ltd. and 3M India Ltd., haven’t paid dividends, which would have been shared by all shareholders as against royalty fees that accrue only to the overseas parent.
Asahi India Glass, which reported a loss of 651 million rupees in the year ended March 31, paid 205 million rupees as royalty fees in the year.
“The basis of charging of royalty should also be questioned,” said ASK’s Agrawal. “Shouldn’t royalty be levied only on incremental operating profits rather than on whole of sales, which can create issues when the business may actually be making a loss.”

‘Pension Plan’

Spokesmen for Asahi India and Whirlpool of India as well as the spokeswoman for 3M didn’t respond to e-mails seeking comment.
The levies have increased amid slowing global sales. Holcim has accelerated a European cost-saving program to counter weak demand. Asahi Glass Co.’s profit plunged 67 percent to 12.7 billion yen in the six months ended Dec. 31, while Benton Harbor, Michigan-based Whirlpool Corp.’s net income dropped 40 percent to $122 million in the three months ended Dec. 31.
“It’s a pension plan for” the biggest shareholder, said Jitendra Nath Gupta, founder of Stakeholders Empowerment Services. “That is why clear deliverables have to be negotiated when royalty payments are increased.”
Maruti’s royalty “payments will stay at these levels,” Chairman R.C. Bhargava said last month. The company last year paid 5.1 percent of its sales to its parent.

‘Requires Explanation’

“Mass market auto companies would typically spend 2.5 percent to 4 percent of revenue on engineering research & development,” said Vikas Sehgal, managing director and global head for automotive sector at Rothschild in London. “So anything north of 5 percent requires explanation,” especially when Maruti has some in-house research already, he said.
The levy charged by the overseas parents of Indian units jumped after the government in December 2009 removed caps on royalties, allowing companies to pay their foreign sponsors any amount their board approved without seeking government approval, a move Bhargava termed a “watershed” development.
“The thought then was to attract foreign investment and facilitate technology transfer without going through the administrative hoops,” said Tandon. The payout spike was “an unintended consequence.”
India’s Lok Sabha, the lower house of parliament, on Dec. 18 passed a bill making it mandatory to seek approvals by a special resolution for related-party transactions.

Vote on Proposal

The law will be applicable depending on the amount of the transaction or size of the company’s capital. The amounts are yet to be determined.
The rules, which also stipulate the controlling shareholder won’t be eligible to vote for such resolutions, will be enacted once the president signs the bill following an endorsement by the upper house of parliament.
“As shareholders, we would like to have a vote on royalty proposals when they come up,” Debasish Mallick, chief executive officer at IDBI Asset Management Ltd. in Mumbai said in a phone interview on Feb. 8. “Royalty is a matter of concern for investors as it hurts company profits and dividend payments.”
To contact the reporters on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net

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Coal Miner’s $1.4 Billion Rail to End Imports: Corporate India

By Rajesh Kumar Singh - Feb 10, 2013

Coal India Ltd., set to build a $1.4 billion railway link through its three richest mining regions, said the untapped pits will help the world’s second-biggest thermal coal importing nation end overseas purchases.
The 203-mile (327-kilometer) network, to be funded by the company and built by Indian Railways in five years, will free up 300 million metric tons of coal annually in the states of Odisha, Jharkhand and Chhattisgarh, Coal India Chairman S. Narsing Rao said in an interview. Indian power companies pay about 40 percent more than local prices to import 70 million tons of coal, about 20 percent of their annual consumption.
“The railway line can eliminate the need for imports of thermal coal in five years,” Rao said in an interview from his office in Kolkata. “Given the reserves we have, we should not have to depend on other countries for electricity generation.”
The state-owned company, which is the world’s biggest producer of the fuel, needs to step up output to comply with Prime Minister Manmohan Singh’s 2012 directive to ensure adequate supply and prevent blackouts in an economy expanding at the slowest pace in a decade. Failure to guarantee supplies to utilities will result in a penalty for the firm whose production growth has stalled in the past three years.

Stalled Projects

Coal India shares have advanced 4 percent in the past year, compared with an 11 percent gain in the benchmark Sensitive Index, according to data compiled by Bloomberg. The stock fell 1.5 percent to 338.75 rupees on Feb. 8 in Mumbai.
Power projects worth at least $35 billion announced by billionaires including Anil Ambani and Gautam Adani, have stalled because of fuel shortages. A peak shortfall of 9 percent in electricity supplies leads to outages that shave about 1.2 percentage points off India’s annual economic growth, according to government estimates.
The company’s proposal for the railway link has been delayed for more than six years, pending approval from the railway and environment ministries. The government last year formed an inter-ministerial panel to push the project following Singh’s order.
“The heavy penalty Coal India has to pay if it fails to supply its customers is driving it to do everything it can to boost production,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai.

Volumes, Prices

Coal India, which must pay as much as 40 percent of the value of any supply shortfall as penalty, reported a 19 percent increase in profit to 30.8 billion rupees ($575 million) for the second quarter ended Sept. 30. A rising wage bill suppressed revenue gains and led to earnings missing analyst estimates.
Coal India, which accounts for more than 80 percent of the nation’s output, last raised prices two years ago. It had cash worth more than $12 billion as of Sept. 30.
“The company’s sales volumes are not increasing the way they should and there’s no visibility on prices,” said Rahul Jain, an analyst at CIMB Securities India Pvt. in Mumbai, who has an equivalent of a sell rating for the stock. “For commodity stocks, you need to have good volumes and prices. Both are missing here.”
Of the 52 analysts that cover the company, 35 recommend purchasing the stock, while five advise selling it, according to data compiled by Bloomberg.

Social Unrest

India’s annual thermal coal demand is expected to climb 43 percent to 730 million tons by 2017, while supplies from local mines may increase 38 percent to 565 million tons, the Planning Commission’s energy adviser I.A. Khan said in an interview. Cheaper local coal will lower the cost at existing plants, while ensuring energy security to upcoming projects.
Coal India has said it will start importing to meet its supply contracts. While the company’s output is forecast to rise 6.4 percent this year to a record 464 million tons, it will still fail to meet demand.
“Law and order issues have been the biggest impediment to output,” Coal Minister Sriprakash Jaiswal said last month.
Some mines in the eastern states of Odisha and Jharkhand on an average remain shut for three days in a month because of social unrest, Coal India Personnel Director R. Mohan Das said in an interview, without elaborating on the loss. Delays in environment approvals and difficulties in acquiring land have also affected production, he said.
India, which generates 57 percent of its electricity from coal, plans to add 118 gigawatts of generation capacity in the five years ending March 2017, Khan said. Power companies added about 55,000 megawatts in the five years ended March 31, the most in a five-year period. The country has installed generation capacity of 211 gigawatts.
“India is doing everything to increase coal production,” said Debasish Mishra, a partner at Deloitte Touche Tohmatsu India Pvt. in Mumbai. “The railway plan needs to be supplemented with speedy approvals and efficient project management.”
To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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Explorer Seeks $2.2 Billion Russian Redemption: Corporate India

By Rakteem Katakey - Feb 7, 2013

Oil & Natural Gas Corp., stung by criticism its biggest Russian acquisition has failed to pay off, is banking on crude trapped in Siberian shale rocks to redeem its $2.2 billion wager.
Imperial Energy Corp., which India’s biggest oil explorer bought in 2009, is seeking bids from surveyors to assess the Bazhenov formation, ONGC Chairman Sudhir Vasudeva said in an interview, without giving details. Bazhenov may hold as much as 360 billion barrels of recoverable reserves, Bloomberg Industries said in a Dec. 19 report, citing estimates by Russian subsoil agency Rosnedra. Venezuela holds 296.5 billion barrels, the world’s biggest known oil reserves.
The U.S. shale boom, which reinvigorated industry and is leading the world’s largest economy toward energy independence, has spurred oil companies to blast open shale rocks in other parts of the world. ONGC, seeking to raise overseas production more than sixfold by 2030, is also betting Russian tax breaks on oil extraction will help stem Imperial’s 35 percent decline in output in the last three years.
“ONGC’s challenge will be to find a viable way to produce the oil,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt., who has a buy rating on the stock. “Tight oil requires specialized technology and costs are high. The tax benefits will be a first step.”
ONGC fell as much as 0.8 percent to 317.30 rupees and traded at 318.95 rupees as of 9:54 a.m. in Mumbai. The shares have advanced 20 percent this year, beating a 0.8 percent advance in the benchmark Sensitive Index.

Tougher Block

Bazhenov, which has yet to yield oil, has proved to be a tougher shale block to drill than areas in the U.S., prompting Russian oil majors such as OAO Rosneft and OAO Gazprom Neft to seek partnerships with Exxon Mobil Corp., Royal Dutch Shell Plc and Statoil ASA.
Tight oil is so called because it is trapped in non-porous shale rock formations, also found in the Bakken area in North Dakota that has helped the U.S. cut crude imports. The oil can be extracted by cracking open the rocks using a mixture of water and chemicals at high pressure, a process pioneered in the 1990s in the U.S. Different technologies need to be used and modified for different types of shale and tight reservoir structures, Vasudeva said.
“It may turn out to be very important for us in Russia,” said Vasudeva. “It’s still very early days and we have to see how it turns out in the months to come.”

Falling Output

Current output at Imperial’s fields in western Siberia has declined to 11,000 barrels a day from about 17,000 barrels in April 2010. Production may drop 17 percent to 512,900 tons, or about 10,000 barrels a day, this year from 621,100 tons in 2012, according to a Jan. 17 statement on Imperial’s website. The decline is because the company is searching for an economically feasible technology to recover oil from tight reservoirs, according to the website.
“We’re hoping the shale and tight oil will help revive that,” Vasudeva said. “We’re getting more confident.”
Imperial is also seeking an exemption from the Russian government from paying taxes for oil production from tight reservoirs, according to the website. The nation’s energy ministry has proposed 15-year tax exemptions on oil extracted from the Bazhenov deposits, according to a ministry document. While export duties would remain, the tax cut would be worth an additional $20 per barrel to producers, based on a price of $100 a barrel, according to the document.

Azerbaijan, Kazakhstan

ONGC is planning to spend 11 trillion rupees ($207 billion) by 2030 as it seeks to add assets and boost production at home and abroad. ONGC Videsh Ltd., the company’s overseas unit and owner of Imperial Energy, needs $20 billion as it targets production of 20 million tons of oil equivalent by March 2018 and 60 million tons by March 2030 from 8.75 million tons in the year ended March 31, according to the company’s annual report.
In September, the New Delhi-based explorer said it would spend $1 billion to buy Hess Corp.’s stake in an Azerbaijan field and a related pipeline. Two month later, it agreed to buy ConocoPhillips’s 8.4 percent stake in Kazakhstan’s Kashagan project for $5 billion, its biggest acquisition. ONGC has won approval for Azerbaijan and is awaiting permission from Kazakhstan’s government on the Kashagan purchase.
A plan to revive production from Imperial’s fields was scrapped just months after ONGC completed the purchase because the fields didn’t perform as expected. India’s federal auditor in March 2011 said ONGC lost 11.8 billion rupees in the 15 months ended March 31, 2010, after Imperial produced at half of the target rate.
The explorer last year backed away from buying a 25 percent stake in a second Russian producer, OAO Bashneft, after failing to agree on a price.
Exxon Mobil, the world’s biggest oil company by market value, plans to spend as much as $300 million on a pilot project with Rosneft to tap tight oil resources in Russia. The venture will explore in areas including the Bazhenov formation, Rosneft said in a Dec. 7 statement. Bazhenov may be holding billions of barrels of oil, Exxon CEO Rex Tillerson said on Oct. 8.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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IMF Says India Should Hold Rates Until Inflation Curbed

By Unni Krishnan - Feb 6, 2013

India’s central bank should refrain from cutting interest rates until inflation is contained even as the nation faces a subdued economic recovery, according to the International Monetary Fund.
“With policy space strictly circumscribed because of high fiscal deficit and elevated inflation, the economy is in a weaker position than before the global financial crisis,” the IMF said in a statement released yesterday. “It is advisable to maintain the current level of policy rates until inflation is clearly on a downward trend.”
Gross domestic product will climb 5.4 percent in the 12 months through March 2013, and 6 percent the following fiscal year, the Washington-based lender said. Inflation will ease to 7.2 percent by March 2014 from 7.8 percent in March this year, while the budget deficit may be 5.6 percent of GDP this fiscal year, above the government’s 5.3 percent goal, it added.
India’s Finance Minister Palaniappan Chidambaram has vowed to pare the budget shortfall to damp prices, part of a wider policy overhaul since mid-September to revive confidence in Asia’s No. 3 economy. Inflation exceeding 7 percent has limited the central bank to two interest-rate cuts since the start of April last year, even as a government report today may estimate growth has slid to a decade low.

Easing Delayed

“The IMF is highlighting a similar stance as what the Reserve Bank of India governor has been saying, that room for easing is limited because of the twin deficits and high inflation,” said Rohit Arora, a fixed-income strategist at Barclays Plc in Singapore. “The possibility of easing in March is getting lower and may be delayed.”

The rupee has strengthened about 4 percent against the dollar since Prime Minister Manmohan Singh began the policy changes to contain energy subsidies, lure foreign investment and speed up infrastructure projects.
Singh is trying to narrow the budget deficit and a current- account shortfall and avert a credit-rating downgrade.
Efforts to facilitate investment and “slightly” stronger global growth will lead to a “modest rebound” in near-term Indian expansion, the IMF said. “Structural reforms, fiscal consolidation, and low inflation” are seen as key to a sustained recovery and to lower “vulnerabilities,” according to the lender.

Growth Risks

While the climb in the country’s GDP remains one of the highest in the world, risks are on the downside, the IMF said.
Indian authorities, in discussions with IMF staff, said they plan to continue to focus on liberalizing capital inflows “with a view to facilitating the financing of infrastructure and building the corporate bond market,” according to a report released along with the statement.
The Indian officials also said the statutory liquidity ratio, or the proportion of deposits lenders must keep in government bonds, may be “further recalibrated in accordance with evolving monetary and fiscal conditions.”
The Reserve Bank of India cut the ratio to 23 percent from 24 percent, effective Aug. 11 last year, the first such reduction since 2010. It lowered the repurchase rate to 7.75 percent from 8 percent last month, while signaling the space for further easing is limited.
The government will estimate 5.5 percent GDP growth for the 12 months through March 2013, according to a Bloomberg News survey of analysts before a report due today. That would be the slowest since 2002-2003.

Taiwan Exports

The IMF statement and report were released after so-called Article IV talks with Indian officials.
Elsewhere in Asia today, Taiwan’s exports probably rose 23.2 percent in January from a year earlier, according to the median estimate in a Bloomberg News survey after a 9 percent gain in December.
Australian employers added part-time jobs in January and fewer people hunted for work, helping keep the unemployment rate unchanged, a report showed today, as interest rates at a half- century low support hiring.
The European Central Bank will probably keep its benchmark interest rate unchanged at a record low of 0.75 percent, according to a Bloomberg survey. The Bank of England will also hold its benchmark interest rate at 0.5 percent, a separate survey showed.
Spain, the U.K. and Germany will probably report declines in industrial production in December compared with a year earlier, according to the median estimates in Bloomberg surveys. Initial jobless claims in the U.S. probably fell to 360,000 in the week ended Feb. 2 from 368,000 the previous week, a separate survey showed before a report today.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Coffee Exports From India Set to Drop as Europe Demand Slows

By Swansy Afonso - Feb 5, 2013

Coffee exports from India, Asia’s third-biggest supplier, may decline for a second straight year as an economic slowdown in Europe cuts demand and as damage from pest attacks reduces the harvest.
Shipments may drop below 300,000 metric tons this year from 310,886 tons in 2012, Ramesh Rajah, president of the Coffee Exporters Association of India, said by phone from Bangalore. Exports fell 9.4 percent last year, the first annual drop in three years, according to data from the Coffee Board of India.
A drop in Indian supplies may help limit a 34 percent slump in arabica prices in the past year in New York and cut costs for Starbucks Corp. and Nestle SA. Stockpiles monitored by ICE Futures U.S. reached 2.63 million bags of 60 kilograms each on Feb. 1, the highest since March 2010. Slowdowns in Italy, Russia and Spain, India’s main buyers, curbed demand for the commodity brewed by specialty coffee makers.
“The order book is thinner this year because the economies of the main markets aren’t faring well and buyers are aggressively searching for cheaper coffee,” Rajah said. “Arabica exports from India will be lower as prices have come down sharply and shippers don’t want to sell at these prices.”
The euro-area economy shrank 0.1 percent in the third quarter after a 0.2 percent contraction in the three previous months. Gross domestic product probably fell another 0.4 percent from October to December and will stagnate in the first quarter of 2013, according to a Bloomberg survey. Europe accounted for 38.3 percent of the global green coffee consumption in 2012, according to the U.S. Department of Agriculture.

Pest Attacks

Arabica is grown mainly in Latin America and brewed by specialty companies including Starbucks. Robusta beans, used in instant coffee, are harvested in Asia and parts of Africa. India produces both the varieties.
Aarabica for March delivery fell 0.2 percent to $1.4405 a pound in New York yesterday, while robusta for delivery in the same month gained 1.5 percent to $2,066 a ton in London.
The coffee crop in India may decline this year because of pest attacks caused by dry weather during the flowering period and rains during the harvest, Rajah said. Output may drop to 310,000 tons in the year started Oct. 1 from a record of 314,000 tons a year earlier, he said.
“The weather was very unusual last year,” he said. “Late rains has led to the delay in arrival of the new crop by three- four weeks and the crop is just coming into the market.”
Pest attacks like the white stem borer due to dry weather after blossoming reduced productivity, he said.
India shipped 21,557 tons of coffee in January, comprising of 6,689 tons of arabica, 6,257 tons of robusta beans and 8,611 tons of instant coffee, data from the board showed.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Tata Seeks Investors for Clean-Energy Expansion: Corporate India

By Archana Chaudhary - Feb 4, 2013

Tata Power Co. (TPWR), India’s second- largest generator, is seeking investors to help its renewables unit more than double capacity in five years and acquire projects at home and overseas.
The unit of India’s largest business group, which plans to spend about 17.5 billion rupees ($328 million) annually, may also consider selling shares in Tata Power Renewable Energy Ltd., Rahul Shah, chief of business development at the generator, said in a telephone interview from Mumbai. The company plans to build 2,000 megawatts of wind, solar, hydro and geothermal plants from a total of 852 megawatts last year.
Tata Power, part of the group led by Cyrus Mistry, is planning to boost clean-energy generation to a fourth of its capacity as coal prices increase and the costs of alternative sources decline. A shortage of fossil fuel used in thermal power projects has prompted India to grant incentives to wind and solar plants to cut chronic blackouts that the government says shaves about 1.2 percentage points off annual economic growth.
“Even though the profitability of clean energy projects is still not on a par with thermal energy at the moment, in the long run, this would be a profitable bet,” said Sitaraman Iyer, a Mumbai-based analyst with MSFL Research. As the cost of clean- energy drops, “growing in renewables would make sense for Tata Power.”

Energy Costs

Tata Power’s shares, which have fallen 11 percent in the past year, dropped 0.3 percent to 100 rupees in Mumbai at 9:50 a.m. The benchmark Sensex index has advanced 12 percent in the trailing 12 months.
The company expects to profit from “acceptability” of wind and solar generation at a time when the gap between conventional and renewable energy costs is “narrowing significantly,” Shah said.
Government incentives, such as lower tax rates and cheaper raw materials, are driving down prices of clean energy and may help the company attract investors, said Iyer.
The average per-unit cost of wind power in India is now on a par with coal-fired electricity, Shah said. The cost of solar power is expected to drop by 10 percent, according to Shah.
Developers’ bids in recent auctions for coal-fired power stations have ranged from $49 to $78 a megawatt-hour, compared with tariffs for wind farms of between $66 and $105 a megawatt- hour, according to Ashish Sethia, India country manager for Bloomberg New Energy Finance.

Installed Capacity

Goldman Sachs Group Inc., the top arranger for renewable- energy stock offerings last year, forecasts more than $395 billion in annual investments in renewable energy by 2020, Stuart Bernstein, the Goldman partner overseeing its renewables unit, said on Jan. 18.
Tata Power, which has 7,700 megawatts of installed capacity, will expand wind generation by as much as 200 megawatts a year and solar by as much as 50 megawatts a year, according to Shah. The Mumbai-based company will also bid for projects overseas, including South Africa and the Middle East, adding a total of 2,000 megawatts of clean-energy capacity in five years, he said.
“Renewable projects are also attractive because these can be set up in 18 to 20 months compared to the four to five years it takes to build a thermal plant,” said MSFL’s Iyer.
Tata Power has wind ventures in South Africa, after being selected in May to build two projects, Shah said. The country’s auction of renewable-energy capacity also drew Suzlon Energy Ltd. (SUEL), India’s largest wind-turbine maker, in an earlier round. The company said Feb. 1 it received approval to build a 138- megawatt project.

Tax Benefit

At home, wind installations topped 3,000 megawatts for the first time in 2011, a 138 percent increase in two years, according to data compiled by Bloomberg.
Those investments were driven by a tax benefit called accelerated depreciation and a subsidy known as generation-based incentive, which boosted project returns, helping wind compete with other forms of energy. The incentives expired on March 31 and the Ministry of New and Renewable Energy is seeking Cabinet approval for them to be reinstated, according to Joint Secretary Tarun Kapoor.
Tata Group, which also owns Corus Group and Jaguar Land Rover, has invested in geothermal projects in Australia and Indonesia with Sydney-based Origin Energy Ltd. (ORG)

Indonesian Coal

Tata Power reported a loss of 838 million rupees in the quarter ended Sept. 30, citing higher costs at its 4,000- megawatt Mundra power station. To ensure supply for the plant, the company in 2007 bought 30 percent stakes in two coal mining units owned by Indonesia’s PT Bumi Resources. (BUMI)
Tata Power’s unit plans to finance 70 percent of all project costs with loans and 30 percent with equity from the parent company, Shah said. It may also consider selling stakes to financial institutions and companies to raise funds, he said.
The company’s fuel costs have risen 25 percent since the financial year ended March 2008, while its total debt rose 200 percent in the same period, according to a January presentation to investors on the company’s website.
To contact the reporter on this story: Archana Chaudhary in New Delhi at achaudhary2@bloomberg.net
To contact the editor responsible for this story: Arijit Ghosh at aghosh@bloomberg.net

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