Carmakers offer discounts to clear stocks at retail end

Our Bureau

New Delhi, Dec. 5 Automobile companies are all set to entice customers by offering them the best deals on cars. Having witnessed the sharpest drop in sales last month and a pile up of inventory at the retail end, companies and dealers are offering high concessions on various models to exhaust their stocks.

Maruti Suzuki, for example, has almost doubled the concession on Wagon R and M-800.

The company increased discount on its Wagon-R to Rs 25,000 plus insurance for December as compared with Rs 12,000 and insurance the previous month. Even on M-800 it is giving a price cut of Rs 4,500 and insurance as compared with Rs 2,000 last month.

On its compact car, Alto, the concession is up to Rs 7,000. Hyundai too announced selling its flagship model Santro at Rs 2.99 lakh. The slowdown in the economy and reduced financing on vehicles by banks have led companies like Hyundai to provide attractive deals even to customers for its newer and best selling models like i10 by offering free accessories worth Rs 5,000 and insurance. US carmaker Ford’s Indian subsidiary has lowered prices of its mid size sedan Fiesta by Rs 91,000.

Dealers say that the discounts offered this month have been tempting as next month the model year will change. “Many of the customers do not want to buy a year end model. Hence to clear the stocks, companies usually offer good deals,” said a dealer.

The strategy of higher cuts is also amid fears that December could be worse. Almost all auto companies posted the sharpest decline in sales in November. Maruti Suzuki saw domestic sales fall by 27 per cent, Hyundai by 23 per cent and Mahindra by 12 per cent on its Logan.

“November has been very dull for all manufacturers. And December being the year end is even worse. So all companies want to liquidate their stocks,” said a Honda car dealer.

Markets this week

The Sensex opened on a positive note on Monday but changed direction and closed more than two per cent lower following a spate of bad news from the domestic economy and weak global equity markets. The Sensex ended 252 points down at 8,839 while Nifty closed at 2682, down by 72 points.

LIC takes its stake beyond five per cent in three public sector banks - State Bank of India, Bank of India and Allahabad Bank, according to BSE data.

During October-November, LIC acquired 1.67 crore shares representing 2.64 per cent stake of SBI from the secondary market. It also acquired 9.6 lakh shares of Bank of India on 11th November, hiking its stake to 5.14 per cent. It bought over 1.09 crore shares in Allahabad Bank, taking its stake to 8.84 per cent as on November 12.

The mutual fund industry's assets under management (AUM) fell seven per cent in November. Their AUM now stands at Rs 4,02,029 crore against Rs 4,31,860 crore in October.

For efficient use of margin capital by market participants, SEBI on Tuesday announced extension of cross margining across the cash and derivative segments for all categories of market participants.

Earlier, this facility was available only for institutional trades. However, only the index based stocks and stock futures will be eligible under the new cross-margining scheme.

Shares ended weaker on Tuesday, led by blue-chips and auto companies, over concerns about the global economy, but short-covering towards the end pared early losses.

The Sensex ended down 100.63 points at 8,739 and the Nifty fell 25 points to 2,658.

Indian Shares closed flat on Wednesday after a volatile session. The Sensex ended up 8 points at 8,747. after rising to 8,855 in opening trade, buoyed by positive global cues and expectation of interest rate cut by the RBI. On the NSE, the Nifty index closed flat at 2656.

NSE has revised upwards the market lot for 243 stocks in the derivative segment.

As per data put out by NSE, these changes would take effect on the farther month contracts - March 2009 series. The upward revision ranges between two and 14 times.

The benchmark indices surged on Thursday, sparked by a lower inflation rate, and expectations of a stimulus package from the Government to boost the economy.

The Sensex surged by 482 points to close at 9230 and the Nifty gained by 131 points to end the day at 2788.

The inflation rate for the week ended November 22 was at 8.4 per cent, which created hopes of a substantial cut in interest rates by RBI on Saturday.

Indian stocks tracked the European markets which were up in early trade as the European Central Bank, Britain and Sweden made big rate cuts to shore up their economies.

Indian companies will now have one year's time to launch their IPOs or rights issues after the clearance of draft prospectus by SEBI.

SEBI at its board meeting on Thursday decided to extend the validity of its approval for IPOs and rights issues from three months as of now to one year, subject to updating of documents by the issuer.

Fund managers welcomed the decision on Thursday making listing mandatory for close ended schemes of mutual funds, and disallowing early exit from these schemes.

The European Central Bank on Thursday slashed its benchmark lending rate by 75 basis points to 2.5 per cent.

The Bank of England has cut the bank rate by 1 percentage point to 2 per cent.

The BSE benchmark Sensex on Friday tanked 265 points to close below 9,000-mark on heavy selling by funds in blue-chips led by the information technology, realty and metal segments owing to profit booking at higher levels. The Sensex closed at 8,965.20, down 264.55 points. On the NSE, the Nifty ended lower by 73 points at 2,714.40 points.

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Will Indian auto parts cos break into Japanese clubs?

T. Murrali

Chennai, Dec. 5 The Japanese auto industry has begun exploring possibilities of sourcing components from India.

A two-day event, organised jointly by the Automotive Component Manufacturers Association (ACMA) and Japan External Trade Organisation (JETRO), saw the presence of 22 large potential buyers from Japan.

Pointing out that this is the first time that JETRO is conducting such an event in India, experts in the auto components industry said that the event shows a first-time interest in India by the Japanese.

India imports from Japan auto components 10 times more than what it exports. Imports from Japan (Rs 2,413 crore) grew 72 per cent in 2007-08 over the previous year. Exports to Japan, which grew 11 per cent last year, were still nothing much to write home about, at Rs 205 crore.

Japanese small car major Suzuki entered India as a joint venture in 1981. Today, it buys 97 per cent of the components domestically, but buys practically nothing for its plant in Japan. The reason could be ‘keiretsu’, a tradition under which an OE buys its requirements from a close group of associates. Keiretsu assures the associates of business and lets the OE have a control over quality and price.

So Japan has made Asean countries, especially China, Thailand and Malaysia, its manufacturing suburbs, but India is yet to break into the club.

This is despite there being 200 Japanese entities in India — joint ventures as well as wholly-owned subsidiaries. Seven of them are vehicle manufacturers.

Yet, Japan accounted for 1.4 per cent of India’s exports of auto components (Rs 14,130 crore) last year. North America accounted for 28 per cent and the EU, 38 per cent.

In contrast, Japan is buying more from other countries. Japan’s imports from China, Thailand and South Korea are growing.

Are things changing?

But now, following its decision to reduce dependence on any one country, Japanese auto industry is looking at India as a probable sourcing destination.

Japanese representatives at the expo said India is by far more stable and robust economy to work with than their Asean counterparts.

Twenty-two Japanese companies, including Denso, Hitachi, Honda Siel Cars, Mikuni India, Mitsubishi Heavy Industries, Renault Nissan Technology & Business Centre, showcased their products that they were keen to source from India. Similarly, about 30 Indian auto component manufacturers, including Amtek, Caparo, GNA, IP Rings, LGB, Rane and Hi-Tech Gears also displayed their wares.

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PSBs play it safe with nostro accounts in US

C. Shivkumar

Bangalore, Dec. 5 Public sector banks have now begun restricting their correspondent account balances to a handful of US banks.

Senior banking sources said that nostro account balances or correspondent accounts were maintained with 17 banks, including Wachovia, till about 3 months ago.

A nostro balance is that one bank maintains with a foreign bank in foreign currency.

Bankers said that the Reserve Bank of India has now sought details of the number of nostro account balances with the various US banks. Besides the RBI intervention, a series of US bank failures have made domestic bankers cautious.

Nostro accounts

At least 22 banks have failed in the US. In many of these institutions, domestic banks, both private and public sector, had maintained correspondent accounts.

Domestic bankers said that the RBI also advised them to hold their nostro balances only with large banks that have clearing operations. Accordingly, bankers said that most of them have now restricted their nostro accounts to such clearing banks in the US.

The bankers said nostro balances were parked are Citibank, Wells Fargo, JP Morgan Chase and Bank of America.

But even with these banks, nostro balances were restricted only to trade finance requirements. Consequently, the nostro balances of all the banks in the country were only about one per cent of the export receipts or about $1.6 billion.

Bankers said that most of the balances were either repatriated to India or held in US Government Treasuries at low yields.

Resisting temptation

This was despite the high interest offered on US dollar deposits. Six-month certificates of deposits in the US banks are currently as high as 4 per cent.

Yet given the uncertain financial conditions in the US, Indian banks are staying away from the high-yield offerings. Some banks preferred repatriating the resources and investing them in domestic treasury bills, where the yields were slightly better.

Besides, the bankers said that the failure of some of the US banks and the lack of the coverage under the Federal Deposit Insurance Scheme were likely to lead to provisioning of some of the balances.

Vostro accounts

Nostro balances are treated as assets though they are not risk weighted. This is because Indian banks also maintain a mirror account as a liability in the form of correspondent account of the foreign bank or as a vostro account. This obviated the need for risk weighting such accounts. Yet, there are fears that despite the mirror accounts, the prospects of nostro balances becoming sticky are high.

Consequently, some Indian banks were also resorting to holding correspondent account balances in overseas branches and subsidiaries of other domestic banks as risk mitigation measures. Large domestic banks, like the State Bank of India, already have a large presence in the US.

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Outdoor media, hoardings going vacant on poor market sentiment

Varada Bhat

Mumbai, Dec. 5 A few weeks ago, when your car zoomed across the neon-lit streets in Mumbai, there was a glitzy illuminated sign that promised you the comfort of a luxury apartment at an affordable price or a telecom company that kept buzzing with unlimited free calls.

But now due to slowdown in businesses coupled with downturn in the economy, outdoor media companies can’t find more innovations to illuminate their blank sites.

Big ad spenders such as HDFC, Reliance and ICICI are shying away from fat-budget campaigns outdoors, said Mr Sudhesh Paul, Business Development Manager with Bright Outdoor Media (Pvt) Ltd, which has a 50 per cent market share in the ‘Out of Home’ business in Mumbai.

Mr Paul says last week, one of the top private sector conglomerates terminated a six-year contract with Bright outdoor on several locations in the country by giving one month’s notice.

“Sixty per cent of our sites are vacant now,” Mr Alt aaf Shaikh Director of Mumbai-based Roshan Publicity told Business Line. The company once boasted of a clientele of Airtel, Bajaj, ICICI Prudential and HSBC.

Slashing bookings

According to Mr Shaikh, new campaigns are becoming shorter and softer in length as advertising budget is pruned.

“One of the telecom companies, which launched its operations in Mumbai in August, had an initial booking worth Rs 2 crore, which got slashed to Rs 75 lakh,” Mr Paul added.

Traditionally, during the festive season from October to December, the outdoor companies used to hold bid for prime locations, but now due to the financial turmoil, the billboards are falling vacant.

According to Mr Anant Raj, Account Manager with Primesite (the outdoor arm of Mudra Communications), says that his financial clients have stripped the launches of their new products and schemes due to dampened consumer sentiment in the markets.

According to a media guide of a leading outdoor agency, on an average, hoardings cost Rs 18-20 lakh a month, kiosks cost Rs 3500-15,000 a month and gantries cost Rs 3-6.5 lakh a month.

Media efficiency

Although Mumbai and Delhi comprise 50 per cent of the outdoor market in numbers, 70 per cent of values in terms of money are coming from tier II and tier III cities that have also been affected drastically.

Mr Amish Tripathi, IDBI Fortis Life Insurance National Head (Marketing and Product Management), said, “We have started focusing on the efficiency of each media. We are selectively choosing media, through which we are getting lot of yields.”

Mr Sanjay Pareek, President of Percept Out-of-Home, a division of Percept Holdings, feels corporates have also realised that the television is a cost-effective medium, considering the increasing penetration.

“The sheer boost in airtime inventory due to recent launches of new channels has resulted in dropping down of rates. Even we are advising our clients to shift from outdoor to television,” he said.

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‘I’ve never seen such a positive environment for renewable energy’

N. Ramakrishnan

Recently in Denmark

It has been a long day for Mr Ditlev Engel, President & CEO of leading wind turbine maker Vestas. He has been accompanying financial analysts to Vestas facilities in Aarhus and Hammel, Denmark, with other senior company officials.

In the evening, Mr Engel, 44, sits down with some Indian journalists, on a visit to Denmark sponsored by Vestas, for a chat on the global economic situation and its impact on the wind energy sector. Mr Engel, who has been President & CEO of Vestas Wind Systems A/S since May 2005, holds a Diploma in Business Economics from the Copenhagen Business School and has participated in a general management programme at INSEAD, France. Excerpts:

What has been the impact of the global economic situation on the wind energy sector?

I would prefer to talk about the impact on Vestas rather than that on the sector, because these might be two different things. In 2007, we did about 5,000 MW at Vestas. We decided to go to 10,000 MW by 2010. Our investment and development have been focussed on getting up to this level of execution capability.

The world changed fast. When we announced our second quarter results in August, the only question analysts asked was whether we could get to 10,000 MW by 2010. I said yes, we can. We have over the last 12 months employed 5,000 people. Even though next year we expect to grow by 25 per cent, we have actually made it clear that we have a cost base now that is 15 per cent too high for a 25 per cent growth.

We have demonstrated that we were on the right track with the kind of ramp-up and investment that we are doing. Our investment next year stands at €1.2 billion. Our confidence in the growth scenario is robust. The energy challenges have become even more daunting and pressing now. We live in a world where people are managing issues from day to day, but energy is about long-term view.

Let me put the financial issue out of the equation and look at the political agenda. I travelled in China two weeks ago with the Danish Prime Minister where he met with both the President and Premier. Denmark is hosting the climate change conference next year. He got the best support ever on a (climate) deal. The EU has also said that financial challenges are not an excuse for not addressing the climate issue.

In the US, the President-elect, Mr Barack Obama, wants to create 5 million new jobs and he has said that energy independence and climate issues are going to be on the top of his agenda. All energy is politically driven and politically regulated. I have been the CEO of Vestas for the last three-and-a- half years and I have never seen such a positive political environment.

On the day we announced our Q2 results, the price of oil was around $140 a barrel and analysts asked me why we can’t double the price of our turbines. Now, when the price of oil is $50 a barrel, the analysts are asking me why we can’t lower the price of our turbines. I said the energy companies have a 20-year view and not the flavour of the day. It is clear that fossil fuels prices will go up. There are customers who are facing difficulties, but, overall, the energy agenda is one of the reasons why we believe that the outlook is robust.

We employed 5,000 people over the last 12 months. There have been no lay-offs, but we have stopped employing people for the moment. We haven’t stopped investing. We believe that these things will start moving again, may be not at the same speed. We are certain that the US agenda for going Green is going to be big and we are certain we will kick ourselves if we had stopped ourselves in the US. We are going to use 2009 to build in the US more than manufacture in the US.

What about access to capital?

We believe that we can make the projects more bankable for our customers. If you take the customers or the banks’ customers through a presentation, when the banks start to release cash again, we believe that it is some of the lowest risk you can actually release. Germany is a market driven by small-medium-sized developers. You have got the German state buying electricity, the same guys who bail out the banks. You got a very high business case certainty.

There would be other projects with a higher risk profile, which would be more likely to be hurt than these kinds of projects. We spend a lot of time reviewing our customer portfolio and the bankability. There are many projects when times were good, when people have had some very exciting projects and we have just said no, we are not going to do it. The marginal projects will have more difficulties, whereas those who have a safe business will go on.

Have you had any order cancellations? Do you see a slowdown in order bookings?

No, none at all. We have seen that those customers who have lost a bank, for instance, when Lehman went in the US, calling up and saying they can’t go on, because their bank has disappeared. Lehman was a big trader for tax credits on the PTC in the US, so the appetite for tax credits has gone down. In some of these areas, we have seen an impact.

We have learned from the financial crisis that big is not equivalent to good. Those, who do not have good projects or whose financing situation is more complicated, will have a bigger challenge.

Those having good cash flows, good management and strong operations would go on even if they are not the largest companies.

The wind energy industry has always said that with oil at above $59 a barrel, wind energy is more competitive. Now, with crude prices falling below that mark, how do the economics work out?

In July, crude was at $140 and people said it will go to $200 by Christmas. The same people are now saying it is going to be at this level for the next 9-12 months. Apart from the price of oil, it is true that higher the fossil fuel prices, the easier it is to understand the attractiveness of our energy.

From the utilities point of view, this is also about balancing their risk. Wind is the only type of energy where you can hedge your risk 100 per cent for the next 20 years. From a risk management point of view, you want to make sure that you have a diversified portfolio.

I think we have not had a price on carbon in the US. I think the new administration is going to put a price on carbon.

Another issue that people haven’t spent so much time on, but I know that some of our customers are factoring in into their business price model is that they don’t believe the price of water for exploration and so many other things will remain at this cost. China has invested $10 billion in pumping water from the South to the North because of drought. Drought is a huge issue in Australia and in certain states in the US. That water will come at a cost. Water is an important part of energy exploration. When you start to factor these things in, which many of the major utilities are doing, you start getting many different mechanisms in your pricing model for wind versus other types of energy. You need to balance the view on certain other aspects.

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