OPINION, P6 COMPANIES, P4 EDITORIAL Sales are looking up but margins still crimped for India Inc INTERNATIONAL MADAN SABNAVIS IN STORE CITING SANCTIONS NDA has channelised subsidy-spend to areas that add to economy’s strength Plan to invest over `10,500 crore in India, says Ikea’s Antoni Woods-led Exxon quits some JVs with Russia’s Rosneft MUMBAI, SATURDAY, MARCH 3, 2018 VOLUME XXXXXV NO. 296, 10 PAGES, `8.00 States’ share may dip to 50% from 80% CBDT says over 200 APAs signed so far THE CENTRAL Board of Direct Taxes (CBDT) on Thursday said it entered into seven unilateral advance pricing agreements (APAs) last month, which takes the number of such pacts to more than 200, reports fe Bureau in New Delhi. Mumbai (New lines) Cost (` crore) Bengaluru THE INDIAN RAILWAYS is likely to relax the 80:20 ratio forfinancingofsub-urbannetwork projects between states and the Centre and make it on a par with the proposed 50:50 norm for other projects like new lines and doubling of tracks. However, it will make compliancewith the newcostsharing formula mandatory for implementation of projects,said a ministry official. Themovefollowsaseriesof representations made by state governments asking for a lowerburdenonthemafterthe railwayministrycameoutwith a scheme that the state concerned must bear 80% of the suburban projects’ costs, and alsomakeavailablethelandfor it.Maharashtra and Karnataka are learnt to be among the states that have asked for an increase in the Centre’s share of the project costs. These states have lined up a slew of suburban railway projects as part of their plans to bolster infrastructure. Althoughtheconceptofthe Centre and states sharing project costs equally had existed even earlier, this has followed more in the breach.States used toapproachtherailwayspleadinginabilitytoprovidethestipulated funds. In most cases, they simply made the land Suburban projects pipeline 40,000 Railways, however, to make 50:50 norm mandatory for all projects, including new lines and doubling SAURABH KUMAR New Delhi, March 2 Nicaragua in 2015-16 and 2016-17as the gold importers are capitalising on the differential in import duties to bring the yellow metal into the country cheaply. A senior MMTC officer told FE on condition of anonymity: “To fuel their economic growth, these countries are now encouraging gold exports. Gold is a non-conflicting metal and is available in abundant quantities in these countries.” READ TO LEAD COST OF SUBURBAN RAIL PROJECTS 17,000 TO MEET its growing demand for gold dore bars, India has increased its buying from LatAm countries and refines them here to keep the costs down, reports Huma Siddiqui in New Delhi. There has been a big jump in buying dore bars from countries such as Bolivia, Peru, Ecuador, Guyana, Colombia, Honduras and WWW.FINANCIALEXPRESS.COM P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E 11,000 Mumbai (track doubling) IN THE NEWS Gold bar imports from LatAm nations on the rise FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE available and bore a maximum of 10-20% of the project costs. Thishaspracticallyinflatedthe expansion costs of the transporter, which is already on a weak financial footing. The revised cost-sharing norms were first mooted in 2016 when Suresh Prabhu was the railway minister. The higher share was envisaged for states in suburban projects because these were potentially not remunerative; states, on the other hand, are bound to have interest in such projects which upgrade their infrastructure and thereby give a boost to the their economies. According to sources, for projectssuchasnewlines,states will now have to meet 50% of the project cost and, if the projectisbasedonsocio-economic considerations and are not remunerative for the railways, thestateswilladditionallyhave to provide land too. Meanwhile, cost-sharing in at least two suburban projects Mumbai and Bengaluru has already been relaxed to 50:50, in the states’ favour. In the Union Budget for 2018, the Centre announced that the Mumbai railway transport system will be expanded and augmented to add 90 km of double-line track at a cost of `11,000 crore. Also, an additional150kmofsuburbannetwork is being planned at a cost of`40,000crore,includingelevated corridors at some sections. In addition, a suburban network of approximately 160 km at an estimated cost of `17,000croreisbeingplanned in Bengaluru. However, these dilutions of the financing normsforstateshavebeenspecific to the projects concerned andwhat is nowbeing planned is make 50:50 cost-sharing a norm forall such projects. “Acouple of more such proposals have come and they are being examined on project basis,”said the official. According to the official, a lot of discussions are taking place with the state governments at the railway minister’s level given that there are many railway lines, including suburban networks, which are not remunerative for the railways and states need to pitch inwith funds.“The philosophy across statesvariesandsomestatesare more forthcoming (when to cometotakingahighershareof projectcosts,”addedtheofficial. WhilestatessuchasOdishaand Madhya Pradesh are focusing on new lines to connect backward areas to spur growth, many others are focusing on suburban networks. REGIONAL PLAY Special Features PNB’s capital at risk owing to staggering fraud Modi scam is likely to erode 170 bps of capital, necessitating capital infusion of `5,500 crore; Bank’s prospects for the next two quarters are dismal ■ Investor, P8 Using domestic animals to make human organs Creating human organs in this way would rely on the union of two recent developments in biotechnology—gene editing and stem cell technology ■ Science & Tech, P8 QuickPicks Commercial vehicle sales may tough record high this fiscal THE CURRENT fiscal could well be the best for commercial vehicle sales ever, reports Deepak Kumar in Mumbai. The previous highest sales were recorded in FY12, when the industry sold 8,09,499 units. With a volume of 6,59,997 units recorded till January-end, and a recent monthly run-rate of over 80,000 units (82,362 in December and 85,660 in January), analysts and industry players are confident of setting a new sales record. PAGE 4 Ad spends on FTA channels in Hindi GECs may boost revenue WITH ADVERTISING spend on free-to-air (FTA) channels in the Hindi GEC space growing at a faster rate of 16%, its contribution to the overall revenue is expected to increase to 25% — about `1,400 crore in 2018, reports Anushree Bhattacharyya in New Delhi. Compared with this, ad spends on Hindi GEC is expected to grow at 13% to reach `6,200-6,800 crore. According to a Pitch Madison report, in 2017 ad revenue generated by Hindi GECs on TV stood around `5,500–6,000 crore. PAGE 4 Alliance Air adds aircraft for UDAN MANISHA SINGHAL Mumbai, March 2 ALLIANCE AIR, AIR INDIA’S fully owned subsidiary that operates flights to Tier II and Tier III cities, is expanding its fleet to operate more flights as it bags additional routes after the second round of bidding under the government’s subsidised air travel scheme UDAN (Ude Desh ka Aam Nagrik), aimed at boosting connectivity to the smaller towns. “AllianceAiris scheduled to add at least 10ATR72-600s in financial year 2017-18, of which seven have already joined the fleet and remaining threewill join soon,”said anAir India official.The airline is also in the process of hiring cockpit and cabin crew for the same. Alliance Air operates air ser- LOCAL HERO ■ Alliance Air to add 10 regional aircraft in FY17-18 ■ The regional airline got 18 routes in UDAN2 auction ■ Its competitors are expanding fast in Tier II and III cities ■ Alliance will be sold as regional airline separately as part of AI divestment vices to 46 destinations with a fleet of 13 ATR 72-600s and 2 ATR 42-320s (48 seater), with 90 daily departures and a load factor of about 90%. Continued on Page 2 Holi-day People are seen drenched in colours as they celebrate Holi, the festival that marks the end of winter in north India PHYSICAL PRESENCE ● DELHI AIRPORT Banks’ branch expansion hits an eight-year low Driven by higher use of digital banking; PSBs open more branches than private peers SIZE OF BRANCH NETWORK ‘08-09 3,536 ‘09-10 ‘10-11 ‘11-12 ‘12-13 ‘13-14 SHRITAMA BOSE Mumbai, March 2 WITH THE INCREASED use of digital banking channels, the number of branches added by public-sectorbanks (PSBs) and private banks hit an eight-year low in FY17, show data releasedbytheReserveBankof India (RBI).The number stood at 4,023 for the full year, the lowest since FY09when 3,536 branches were added. Demonetisation, announced on November 8, 2016, and carried out thenceforth up to December 31, 2017, may have 4,973 5,250 6,807 7,039 10,310 ‘15-16 7,655 6,217 ‘16-17 4,023 ‘14-15 Data for branch network of publicsector banks and private banks Source: RBI pushed people towards digital payments.Simultaneously,the note-exchangeexercisetookup much of banking staff’s time and energies, leaving banks withrelativelylesserbandwidth to open newbranches. FY17 saw PSBs open a larger number of branches than their private peers. Together, they added 2,156 branches, accounting for 53.5% of the total additions in the fiscal. State Bank of India (SBI), along with its then associates, added 531 branches, followed by ICICI Bank and Axis Bank, which added 400 branches each. FY18 may see a further reduction in branch additions for at least two reasons. First, following the merger of SBI’s associates and Bharatiya Mahila Bank with SBI, a rationalisation exercise has been carried out throughout the year by the country’s largest lender. Second, 11 PSBs — roughly half their total strength — are now under the RBI’s prompt corrective action (PCA) framework, which requiresthemtocurtailbranch expansion. that seven sunrise sectors — defence, aviation, railways, auto & auto components,electronics, pharmaceuticals and textiles — together have a potential to contribute around $80-100 billion to India’s GDP every year till 2025, provided India adopts Industry 4.0, a combination of advanced analytics, internet of things (IoT), robotics & automation and process digitisation across the business value chain. Continued on Page 2 Continued on Page 2 Continued on Page 2 ‘Companies must adopt Industry 4.0’ EVEN AS THE government aims to increase the manufacturing sector’s contribution to 25% of GDPby 2025 from the existing 17%, the progress in the last two years has belied expectations.Themanufacturing sector’s contribution has remained in the 16% range in recent years, near its lowest in the last decade.This is despite the government’s focus on Make in India, Digital India and other policy initiatives. An analysis by McKinsey India shows that India ranks lowest in wage to productivity comparison among its Asian peers. With lowest average daily wage of $5.90 against $34 for China and $37 for Malaysia, the average daily wage to output is around 4.1 compared with 9.0 for Philippines,7.1 forChina and 6.1 for Malaysia. The management consultingfirm,however,believesthat not all is lost yet. It suggests ARUN NAYAL New Delhi, March 2 THE AIRPORTS ECONOMIC Regulatory Authority (AERA) has started the consultation process for the contentious tariff control period for Delhi International Airport (DIAL), which is run by the GMR Group. The third control period will begin from April 2019 and will be valid for five years,that is March 31,2024. The control period is a fiveyear duration for which AERA sets user charges at concessionaire airports.The previous two control periods — 200914 and 2014-19 — were caught in controversies with airlines and the airport operator challenging its implementation at legal forums. “The consultation process forDIALhas begun.The capital investment consultant has been appointed and the report is expected in three to four weeks,” a senior government official said. Under the capital investment consultation, the regulatory asset base of the concessionaire is assessed for the upcomingcontrolperiod.DIAL, aunitofGMRInfrastructure,is expected to build the fourth runaway,taxiwaysandcarryout expansion of terminals between 2019 and 2024. However, the aeronautical tariff determination exercise will have to wait for now as appeals in the battle between airlines and DIAL are pending before the AERA appellate tribunal. ● MCKINSEY ANALYSIS VIKAS SRIVASTAVA Mumbai, March 2 AERA starts process to set tariffs LOSING MOJO Bajaj loses market share in premium segment as rivals crowd in DEEPAK KUMAR Mumbai, March 2 IN 2003, BAJAJ Auto commandedashareofabout93%in the premium motorcycle segment.ItsPulsar,whichhadbeen launched in 2001, sold around 15,000 units a month in 2003. Theclosestcompetitorwasfrom the joint venture between the nowHeroMotoCorpandHonda Motorcycle and Scooter India (HMSI), the Hero Honda CBZ. From holding most of the market in 2003, its market share today has dropped to almost a third at about 32% in the pre- mium segment of motorcycles. Thecompanylostahugechunk of its share, around 800 basis points,inthelastoneyearalone. The total volumes sold by the company in the premium segment are about 7,49,620 units in the ongoing fiscal. Analysts attribute the fall in Bajaj Auto’s market share to the increasing competition in the segment, and lower volumes that came from the company’s recent Pulsar refreshes and the 373 ccDominar,thatwaslaunched early last year, mainly due to their lacking appeal to cus- Company-wise market share Premium motorcycle segment (in %) Bajaj Auto Apr-Jan FY2017 Apr-Jan FY2018 38.6 30.8 HMSI 10.6 13.8 TVS Motor 11.3 13.1 Royal Enfield Hero Motocorp 3.5 2.6 23.5 26.9 Source: SIAM tomers. Apart from this, the analysts also point to its late entryintothe160ccspacewith the PulsarNS 160. Analysts at JPMorgan said, “In the long term we remain concerned about increased competitive intensity in the 150 cc segment, and within that150-250ccsegment,with a number of competitors like Yamaha,Honda,TVS and Hero, who are planning new launcheshere.BajajAutoneeds a successful launch herewhich till now has not come.” The premium segment for Bajaj Auto constitutes almost half of Bajaj Auto’s volumes,as nearly46% or7.5 lakh units of the total 16 lakh it has sold during this fiscal have been from the premium category. In the premium segment, HMSI and Royal Enfield captured most of Bajaj Auto’s lost market share due to changing buyertrends.HMSI has gained around 220 basis points share at the end of Januaryto 13.8% inthepremiumcategory,while Royal Enfield has gained 350 basis points at the end of January to a market share of 27%. Continued on Page 2
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