OPINION, P8 MARKETS, P10 INTERNATIONAL, P14 EDITORIAL BACK IN BLACK HIGHER SPENDING Mehta-led PNB net rises 7% on higher recoveries, lower provisioning Page-led Alphabet’s profit margins slide as Google costs jump High PSU loans are the elephant in the room; time to worry Swachh Bharat has achieved a lot, but more has to be done to realise its vision PUNE, WEDNESDAY, FEBRUARY 6, 2019 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL.IX NO. 281, 28 PAGES, `6.00 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 SENSEX: 36,616.81 ▲ 34.07 NIFTY: 10,934.35 ▲ 22.10 NIKKEI 225: 20,844.45 ▼ 39.32 HANG SENG: 27,990.21 ▲ 59.47 `/$: 71.57 ▲ 0.24 `/€: 81.72 ▲ 0.50 BRENT: $61.96 ▼ $0.55 GOLD: `33,239.00 ▲ `13.00 SECOND THOUGHTS TELECOM TROUBLE Moody’s downgrades Day of flip-flops for Jubilant Bharti to junk Ba1 firms on royalty payment THE GOVERNMENT'S push to provide clean cooking fuel to every household has turned India into the world's second-largest LPG consumer whose demand is projected to rise 34% by 2025, petroleum secretary MM Kutty said at the Asia LPG Summit in New Delhi on Tuesday, reports PTI. Services sector activity slips for 2nd month in Jan THE COUNTRY'S services sector activity fell for the second straight month in January as new orders rose at the slowest rate in four months, despite which companies continued to hire staff, a monthly survey said on Tuesday, reports PTI. The seasonally adjusted Nikkei India Services Business Activity Index fell from 53.2 in December to 52.2 in January, indicating a softer expansion in output. Bharti Airtel 12,000 Prev close: 306.60 305 MOODY’S INVESTORS SERVICE onTuesdaycut the country’s second largest telecom company by subscribers from Baa3 to junk Ba1, the lowest investment-grade, after placing its credit ratings of review for downgrade in November 2018. Thisisforthefirsttimethat Bharti’s credit rating has been downgraded to below investment grade by an international agency. This means that if Bharti choosestoraisefundsoverseas it will have to pay more. The downgrade is also a commentary on the country’s telecom sector and incumbent operators, including Bharti Airtel which are facedwith declining tariffs leading to lowerrealisations as they fight a tariff war with Reliance Jio. “The downgrade reflects uncertainty as to whether or not the company’s profitability, cash flow situation and debt levels can improve sustainably and materially, given the competitive dynamics in the Indian telecom market,” 5 3 -6,000 295.50 -12,000 -18,000 Open 3.12 Close Annalisa DiChiara, Moody’s vice president and senior credit officer,said. Bharti reported Ebitda of `26,500 crore for the 12 months ending December 31, representing a 15.5% yearover-year contraction. Moreover, the profitability of its core Indian mobile segment — which contributes around 37% of Ebitda — remained low, generating just `9,800 crore over the same period. “A significant recovery in cash flowfrom the core Indian mobile segment is needed to strengthen the company’s credit quality and support greater financial flexibility,” DiChiara, who’s also Moody’s lead analyst for Bharti,added. Last week, Bharti Airtel reported its October-Decemberearnings.It recorded a consolidated net profit of `86 crore,down27.73%compared with the preceding quarter. -2,609 4 0 285 280 4.78 -13,412 290 6 6,000 300 295 FE BUREAU New Delhi, February 5 Net debt to Ebitda X (RHS) 18,000 7,517 310 307.85 11,214 Intra-day on BSE (`) 315 ARUN NAYAL New Delhi, February 5 Operating free cash flow (` m) -13,797 IN THE NEWS Ujjwala makes India 2nd-largest LPG consumer Says outlook would change if the company is able to sustain its leverage ratio under 3.5 Dec Mar Jun Sep Dec 2018 2017 2 1 0 Thiswas on the back of `1,017 crore exceptional gain largely on account of deconsolidation of Airtel Payments Bank. Before this exceptional gain the company registered a net loss of `1,041 crore, wider than `965 crore (before exceptional gain) in the preceding quarter. It was for the 11th consecutive quarter that Bharti was posting a declining profit. The competitive pressure onthecompanysincethecommercial launch of Jio reflected in the earnings of India business. It recorded a net loss of `972 crore, lower than `1,646 crore loss it posted in the preceding quarter. The India mobile services revenue were also down 0.6% sequentially at `10,189.4 crore, while India revenues declined 1.01% at `14,768 crore. Jubilant FoodWorks THE JUBILANT GROUP companies on Tuesday said they would be paying promoters 0.25% of annual consolidated revenuesforusingthe‘Jubilant’ brand name. The promoters include Shyam Sunder Bhartia and HarishankarBhartia. Jubilant FoodWorks and Jubilant Lifesciences in late night BSE filings,however,clarifiedthat“JubilantEnproPvtLtd (a promoter group company) has decided not to charge the corporate brand royalty of 0.25% of the consolidated revenues of the company and the same standswithdrawn”. Basedonrevenuesin201718, the payment works out to `7.5 crore for Jubilant FoodWorks, `1.2 crore for Jubilant Industries and `18.9 crore for Jubilant Life Sciences. JN Gupta, co-founder of proxy advisory firm Stakeholders Empowerment Services Intra-day on BSE (`) 1,400 1,303.25 1,360 1,350 1,300 1,250 1,200 1,150 Prev close: 1,393.15 Open Close (SES),pointedoutthatitwasthe Domino’s franchise that drove sales at Jubilant FoodWorks.“It is the Domino’s brand which fetches the company the revenue. No one eats the pizza because it is Jubilant FoodWorks.There is no benefit associated with the Jubilant brand,” Gupta asserted. He said the proposal should beputtovoteasaspecialresolution since this transaction was not “in the ordinary course of business”.“Onlyminorityshareholdersshouldparticipateinthe voting,” Gupta said. Incidentally, Jubilant paid 3.3% of net sales as franchise fees to Domino’s, an American restaurant chain. Corporatewatcherssaidpromoters appropriating money for“brand value”,in some form or another, was becoming a trend.“While the government Integrity risk: A new danger that faces investors Every business has its own associated risks but vanishing companies pose integrity risk. So check the IPO grading of companies and the IPO size before investing your money ■ Personal Finance, P13 SC: Kolkata police chief must assist, but CBI can’t arrest him Continued on Page 2 FE BUREAU New Delhi, February 5 Tech leaders hail Budget proposal on AI portal National Centre for Artificial Intelligence and the AI portal will complete the digital foundations that the government set out to build for a robust digital economy ■ eFE, P13 QuickPicks Suzlon Energy shares drop to record low on default rumours WIND TURBINE manufacturer Suzlon Energy’s shares on Tuesday touched a record low of `2.70 a piece on rumours that the company may default on its FCCB payments due in July, reports fe Bureau in Mumbai. Shares closed the day 24% down from the previous close at `3.63. The rumours were denied by the company as baseless. PAGE 6 Cash,tax sops for farmers,middle class to boost growth: Moody’s THE DIRECT cash transfer programme for farmers and tax relief steps for the middle class will give a fiscal stimulus of about 0.45% of GDP and support growth through increased consumption, though at a fiscal cost, Moody's said on Tuesday, reports PTI. It said fiscal slippage from budgeted targets for the past two consecutive years is ‘credit negative’ for India. PAGE 2 Govt to make extra borrowing of `36,000 crore in current fiscal THE GOVERNMENT has decided to raise additional `36,000 crore through dated securities to fund its expenses during the current fiscal, reports PTI. The last tranche for borrowing through government bonds was to end in the week ending March 8, but the Centre has decided to borrow the extra amount through two equal tranches during March 11-15 and March 18-22. PAGE 3 Rollout in MP from February 22 PRABHUDATTA MISHRA New Delhi, February 5 COME FEBRUARY 22, the Madhya Pradesh government will start putting amounts in the bank loan accounts of farmers in the state to extinguish their liabilities, outpacing Rajasthan and Chhattisgarh, the other two states where the new Congress-led governments have announced farm loan waivers. According to sources in the stategovernment,asmany50.4 lakh farmers have sought loan waiver in Madhya Pradesh as the cut-off date to applyforthe benefitendedonTuesday.“Provisional claims settlement has started and the loan waiver amount will be sanctioned at the district level between February 15-20,” said Rajesh Rajora,principalsecretary(agriculture).ImmediatelyaftertakingtheoathofofficeonDecember 17, Madhya Pradesh chief minister Kamal Nath cleared a proposalforwaivingfarmloans of up to `2 lakh as promised by his partyat the hustings. Initially, the state had esti- FULFILLING POLL PROMISE ■ As many 50.4 lakh farmers have sought loan waivers in MP Mass appeal Pope Francis waves to people carrying yellow Vatican flags and banners as he arrives to hold a mass at Zayed Sports City Stadium in Abu Dhabi on Tuesday REUTERS ■ Tuesday was cut-off date to apply for the benefit ■ State had earlier estimated to cover over 34 lakh small and marginal farmers ■ Number of benefi- ciaries went up to 55 lakh after state Cabinet extended cut-off date matedthebenefittocoverover 34 lakh small and marginal farmers.However,the targeted beneficiaries increased to 55 lakh after the state Cabinet extended the eligibilitycut-off date to December 12 from previouslysetMarch31,2018, following criticism by the Opposition BJP. Continued on Page 2 ● CENTRE VS BENGAL FARM LOAN WAIVER Special Features targets multinational corporations for royalty payments, the localpromotersaretakingaway moneyfromtheircompaniesin the name of brand development,”oneseniorexecutivesaid. Experts say the promoter holding company must be forced to disclose to shareholders of the listed entities the amount it spends on brand building.Others sayit is not too late for the Securities and Exchange Board of India (SEBI) to look at the issue of such royaltypayments to promoters.” Directorswhovoteinfavour of such abusive related party transaction should be blacklisted,” theysaid. Lamenting the weak corporate governance at Indian business houses, Gupta said investorswouldrespondappropriately to such moves. “Promoters must understand management and ownership are different,” he said. In the red FE BUREAU Reliance Power plummets to record low Reliance Power, which got listed about 11 years ago with much fanfare, stumbled to a record low on Tuesday. The stock of Anil Ambani-led power company ended in the red for the eighth consecutive day and lost about 59% in its longest losing streak in six years. 30 25 25 Reliance Power (Intra-day on BSE, `) 17.10 20 16.95 11.95 15 10 5 0 Open Feb 4, 2019 Close Open Feb 5, 2019 Close Continued on Page 2 THE SUPREME COURT on Tuesday asked Kolkata police commissioner Rajeev Kumar to appear before the CBI and cooperate with the investigations relating to the Saradha chit fund scam,but restrained the agencyfrom arresting him or taking any coercive action against the commissioner. Kumarwouldappearbefore the CBI at a “neutral place” in Shillong,the apex court said. Abench led byChief Justice Ranjan Gogoi also issued contempt notices to the West Bengal chief secretary, the director general of police (DGP) and Kumarforallegedly detaining the CBI probe team, destroying electronicevidence and obstructing investigations. It posted the matter for further hearing on February 20, the day when the apex court will also decide if the alleged contemners are required to appear personally before the court. Addressingthemedia,West Bengal chief ministerMamata Banerjee termed the Supreme Court order a “moral victory because we respect the judiciary. We always wanted to cooperate”. Mamata was on a dharna since Sundaynight.On Monday,she described her sitin over the CBI’s attempt to question Kolkata police chief as a“non-political”protest. Continued on Page 2 CAPTURING THE CART Jeff Bezos losing out to Mukesh Ambani as e-comm rules change PR SANJAI & SARITHA RAI Mumbai, February 5 AMAZON.COM AND WALMART’S plans to dominate India’s online retail landscape have been ambushed byPrime Minister Narendra Modi’s politicalprioritiesheadinginto a tightening election. The vote,likely to be held in or around May, has increased the influence of local retailers that lobbied for growth-crimping curbs on the US giants. On cue,India this month rolled out constraints on foreign e-commerce players, including Jeff Bezos-led Amazon and Walmart-owned Flipkart, which together control 70% of its online shopping. The tighter rules,aimedatprotectingsmall traders,may end up benefiting the country’s richest man, Mukesh Ambani,who is building a homegrown competitor. The BJP is still licking its woundsafterbeingtrouncedin three key recent state polls and a year ago fighting an unexpectedly close contest in Gujarat — Modi’s home state. Amongsmallbusinesses,which are a traditional support base, the government’s popularity Reliance Industries chairman Mukesh Ambani (left); Amazon CEO Jeff Bezos has been eroded by 2016’s surprise note ban and the subsequent roll-out of GST. The rules now bar Amazon and Flipkart Online Services from owning inventory, and requirethemtotreatallvendors equally,throttlingdiscountsand exclusives—ahugeadvantageto homegrown firms, including Ambani’s new venture. His RelianceIndustries,whichowns India’s largest retail chain and third-biggest telecom network, hasthepotentialtoevolveintoa local version of Amazon or Alibaba,UBSsaidlastmonth. “Whether serendipitous or not, India’s tightened regulatory regime for online retailers is a huge win for Reliance with its new retail ambitions,”Greyhound Research CEO Sanchit Vir Gogia said,“This could be a field levellerforthem.” Ambaniwantshisconsumer offerings — covering telecom, fibre-to-home broadband, media and entertainment and retail — to contribute nearly as much to the conglomerate’s overall earnings as its bread-and-butter energy and petrochemicals businesses. Continued on Page 2
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