AccorHotels to bring global brands to India

French hospitality major AccorHotels is exploring the possibility of bringing some of its international brands to India, besides strengthening existing brands, said a top executive. “Currently, we have 10 brands operating in India out of the 30 established brands,” said Jean-Michel Casse, chief operating officer — India and South Asia, AccorHotels. “Raffles and Banyan Tree will be coming to India soon.” In June 2017, AccorHotels entered into a management pact with Surya Palace Hotel owners in Vadodara and rebranded it as Grand Mercure Vadodara Surya Palace. This will be followed by converting an existing property in South Goa to the Novotel brand.

As of now, AccorHotels has 53 properties with 9,700 ‘keys’ (rooms) operating in India. By year end, this will increase to 55. There are plans to add 30 more over the next five years to take the total number to 15,000 ‘keys’. Mr. Casse was in Chennai to inaugurate the first combo property in the city and second in the south (Novotel-ibis). The new property will start functioning from Sunday. The first combo property (Novotel-ibis) was opened in Bengaluru during 2011, followed by New Delhi (Novotel-Pullman).

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“Following six years of successful run of Bengaluru hotels, we decided to start a combo property here. Chennai is already home to Novotel and ibis hotels along with Formule1. The next Novotel Hotel will be opened at Chamiers Road and Mercure in Oragadam, by April 2018,” he said. In Chennai OMR, Novotel has 153 ‘keys’ and ibis 189 ‘keys’. Novotel and ibis remain the most prominent brands with a network of 15 and 18 hotels respectively across the country, he said. “It is very difficult to measure the benefits of combo hotels. But it certainly saves around 15% of the capital expenditure with common infrastructure facilities such as air conditioners, laundry, kitchen and staff,” he said.

Daniel Chao, area general manager, ibis Chennai OMR, said, “Professionals, individuals and business travellers are the target audience. As part of a special inaugural offer, the hotels offer the scheme of ‘stay for three nights and pay for two nights’.”

  • The Hindu

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Bruce Berkowitz Liquidates Hedge Fund

Investor Bruce Berkowitz is shutting his hedge fund and distributing its holdings to investors, including a stake in Sears Holdings Corp. Berkowitz’s Fairholme Capital Management reported the fund’s unwinding, without naming it, in a U.S. Securities and Exchange Commission filing on Oct. 13. The fund is Fairholme Partnership, which Berkowitz created roughly five years ago, according to a person familiar with the situation. Berkowitz, a contrarian and the second-largest Sears investor, is known mostly for his mutual funds and has struggled this year as some of his biggest investments have declined. He made the move in his private fund before stepping down from the ailing retailer’s board Monday. When money managers shut down a hedge fund, they often distribute the securities in the fund rather than selling and parceling out the cash to investors to avoid flooding the market with shares. It’s also done for tax purposes.

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As part of the shut down, the fund distributed 3.14 million Sears shares and warrants. Berkowitz, a Partnership investor, personally received 727,816 Sears shares and warrants on 810,345 shares, according to the filing. The remaining holdings went to Fairholme clients who were previously investors in the hedge fund. Berkowitz joined the Sears board in February 2016 and has been bullish on the department store chain even as it has bled money. The Fairholme Partnership had $409.3 million of gross assets as of April, according to a regulatory filing. In statement released Monday, Fairholme said Berkowitz joined the Sears board to better communicate his views about the retailer. “Mr. Berkowitz believes that he has achieved that objective,” according to the statement. The investor’s $2.1 billion Fairholme Fund, a registered mutual fund, has lost 6.6 percent year-to-date. It has lagged 99 percent of rivals over five years, according to data compiled by Bloomberg. In his 2017 semi-annual report to investors, Berkowitz reiterated his view that Sears has potential. “Investors may disagree on the exact path forward for Sears, but the company owns many valuable assets and there is huge value in optimizing all of them,” he wrote. Those assets include real estate that the company controls and its competitive position as an appliance seller, he said. The liquidation involves both the domestic and offshore versions of the hedge funds. Berkowitz’s Fairholme Fund holds stakes in mortgage-finance giants Fannie Mae and Freddie Mac.

  • Bloomberg

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A Thesis on the US Airline Industry

The premise of our investment is simple: The next few quarters are uncertain at best, but I believe that industry demand and earnings will be far higher over the next several years. The question, then, is whether certain individual businesses have the resilience to reap the benefits of that growth, and whether the offered price gives us an attractive return with room to be wrong. In both cases I believe the answer is yes. Most domestic airline equities suffered sharp price declines this summer due to a confluence of factors, and I believe this creates an attractive opportunity over a multi-year horizon. As always, the test remains our willingness to own these securities – partial ownership stakes in businesses – for the next five or 10 years. On that basis, I’m comfortable having a material portion of our capital invested in these companies.

Before going further a brief comment on the industry is required. (There is more background information in the Appendix.) The domestic airline industry has undergone a dramatic restructuring in the past 5-10 years and I think it will support a bright future. I’d had an interest in the sector for years, but a combination of inertia and an ingrained bias against airline investments had kept me from doing any meaningful research. When I finally did, beginning in the summer of 2016, a few features stood out:

us airline industry

Industry structure and financial strength – Competition remains tough in many individual markets, but consolidation has changed the overall pricing dynamic and created a level of profitability and stability that is unprecedented in the industry. Current operating margins are generally in the 10-20% range – a level that generates ample free cash flow – and I estimate that most airlines will generate significant profits even in a downturn. Balance sheets and cost structures are also far healthier and they will be able to withstand future cyclical downturns and exogenous shocks.

Fares and fees – It is far cheaper to fly in the U.S. today than it was a few decades ago but pricing is also far more rational. This is still a high-fixed and low-variable cost business, but consolidation has enabled the airlines to compete without destroying each other in the process. As a partial offset to lower inflation-adjusted fares and the recent capital spending, the airlines now generate material revenues and high-margin profits from non-ticket fees and loyalty/mileage programs tied to credit cards. Cyclicality has not been eliminated but it has been muted to a large degree.

Ultra-low-cost carriers (ULCCs) – Customers want low prices, and that simple fact dictates the entire business model. An airline taking a passenger from point to point is offering something close to a commodity, and price is by far the most important factor in the purchase decision. There is some customer loyalty for certain companies, and mileage programs can help, but these are not true brands that affect behavior on a large scale. A customer with his own money is likely to pick an airline that will save him $50, and the business with the lowest cost will often win in these circumstances. Low costs that are “reinvested” in lower prices can also create an enormous advantage over time. Airlines like Southwest and Ryanair are good examples of these concepts, and when I pulled my head out of the sand to look at what made them two of the world’s most successful businesses what I saw would be familiar to any analyst looking at Costco, Amazon, Nucor, or IKEA. A cost advantage is hard to establish and easy to lose, but if maintained it makes life miserable for the competition. In the U.S. market the ULCCs have a material and growing cost advantage that will enable years of future growth at attractive margins and returns on capital.

  • Read the rest of the interesting article here

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Amazon Is Now Getting Into Sportswear

Amazon.com Inc. is tapping some of the biggest athletic-apparel suppliers to make a foray into private-label sportswear, according to people familiar with the matter, setting the stage for further upheaval in an already-tumultuous industry. Makalot Industrial Co., a Taiwanese vendor that produces clothing for Gap Inc., Uniqlo and Kohl’s Corp., is making apparel for the Amazon line, a person with knowledge of the arrangement said. Eclat Textile Co., another Taiwanese supplier, is contributing to the effort as well — a relationship first noted by SinoPac Securities Corp. analyst Silvia Chiu.

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The project is new and long-term contracts haven’t been signed yet, according to people involved. The manufacturers are producing small amounts of products for Amazon as part of a trial, said the people, who asked not to be identified because the effort isn’t being promoted yet. Amazon has previously ventured into private-label fashion, offering office clothing, jackets and dresses under names like Goodthreads and Paris Sunday. But pushing into activewear would bring fresh competition to some of the world’s biggest athletic brands. Eclat’s involvement is especially noteworthy because it makes clothing for Nike Inc., Lululemon Athletica Inc. and Under Armour Inc. and has key expertise in making high-performance sportswear. Amazon, based in Seattle, didn’t immediately respond to a request for comment.

The move comes as unwelcome news for activewear companies already struggling to stand out in a sea of competition and discounts. Last month, Nike said it expects sales to decline again this quarter in North America. Under Armour, meanwhile, cut its annual sales forecast in August. Lululemon has fared better this year, but it too is facing steeper competition in the market for yoga pants and other sporty apparel. That cutthroat environment in North America has pushed it to look overseas for growth. Amazon also has been hiring staff with know-how in private-label athletic apparel. In January, Kirsten K. Harris joined the company as a senior brand manager for Amazon active apparel, according to her LinkedIn profile.

She previously headed up product development at Nordstrom Inc.’s activewear brand for women, Zella. Before that, she held leadership roles in product development for Eddie Bauer and Nike. Harris didn’t respond to a request for comment through LinkedIn. Amazon has developed its own brands in part because they fill gaps in its inventory. If customers are searching for a certain type of shoe or skirt, and don’t see much of a selection from established brands, Amazon wants to be able to offer its own options. Oftentimes, shoppers may not realize that the names — such as Scout + Ro and North Eleven — are owned by Amazon. This also sends a message to brands reluctant to sell their full inventory on Amazon. If shoppers can’t find your products on the site, Amazon will make its own substitutes and become your competitor. For suppliers like Eclat, forging alliances with e-commerce companies reflects shifting demand from consumers, Chiu said in a note.

“Online apparel sales accounted for 19 percent of all apparel sales in 2016, up from 11 percent in 2011,” Chiu said. “Online sales are primed for strong growth.” Eclat expects new clients to contribute as much as 12 percent of 2018 sales, she said. The shipments to Amazon began in August, according to Chiu. “The contribution this year will be small, but the potential is high,” she said.

– Bloomberg

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Ralph Lauren Won’t Let Go of His Shrinking Polo Empire

The first time fashion designer Ralph Lauren tried sharing control of his retail empire ended badly. The new CEO left after only 18 months. Creative clashes, they both acknowledged. Now the 77-year-old Lauren is making another bet on an outsider to help revitalize the company he founded a half-century ago. Patrice Louvet, a former Procter & Gamble Co. veteran, started as CEO in July amid promises of an amicable working arrangement. But Lauren, who often refers to the company as “my baby,’’ isn’t going anywhere. He remains heavily involved running the business, working at the Manhattan headquarters about four days a week, people familiar with the matter said. And he’s made sure that he retains control over the creative side of the business. Louvet’s contract contains a provision, largely unnoticed, that ties his hands. Lauren, who remains chief creative director, retains a final say in brand and creative decisions, as well as in hiring and firing senior executives in design and marketing areas, the contract states. The previous CEO, Stefan Larsson, 43, who left in May, had no such restraint.

ralph lauren

All this raises questions for a company that is struggling to reverse a three-year slump in same-store sales in a tumultuous retail environment. Retail experts say Ralph Lauren could use fresh thinking as it tries to revitalize a brand that has lost cachet. Even signature Polo Ralph Lauren polo shirts aren’t selling like they used to, losing business to hipper brands such as Vineyard Vines. While the company relies on an aspirational image of beaches and yachts, other retailers are turning to celebrities like singer Selena Gomez and model Gigi Hadid as their brand ambassadors. “He’s obviously someone with an iconic view and what he’s achieved is incredible,” said Simeon Siegel, an analyst at Instinet LLC. “That said, retail has evolved and the company has not responded to that as fast as its peers. That’s the issue.’’

This year, Ralph Lauren dropped off a ranking of the 100 best global brands for the first time since 2011, according to consultant Interbrand, which looks at things like financial return and customer loyalty. The company has been closing retail locations, including the flagship Polo store on Fifth Avenue, and its stock has dropped by more than half from its peak in 2013. The shares, which declined 16 percent in the past year, fell as much as 2.3 percent on Thursday. “The combination of Ralph and Patrice’s experience lends itself to a powerful partnership,” the company said in a statement. “Together with the company’s leadership team, they are already evolving how our iconic brand is experienced and expressed, and we are encouraged by the early progress.” The 53-year-old Louvet said during an analysts’ call in August that Lauren was in charge of the creative side of the business and he would lead the company’s strategy, execution and business results.

Lauren’s longevity in retail fashion is unusual. He was 23 when he had his first big success. He convinced Bloomingdale’s to buy his wide ties when narrow neckwear was in vogue. His old-money styles have been followed and copied worldwide, and today he’s worth almost $6 billion, according to the Bloomberg Billionaires Index. He controls the majority of the company’s voting shares with his family. But the company, like other retailers, has been hit hard by the shift to online shopping from brick-and-mortar locations, forcing department stores to discount products. Ralph Lauren relies on retailers such as T.J. Maxx and Macy’s Inc. for more than 40 percent of its sales. Meanwhile, its product styling and marketing remain largely stuck in the past, retail analysts say. Ralph Lauren, which has historically succeeded on the back of its founder’s vision, continues to use him as a primary face of his company. Top pages of Polo Ralph Lauren’s Instagram account show old pictures of the founder and his family.

The troubles show up in sales of its polo shirt, which remains one of Ralph Lauren’s biggest revenue sources. The three best-selling full-priced polo shirts in the last six months are from Antigua, Nike and Moncler. Polo Ralph Lauren ranks 21st, according to fashion analytics company Edited. Analysts thought they saw signs of change in 2015 when Lauren, for the first time, stepped down as CEO and hired Larsson, a former H&M and Old Navy executive. He slashed more than 1,000 jobs and reduced the time it took to bring new fashion to the market. But Larsson and Lauren clashed over the CEO’s efforts to reinvent products, focus on core brands and bring in fresh design talent, according to people who declined to be named because the information is private. Larsson also faced resistance from employees close to the fashion idol. And there was a division between the creative and business operations. Lauren’s design team often pushed back suggestions from the wholesale group to align its products with what’s selling, the people said.

Larsson’s departure followed disagreement over his authority to overhaul the business, they said. He declined to comment, according to his representative. Louvet hasn’t yet detailed his strategy but told analysts he wants to improve the brand image, beef up the company’s online strategy and enhance the customer shopping experience. During 25 years at P&G, Louvet’s experience included running the global beauty business and fashion brands such as Gucci and Hugo Boss. There are signs that Ralph Lauren is trying to win back customers and create hype by bringing back its vintage pieces, for example. Its latest quarterly results showed it was making headway in getting customers to pay full price, even as same-store sales continued to fall. It will report its second-quarter results on Nov. 2. But Lauren and Louvet face more crucial decisions. Analysts have urged the company to reduce its roughly dozen brands to avoid consumer confusion, but that would mean sacrificing sales. And it needs to enhance its premium image and reduce its exposure in the mass market.

“A lot of his reputation is at stake on this,” Neil Saunders, managing director of GlobalData Retail, said of Lauren. “If this goes wrong again, it will tie back to him and investors will start to question whether he’s actually more of a liability or an asset.”

– Bloomberg

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Indian Cities to See Fastest Growth in Asia Over Five Years

Delhi will have the fastest growth of any city in Asia, with the economy to be almost 50 percent larger in 2021 than it was at the end of last year. Indian cities are set to expand the most across the region, with growth speeding up from the past 5 years, according to a new study from Oxford Economics, which ranked Asia’s 30 largest cities. With financial and business services projected to be the fastest growing sector in India, Delhi’s dominance in this industry will lead to higher growth and higher incomes. “Limits on foreign ownership of Indian companies are gradually being reduced or eliminated,” wrote Mark Britton, lead economist on the report. “In the short term this is conducive to strong growth in Delhi’s professional services sector, as overseas investors seek advice on possible deals, while long term it should mean steady income streams for such businesses.”

indian_citiesConsumer companies such as Japan’s Muji are also betting on that change. Parent company Ryohin Keikaku Co. sees India becoming its second largest international market, after China. And Amazon.com Inc.’s Indian unit is seeking approval to invest in a food supply chain and take advantage of government moves to ease rules on foreign retailers. China’s expansion will slow, although the largest five cities will still be recording growth rates of 6 percent or more. There will be a slight slowdown across the region amid moderating import demand from China, with growth expected to average 4.2 percent per year over the five years to 2021, down from 4.5 percent in 2012-2016. Even so, that’s still much faster than the developed economies and cities in the region – and that’s a big opportunity for companies. Starbucks Corp. plans to almost double the number of stores it has in mainland China by 2021, and McDonald’s Corp. plans to add 2,000 new restaurants over the same period. Both companies recently announced they were buying out their partners in Mainland China and taking control of operations.

However, there are significant differences across the region. Japanese cities are likely to remain at the bottom amid a challenging demographic outlook, with Osaka last in the rankings as its working-age population falls by approximately 1 percent per year, the report said. Tianjin is forecast to clock the fastest growth in China, given that it has a large manufacturing base and one of the nation’s busiest ports. However, as the services sector expands, the manufacturing and shipping industries may prove to be less supportive in future. Ho Chi Minh was the only non-Indian city in the top five, reflecting the city’s success in establishing itself as a manufacturing center, as well as its strong services sector.

  • Bloomberg

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ThaiBev To Buy KFC Restaurants in Thailand

Thai Beverage, the spirits giant that makes Chang beer and SangSom rum, is expanding into the fast-food business to take advantage of the rising appetite for fried chicken in Asia. ThaiBev agreed to purchase more than 240 existing KFC restaurants in Thailand for about 11.3 billion Thai baht ($340 million). A deal is also in place for the company to take over stores that are being developed, with the cost of those locations to be determined when the transaction closes, according to a filing. KFC is operated by Louisville, Kentucky-based Yum! Brands Inc., which also runs the Taco Bell and Pizza Hut chains. Billionaire Chairman Charoen Sirivadhanabhakdi, who founded the company, has been seeking to diversify ThaiBev’s operations for years, with a goal of generating more revenue from nonalcoholic beverages by 2020. The fast-food push comes as Western restaurant companies increasingly target Asia as a key market for growth. For Thai Beverage, the KFC deal is a bid to seize on the popularity of chicken in Asia, according to Nirgunan Tiruchelvam, a director at Religare Capital Markets in Singapore.

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“The KFC acquisition is a very good way of exposing oneself to the rise of quick-service restaurants in Asia, especially the rise of chicken consumption,” he said. Emerging-market demand for KFC is strong, and the concept has a local focus in each market. The brand is centered around a protein with few belief-based dietary restrictions, giving it a broad base of potential customers. Yum, which spun off its China division last year, is seeking to accelerate development of its Pizza Hut, KFC and Taco Bell brands, particularly in overseas markets. At the same time, Yum aims to become 98% franchised by the end of fiscal 2018. Thailand accounted for 2 percent of KFC’s sales in emerging markets last quarter. It was the only region in that division that saw sales drop year-over-year, posting a 2 percent decline.  Charoen previously expanded his property business amid government measures to curb alcohol consumption in Buddhist Thailand. He was ultimately forced to list the company unit in Singapore in 2006 after activists and monks held protests to block a local share sale by the company.

The company’s long-term strategy involves generating 50 percent of its revenue from countries outside Thailand and nonalcoholic beverage by 2020. That’s expected to drive more deals in the region. Sales outside that country amounted to less than 4 percent in the last fiscal year, according to data compiled by Bloomberg. “Thai Beverage is a company that is looking to expand in the food and beverage space in Southeast Asia,” Tiruchelvam said. “It has very strong core cash flow from its spirits business, and it’s expanding into other areas.”

  • Bloomberg

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Reliance Industries Plans Refinancing of Its $12 Billion Debt

Reliance Industries Ltd. plans to refinance a significant portion of about $12 billion of borrowings that mature over the next three years and may sell bonds to repay the debt, according to company executives with knowledge of the matter. India’s largest company by market value will repay some of the debt coming due, mostly bonds and interest, the officials said, asking not to be identified discussing confidential matters. Reliance’s repayments from 2018 through 2020 will be its biggest for any previous three-year period and include about $8.14 billion of term loans, $3.52 billion of bonds and a $300 million revolver loan, according to data compiled by Bloomberg. It also has about $1.65 billion of interest payments, the data show.

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Reliance’s borrowings have ballooned over the past five years as the group invested in building its telecom business, a pet coke gasification unit and in expanding petrochemicals capacities. The plan to tap the bond market is part of a larger trend that’s seen Indian corporates choosing bonds over loans for the first time in at least a decade. One of the fastest economic growth rates in the world and Prime Minister Narendra Modi’s reforms have attracted global funds to India, reducing costs for issuers. “There is a lot of appetite among investors for Indian issuers,” said Raj Kothari, head of trading at Jay Capital Ltd. in London. “Reliance being the biggest company from India with solid finances, there would be no challenges for the company in refinancing its debt.”

Controlled by second-richest Asian Mukesh Ambani, Reliance has sufficient cash though it won’t use it to repay maturing debt as the company’s credit ratings and strong finances enable it to raise funds at competitive rates, the people said. A Reliance spokesman did not respond to an email seeking comment. S&P Global Ratings has a BBB+ score on Reliance’s long-term debt, two levels above the sovereign; while Moody’s has the company at Baa2, a notch above the Indian government. Reliance’s $1 billion 4.125 percent 2025 notes was quoted at 139 basis points over U.S. treasuries, the tightest spread since issuance, and lower than the average of 185 basis points on an index of Indian investment-grade debt compiled by Bank of America Merrill Lynch. The company earned about 94 billion rupees, or about a quarter of the company’s profit before tax, in the year ended March by investing its surplus cash in interest bank deposits, debt securities and other instruments, according to its annual report.

Reliance has yet to decide whether to raise the funds for refinancing through local- or foreign-currency bonds, according to the people. The company hasn’t decided on the timing of any new issuance or on the amount it plans to raise, though it will probably use several tranches as debt matures, they said. India’s second-largest oil refiner had outstanding debt of more than $31 billion as on June 30 and cash of about $11 billion. Reliance generated an operating profit of about 147 billion rupees ($2.3 billion) in the quarter ended June, which suggests that the figure could be around 588 billion rupees for this financial year. Reliance’s reported debt numbers may actually increase over the next two to three years due to planned investments of about 550 billion rupees in the current fiscal and a “significant payment” due for capital spending and deferred liabilities, Kotak Securities had said in a report last month.

  • Bloomberg

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Dominos Gets Leaner As It Serves Fatter Pizzas

Domino’s Pizza will offer more cheese and toppings and a softer crust at no added costs. It’s partly due to a lower Goods and Services Tax, Pratik Pota, chief executive officer at Jubilant Foodworks Ltd., the owner of the pizza chain’s franchise in India, told BloombergQuint in an interview. Total levies on quick service restaurants like Domino’s have come down to 18 percent from over 20 percent earlier. There’s more to it. Pota is focussing on the performance of each store, has scaled down expansion and cut discounts to boost profits at India’s largest pizza chain. He’s also shutting down non-performing stores and reducing headcount. The effort is to improve quality and profits, said Aditya Joshi, research analyst at Anand Rathi Shares and Stock Broking. The new CEO replaced the buy-one-get-one free offer with everyday value to focus on profitability and a shorter break-even period, he said.

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Jubilant Foodworks opened 13 new Domino’s outlets and one Dunkin’ Donuts store in the three months ended June. It closed five pizza and nine Dunkin’ Donuts outlets during the quarter. The company will add 40-50 new stores in the ongoing financial year, less than half of what it opened in the previous year. Jubilant Foodworks had 1,125 pizza stores across 264 cities and 55 Dunkin’ Donuts outlets in 15 cities as of June 30, according to its filing to exchanges. “Pota is expected to drive higher SSG (same-store-sales growth) through value offering strategy and closure of non-profitable stores,” brokerage Edelweiss Securities Ltd. said in a report after the company announced its April-June results. The number of employees per store too has come down. A Domino’s outlet had 21 staffers in the quarter ended June, down from 22 in the previous three months and 23 in the year-ago period, the company said in a conference call with analysts.

There is a possibility that the number will go down further and the company is exploring ways to use technology extensively, said Pota, who took over in April. He has worked at India’s largest consumer goods maker Hindustan Unilever Ltd. and beverage giant PepsiCo. We remain open to ways which will help drive efficiencies, improve productivity and towards that, we use technology extensively in our stores and techniques like six sigma to improve and reduce the headcount. Pratik Pota, Chief Executive Officer, Jubilant Foodworks

The chain commands 72 percent share in the organised pizza market, Edelweiss said in its report quoting Euromonitor International.  Jubilant Foodworks told analysts it targets to cut the losses at its Dunkin’ Donuts franchise by half in the ongoing financial year and turn them profitable over the next two years. “As of now, we are not contemplating to close the brand,” Hari Bhartia, co-chairman and director at Jubilant Foodworks, said in the conference call. “We are hopeful with all the good initiatives that have been done. We are starting to see very good results.”

  • Bloomberg

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Tata Sons Hiring Bankers to Help Sell or Merge Dozens of Units

Nearly six months after his turbulent elevation to run India’s biggest conglomerate, Natarajan Chandrasekaran is assembling a team of dealmakers to refocus some of the group’s biggest businesses, expand its financial services and consumer businesses and sell or merge dozens of smaller units, according to interviews with senior executives. As many as one-third of the group’s 100-plus units could go as Chandrasekaran and his team try to balance the need to prune unprofitable businesses at the 149-year-old group with the Tata family legacy of social responsibility, according to officials who asked not to be named because the negotiations are private. Chandra, as the 54-year-old chairman is called by his colleagues, has set his primary task to bring more focus to a conglomerate that assembles buses in Africa, serves kebabs at London’s ritzy Bombay Brasserie and sells cheap bags of salt in Indian supermarkets among much else. There are plans to merge consumer and retail businesses, bring infrastructure firms under one umbrella, club defense units together and combine technology firms, according to the people.

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“Chandrasekaran is hoping to increase the efficiency of the conglomerate and exit from businesses which don’t fit the group’s priorities or don’t have the ability to scale,” said Harish H. V., partner at consultancy firm Grant Thornton India LLP. “He is trying to simplify the complex conglomerate business structures, many of which were created in another era due to licensing and other regulatory reasons or the need to form joint ventures.” A Tata Group spokesman said the company does not comment on such matters.

The six largest listed Tata companies account for about 90 percent of the group’s market capitalization and total revenue, according to data compiled by Bloomberg. To help broker the reorganization, Tata Sons Ltd. in May hired former investment banker Saurabh Agrawal as chief financial officer, filling a role that had been vacant for five years. Agrawal was a key lieutenant of Kumar Mangalam Birla and helped the billionaire merge Grasim Industries Ltd. with Aditya Birla Nuvo Ltd. into a $9 billion industrial group, and Idea Cellular Ltd. with Vodafone Group’s local unit to create India’s largest wireless carrier. Shuva Mandal was picked to be the group’s legal counsel the same month, taking over from old Tata hand Bharat Vasani.

Chandra also hired Ankur Verma, who was Bank of America Corp.’s head of India for deals in technology, media, telecommunications, oil and gas, and Nipun Aggarwal who specializes in metals and mining deals. More hirings from banks are expected, the executives said. Chandra’s priority of restructuring Tata “is evident from the fact that the first set of core team members have come from investment banking and legal background,” Harish said. The marathon-running chairman’s focus is on repairing the group’s balance sheet, in line with his fitness-before-performance mantra. He has asked top executives across companies to focus on profit and cash reserves, not EBITDA, a measure that doesn’t include interest payments on loans and other costs, one of the people said. Total debt for 25 of Tata’s listed companies had swelled to 2.42 trillion rupees ($38 billion) as of March 2017, compared to 1.75 trillion rupees when Cyrus Mistry took over as chairman from Ratan Tata in December 2012. That doesn’t include about 350 billion rupees of debt at unlisted and unprofitable Tata Teleservices Ltd., which is high on Chandra’s list of urgent fixes.

Chandra may have to tread carefully in the way he reorganizes the group to avoid the fate of his predecessor. The board of Tata Sons ended Mistry’s four-year tenure and appointed Ratan Tata as interim chairman in October, citing a “trust deficit” and “repeated departures” from the group’s culture and ethos. Mistry, in turn, had accused Tata Sons and its largest shareholder Tata Trusts, of “oppressing” the interests of investors and had said Ratan Tata, through his chairmanship of Tata Trusts, had sought to control business decisions. Chandra, speaking to Tata Steel Ltd. shareholders on Aug. 8, said there have been challenges “owing to leadership change” at Tata Sons. The input from Ratan Tata and other owners in managing the company had been “value enhancing,” he said. Ratan Tata’s intervention to settle an acrimonious $1.2 billion lawsuit with NTT Docomo Inc. has paved the way for Chandra to sell or merge the troubled telecom unit. Tata Teleservices Ltd. has been battered by a tariff war unleashed by the entry of Mukesh Ambani’s Reliance Jio Infocomm Ltd.

All consumer-facing and retail businesses could be brought under one umbrella, according to the executives Bloomberg News spoke to. Under consumer products and retailing, Tata Group sells products ranging from bottled water to jewelry and footwear through a bevy of companies such as Tata Global Beverages Ltd., Tata Coffee Ltd., Titan Company Ltd., Trent Ltd. and Tata Unistore Ltd. Similar plans are being worked out for the defense units, the people said. Tata Advanced Systems Ltd., Tata Advanced Materials Ltd. and some of Tata Power Company Ltd. and Tata Motors Ltd. are part of group’s defense portfolio. Infrastructure firms may also be clubbed together while technology arms may be folded into Tata Consultancy Services Ltd., the company that Chandra helmed for more than seven years, making it Asia’s largest software services provider and Tata’s cash cow. Financial Services, currently a smaller piece in the group and mostly under closely held Tata Capital Ltd., is set to get more attention under the new chairman. “The management bandwidth, the financial resources, everything which is finite can be channeled in a proper way,” said Vishal Kulkarni, a Singapore-based analyst at S&P Global Ratings. “Rather than putting up resources in businesses that are not growing or not returning sufficient returns, it maybe better to pool it in companies which are the long-term focus.”

  • Bloomberg

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