Indian Retailer

NEW DELHI: The government has started insisting that the power to legally direct the actions of a company should at all times be in Indian hands if the investments it makes in other companies are not to be classified as foreign investment.

The attempt to plug the loophole in the foreign direct investment (FDI) rule follows widespread criticism that the new rules will allow foreign investment in excess of the allowed limit and effectively transfer ownership and control to foreigners even in sectors restricted to them.

The Foreign Investment Promotion Board (FIPB), the apex body that clears FDI into the country, is putting this new rider to ensure that the spirit of the new liberalised FDI norms is not defeated through undeclared arrangements between the Indian and foreign partners in ventures with local companies.

The rider is at the suggestion of the Department of Industrial Policy and promotion which framed the FDI policy. The move is to stall possibilities of foreigners effectively controlling the decisions of the investing company even when on paper the reins of the company stay with Indian promoters.

The idea is to remove the chances of firms in key sectors such as retail and defence being controlled by foreigners above the levels allowed by the law. “This is an added safety measure,” says a member of FIPB. “There are lots of ways to shift control through ‘inter se’ agreements (or the understanding between the partners in a joint venture). The new rider is to ensure that control is actually in Indian hands always,” said the official, who asked not to be named.

Leading lawyers said it is possible for promoters to comply with ownership and control norms in paper, but when the corporate veil is lifted, one might find ownership somewhere else. FDI expert and managing partner of law firm KDB Associates, Sumant Batra, said the new rider makes the letter and spirit of the FDI norms more explicit. It seeks to prevent attempts to disguise the control in a company through shareholder agreements, which are not filed with the government (unlike the articles of association of a company) but are relied upon for enforcement of contracts, explained Mr Batra.

The Board is likely to suggest this condition if it allows Analjit Singh and Asim Ghosh to sell 49% in their two companies to a foreign firm, without these companies’ downstream investments in Vodafone Essar Ltd getting classified as foreign investment, said a person privy to the development.

TURIN: Till now it was just software and small cars. But if Italian coffee giant Lavazza S.p.A has its way, India might soon become the hub for coffee in Asia.

In 2007, Lavazza walked into the country by acquiring the Barista coffee house business and Fresh & Honest Cafe, a company that specialises in serving corporate clients with vending machines and ground coffee products, for a reported sum of 100 million euros. And now, it’s time to expand, according to Gaetano Mele, CEO at the Italian Lavazza Group. On the cards is Lavazza’s first coffee plant outside home and an ambitious plan to expand its business in the Asia-Pacific region.

About 60% of Lavazza’s revenues come from Italy and rest from foreign markets. Asia contributes a mere 5% to its coffers. So, it is no surprise that Italy’s biggest coffee maker wants to use India and its relatively cheaper raw coffee beans as a base to expand into other markets.

“We are making fresh investments in building a coffee processing plant in Chennai on the lines of the one that we have in Turin,” says Mele. “It is our first factory outside Italy and should be operational by the first half of 2011.”

Mele is banking on the country’s young population and its potential disposable income. China is also a budding market. In the pipeline is a range of designer cafes, such as the popular Lavazza Espression where décor and service make an exciting proposition to coffee lovers.

But more important is the money that Lavazza would save on the nearly 110% import duty it goes through by manufacturing its products here. “Around 70% of the retail price of our products is due to the cost of raw materials,” says Attilio Capuano, director, Asia & Pacific, Lavazza S.p.A. “It will be a huge saving for us once we start manufacturing in India.”

At the same time, the Lavazza brand here is undergoing a brand transition with the company’s logo slowly being integrated with the Barista logo. “We don’t want to suddenly intrude,” points out Mele. “It will be a slow makeover.” Incidentally, Barista has not performed according to the expectations of the Lavazza group. “We have still not broken even,” says Capuano.

But the company’s other spearhead, Fresh & Honest Cafe, a part of the Indian coffee vending industry, is going great guns. “We have most of the top hotels as our clients and from only 14 coffee vending machines a month in 2007, we are now selling 100 machines a month, which translates into sales of 50,000 coffee cartridges every month,” reveals Capuano. “We will soon touch a lakh,” he adds.

Today, compared to around 800 stores of close competitor Café Coffee Day, Lavazza has just over 200 stores in the country. “Don’t expect our numbers to go up drastically,” explains Mele. “We are not competing with Café Coffee Day.” Well, that’s how conservatively the Italians “espress” themselves!

MUMBAI: Retail stores operator Pantaloon Retail (India) Ltd on Friday posted a net profit of Rs 43.82 crore in the first quarter ended September 30, 2009, up 21.11 per cent over the corresponding period a year ago.

The company had net profit of Rs 36.18 crore in the September quarter last fiscal, Pantaloon Retail (India) said in a filing with the Bombay Stock Exchange.

Total income of the company increased to Rs 1,781.74 crore in the quarter under review from Rs 1,512.37 crore during the same period previous year, it said.

The company operates multiple retail formats in both the value and lifestyle segment of the consumer market.

It operates over 1,000 stores in 61 cities across the country. Its principal formats include Pantaloons, a chain of fashion outlets, Big Bazaar, an Indian hypermarket chain; Food Bazaar, a supermarket chain , and Central, a chain of seamless destination malls.

Some of its other formats include Depot, Shoe Factory, Brand Factory, Blue Sky and Fashion Station.

Shares of the company closed at Rs 323.35, marginally down from the previous close on the BSE.