MONTHLY PUBLICATION 18 September 2019 | Vol-1, Issue-9

Road Less Travelled

INSIDE THE ISSUE Planting progress completed (% of normal area) as on Sept 13 WE MET UP WITH MS. ASHWINI Total kharif crop area Pulses BHIDE, MD, MMRCL Sugarcane Cotton Conversation with Oilseeds Ms Ashwini Bhide, Rice Coarse cereals MD, MMRCL – the

80% 90% 100% 110% 120% nodal agency responsible for the RAINFALL AND SOWING – construction of AUTHORISED ECONOMIC FARING WELL Mumbai Metro Line OPERATOR PROGRAMME (AEO) 3 – 34km long, fully Robust rainfall till date, regional variations Underground Takeaways from programme on Authorised remain. According to IMD, rainfall (since 1st June Colaba-Bandra- Economic Operator (AEO) and meetings with till 16th Sept) is 4% above LPA, with central India SEEPZ corridor. experts and customs officers. AEO is a part of and southern peninsula receiving excess rainfall the ‘ease of doing business initiative’, jointly (+23% and +11%). However, there is deficient implemented by the central and state Detailed story on pg. 2 rainfall in east, north east (-18%) and north-west governments in India. What are the benefit to India (-8%). Indian importers and exporters? Detailed story on pg. 2 Detailed story on pg. 3

RETROSPECTIVE PERSPECTIVE Snippets  The importance of being Yemen  US-Taliban peace talks called off. Who’s surprised?  The Chidambaram Saga so far…

ON A COST CUTTING DRIVE AGRI INPUTS TO SURPRISE News round-up of the month We spoke to an eastern UP based C&F (clearing STREET EXPECTATIONS Detailed story on pg. 5 & 6 and forwarding) agent for paints and Delayed monsoon in India, weak North America performance coatings company, Akzo Nobel, outlook (mainly by BASF) and weak Q1 business which has 52 paint depots spread across India, performance in agrochemicals globally painted with a couple of them in UP at Ghaziabad and quite a negative picture for agro-inputs. But the Lucknow. ground reality is different. Detailed story on pg. 3 Detailed story on pg. 4

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Rainfall and sowing – faring well We met up with Ms Ashwini Bhide, MD, by Anjali Verma & Aditi Mohol MMRCL Robust rainfall till date, regional variations remain. According to IMD, by Vibhor SInghal rainfall (since 1st June till 16th Sept) is 4% above LPA, with central India We met up with Ms. and southern peninsula receiving excess rainfall (+23% and +11%). Ashwini Bhide, MD, However, there is deficient rainfall in east, north east (-18%) and north- MMRCL – the nodal agency west India (-8%). responsible for the construction of Mumbai Planting progress completed (% of normal area) as on Sept 13 Metro Line 3 – 34km long, Total kharif crop area fully Underground Colaba- Pulses Bandra-SEEPZ corridor. Excerpts from our Sugarcane conversation with her: Cotton Oilseeds  Construction work on MM3 is on track, and is Rice progressing rapidly. Coarse cereals 60% of the tunnelling 85% 90% 95% 100% 105% 110% 115% work is complete, and should be over by June As per World Weather Inc, sufficient amount of rain is needed to support 2020. Overall, phase soil moisture levels for long-term crop development in specific 1 of the project (SEEPZ to BKC) is expected to be operational by locations. However, excessive rainfall in certain Central India regions is December 2021 and the remaining phase (BKC to Colaba) by expected to add an additional threat of flooding. Dry weather is needed June 2022. in certain regions to improve prospects for late season crop  The final cost of MM3 is expected to be c.Rs 310bn. For a 34km development and reduce the threat of additional flooding. Barring long route, it stands at almost Rs 9bn/km which is significantly eastern India, water reservoir levels were above last year’s level. higher than other UG metros in the country that are at Rs 5-6bn/km. As on 13th September 2019, kharif production covered 98% of the There are many reasons for this higher cost. One is that the rock in normal area. Total area sown was 104.6mn ha vs. 105mn ha in 2018. As Mumbai area is harder than elsewhere, with a high water table. But compared to last year, sowing is currently lower for sugarcane (-6%), the most important factor is unavailability of land – because of this, pulses & rice (-2%), oilseeds was flat, while it was higher for cotton most ‘stations’ (20 of the total 26) on this line are underneath (+5%) and coarse cereals (+2%). roads and not ‘cut and cover’ like in other underground metros; 7 of the 26 stations have to be built using NATM (New Good monsoon and sowing should bode well for consumption, which Austrian Tunnelling Method), which also increases the cost. has been stressed for a couple of quarters. An added support should  A lot of hue and cry has been made about building the car depot in come from government spending, which was lacklustre during Aarey Colony, leading to the destruction of the forest. However, it elections. Here is hoping for a better 2HFY20! needs to be understood that all other options for the car depot were

Period: 01-06-2019 to explored (such as Mahalaxmi racecourse, BKC, Kalina University) Day: 16-09-2019 16-09-2019 and only then was Aarey chosen. The depot cannot be just shifted Meteorological Actual Normal % Dep. Actual Normal % Dep. to any other location, as it is not just about completing the Subdivisions from from project, but also running the metro operations for the next 50- Normal Normal 70 years. So ‘non-technical’ people should refrain from giving East & North East India 10.9 9.9 11% 1056 1288 -18% suggestions about where to make the car depot.  Also, with respect to Aarey and the city’s green cover, one must North West India 2.3 4.6 -50% 520 566 -8% consider that Sanjay Gandhi National Park (SGNP) occupies Central India 4.3 5.4 -20% 1124 913 23% 11,687ha while Aarey occupies only 1,287ha. The car depot South Peninsula 8.2 5.2 58% 713 644 11% will only require 30ha of land, which accounts for just 2% of Country as a whole 5.5 5.8 -5% 847 813 4% the Aarey land (0.2% of the SGNP + Aarey land). As for tress, there are 2.9mn trees in Mumbai – 0.5mn in Aarey. Out of those, only 2,646 tress will be cut for the car depot – out of which 461 will be transplanted. Additionally, MMRCL will plant 6x more tress at other locations. So the arguments – that the car depot is destroying Aarey or the green cover of the city – are completely flawed.

18 September 2019 | Vol-1, Issue-9 | Page - 2 Road Less Travelled | MONTHLY NEWSLETTER

Authorised Economic Operator Programme (AEO) by Vikram Suryavanshi

We recently attended the programme on 10. Recognition by partner government agencies and other Authorised Economic Operator (AEO) and stakeholders as part of this programme. met experts and custom officers – to understand its benefit to Indian importers and exporters. AEO is a part of the ‘ease of doing business initiative’, jointly implemented by the central and state governments in India. On a cost-cutting drive AEO is a facilitation programme under the aegis of the World Customs by Vishal Gutka & Preeyam Tolia Organization (WCO) for SAFE framework of standards to secure and We spoke to an eastern UP based C&F facilitate global trade. It encompasses various players in the international (clearing and forwarding) agent for paints supply chain. Under the programme, an entity engaged in international and performance coatings company, Akzo trade is approved by customs as ‘compliant with supply chain security Nobel, which has 52 paint depots spread standards’ and thereby granted AEO status, which comes with certain across India, with a couple of them in UP at benefits. Ghaziabad and Lucknow. AEO is a voluntary programme, focused on self-assessment and This C&F agent has been associated with Akzo since 2012 and has seen compliance. In India, it was launched in 2011 on a pilot basis and rolled business growing 9x over this period, as Akzo’s management has out in a full-fledged manner in November 2012. The Central Board of accorded a ‘Focus City’ status to the city that he operates in. In all, it has Indirect taxes & Customs has developed a comprehensive unified trade chosen 100 Focus Cities across India. facilitation programme by incorporating the existing ACP scheme and ongoing AEO Programme into a Revised AEO Programme from July Following are the key takeaways from the meeting: 2016 – with strong internal control systems.  Akzo has become very focused on profitability – as per its global There are multiple tiers of certification in the new AEO programme: mandate, it is supposed to achieve 15% EBIT by 2020, and it has taken various initiatives to curtail costs. Certification No of status Details  It has done away with the position of Territory Sales officer (TSO) holder (average salary of Rs 60-65,000) and has instead appointed three AEO T1 2575 Verification on basis of document district sales representatives (DSRs), whose salaries range from Rs submission 15-20,000. The C&F agent believes this approach will enable Akzo to AEO T2 421 Onsite verification deepen its engagement with dealers, and simultaneously improve AEO T3 3 T2 for 2 years, physical verification its reach. AEO LO 647 For logistics players, physical  Premiumisation trends remain intact with the management’s focus verification on increasing the salience of premium products. As on 31.07.2019  Asian Paints has become very aggressive in the market in the past 6- Benefits of AEO Certification: 9 months after its massive capacity addition. 1. Inclusion of Direct Port Delivery (DPD) of imports to ensure just in How does the C&F agent structure operate for Akzo? time inventory management by manufacturers – clearance from Paint companies have two kinds of depots: (1) company-owned and wharf to warehouse. managed, and (2) with another depot, i.e., business operations are 2. Inclusion of Direct Port of Entry (DPE) or factory stuffed containers outsourced to C&F agents. Since paint companies find it difficult to meant for exports. manage business operations 3. An AEO status holder will get an e-mail about the arrival/ departure that are spread out in nooks of a vessel carrying the consignment. and corners of the country, they 4. Faster disbursal of drawback amount – within 72 hours of EGM outsource supply-chain submission. operations to improve their 5. The assessment/examination shall be on priority basis. level of servicing to dealers. 6. Faster disbursal of refund, including IGST refund and rebate for an AEO status holder – within 45 days of submission of complete Commission / distribution documents. fees for C&F agents = 3% of 7. Automatic activation of Deferred Duty Payment option for AEO-T2 sales and AEO-T3 status holders. The company decides that 8. Request-based on-site inspection/examination. product mix, not the C&F agent. 9. Paperless declarations with no supporting documents. The agent gets 14 days credit

18 September 2019 | Vol-1, Issue-9 | Page - 3 Road Less Travelled | MONTHLY NEWSLETTER

from Akzo to make payments for goods procured; the agent also provides 150 135 Depots a similar credit period to dealers. 125 120 104 Expenses incurred in managing business operation = rent + electricity + other operating costs. C&F agents get an additional 1% on sales (in 90 addition to the 3% commission) for freight costs incurred in transporting 60 52 goods from the warehouse to dealer outlets, but most times, the reimbursement received equals the amount spent on freight. 30

He seemed quite satisfied with the running of Akzo Nobel’s business 0 operations, as his ROI remains +18%. APNT BRGR KNPL AKZO

Agri inputs to surprise street expectations by Surya Patra & Deepak Chitroda

Delayed monsoon in India, weak North America outlook (mainly by BASF) However, the gloom and doom is not the real picture on the ground – and weak Q1 business performance in agrochemicals globally painted reality suggests improved demand from Q2 in the domestic and North quite a negative picture for agro-inputs. But the ground reality is different. American market. In fact, rainfall in India was 4% above the long-period average (LPA) by 15th September 2019, indicating a shift in kharif Monsoon certainly plays an important role for the demand prospect of demand to Q2 and excellent prospects for rabi crops (mainly wheat) in H2, agriculture inputs. As such, the pre-kharif predictions about an El-Nino as there will be high levels of moisture in the soil due to the late effect on India and the actual subsequent delay in monsoons impacted monsoon. Specifically, rainfall was 23%/11% above LPA in central/south the Q1 performance of domestic agri-input companies. Simultaneously, regions in India, which are usually less irrigated areas. Thus, kharif erratic weather in North America did not support growth. As a result, street planting – rice, pulses, cereals and oilseeds – was at 98% of normal. expectations from agri inputs for FY20 are at a low point. A sharp recovery in monsoon indicates strong rabi-season demand

Source: IMD, PhillipCapital India Research

Similarly, on the North America front, demand prospects have improved US planting areas recovered by June, with only a marginal decline with key US crops corn and soybean achieving 96% and 97% of normal- vs. 2018 season planting (see adjacent chart), despite the late start due to erratic 99 weather and floods. Additionally, China’s recent indication about lifting Corn Soybean additional tariffs on US soybeans has improved agriculture inputs demand 98

visibility in North America. 97

% % 96

95 94 93

2015 2016 2017 2018 2019

Source: Bloomberg, PhillipCapital India Research

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RETROSPECTIVE PERSPECTIVE – by Roshan Sony Snippets

The importance of being Yemen Maryland – the same presidential retreat that was used to set up a Yemen is becoming increasingly central peace treaty between Egypt and Israel in the 1970s. With this latest to the power struggle between Shia- development, there is really no chance that the US’ involvement in dominated Iran and Sunni Saudi Arabia, Afghanistan is going to recede anytime soon, and may very well and with the recent drone attacks on escalate. Saudi, it is worth putting a scanner on what is going on in the region along The Chidambaram Saga so far… with a brief background. In 2007, the Foreign Investment Promotion Board (FIPB) cleared FDI worth Rs 46.2mn for INX Media (promoted by Here is how things got so bad in Yemen Peter Mukerjea and wife Indrani - who are both – In the Arab Spring uprising of 2011, Yemen’s longtime dictator in jail for the Sheena Bora murder case), but it president, Ali Abdullah Saleh, was overthrown by his deputy, did not approve downstream investment. In Abdrabbuh Mansour Hadi. However, Hadi’s takeover was neither January 2008, the intelligence unit of the smooth nor backed by an absolute majority or consensus within finance ministry found an anomaly in money Yemen. Among separatist movements that emerged stronger in the flow from three Mauritius-based firms into INX ensuing chaos, was the Houthi movement, which supports Yemen's Media. The case was forwarded by the Income Shia Muslim minority. However, in 2014 and 2015, Houthis received Tax Department in Mumbai to the Enforcement support even from Sunnis (mostly military, loyal to Saleh) Directorate (ED), which launched a probe. disillusioned with Hadi’s takeover – and with this support, they managed to take control of north Yemen stronghold - Saada. In May 2017, the CBI finally filed an FIR against INX Media. It has said that INX Media hired Chess Management Service Pvt. Ltd. to come to Hadi fled abroad in March 2015 and alarmed by the rise of the some sort of settlement with the FIBP – Karti Chidambaram, son of P Houthis, Saudi Arabia – which believes that Houthis are backed by the Chidambaram, is the founder director of this company. It has alleged Shia-dominated Iran – began an ‘air campaign’ in Yemen, aimed at that INX still made a downstream investment in INX News and bringing Hadi back into power. America backs Saudi Arabia and has generated Rs 3.05bn in foreign investment. been pointing the finger steadily at Iran for a while now. It has even given indications that the recent attacks on Saudi Aramco were via Indrani Mukerjea turned approver in this matter, saying that INX armed drones (UAVs) by Iran. Media got a favourable deal after she had a meeting with P Chidambaram seeking FIPB clearance in 2008. In March 2018, she Meanwhile, Yemen, already a poor country, has seen one of the worst told the CBI that she and husband Peter entered into a US$ 1mn pact humanitarian disasters in recent times, the extent of which will with Karti Chidambaram (son of P Chidambaram) for a ‘favourable probably become clear only if the region finally settles down to some outcome’ in this case. semblance of peace. Millions of people are already reported to be on the brink of starvation in Yemen, not to mention thousands of deaths The ED and CBI have said that Chidambaram was not authorised to due to diseases such as cholera. Reports indicate that more than approve investments of more than Rs 6bn, but in 2006, as finance 85,000 children have perished due to hunger as of November 2018. minister, he approved the Rs 35bn Aircel-Maxis deal to favour his son, Karti. According to the CBI, Aircel Televentures paid Rs 2.6mn to US-Taliban peace talks called off. Who’s surprised? a company linked to Karti Chidambaram and US$ 200,000 to Chess The talks have been going on Management Services as payments for buying a legal compliance for a year and their aim was to software. In October 2018, the ED seized assets worth Rs 540mn end the 18-year war in belonging to Karti Chidambaram, including properties in New Delhi, Afghanistan. The US was keen Ooty, the UK and Barcelona, in relation to the INX Media case. In to withdraw its 18,000 troops September 2019, the Supreme Court ordered Chidambaram to stay from Afghanistan; in in judicial custody in Tihar Jail in a two-week judicial custody. exchange, the Taliban was to discourage terror groups from using the country as a base. Considering the dubious nature of the deal – which Are more politicians likely to become less ‘untouchable’ now? Is hinged on the Taliban not reverting to its violent ways as a nobody above the law in India, finally? Time will tell. For now, the negotiating tactic – it is no surprise that talks have been called off. message sent out by the current government seems to be – let the Tellingly, the immediate reason for failure proved to be Taliban’s courts decide, but thou shall stand trial, however hallowed thou are. recent attack in Kabul, which killed 12 people including a US soldier. In any case, there was general outrage that Taliban leaders were to set foot on US soil for a so-called secret meeting in Camp David in

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News round-up of the month

A u g u s t ( 1 5 - 31) successfully landed, and it would have the European Union for a Brexit deadline deployed the Pragyan rover onto the surface. extension. The House of Commons rejects

 Exports fall 6% in August, trade deficit narrows. Johnson's motion to hold a general election in INDIA  Government announces Rs 700bn package for October. The Johnson ministry releases the  India's GDP growth falls to 5% in Q1FY20. exports and real estate. Operation Yellowhammer contingency plans in  RBI to transfer Rs 1.76tn to the government.  Auto sales continue to slump. the event of a no-deal Brexit.  GST Council to meet in Goa on Sept. 20.  Rupee suffers biggest fall of the year.   Government rolls back super-rich surcharge for Middle East nuclearisation: Saudi Arabia  Services PMI slipped to 52.4 in August. flags plan to enrich uranium; but US seeks equity investors. Says Corporate Social  RBI data: India Inc’s foreign borrowings double nuclear pact. Crown Prince Mohammed bin Responsibility violations are not a crime. yoy to US$ 4.98bn in July.  Salman had said in 2018 that if Iran developed CBI arrests former FM Chidambaram, amid nuclear arms, so would Saudi Arabia. high drama, on charges of corruption and INTERNATIONAL money laundering during his term as Minister Meanwhile, Turkish President Recep Tayyip  Trump says Hamza bin Laden killed in US of Finance. Erdoğan says he cannot accept that his country operation.  Setback for farmers after floods in west and is not allowed to possess nuclear weapons.  Oil: US oil inventories drop. Saudi Arabia south India.  At least 1,000 Saudi-led coalition forces are signals OPEC cuts to continue under new  India to have a Chief of Defence Staff reported killed or captured after being energy minister; oil rises. overseeing all three armed forces enveloped and besieged in the Jabara Valley,  International Committee of the Red Cross says  India releases the final version of the National Saada Governorate, Yemen. Register of Citizens for the state of Assam. Up more than 100 people are killed in a Saudi  Russian elections begin. to 1.9mn people risk losing their citizenship. airstrike on a detention centre in Dhamar, Yemen.

 Drone attacks on Saudi Aramco facilities. In INTERNATIONAL Key indicators (*month on month if available)  Japan overtakes fact, early September, Saudi Arabia had Sensex Steady China as US’ largest announed that it hit a Houthi military facility foreign creditor. used to store drones and missiles. After the Gold Steady  Large fires rage in the drone attacks, Brent oil futures surge almost Rupee Weaker Amazon jungles in 20%, the biggest increase in percentage terms Oil Steady Brazil. since the 1990 response to Iraq invading 10-year G-Sec Rising  Moody’s Investors Service downgrades Yes Kuwait. Retail inflation Steady Bank’s long-term foreign-currency issuer  Iran seizes a vessel in the Persian Gulf, which, Interest rates Steady rating. it claims, was smuggling diesel fuel to the UAE. Current account deficit Narrowing  Sri Lanka ends its state of emergency, four  Quantitative easing: ECB cuts its deposit rate, IIP Rising months after the Easter bombings. launches new bond-buying program. Business confidence Falling  Trump on Twitter: Our great American  Global trade: US, China add more tariffs in Manufacturing PMI Falling companies are hereby ordered to immediately trade war. Customs data shows imports of US start looking for an alternative to China, Services PMI Falling including bringing your companies HOME and goods into China decreased yoy by 22% in Consumer confidence Falling making your products in the USA. August, while exports of Chinese goods into Forex reserves Rising the US fell 16%. Fitch says trade policy Gold reserves (physical) Steady disruption is ‘darkening’ global economic Exports Steady S e p t e m b e r (1- 1 5 ) outlook. Imports Falling  Taliban talks ‘dead’ says Trump; US military to Car production Falling

ramp up Afghanistan operations. INDIA Car registrations Falling  UK Parliament shuts down.  The Indian Space Trade deficit Narrowing  Hong Kong protests continue. Research Aluminium price Steady  Hurricane Dorian hits the Bahamas; 2,500 Organization loses Aluminium inventory Falling contact with the people are listed as missing. Copper price Rising Vikram lander  National Bureau of Statistics of China figures Copper inventory Rising moments before its show industrial production growth in August at Zinc Rising planned soft landing on the Moon. India a 17-year low. Zinc inventory Falling would have been the fourth nation to have  Brexit woes: The UK’s House of Lords explored the lunar surface, had Vikram approves a bill forcing PM Boris Johnson to ask

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Ownership and Material Conflicts of Interest Investing in any non-U.S. securities or related financial instruments (including Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as ADRs) discussed in this research report may present certain risks. The securities of determined in accordance with Section 13(d) of the Exchange Act, 1% or more of non-U.S. issuers may not be registered with, or be subject to the regulations of, the any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its U.S. Securities and Exchange Commission. Information on such non-U.S. securities affiliates and/or their respective officers, directors or employees may have interests, or related financial instruments may be limited. Foreign companies may not be or long or short positions, and may at any time make purchases or sales as a subject to audit and reporting standards and regulatory requirements comparable principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is to those in effect within the United States. not aware of any material conflict of interest as of the date of this publication The value of any investment or income from any securities or related financial Compensation and Investment Banking Activities instruments discussed in this research report denominated in a currency other than Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a U.S. dollars is subject to exchange rate fluctuations that may have a positive or public offering of securities for the subject company in the past 12 months, nor adverse effect on the value of or income from such securities or related financial received compensation for investment banking services from the subject company instruments. in the past 12 months, neither does it or any affiliate expect to receive, or intends to Past performance is not necessarily a guide to future performance and no seek compensation for investment banking services from the subject company in representation or warranty, express or implied, is made by PHILLIPCAP with respect the next 3 months. to future performance. Income from investments may fluctuate. The price or value Additional Disclosures of the investments to which this research report relates, either directly or indirectly, This research report is for distribution only under such circumstances as may be may fall or rise against the interest of investors. Any recommendation or opinion permitted by applicable law. This research report has no regard to the specific contained in this research report may become outdated as a consequence of investment objectives, financial situation or particular needs of any specific changes in the environment in which the issuer of the securities under analysis recipient, even if sent only to a single recipient. This research report is not operates, in addition to changes in the estimates and forecasts, assumptions and guaranteed to be a complete statement or summary of any securities, markets, valuation methodology used herein. reports or developments referred to in this research report. Neither PHILLIPCAP nor No part of the content of this research report may be copied, forwarded or any of its directors, officers, employees or agents shall have any liability, however duplicated in any form or by any means without the prior written consent of arising, for any error, inaccuracy or incompleteness of fact or opinion in this PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third research report or lack of care in this research report’s preparation or publication, or parties in this respect. any losses or damages which may arise from the use of this research report. PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the PhillipCapital (India) Pvt. Ltd. flow of information within the areas, units, divisions, groups, or affiliates of Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel PHILLIPCAP. (West), Mumbai – 400013, India.

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