Samar Srivastava
Samar Srivastava
Retail, consumer goods and real estate are what keep me busy.
(Image: Mexy Xavier)

Kishore Biyani estimates that it costs at least 45-50 percent of the cost of the product to sell it online (Image: Mexy Xavier)

“Offline will acquire online.” That’s the big call given by India’s retail king Kishore Biyani after the release of the new norms for online retail by India’s Department of Industrial Policy and Promotion.

Here’s what the new norms have done:

They’ve defined what a marketplace is and how it is different from an inventory-led model. They have expressly forbidden FDI in inventory based e-commerce models. And only sellers have been given the right to sell their goods at a discount and no one seller can sell more than 25 percent of goods on a particular site. Site owners shall also not own sellers.

Simply put the cost of doing business online in India is still steep. Biyani estimates that it costs at least 45-50 percent of the cost of the product to sell it online. There is the seller commission at 15 percent. The cost of delivery is 11-13 percent. The cost of maintaining a website is 8 percent and miscellaneous expenses make up the rest. In such a scenario, it is no surprise that it is very hard to get unit economics to work when selling online. The high cost of doing business has primarily been financed by investor money.

With a level playing field coming in, Biyani who has spent the last five years in slow grind building his backend and infrastructure thinks he can do it better. He’s made a small move by acquiring In an interview with Forbes India he explained that the company has operating expenses of Rs 1.2 crore a month. If he is able to sell Rs 4 crore he can make enough money to make the deal worthwhile. The company could be a testing ground for selling products from Home Town online. ( failed due to faulty execution and excessive discounting by the competition meant he had to shut it down in its earlier avatar.)

It’s still early days but if Biyani can sell furniture profitability online, it could provide some fillip to his stillborn online plans. As more distressed assets come up, expect more offline players to pick them up cheap. This is a space that will be keenly watched for sure.

On Friday, the Rajya Sabha passed the Real Estate (Regulation and Development) Bill (Image: Danish Siddiqui / Reuters)

On Friday, the Rajya Sabha passed the Real Estate (Regulation and Development) Bill
(Image: Danish Siddiqui / Reuters)

On Friday, the Rajya Sabha passed the Real Estate (Regulation and Development) Bill. Next it moves to the Lok Sabha and to the president for assent before it is notified and becomes law.

The Real Estate Bill should at best be seen as an enabling legislation, as land and land use are state subjects and states have the right to enact laws as long as they are not in conflict with central legislation. The onus of setting up implementing agencies has also been put on states. Expect that to take at least 12 months after the Act has been notified.

The new legislation ought to clean up the business and make dealing with developers easier for buyers. Understandably, developers are not pleased. Here’s what could change:


The new law mandates that builders set aside 70 percent of payments made for a project in a separate bank account. These are to be used only for the project they are received for. In the past, these funds were usually used for buying land and allowed developers to accumulate vast tracts of land. The new legislation would make this all but impossible and result in developers raising costly capital to buy land. As banks are prohibited from lending for land purchases, money is usually raised at between 15-18 percent from non-banking financial companies and real estate funds.

Expect this to have a direct impact on the cost of apartments. While it remains to be seen how much extra buyers will pay, you can be sure developers will look to pass on these costs.

Level playing field

Large developers with strong brands would almost always play fair. They would stick to plans once approved and would, for the most part, deliver on time.

On the other hand, smaller companies would often see how much they could get away with. Plans were changed and delivery timelines not met. Buyers would have no recourse except to approach consumer courts, which took over 24 months to adjudicate. Now, with all developers responsible for delays and well-defined compensation rules in place expect a level playing field.


Loading – that dreaded word for buyers will be a thing of the past. Builders would make buyers pay for common areas like staircases, gardens and even service areas. In cities like Mumbai, loading of up to 50 percent had become the norm in new developments. Buyers felt cheated but there was little they could do as all developers adopted similar practices. Now, houses will be sold only on ‘carpet area’ or the area that is enclosed within the four wall of your home. Sure, per sq feet prices would go up. But at least you get what you pay for and not for facilities that you may or may not use.


Like every business, only the fittest will survive. Small developers who do one project every other year may find the compliance cumbersome. Registering projects, updating progress and making sure that 70 percent of money is set aside is sure to reduce margins. Some may not find it worthwhile to continue in this business. Slow sales and interest payments have deterred many developers from launching new projects.  Expect them to sell out to large developers who will be keen on acquiring more land in prime locations.

 Nitin Paranjpe, CEO, HUL  (Photo: Vikas Khot)

Nitin Paranjpe, CEO, HUL (Photo: Vikas Khot)

Hindustan Unilever Ltd, the country’s largest consumer products company, announced a strong set of quarterly numbers. It also gets a new chief executive as Nitin Paranjpe, who led the company for five years and, as many would argue, put it firmly on the growth path, moves on to Unilever as president of its home care business. Paranjpe will be replaced by Sanjiv Mehta, who heads the company’s Middle East and North Africa business.

The results come at a time when growth in consumer products businesses has slowed down over the last three quarters as consumers cut back on both day-to-day as well as discretionary spends. ITC, which reported a disappointing set of numbers on July 25, showed clearly that growth in consumer markets is not always a secular trend. Its cigarette volume is likely to decline by 1-2 percent, according to analyst estimates.

Sales for the quarter grew at 7 percent to Rs 6,809 crore but volume growth—a number that is as keenly tracked—was up just 4 percent for the quarter. Net profit was down 23 percent to Rs 1,019 crore but that number is not strictly comparable as last year the company recorded an exceptional gain due to the sale of its Gulita training centre.

HUL maintained that it sees itself growing faster than its peers but also cautioned that growth rates could dip further. “Between early 2012 and now, there has been a significant slowdown,” said chief executive, Nitin Paranjpe. “And this is across both urban and rural.”

Significantly, for HUL, margins expanded by 70 basis points to 15.2 percent. This came at a time when the company was forced to spend Rs 70 crore more on advertising and promotion to defend its brands in the marketplace. While the company said it had not seen any mass downtrading of brands, it did admit that one brand in particular, Fair and Lovely, had declined, which pulled down growth in the personal products category as a whole.

HUL’s stock price, which has moved like a rocket in the last month, corrected 3.5 percent to Rs 662 but that decline could be attributed as much to the huge run-up as to slowing sales growth. The stock is up 10.3 percent since June 4 when Unilever’s open offer at Rs 600 a share concluded. Its stock has been the second-best performing on the Sensex this year after Sun Pharma.


(Photo: Amit Verma)

Raj Jain, former CEO, Walmart India (Photo: Amit Verma)

Walmart India’s fledgling operations have suffered another setback. Raj Jain, the man credited with helping set up the business in India has left the company.

Replacing Jain is Ramnik Narsey, senior vice president at Walmart International. His appointment is interim the company said. Narsey joined the company in May after having served as chairman and chief executive officer at Woolworth India. In a statement issued on Wednesday Walmart did not assign any reasons for the change. Jain could not be reached for comment on his cellphone.

The news also comes at a time when India’s decision to allow foreign investment in multi-brand retail has been a non-starter. No foreign company has agreed to invest in accordance with the new policy partly due to onerous conditions and partly due to continued political opposition. One condition requires states to approve changes and so far all non-Congress ruled states and Kerala have resisted ratifying the policy. Further spooking retailers has been India’s main opposition party, the BJP has publicly stated that it will roll back the notification if it comes to power.

Walmart’s sudden shift comes as the company has been struggling to expand in India. In the last year its pace of expansion has slowed as it shakes off allegations that it used less-than-legal methods to expand in India. Last year it set up five stores as compared to a target of 22 stores. It has not opened any new stores in India in 2013.

Walmart’s woes mirror those of other foreign retailers who have found it hard to expand in India. While high rentals and the lack of backend infrastructure hinder all retailers foreign companies have realized that securing the right permissions to open a store requires oodles of patience. Those wanting to short circuit the process engage contractors to manage the plethora of government agencies that hand out permissions – something Walmart also did.

Last November, Walmart had announced that it was investigating violations of the Foreign Corrupt Practices Act at its subsidiaries in India, China and Mexico. The company had said that it was fully committed to competing the investigation swiftly. As part of the investigation the company had suspended its CFO and the entire legal team, the Economic Times had reported in November.

While the company did not link Jain’s departure to the FCPA investigation people with direct knowledge of the situation said that his departure was due to the investigation. It is unclear whether any more people were let go along with Jain.

In choosing a former chief executive of Woolworths in India Walmart has tacitly acknowledged that it needed someone with India experience to run a joint venture that faces a “series of complexities on an almost daily basis,” said an insider. Narsey’s main challenge will be to put systems and processes in place to ensure this doesn’t happen again. Additionally he’ll have to get store opening back on track otherwise Walmart risks falling behind rivals Carrefour and Metro. And lastly, he’ll have to prepare the groundwork for his successor.

Manu Anand’s departure comes amid speculation that he had been asked to leave(Photo: Amit Verma)

Anand’s departure comes amid speculation that he had been asked to
leave (Photo: Amit Verma)

Manu Anand, chief executive of Pepsico’s Indian operations has quit
the company somewhat abruptly. Anand who had spent 19 years in the
company will be leaving with immediate effect according to a company

Pepsico India is yet to announce a successor. In the interim, Gautham
Mukkavilli, who heads the beverage division and Praveen Someshwar, who
heads the foods business will report to Saad Abdul-Latif. He heads
Pepsico Asia, Middle East and Africa.

Anand’s departure comes amid speculation that he had been asked to
leave. An internal employee who spoke with Forbes India said that
operationally the company had been losing ground to competitor Coca
Cola in the last few months. Anand’s bet to pay Rs160 crore for the
IPL doesn’t seem to have paid off. According to recent Nielsen numbers
the company has lost ground to Coca Cola. Pepsico’s market share fell
to 29.7 percent from 32.1 percent, the Economic Times reported.

Another reason cited is Anand’s inability to retain his senior team.
Last April, Varun Berry, who was head of the foods business left the
company. He has since been appointed COO at Britannia. Another
prominent departure was that of Geetu Verma, who joined Hindustan
Unilever as executive director foods. In addition to this there have
been several departures at the general manager level, a fact that
didn’t go unnoticed in Pepsico headquarters.

Insiders say what really did, Anand in was his inability to get Ravi
Jaipuria, Pepsico India’s largest bottler on board with some of the
company’s long-term plans. “This lack of alignment really hurt the
company,” he said. According to him Jaipuria had in the last few
months been taking his grievances directly to Indra Nooyi, Pepsico’s
global CEO. He cited the company’s lack of robust defence to Coca
Cola’s Rs.8 per bottle price. That really hurt the company and result
in some loss in market share.

For the moment it’s unclear what the global parent will do. A Pepsico
India spokesperson denied that Anand had been asked to leave or that
his departure had anything to do with performance. A short statement
released by the company said Anand was leaving for a new job. The
company declined to comment on why the handover wasn’t done more
smoothly. Anand was unavailable for comment.

Recent news on Ranbaxy has prominently featured the role of Dinesh Thakur, a whistleblower. Thakur, who worked at Ranbaxy for four months was responsible for blowing the lid on the company ‘s falsification of certification documents submitted to drug controllers around the world. The fraud took place over years and top management was complicit.

While Thakur, received $48.6 million (Rs262.4 crore) for his efforts the case leads to an important question: Why are there such few instances of whistle blowing in India? Is there something in our legal system that makes it harder for whistleblowers? Does the law not accord them the protection they deserve? Or is it just that they don’t have faith that their claims will be heard?

The answer lies in all three. First, the Companies Act does not contain a provision that makes it mandatory for companies to have whistle blowing policies in India. According to a lawyer who has worked in this area all his clients have been multinationals companies. Indian companies don’t show any desire to have a whistle blowing policy in place. “I suspect they don’t know how to handle such cases,” he says.

With multinationals he says there are clear rules on how the case has to be handled, how many levels the matter has to be escalate and what is to be done with the employee for the duration of the investigation. Plus he adds over the years they have worked to show that each case will be looked into fairly. Even then our research shows that it is most often former employees who resort to ratting on their employers. Few have the faith to complain while they are still working. Indian companies are far behind on this one.

In India there have been innumerable instances of whistle blowers being killed. So it’s hardly a surprise that such few people come forward with instances of wrong doing. According to a story on some 150 whistle blowers were have been harassed or jailed while 20 have been killed. What’s important to note is that whistle blowers exposing government corruption face a particularly uphill task in India. Their cases often wind slowly up the judicial chain and are only resolved decades later.

According to Rabindra Jhunjhunwala, a partner at Khaitan and Co. the lack of whistle blowing has to do with the evolution of corporate law in the country. He says that eight years ago there was a move by the Ministry of Corporate Affairs to insert a provision in the Companies Act to enable whistle blowing. It never saw the light of day and has not been heard of since.

So what can companies do? Lawyers and ombudsman point to three measures. First, legislate so that whistle blowing has a sound legal basis. Two, companies must ensure that those who come forward are not persecuted and the matters are investigated promptly. Similarly, the government must also set up mechanisms to ensure speedy disposal of claims. (If they could set up information officers under the Right to Information Act they can do the same in this case as well.) And, lastly companies must ensure that whistle blowers aren’t persecuted.

Some prominent whistle blowing cases:

Nisha Yadav – Jan 2013 – won Godfrey Phillips Bravery Award for lifting lid on child abuse racket at NGO orphanage “Suparaana Ka Aangan”

Kunal Saha – August 2009 – wins Supreme Court case against Advanced Medicare Research Institute in Kolkata for negligent treatment of his wife.

Paul Blakeslee – March 2013 – won $3.4 million for wrongful termination after he blew whistle on a colleague overcharging the government.

Vijay Pandhare – Oct 2012 – Uncovered Maharashtra Irrigation scam. Led to Ajit Pawar’s sacking.

Seema S Bhat – Nov 2005 – Wins Rs. 2.25 crore after exposing excessive levels of lead in water in Washington D.C.

Manoranjan Kumar – Mar 2009 – IES officer wins Rs. 25,000 case against Shipping Ministry for Kandla Port scam

Within days of being appointed law minister Kapil Sibal has cleared an important piece of investor-friendly legislation. He’s legalized the use of put and call options in contracts. The move is likely to make doing business in India a lot easier for companies and investors alike who’d made use of these options.

Simply put, a call option is an agreement whereby one party agrees to buy securities at a predetermined price at a future date while a put option is where a party agrees to sell securities at a predetermined price at a future date.

The Securities and Exchange Board of India, which regulates Indian capital markets had long maintained that these options run contrary to Securities Contract (Regulations) Act. Its main bone of contention was that any contract that is not a spot contract i.e. where the delivery of shares takes place beyond the day on which the contract was made is a speculative contract. The SCRA prohibits such contracts.

Over the years investors and private equity players have used put and call options while structuring deals. “We use it primarily to safeguard our interests. This is something that is a globally accepted practice and not being able to use it in India has been frustrating for us,” said a principal with a private equity firm. He declined to be named as he is not allowed to speak to the media.

There had been a number of deals that had run afoul of this rule.. Take for instance the recent case of Diageo plc’s share purchase agreement of United Spirits Ltd. which contained a put option. It had to be removed before SEBI granted its clearance. SEBI had also rejected its use in the Cairn Vedanta deal in 2010.

Further adding to the issue was the fact that the Companies Act was silent on the use of such options. A clarification issued by the Department of Industrial Policy and Promotion (DIPP) had said that all such options would be considered debt financing. If a foreign party is involved they’d automatically be treated as an external commercial borrowing.

While investors and private equity players continued to insert these clauses in deals the main issue arose when one party refused to honour its end of the bargain. These contracts couldn’t be enforced in court leaving the aggrieved party fuming but without any legal recourse. In 2009, DE Shaw was prevented by the RBI from exercising a put option. It was to have received a 27 percent return on an investment it made in DLF.

With the change in rules such cases won’t recur and it will open up an internally accepted financing practice to Indian companies.

Hindustan Unilever Ltd. the country’s largest consumer goods company reported a strong set of numbers and has, for the time being at least, erased fears of a sharp slowdown in consumer spending.

The company ticked the boxes on all three parameters – revenue growth, profit growth and volume growth. In the quarter ended March 31, HUL reported a profit of Rs.780 crore, an increase of 17 percent with a 60 basis points increase in operating margin. Sales for the quarter were up 12.5 percent to Rs.6367 crore. Volume growth, a key indicator of the health of the business was up 6 percent. While this was lower than previous growth rates it was nowhere as low as the market feared.

Still, the company did acknowledge that it faces a tough operating environment. Two indications of this are the growing volatility in commodity prices and currency fluctuations. That makes planning and forecasting for the future that much harder, according to Nitin Paranjpe, CEO of the Hindustan Unilever. He pointed out that the weekly quantum of fluctuations in some commodity prices are what they would earlier see in a year. There’s also been an increase in advertising and promotion spends to Rs.144 crore up 90 basis points.

While it was business as usual in most categories with growth rates in line with or slightly above the competition HUL also saw a slowdown in discretionary spends by consumers. Skincare and ice creams were two categories that saw reduced spending. Both categories were affected by the shutting down of modern trade stores that contributed to a disproportionate amount of sales. About 300 modern trade stores have closed in the last year.

So what is the company doing to make sure it keeps growing rapidly? For one it is investing in what it terms are categories of the future. These products – conditioners, shower gels, tea bags and so on – now make up Rs.1000 crore in sales. “It is our job to identify these and take steps before it becomes obvious and imperative for others to react,” said Harish Manwani, chairman of HUL and COO of Unilever.

Second, it is powering ahead with trebling its rural direct distribution reach, as part of an initiative it had launched in July 2010. The company has added a million outlets across rural India to its distribution network so far.

HUL’s shares ended the day at Rs 497, a jump of 7 percent. The stock had been under pressure in the last quarter as the company announced an increase in royalty payments to its parent Unilever. The company announced a higher dividend payout at Rs.6 per share. The announcement also lifted stocks of other consumer goods companies. ITC hit a lifetime high at Rs.325/-


Imagica’s journey began four years ago after Shetty sold Adlabs (Image: Vikas Khot)

Gutsy entrepreneurs the world over have used this to justify their audacious and seemingly outsize plans. Manmohan Shetty seems to be no different. He’s betting big on Imagica, the theme park he’s created on the Mumbai-Pune Expressway.

Imagica’s journey began four years ago when Shetty who had sold Adlabs to Anil Ambani was searching for something to do. One question popped up time and again: Why wasn’t there a theme park in India that could rival the scale of Disney or Universal Studios? Disney had seemed to suggest that Indians were not ready as they couldn’t afford the prices Disney would charge? Shetty knew it was a tough ask and he’d have to get everything from the pricing, to the rides and the food right.

Four years and Rs.1650 crore later Shetty stands on a strong wicket. The park, which opens to the public this Thursday is clearly several steps ahead from anything present in India.

First off, Shetty’s made sure that the park divided into six zones has a distinct Indian feel to it. For instance, take music – most of it is from Bollywood except a few pockets like the African restaurant where Zulu music serenades diners. There’s an adrenaline zone with two roller coasters (only one is operational at the moment). There’s a family entertainment zone where rides are based on Mr.India (you’re strapped onto a car and asked to chase Mogambo, the villain) and Ali Baba (you shoot the Chalees Chor and win points for each shot).

There’s also an incredible i for India ride that takes riders on a tour of all India has to offer – from temples to lakes and deserts to the snake boat race. Park staff usher you around from ride to ride with a politeness that is rarely seen in India.

Imagica offers 21 rides (19 are operational at present) that are designed to keep families and children busy through the day.

Shetty says he expects to get between two and three million visitors to the park a year. (1.75 million is what his business needs to break even) He’s based his numbers on careful calculations and says the park will be a draw for visitors from Mumbai, Pune and Nashik – a 40 million strong catchment area. Every monsoon 50,000 families travel from Mumbai to Lonavala. Shetty believes if he can get even half of them to stop at his park, he would have made his numbers. Ticket sales would bring in 70 percent of revenue with merchandising accounting for another five.


Imagica offers 21 rides (19 are operational at present) that are designed to keep families and children busy through the day (Image: Vikas Khot)

Like all theme parks the world over Imagica expects to make 20 percent of its revenues from food. Five restaurants located around the park have been decked out in various themes. There’s an Africa themed restaurant, an Indian buffet and for those who can’t do without their hamburgers there’s an American diner. A day pass will set you back by Rs.1200 on weekdays and Rs.1500 on weekends – and this is only the introductory price.

So was it as good as Disney? Not quite. For starters, it’s a third of the size of Disneyland. A water park is expected to open next year along with a 300 room hotel. But with the rides and the food and the layout Shetty has got it spot on. Already he says he’s planning his next move with more new rides. As of now there are some rough edges – a part of the landscaping still needs to be done. ‘Nitro’ the largest roller coaster of the park is still a couple of months away. But word of mouth will ensure the park does well this summer. Sustaining it should see Shetty pull out all the marketing tricks in his book.

For middle class Indians, investing in property has been the surest bang for the buck. On an average, property values have quadrupled in the last decade.

But now there are increasing signs that the dream run that real estate has enjoyed over the last decade could be coming to an end. Real estate practitioners point to slowing sales and rising inventories. As this story in The Economic Times explained, there is a glut of independent homes in south Delhi. Around the country, in separate micro-markets, the story is no different.

And so the question: could 2013 be the year when real estate begins to crack?

First, lets start by looking at the last period of low economic growth. Between 1995 and 2002, the Indian economy chugged along at an annual rate of 4.9 percent. Those who’ve been in the business long enough will tell you that real estate prices eased by 2-3 percent a year across large cities. “So by the end of 2002 you had a 20 percent decline but the year-on-year decline was very gradual,” according to a Mumbai-developer who declined to be named.

According to him three years of 5-6 percent growth and the situation could be repeated.

Second, the rise of the professional real estate investor. The last 10 years have seen a growing number of middle class Indians trying their hand at the property market. Their speculative behaviour is not unlike that of middle class Americans who during the go-go years bought houses only to flip them a couple of years later for a 15-20 percent gain. That came crashing down in early 2008 and the rest of the story is well known. It is only now that housing prices in America have started to rise.

India circa 2013 is no different. Dinner parties are filled with casual conversations on which apartment or piece of land to invest in. There’s this sweeping confidence in real estate giving a 20-25 percent return every year. According to Sanjay Dutt, chief executive at Cushman and Wakefield, if a developer sells 2,000 flats and 70 percent of those are to people who plan to put them on the market in a couple of years, those shouldn’t be counted as sales.

This leads to a situation in large metros where houses in under-construction projects are available anywhere between Rs 1,000-1,500 less than what the builder is selling them for. Those who want to sell houses are willing to take a small haircut. What happens when this becomes too acute is not too hard to see. The market would correct.

Lastly, according to the Ministry of Housing and Urban Poverty Alleviation, 11.09 million homes in urban areas are lying empty. Sellers are holding out in the hope that capital values continue to appreciate while buyers find the prices too steep. When that stock comes on stream this could also portend a correction.

Samar Srivastava
After studying law I vectored towards journalism by accident and its the only job I've done since.
It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably new tied to politics.
I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me there are plenty of those in Asia at the moment.
Bouquets and brickbats are welcome at
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Samar Srivastava's Activity Feed
May 17, 2016 11:34 am by Pranay
Thank you Samar for an very informative article and i think this will definitely be a very good thing for home buyers and will go a long way in regulating the industry. I was reading a lot on this subject and in another blog (
April 23, 2016 15:41 pm by Kannan
I think Real Estate Regulatory bill is a good move by government. But, it will create a lot of hurdles for real estate developers, as there will be one more permission required from government. It should not be another income source for government approval authority personnels. Otherwise, developers...
Mohammad Chowdhury
Mohammad Chowdhury
April 09, 2016 09:11 am by Mohammad Chowdhury
Interesting article: thanks! So if I understood correctly, you are saying that new policies have rendered it harder to drive scale economies in online due to more strictly defined controls on market dominance and tying up the supply chain through abusing access to sales channels, is that right? ...
March 15, 2016 11:40 am by hemen parekh
A few days back , Parliament passed a bill to regulate the Real Estate Industry. On 04 Nov 2015 ,I sent to Shri Venkaiah Naidu, an email containing following suggestions. Some of these have been incorporated in the new Act . Thank you , Shri Naidu for listening ! -----------------------------------...
September 19, 2015 18:21 pm by Rajesh B mehta
I am impressed by your development in small age.Best luck to you and your company.Super stocklst godrej consumer products south guj.Firm name V B Medico.