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Volume 2

Issue 2

Aug 2013

From the Vice President’s Desk

Greetings from mjunction! Even as we celebrate our 67th year of independence, India is showing stagflationary tendencies with rising inflation and falling outputs, declining growth and rising unemployment. India's GDP growth fell to 5% in the first quarter, the lowest in a decade, and is expected to fall further, even as inflation rises. The depreciating Rupee lost over 12% and reached an all-time low of INR 64.31 to the dollar. The flash floods in Uttarakhand left a huge trail of death and devastation. Entire villages were swept away and thousands were left homeless. mjunction stood by the distressed during this time of national crisis. Not only did junctionites volunteer to donate a day’s salary, mjunction also put its expertise to use for procuring blankets, tarpaulins and food packets for the relief efforts when it received a mandate from Tata Relief Committee. In the second issue of financejunction Connect, we have shared a synopsis of the economy, the supply chain finance industry and how it assists in these difficult market situations. I hope you enjoy this newsletter and it adds to your knowledge of macro-economic scenario in India.

Regards,

Vinaya Varma, Vice President, mjunction

PART 1 ECONOMY & MARKET REVIEW

Vinaya Varma, Vice President, mjunction

GLOBAL GDP GROWTH

GLOBAL ECONOMIC SCENARIO

Emerging market and developing economies

6

6

5

5

4

3

2

2

1

1

Advanced Economies

0

0

-1

-1

-2 Source: IMF staff estimtes

4 3

1.9 -0.6

-2

6

6.2

5.7

2 1.1

-0.3

-0.2 -0.2 -0.1 -0.2

-0.1 0 -0.3 -0.1

Euro Area -4 India

-6

10 8

8.2

4 2.2

Difference from January 2013 WEO projections

Difference from January 2013 WEO projections 8

7.8

4 0 1.8 1.4

-2 2013 Q4

2012

2011

7.7

2

4

World

3

Projections

6

8 7

7

9.3

8

The IMF projects a bumpy recovery for global economy China

8

10

Latest IMF Projections

Unites States

9

9

Weak domestic demand and a slow growth in key emerging markets coupled with the recessionary tendencies lead to the subdued global growth projections at a little over 3%. This is the same as it was in 2012 and is lower than the forecast in April 2013 World Economic Outlook (WEO). At 5% in 2013 and about 5½%in 2014, the emerging markets and developing economiesare now expected to grow at a moderate pace, around ¼% points slower than in the April 2013 WEO. Global growth increased only slightly from an annualized rate of 2½% in the second half of 2012 to 2¾% in the first quarter of 2013. In 2014, global growth is expected to recover to 3¾% from the projected 3% in 2013.

0 -0.2 -0.2 -0.3 -0.2

-0.2 -0.1 -0.6 -0.1

-2 -4

2011

2012

2013

2014

1

2013

2014

-6


8 7 6

India, once considered a potential powerhouse for the global economy, has lost its sheen of late due to the slow pace of reforms, high inflation and a record wide current account deficit. Growth in the fiscal year ending March 2013 slid to a decade low of 5%.

6.9

6

5

Previously Forecasted growth percentage

6.5

5.6

Currently Forecasted growth percentage

4 3 2 1

The latest Reuters poll of over 30 analysts showed that India, Asia's third largest economy, is expected to grow 5.6% in the fiscal year ending March 2014, compared to 6.0% forecast in the previous poll in April. The fiscal year ending March 2015 was forecast to show 6.5% growth, down from a previous forecast of 6.9%.

0 FY 2013/14

GROSS DOMESTIC PRODUCT (GDP)

GDP Growth

Citing negative factors like the rupee fall, capital outflows, political uncertainty and a slowdown in new projects, Macquarie cut India's economic growth forecast for the fiscal year ending in March 2014 to 5.3% from 6.2%.

7.0

INFLATION India’s wholesale price index (WPI)-based inflation, inched up to 4.86% in June from 4.7% in May, reversing a four-month falling trend. Consumer price index (CPI)-based inflation grew 9.87% in June from 9.31% in the previous month. The sharp slide in the rupee, which has fallen nearly 13% since May, along with rising food prices will fan inflation further by making imported goods such as crude oil costlier. However, overall inflation is expected to moderate in FY14. Headline WPI is expected to settle in the range of 6.0% – 6.5% (average) and CPI inflation to 8.0% – 9.0% (average) during the year.

INDEX OF INDUSTRIAL PRODUCTION (IIP) Production data continues to reflect weakness on the demand-side - investment as well as consumption demand. The IIP for May fell 1.6%, way below the market expectations of 1.4%, while April had seen a growth of 2.3%. The IIP expansion for May a year ago was 2.5%. The core sector grew at a slower pace in first quarter of 2013-2014 at 1.6% as compared to the first quarter of 2012-13 which grew at 6.9%. In June the core sector grew at a slow 2.3%.

FY 2014/15

According to other Reuters polls, the US economy is expected to pick up this year, Chinese growth is unlikely to gain traction even next year as the government trades short-term growth for longawaited reforms.

9.0

%

PART 1 ECONOMY & MARKET REVIEW

INDIAN ECONOMY TO RECOVER SLOWLY

5.0 3.0 FY/09

FY/09

FY/09

FY/09

FY/09

FY/09

Source: CSO, CARE (e)-estimate, (f)- Forecast

India Inflation Rate - Annual change on Consumer Price Index 12

12

10 9.78

8

10

9.36

9.87

10 9.46 7.74

8

8.07 7.23

7.56 7.69 7.5 7.55 7.58

7.55 6.87

6

7.45 7.24 7.18 7.28 6.62

6 5.65 4.77 4.7 4.86

4 Jul/11

Jan/13

Jul/12

Jan/12

4

Source: tradingeconomics.com | Ministry of Commerce & Industry

NOT SO STRONG IIP(%)

Change in real Inventory (` bn) 300

25

200

20 15

100

10 0 5 -100

0

-200

-5 -10

-300 FY-07-Q1

FY-08-Q1

FY-09-Q1

Average for the months of April and May

2

FY-10-Q1

FY-11-Q1

FY-12-Q1

FY-13-Q1

Source: MOSPI, Authors calculation


SLOWING DOWN

PURCHASING MANAGER INDEX (PMI)

Change in real Inventory (` bn)

Indicating a stagnation of manufacturing operating conditions in India, the manufacturing sector fell for the third consecutive month in July. The HSBC/Markit PMI for the manufacturing industry stood at 50.1 in July, slightly more than 50.3 in June. The PMI for manufacturing Industry stood at 50.1 in May.

June 12

June 13

Coal

8.4 -3

The services sector, which contributes 60% to the economy, shrank for the first time in 20 months in July. The HSBC Services PMI contracted to 47.9 points in July from 51.7 points in the previous month. The Composite Purchasing Managers’ Index (PMI) survey contracted to 48.4 in July from 50.9 in June."

-11.1 Natural Gas -16.7

HSBC INDIA Composite Output Index 56.3

Fertilizers

54.8

-11.7 11.3

51.4

JAN

Cement

9.5 2.3

FEB

MAR

50.5

APR 2013

52

MAY

50.9

JUN

50.9

JUL Source: HSBC

INDIA INC BUSINESS CONFIDENCE

Crude Oil

-0.8 -0.6

The Dun & Bradstreet Composite Business Optimism Index for the July-September quarter of 2013 dropped to130.6, the lowest in four years. This is a 4% decline as compared with the corresponding quarter a year earlier and a drop of 7.8% from the second quarter.

Refinery Products

26.2 2.3

Macro level economic challenges like staggering industrial growth, high interest rates, weak FII inflow, high Current account Deficit, weak demands and the depreciation of the rupee have all caused the Business Optimism Index to decline.

Steel

4.1 3.4

Electricity

8.8 -2

Consumer Confidence in India fell to 118 in Q2, 2 points down from Q1. Job security continues to be top concern for Indian respondents (23%). Around 77% respondents claim to have changed their spending habits to increase savings Q3 2012

Q4 2012

Q1 2013

Q2 2013

119 121 120

Source: Ministry of commerce and industry

PART 2 RBI POLICIES

118

RESERVE BANK OF INDIA (RBI): FIRST QUARTER REVIEW OF MONETARY POLICY 2013-14 Even though the current situation of low headline inflation, falling PMI and GDP warrants a pro-growth policy stance, difficulties on the external front like 10% depreciation in the rupee and the rising current account deficit is forcing RBI to take liquidity tightening measures. The recent liquidity tightening measures by the RBI is aimed at checking undue volatility in the foreign exchange market and will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling monetary policy to revert to supporting growth with continuing vigil on inflation. The RBI in its First Quarter Review of Monetary Policy 2013-14 scaled down the GDP forecast to 5.5% from 5.7% for 2013-14.RBI’s status-quo on policy rates in the Review was guided by upward risks to inflation and high volatility of rupee. The highlights of the Review are:

3

To keep the Repo Rate under the liquidity adjustment facility (LAF) unchanged at 7.25% The Reverse Repo Rate under the LAF, determined with a spread of 100 basis points below the repo rate, will, as a consequence, remain at 6.25% The Marginal Standing Facility (MSF) Rate will be unchanged at 300 basis points above the repo rate at 10.25% The Bank Rate will be 10.25% The Cash Reserve Ratio (CRR) of scheduled banks has been retained at 4.0% of their net demand and time liabilities (NDTL)


Key Policy Rates 8.50 8.00 7.50 7.00 6.50 6.00 5.50

Jul-13

Jun-13

May-13

Apr-13

Mar-13

Feb-13

Jan-13

Dec-12

Nov-12

Reverse

Repo

Cash Reserve Ratio

Oct-12

Sep-12

Aug-12

Jul-12

May-12

Apr-12

4.00 3.50

Jun-12

5.00 4.50

USD

EURO

30-Jul-2013

23-Jul-2013

16-Jul-2013

9-Jul-2013

2-Jul-2013

25-Jun-2013

18-Jun-2013

11-Jun-2013

4-Jun-2013

28-May-2013

21-May-2013

14-May-2013

7-May-2013

30-Apr-2013

23-Apr-2013

16-Apr-2013

9-Apr-2013

YEN

PART 3 SUPPLY CHAIN FINANCE

Raghuram Rajan, former International Monetary Fund chief economist and currently the chief economic advisor, will take over from Duvvuri Subbarao as the next Governor of RBI on September 4 for a period of three years.Rajan speaks in favor of pro-growth policies and the need to address the current account deficit and is expected to closely follow Subbarao's line on managing inflation. emerging market corporates a significant competitive advantage. In the current credit environment, where working capital efficiency is a critical concern for companies SCF enables corporates to improve their working capital by extending payment terms. Simultaneously, by making use of the superior credit rating of the buying company, it allows suppliers to finance:

Growth & Significance of Supply Chain Finance in today’s economy Supply Chain Finance (SCF) refers to a set of solutions and processes which help businesses optimize their working capital by ensuring timely payments to suppliers and receipts from customers. Data from Demica revealed that the SCF grew at an annual growth rate of 30% and 40% in the last 2 years. While the SCF market is continued to grow through the end of this decade, the growth is expected to moderate to 20%30% per annum by 2015 and another 10% per annum by 2020.

their receivables at a rate that is more attractive than they would otherwise be able to achieve. SCF gives the business an excellent negotiating position: it makes it easier to offer attractive terms and financing and therefore potentially gain an increasing share of business in new markets in Asia.

The highest growth of SCF currently stems from US and Western Europe. Eastern Europe, India and China are considered the top 3 regions with SCF market potential. In dynamic and competitive markets such as those in Asia, supply chain finance (SCF) can offer multinationals and rapidly growing

There are various business pressures within the supply chain which is driving organisations to explore and adopt SCF initiatives. The leading causes are mentioned in the graph below:

4

Per unit YEN Vs INR

52 2-Apr-2013

40 26-Mar-2013

54

19-Mar-2013

60

12-Mar-2013

56

5-Mar-2013

80

26-Feb-2013

58

19-Feb-2013

100

12-Feb-2013

60

5-Feb-2013

120

29-Jan-2013

62

22-Jan-2013

140

15-Jan-2013

64

8-Jan-2013

160

1-Jan-2013

Per unit EURO & USD Vs INR

Major Currencies Vs INR


TOP Pressure within Supply Chain Finance Demand volatility impace on available cash

46%

Risk of trading partner default

33%

22%

Difficulty obtaning financing on acceptable terms Insufficiency of available information when making trade financing decisions

21%

Inability to self-fund growth of the business

19%

17%

Trading partner pressure to adopt supply chain finance 0%

10%

20%

30%

40%

50%

Percentage of Respondents, n=145 Source: Aberdeen Group, January 2011

Around 35.7% of executives consider improvement in cash flow forecasting capability to be a key strategic action for their organisation. 28.6% prefer to focus on the real-time access to data which provides them better visibility and control of the supply chain. SCF partners today not only identify the best finance terms but also manage cash flow once the purchase order is raised thus providing real-time access to financial data such as purchase orders, invoices updates, shipment status etc. Currently only 9.1% of organisations have visibility into their trading partners financial health and credit worthiness. This drastically increases the risk of payment defaults. To address this concern, SCF partners also help organisations better understand the financial health and credit history of their trading partners. To combat and reduce the chances of defaults, 63.6% organisations plan to engage with SCF partners to implement this capability. A good SCF partner provides the organization with a holistic view of their supply chain by covering functional areas like Controller for Account Payable and Account Receivables, etc. For the organization, engaging resources for

such tasks hinders their productivity and impacts their bandwidth. It also fails to provide a bird’s eye view of their trading partners and the supply chain and hence their overall liquidity position. The outsourcing and automation of such basic yet critical processes helps the organization achieve efficiency and frees up valuable human resources to attend to more analytical tasks and core functions. The automation and the streamlining of the processes bought about by SCF partners offers the organisations an opportunity to segment their trading partners and prioritize SCF programs. It also provides a single window to view into the supply chain health. This leveraged with analytics leads to timely access to capital and better forecasting capability. Currently only 15.4% of organisations leverage analytics to support their supply chain but 61.5% indicate plans to implement analytics support in the coming year to better gauge the SCF trends, risk and their liquidity position.

Why financejunction? Organisations need to choose a provider that offers robust technology platforms and innovative solutions – from risk mitigation to financing and settlement to information – that give them a competitive edge. They need to partner with a solutions provider which caters to their needs below: 1. Refines their approach to financial management & to explore alternative methods of financing 2. Improves reporting & visibility into supply chain finance 3. Leverages collaborative technologies to manage end-to-end processes

financejunction’s SCF solutions not only cater to all the needs above but also brings about many benefits to both the buyers & suppliers thus making the supply chain robust. Our SCF solutions like Channel Finance and Buyer Finance ensures liquidity through all stages of the supply chain and also improves visibility into both- physical (inventory) and financial aspects (funding) of the supply chain. We ensure that all parties have access to the best SCF options and we help also minimize the opportunity cost of foregone alternatives such as bank deposits to earn a fixed interest rate. We integrate different supply chain modules and our portal serves as a single source for all information on SCF.

4. Understands trading partners & prioritize enablement efforts 5. Frees human resources to focus on core and analytical processes

5


CASE STUDY

financejunction Diary Events that kept us busy

finance junction increased buying power for the bidding customers through its Buyer Finance Scheme

Industry

Steel Sector

Geography

India

Problem

Limited buying power due to stringent liquidity conditions

Solution

Implementation of an innovative finance facility for the bidding customers through host of banks

Results

i. Significant increase in buying power ii. Auction success rate increased to around 70% iii. Savings in overall borrowing cost impacting the “Net Margin”

The Client A Delhi based wholeseller/distributor. They regularly buy material from steel majors via mjunction’s online auction platform for selling secondary steelmetaljunction.

The Business Challenge The bidding customer was unable to expand their business and increase their buying capacity due to liquidity issues. They were unable to take part and emerge as H1 bidder in the metaljunction auctions. The challenges were:• High interest rate • Unavailability of Unsecured funds • Lengthening payment cycle • Constrained buying due to inadequate credit limits

The Approach

The Solutionfinancejunction launches Buyer Finance

Financejunction’s buyer finance schemeenabled easy access to finance at competitive rates to facilitate the bidding customer’s purchase. financejunction first understood the requirements and then negotiated with banks and NBFC’s to offer unsecured finance at competitive rates. An integrated online platform designed, developed and hosted by financejunction enabledexecution of financial transactions on real time basis.

To bring about financial inclusion for the bidding customer, financejunction devised the Buyer Finance scheme with an objective of providing funds at competitive rates with minimum collateral. The availability of cheaper unsecured funds increased their auction participation. The increased buying power also enabled them to expand their business.

Results & Achievements The bidding customeris associated with financejunction since 2007 to avail its Buyer Finance Scheme. Since then, they have availed unsecured finance over INR 400 Crores via financejunction to fund their buys from metaljunction auctions. In the last 3 years there has been a 30% y-o-y increase in purchase with an auction success rate of 69.52% for the customer.

They were in constant need of funds to meet their working capital requirements.

YoY increase in buying capacity 7000

1803

6000 5000

4453

4000

813

3000 2000 1000 0

741

579 428 308 1136 FY 07

1322

202

2305

2095

1730

Value(Rs Lacs)

650 FY 08

FY 09

FY 10

FY 11

6

FY 12

FY 13

Unit (MT)


PART 4 FINANCE JUNCTION DIARY

financejunction Diary: Events that kept us busy

Accolades 1. mjunction wins Responsible Supply Chain Award mjunction won the Marketplace Behaviour – Responsible Supply Chain Award on June 28, 2013, at the Responsible Business Summit organised by the World CSR Congress at Taj Lands End, Mumbai. This is the second award that mjunction has received this year. In February, our CSR initiative, ejunction, won the award for the Best use of CSR Practices in IT industry.

Events 1. financejunction organises Annual Conference financejunction held its Annual Conference on 7th June, 2013. This was attended by the financejunction team from across locations. The team discussed their accomplishments, failures and drew our strategies and plans for the year ahead. Mr R Krishna, Head Sales Planning- Long Products, Tata Steel and Mr Anil Paul, RG Steel also attended the conference as guest speakers.

2. mjunction organises “Reorgansing the Indian Coal Supply Chain” mjunction organized a one-day conference on the theme “Reorgansing the Indian Coal Supply Chain” in Nagpur on 21 June. The conference attended by over 100 delegates from the energy, mining, power, coal, cement, steel and allied industries.

Appreciation Letters “financejunction and their entire team has enabled us to achieve significant growth over the last several years and we really appreciate the transactional efficiency through this portal.” - Paresh Kapashi, Indu Corporation

7


mjunction is the largest ecommerce company in India. It is a 50:50 venture promoted by the Steel Authority of India Limited (SAIL) and TATA Steel.

shamim.ahmed@mjunction.in subarna.gupta@mjunction.in

www.mjunction.in www.financejunction.in

corporate office

Registered office

mjunction Services Limited Godrej Waterside Tower – I, 3rd Floor, Plot No. 5, Block – DP Sector – V,Salt Lake City, Kolkata – 700091, WB, India Tel: +91 33 6610 6100 Fax: +91 33 6610 6187/ 6179 / +91 33 6601 1719 / 1720

TATA Centre, 43 Jawaharlal Nehru Road, Kolkata 700 071 Tel: +91 33 6610 6100 +91 33 2288 2606 Fax: +91 33 2288 2078


financejunction Connect, August 2014