Convergence Plus
Sunday, May 27, 2018
Digital exposure to help midsize IT companies post higher growth

Digital exposure to help midsize IT companies post higher growthMidsize Indian IT services companies may post steady growth on the back of higher digital technology exposure, especially at a time when large companies are projected to have cautious forecast, said analysts. While some of the mid-cap IT firms have registered strong growth in the past couple of quarters, analysts have said they would continue to see higher revenue growth fuelled by digital deals.

Mid-size companies in the engineering and R&D space are likely to continue to post higher growth.

“Higher digital (technology) exposure and less legacy (software maintenance, technology infrastructure management) services compared with the larger companies are really translating into higher growth,” said Apurva Prasad, IT analyst, HDFC Securities. Companies such as MindtreeNSE 0.64 %, Zensar garner more than one-third of their revenue from digital technology services.
Another key growth driver for these companies is the client metric.

Prasad said, while the large clients for the mid-cap IT companies are growing faster, large accounts or deals for bigger IT companies have seen enough technology disruption and many of them re-oriented technology spending to drive internal innovation.

“Large contracts for large companies are worth nearly $100-200 million unlike the large deals for mid-cap firms that are valued at $25-30 million.” “Mid-tier companies will report 2-3% constant currency revenue growth sequentially despite seasonal weakness. Growth will be buoyed with share gains in existing large clients and benefits of large deals signed in the past 6-9 months,” Kawaljeet Saluja, analyst with brokerage Kotak Institutional Equities, said in a report.

Companies such as Mindtree, NIIT Tech, Zensar and others are likely to see continued growth momentum with the exception of Persistent Systems, which had warned that a shortfall in intellectual property (IP) revenue would affect its growth and margins in the fourth quarter.

Brokerage Edelweiss Securities had noted that while a drop in IP revenue was expected because of seasonal weakness in IBM’s Alliance business, the $8-million miss is much higher than anticipated due to revenue ramp-down in one of its IP products. “Growth recovery in Mindtree (4.4% QoQ reported) and NITEC (3.4%) should continue; we expect a 4.4% QoQ decline for Persistent Systems post the recent business update citing a shortfall in IP revenues,” wrote Pankaj Kapoor and Akash Verma of JM Financial.

“The momentum is likely to remain strong in the ER&D space; we estimate organic US-dollar revenue growth of 2.3% and 6.9% for L&T Technology Services and Cyient,” Kapoor and Verma said. Shares of Mindtree, Zensar and HexawareNSE -0.80 % have risen over 20% in value over the past three months, in step with the overall rise in midcap stocks.

Analysts had said that the outlook for smaller, under-scale companies are bleak and said consolidation was the only cure. Since then, some of the companies have brought in PE backers — Zensar and Hexaware — or merged with others to create specialisation, as with KPIT and BirlaSoft. (Source: Economic Times)

Wi-Fi provider MarcaTel opens centre in Bengaluru

Wi-Fi provider MarcaTel opens centre in BengaluruMarcaTel, a provider of Wi-Fi connectivity in public spaces, has opened its first centre in Bengaluru and is planning to create 2,000 jobs this year. MarcaTel installs towers that allow Wi-Fi access in a fixed radius and also maintains these towers. It is a division of LaMarca Knowledge and Services, which has a tie-up with BLUETOWN India, a wholly-owned subsidiary of Denmark-based BLUETOWN. MarcaTel‘s solution comes with three antennas, a base transceiver station and a power supply unit.

“The centre would cater to the needs of South India,” said Narayanan Rajagopalan, President, LaMarca Group. MarcaTel has bagged four retail commercial orders from Karnataka.Further, the company plans to install 1,000 such towers this year, as the need for internet access goes up in urbal and rural areas. MarcaTel will hire people in sales, marketing, engineering and customer support functions. “We have opened a 50-seat call centre and plan to employ 200 there,” Rajagopalan added.

Wi-Fi networks use radio waves that are deployed within unlicensed spectrum over the 2.4 gigahertz (GHz) and 5GHz frequency bands to connect to a wireless access point, which directly connects to the internet. (Source: The Hindu BusinessLine)

Income Tax panel refuses to stay Rs 110 crore tax demand on Flipkart

Income Tax panel refuses to stay Rs 110 crore tax demand on Flipkart An income tax panel refused to stay a demand of Rs 110 crore on Flipkart, India's largest online retailing platform, after it was asked to reclassify discounts and marketing spend as capital expenditure. This may have implications for rival Amazon, which faces a similar liability, and others.

The Income Tax Appellate Tribunal (ITAT) in Bengaluru asked Flipkart to deposit Rs 55 crore and provide bank guarantees to the tune of Rs 55 crore by February 28. While the tax assessed is for 2015-16, similar demands may be made for subsequent years. Hearings will continue after February 28.

Currently, companies categorise discounts and marketing costs as revenue expenses, while spending on factory construction is categorised as capital expenditure. If discounts are classified as capital expenditure, Flipkart, which otherwise incurs a loss, becomes a profit-making entity and liable to pay domestic taxes.

Taxi-hailing companies Uber and Ola follow a similar model of offering discounts to consumers, although there is no such tax demand on them.

The revenue authorities demanded taxes of about Rs 110 crore on an estimated profit of Rs 408 crore for the financial year 2015-16, when Flipkart originally reported a loss of Rs 796 crore. ETwas the first to report on the tax demand on September 2 and later the loss of an appeal to the Commissioner of Income Tax (Appeals) on January 22.

Flipkart approached the appellate tribunal in February and pleaded that the tax demand be stayed because it would cause "financial hardships for the company". The tribunal refused its plea on the ground that prima facie, there was no financial hardship.

Flipkart didn't respond to queries. The issue involves money spent by ecommerce companies on marketing through deep discounts offered to consumers. Flipkart, Amazon and other ecommerce companies classify the discounts as marketing expenses and deduct it from revenue, thereby posting a loss and not being liable to pay tax.

"Discounts are a function of business and are given for various reasons including expansion of business and market conditions," said Ketan Dalal, managing partner at Katalyst Advisors.

"Categorising discounts as capital expenditure is inconsistent with business realities. Tax has to be paid on income and that is obviously post-discount." Experts expect similar tax demands on startups including Amazon, Ola, Uber and Snapdeal. The income tax department's stand is that and large marketing costs are part of brand building.

"These discounts, along with huge marketing and advertising expenses, are creating market intangibles for the company," a tax official said. "This means these are not costs, but capital for the company."

Some experts said ecommerce companies including Flipkart and Amazon are online marketplaces and brand loyalty is not a factor. The discounts offered on products that vendors sell online on Flipkart and Amazon are typically reimbursed by ecommerce companies.

"To say that discounts are capital expenditure since they result in enduring benefit may be a little farfetched," said Amit Maheshwari, partner at Ashok Maheshwary & Associates LLP. "In this industry, discounts are necessary to survive and typically do not result in any enduring benefit to these companies."

Earlier cases have set a precedent in this matter, with the courts holding that the tax department cannot put itself in the shoes of an industrialist in determining the quantum of an expense that needs to be incurred, said Sanjay Sanghvi, partner (tax) at law firm Khaitan & Co.

"If the tax department starts treating discounts or marketing spend as capital expenditure/brand building capex, then several other businesses using similar business strategies could also come under the tax cloud," Sanghvi said.

While the current tax demand is for 2015-16, a senior Flipkart executive said similar demands may be raised for other financial years. "We expect the tax department to maintain the same stand for financial years 2016-17 and 2017-18," he said.

Reclassifying discounts or marketing costs could alter the way companies record their income and expenses. (Source: Economic Times)

Facebook may have over 200 mn fake or duplicate accounts globally

Facebook may have over 200 mn fake or duplicate accounts globallyAs many as 200 million accounts on Facebook are either fake or duplicate as on end December 2017 and India is among the countries which have a high number of such accounts, the social networking site said.
“In the fourth quarter of 2017, we estimate that duplicate accounts may have represented approximately 10 per cent of our worldwide MAUs (Monthly Active Users),” Facebook said in its latest annual report. “We believe the percentage of duplicate accounts is meaningfully higher in developing markets such as India, Indonesia, and the Philippines, as compared to more developed markets,” the report said.

As of December 31, 2017, the social networking site had 2.13 billion MAUs, an increase of 14 per cent from December 31, 2016. Monthly active users (MAUs) were 1.86 billion as of December 31, 2016 with six per cent or 114 million “duplicate accounts”.
Users in India, Indonesia, and Vietnam represented key sources of growth in 2017, relative to the same period in 2016, it said.
Worldwide Daily Active Users increased by 14 per cent to 1.40 billion on average during December 2017 from 1.23 billion during December 2016. “Users in India, Indonesia, and Brazil represented key sources of growth in DAUs during December 2017, relative to the same period in 2016,” Facebook said.

A duplicate account is one that a user maintains in addition to his or her principal account. While “false” accounts have been divided into two categories—user-misclassified accounts, where users have created personal profiles for a business, organisation, or non-human entity such as a pet and undesirable accounts—which represent user profiles that the site determine are intended to be used for purposes that violate FB’s terms of service, such as spamming. “The estimates of duplicate and false accounts are based on an internal review of a limited sample of accounts and we apply significant judgement in making this determination,” it explained.
The estimation of duplicate or false accounts may not accurately represent the actual number of such accounts and in particular, duplicate accounts are very difficult to measure at scale, and it is possible that the actual number of duplicate accounts may vary significantly from the estimates, it clarified. (Source:The HinduBusiness Line)

Government to set up apex cybercrime coordination centre

Government to set up apex cybercrime coordination centreNCRB states that 5,693, 9,622 and 11,592 cybercrime cases were registered during 2013, 2014 and 2015, respectively, showing a rise of 69 per cent during 2013 to 2014.

To deal with cyber crimes such as financial frauds, circulation of communal and pornographic contents, the Union Home Ministry is planning to set up an apex coordination centre and has asked states to establish a similar mechanism in every district.

It has also released Rs 83 crore for setting up of a cyber forensic training laboratory-cum-training centre for police officials in each state. The funds were given under the Cyber Crime Prevention against Women and Children Scheme, a Home ministry official told PTI.

The apex centre -- Indian Cyber Crime Coordination Centre (I4C) -- would be set up in Delhi.

It would coordinate with state governments and union territories, and closely monitor the cyber space and social media with due emphasis on vernacular content.

The centre would also block those websites which flout India's laws and circulate child porn, and communally and racially sensitive content.

The official, requesting anonymity, said that the centre would maintain a list of suspects and the leads generated during investigations in cyber crime cases would be shared with law enforcement agencies through a "secured internal network".

State governments have also been asked to set up a state cyber crime coordination cell at the headquarter-level and also establish district cyber crime cells.

The ministry has already created a new wing -- Cyber and Information Security Division -- to deal with the new-age challenge.

The move came in the wake of 1,44,496 cyber security attacks observed in the country during 2014-16.

Over a period of time, there has been a phenomenal increase in use of computers, smart phones and internet. With this increase, cyber crimes have emerged as a major challenge for law enforcement agencies, the official said.

"The cyber crime cases are of varied types. These range from defacement of government websites, online financial frauds, online stalking and harassment, and data thefts. Each requires specialised investigative skill sets and forensic tools," another official said.

Cyber crime cases pose technical, legal and administrative challenges in investigation which require strengthening of the institutional mechanism.

Phishing, scanning or probing, website intrusions and defacements, virus or malicious code and denial of service attacks are some types of cyber crimes.

National Crime Record Bureau (NCRB) states that 5,693, 9,622 and 11,592 cyber crime cases were registered during 2013, 2014 and 2015, respectively, showing a rise of 69 per cent during 2013 to 2014 and 20 per cent increase during 2014 to 2015.

The Home ministry has also advised the states to expedite setting up of cyber and mobile forensic labs, and to identify the need for research and development in specific areas of cyber space.

The states were asked to come up with suggestions for amendments in legal and policy framework dealing with such crimes. (Source: Economic Times)

Cyber threats outpacing abilities of Govts, firms: WEF

Cyber threats outpacing abilities of Govts, firms: WEFAs cases of data breach and online frauds fox the authorities in India and abroad, the World Economic Forum (WEF) has warned that cybersecurity threats are outpacing the abilities of the governments and companies to overpower them unless all stakeholders cooperate. In a new report to be discussed in detail at its annual meeting in Swiss ski resort town of Davos by over 3,000 world leaders including from India, the Geneva-based WEF said working collaboratively in the cybersecurity space is difficult and there is no “simple policy solution or silver bullet here”.

The increasingly networked, digitised and connected world is vulnerable to cyber threats that can only be addressed by the combined capabilities of the public and private sector, said the new report prepared by the WEF in collaboration with the Boston Consulting Group (BCG).

The report, Cyber Resilience: Playbook for Public-Private Collaboration, seeks to facilitate capacity-building, policies and processes necessary to support collaboration, safeguard cyberspace and strengthen cyber-resilience. It precedes the launch of a new Global Centre for Cybersecurity at the Davos summit from January 22-26, 2018.

“We need to recognise cybersecurity as a public good and move beyond the polarising rhetoric of the current security debate. Only through collective action can we hope to meet the global challenge of cybersecurity,” said Daniel Dobrygowski, Project Lead for Cyber Resilience at the WEF.

It further said cyber threats are complex, dynamic and increasingly personal as technology saturates economy and society and addressing these threats requires dialogue across industries and competencies, and on subjects from the technical to the ethical. “Currently, dialogue between leaders in the public and private sectors is often off-target and at cross purposes. Policy implementation also varies by national context: every country has its own unique capabilities, vulnerabilities and priorities,” the WEF said.

“There is no simple, elegant policy solution or silver bullet here. The iterative progress and feedback loop used in software development should be a model for improving policy,” said Walter Bohmayr, Global Leader of Cybersecurity at BCG.

The report calls all stakeholders to move past absolute and rigid positions towards more nuanced discussions aimed at solving key challenges. “Cyber-resilience will continue to be a top-of-mind topic for decision-makers, and the Forum intends to continue leading future efforts in this space through its new Global Centre for Cybersecurity, which will be presented at the annual meeting in Davos,” the WEF said. (Source: The Hindu BusinessLine)

Retailers plan to go all out in war against revised MDR on social media

Retailers plan to go all out in war against revised MDR on social mediaOver the next few weeks, social media users should be prepared for a barrage of posts on the very commercial-sounding topic of merchant discount rate, which are likely to be accompanied by hash-tags such as #MDR and #debitcards. Retailers are planning a coordinated campaign on platforms such as Twitter and Facebook to highlight how the latest revision in the charges they pay to enable debit card transactions is an anticonsumer move and one that would benefit banks and card issuers. They are trying to broad-base their campaign by bringing on board ecommerce companies, airlines and telecom operators, among others, to oppose the changes in the cost of debit card transactions.

"There are repercussions for all merchants," said Kumar Rajagopalan, chief executive officer of the Retailers Association of India. The association is trying to rope in "everybody in online space, travel and tourism, hotels, telecom," he said.

One CEO set the ball rolling on Friday with a tweet on how the decision could discourage cashless transactions. "This move contradicts #DigitalIndia that we are all driving. I hope, @NITIAayog will notice the avoidable contradiction. We would like to be encouraged to drive digital payments, not punished! Please, @amitabhk87," Damodar Mall, chief executive officer for grocery at Reliance Retail, said on Twitter on Friday.

One retail veteran suggested in a message to a WhatsApp group of retail CEOs that companies must use their social media teams to run a "whole hog" campaign and a team of "media savvy" CEOs should clear the posts so that the necessary impact is created, according to a retail CEO who asked not to be identified.

The retailers plan to bombard social media with posts tagging the Prime Minister's Office and the finance, commerce and textile ministers. "We will do a major tamasha on social media," Rajagopalan said.

The group will also petition the finance minister, the Reserve Bank of India and Amitabh Kant, CEO of Niti Aayog, the government's think tank.
The RBI revised the merchant discount rate for debit card transactions on Wednesday. Starting January 1, for shops with a turnover of up to Rs 20 lakh in the previous financial year, the MDR will be 0.4% of the purchase value or Rs 200 per transaction, whichever is lower. At bigger stores, the MDR will be 0.9% of the purchase value or Rs 1,000, whichever is lower. The RBI set a different rate for QR-code based transactions, with similar caps in the two categories.

Currently, the MDR is 0.25% for purchases up to Rs 1,000 and 0.5% for transactions between Rs 1,000 and Rs 2,000. For higher amounts, the rate is 1%. There is no categorisation based on annual revenue. The RBI said it decided to rationalise the MDR for debit cards based on consultations with stakeholders and with the objective of promoting wider debit card acceptance, especially by small merchants, and ensuring the sustainability of their businesses.

Kirana Stores at a loss
The Confederation of All India Traders, which also represents small shopkeepers, said the RBI move will not help kirana stores, estimating their average annual turnover at above Rs 20 lakh. Metro Cash and Carry said most of its kirana clients clock annual revenue of Rs 24 lakh to Rs 60 lakh and accepting debit cards will erode their profit by 20% due to MDR payments.

"We are still studying the RBI direction to understand it better. We will engage with regulatory bodies to present our views on the same," an Amazon spokesperson said. In their social media campaign, the retailers plan to emphasise that the MDR revision will only help banks and card issuers. "There is no logic on who uses QR codes in this country," said a top CEO of a retail group, asking not to be identified.

"The real story is that banks are trying to make a profit out of this... In China, the MDR charge is 0.2% on all cards put together and in India it is about 2%. How can business succeed if MDR charges are so high?"

The campaign will highlight how consumers may be affected because prices of essentials will increase, with retailers and restaurants planning to pass on the increased costs.

"Retailers are feeling the pinch and that must be communicated loud and clear," said Riyaaz Amlani, a managing committee member of the National Restaurant Association of India. "The general public also needs to know why the costs are going up. At the end of the day, the customers will get impacted as my input costs have gone up."

Retailers said the cost of doing business will go up by 0.5-0.6 percentage points. The RBI has said MDR charges are not to be borne by customers. Banks are advised to ensure that merchants on-boarded by them do not pass on MDR charges to customers while accepting payments through debit cards, the RBI said in its notification on December 6. (Source: Times of India)

Local content hogs the limelight on YouTube

Local content hogs the limelight on YouTubeFuelled by cheap data rates, entry of multimedia players and variety of new content offered, local content is proving to be a big hit on YouTube, as 200 channels from India have hit the 1-million subscribers mark in 2017. Just this year, 145 channels have crossed the milestone, marking a five- times jump year-on-year. The launch of Reliance Jio and subsequent drop in data prices has seen an average connected mobile internet user in India consume 4 GB of data every month. With the consumption expected to increase to 11 GB per month by 2020, the online video streaming services have reached a tipping point. “Out of 400 million Indians with access to internet, more than half are consuming YouTube. In September, as per App Annie data, YouTube had 225 million monthly active users,” said Satya Raghavan, head of entertainment, YouTube India.

And YouTube has seen a massive jump in not just the watch-time and number of users, but also in terms of the Indian content creator ecosystem.

For the first time not just the media companies’ owned channels but individual or creator-led channels are also getting high traction. A total of 80 such Indian creator-led and original YouTubefirst channels have crossed the million-subscriber mark.

“Every week we are witnessing three new channels crossing the 1-million threshold. This is a huge jump, compared to 2-3 creator-driven channels that boasted of such a subscriber base a couple of years back,” Raghavan said.

For instance, this year, a 106-year-old grandmother took YouTube by storm, when she shared her village food recipes with the world. The granny now has over 750K subscribers and on an average gets 10 million views for recipes. “You-Tube is fast becoming the pop-culture for India. There is a massive growth of sub-genres within genres of food, comedy and beauty,” Raghavan added.

Amongst YouTube’s top 10 countries India is one of the fastest growing — both in terms of total watch time and mobile watch time. While total watch-time grew over 400% year-on-year on mobile devices (mobile+tablets), India is one of the few countries where over 80% of total watch-time is spent on mobile devices. (Source: Economic Times)

Aadhaar may add security layer with dummy numbers

Aadhaar may add security layer with dummy numbers Amid the privacy and protection concerns voiced by various groups, the top team of Unique Identification Authority of India (UIDAI) is exploring the possibility of introducing dummy numbers that would add an extra layer of security to every Aadhaar cardholder. Such a framework would require an individual to share dummy or pseudo numbers — and not the real Aadhaar number — to government agencies, private utilities, banks and while withdrawing money from ATMs or moving funds from one bank account to another under the Aadhaar-enabled payment system. Besides the cardholder, the original Aadhaar number would be known only to UIDAI. Two senior persons in the industry told ET that the concept has been discussed at senior levels in UIDAI but is yet to be finalised.

No details yet
The creation of dummy numbers and the frequency at which it can be generated and used would depend on the design architecture of the system. “It may not help if a permanent dummy number is given against every Aadhaar number. The primary job of Aadhaar is authentication — to ensure whether the right person is using the services. So, if there can be a dynamic system where an individual authenticates with the electricity company using one dummy number, with the telephone company using another dummy number, and generates new dummy numbers for monetary transactions like one time passwords (OTPs), then there is no one Aadhaar number that can be traced back to the person. And, in the absence of a single number, it is very difficult to misuse Aadhaar to track someone’s personal data,” said a person familiar with the concept.

However, there are no details available on UIDAI’s final stand on such a proposal — whether and in what form it could be brought in. Ajay Bhushan Pandey, chief executive of UIDAI, did not respond to texts, WhatsApp messages, and phone calls. (Source: Economic Times)

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