Sunday, December 13, 2009
Despite poor participation from retail investors, India Inc raised $16.7 billion (Rs 78,000 crore) through equity issues in the first eight months of the current fiscal, five times that in the entire financial year ended March 2009, as foreign investors returned and companies resumed expansion activities.
The pick-up in fund-raising coincided with the economy showing clear signs of revival and the sharp rebound in stock market valuations after they hit a low in early March.
However, the amount raised so far in the current fiscal is still far lower than in the corresponding period of 2007-08, a boom year for the stock markets. India Inc raised Rs 125,526 crore between April and November 2007.
The Economic Times
India’s telecom tower industry is set for a wave of consolidation with small and medium sized firms opting for mergers or alliances to take on larger rivals and hasten rollouts in the face of rising demand. India’s position as the fastest growing wireless market in the world has attracted several global players such as UK’s Vodafone Plc, Japan’s NTT DoCoMo and UAE’s Emirates Telecommunications Corp (Etisalat).
“Under the current circumstances, when competition is so severe at operators’ end, the tower companies have to become much more efficient,” said Ravi Sharma, executive chairman of industry body CMAI Association of India. “They will only survive, provided they have more than three tenants per tower,” he said. “Now to get to that, there will be consolidation amongst companies.”
Earlier this month, two sources had told Reuters that GTL Infrastructure Ltd was leading the race to buy the tower holdings of Aircel, the Indian unit of Malaysia’s Maxis, in a deal valued at $1.6 billion to $1.7 billion. Private equity firm New Silk Route, which owns a stake in tower leasing firm Aster Infrastructure, is reportedly in talks with Essar Telecom Infrastructure to buy a stake in the latter. The consolidation spree was kicked off in 2007 when India’s top mobile operator Bharti Airtel, Vodafone Essar and Idea Cellular decided to pool their resources and hived off their towers into an independent firm, Indus Towers.
As India is all set to take a final call on the spectrum allocations in January 2010 for the much-awaited 3G and WiMax licenses, Intel hopes for more demand of its products and solutions in the computing and Internet space.
Recently, Intel has come out with new devices and solutions that provide mobile and wireless broadband Internet access. For instance its Nettops with Atom processor is a low-cost computing device with a good computing performance, available at the market price of around Rs.10,000 in India.
The company considers Nettops as a key affordable computing device along with boosting Internet penetration in the rural parts of the country. Since its launch, Intel already has sold over half a million units.
Besides, Bharat Sanchar Nigam Limited (BSNL) in association with HCL, Intel and Microsoft has launched BharatPC to boost Internet penetration under the National Broadband Penetration Project (NBPP).
Ahead of the upcoming 3G spectrum auctions, the department of telecommunications (DoT) is working on a policy on drawing up a priority list to allocate 2G spectrum. The matter has assumed significance because the DoT needs to clarify who would first get 2G spectrum —the successful 3G bidders or the companies whose applications for licences to operate 2G services are still pending before it. Around 343 applications by 16 companies are still pending before the DoT.
The Financial Express
Union Minister for Communications and Information Technology A. Raja on Friday said the auction of spectrum for 3G mobile service would be held as scheduled. “There is no change in the schedule,” he told journalists here.
The Department of Telecommunications (DoT) has set January 14, 2010 as the date of auction.
Referring to the number of slots to be auctioned per circle, Mr. Raja said: “It would be decided by the empowered-Group of Ministers (eGoM).” Initially, it was planned to auction four slots a circle, apart from a State-run telecom firm, but the DoT now wanted only three players due to shortage of spectrum.
The DoT had fixed the reserve price of spectrum at Rs.3,500 crore for the pan-Indian 3G spectrum and Rs.1,750 crore for wireless broadband (WiMAX). However, with a cut in the number of slots, revenue generation from the auction process could fall short by around Rs.5,000 crore from the earlier estimated Rs.25,000-Rs.30,000 crore.
Close on the heels of celebrating 500 million mobile customer mark, the country’s cellular phone market has now crossed another major landmark: The average urban teledensity in India has now crossed the 100 per cent mark as per latest figures released by the department of telecom (DoT). This implies the country’s towns, cities and metros, all of which are classified as ‘urban’ by the government, now have as many mobile connections as that of their population. In March 2008, the country’s urban teledensity was about 60 per cent, which jumped to over 85 per cent in March 2009 and it has now crossed the 100 per cent mark.
The Economic Times
Friday, December 04, 2009
The flow of foreign direct investments into the country saw a major increase in October, registering a 56 per cent jump to touch $2.3 billion in October against the same period last year, an official said.
In October 2008, the FDI stood at $1.5 billion. However, the consolidated inflow during the April-October period of this fiscal saw a decline of $1.1 billion to $17.6 billion from $18.7 billion in the year-ago period.
The Financial Express
Tuesday, December 01, 2009
India’s economy grew at its fastest rate in 18 months in the quarter through September, smashing expectations and adding pressure to bring forward an interest rate rise and cut stimulus spending as inflation mounts.
Asia’s third-largest economy grew 7.9% in the past quarter from a year earlier, far above forecasts of 6.3%, but growth was expected to slow this quarter when the impact of a weak monsoon would be seen on crops.
The expansion was driven by government spending, manufacturing, services, and a better-than-forecast farming output, sending bond yields and swap rates higher as investors bet on a rise in rates and the finance minister said growth could hit 7% in the fiscal year ending in March 2010.
“This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by end of the calendar year,” said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.
“The exit from the fiscal stimulus by the government may also be earlier post the GDP data.”
Prior to the data, most economists had predicted a rate rise sometime between January and April 2010.
In the June quarter, India’s economy grew 6.1% from a year earlier, and Prior-Wandesforde said that by his calculation the last quarter’s growth was the sharpest on a quarter-by-quarter basis since quarterly data began in 1996.
Manufacturing output grew 9.2% in the quarter as consumers bought more cars and other goods.
Larger neighbour China, which along with India is helping to pull the global economy out of its worst recession in decades, clocked growth of 8.9% during the same quarter.
Thursday, November 26, 2009
The potential purchase of a controlling stake in LyondellBasell Industries AF, the world’s third largest petrochemical company, by Reliance Industries Ltd, India’s largest company by market capitalization, marks a return to multi-billion dollar overseas acquisitions by cash-rich Indian companies tempted by depreciated asset prices of companies affected by the biggest worldwide recession since the Great Depression. If successful, it could make Reliance Industries India’s first company to have a market value greater than $100 billion.
Indian companies with a war chest of cash reserves include the Oil and Natural Gas Corporation Limited (ONGC), India’s state owned petroleum company, with reserves of about $5 billion; Reliance Industries with reserves of $4.2 billion and Tata Sons, the holding company for all Tata Group’s investments, with about $640 million .
Indian companies are on the hunt for bargain basement prices overseas. This is a good time for them to buy market share and customers in the West at fraction of what they would have paid a couple of years ago.
After a lull of about 18 months, Indian companies have aggressively started looking at foreign assets again. During that time, western economies dipped to low single-digit GDP growth and unemployment surged into double digits amidst the worst banking industry led financial crisis in decades. By contrast, the Indian economy continues to grow at nearly 7% annually amidst growing consumer demand and a robust banking system.
The fear that India’s economy might follow the West into a recession is over. That’s giving Indian companies the confidence to go hunting again in overseas markets where the recession gives them one-in-a-lifetime opportunities to acquire depressed assets.
LyondellBasell, based in Rotterdam in the Netherlands, sought bankruptcy protection early this year after demand for its plastic products plunged last year.
The acquisition of LyondellBasell by Reliance is expected to be India’s biggest cross-border deal this year, on par with the acquisition of the U.K.’s top steel maker Corus Group Plc for $12 billion by India’s Tata Steel Ltd in January 2007. Indian M&A activities peaked in 2007 with more than $51 billion worth of transactions.
India has been host to 234 M&A deals amounting to only about $8 billion during the first 10 months of this year, less than a third of that in the corresponding period in 2008.
The $100 Billion Club
The Reliance – LyondellBasell combine will accelerate Reliance into the elite league of companies worldwide that have a market capitalisation of more than $100 billion (Rs 460,000 crore). The combined entity will have potential consolidated revenue of more than $85 billion, transcontinental presence across more than 60 facilities and 60,000 people. Reliance Industries currently has a market value of about $75 billion.
The Indian companies are buying international scale and growth not only in developing economies, but to compete in developed economies as well. Reliance’s acquisition of LyondellBasell will mark India’s entry in the international petrochemical industry, just as previous years saw India Inc. buy into international steel, auto and IT industries.
Indian oil companies are stepping up overseas purchases as shrinking profit margins have prompted international refiners to idle and sell plants. Crude oil currently trades at about half its record $147.27 a barrel in July 2008.
Essar Oil, India’s second-largest private refinery is currently in talks to buy three refineries in the U.K. and Germany from Royal Dutch Shell Plc. Oil & Natural Gas Corp., India’s biggest energy explorer, completed a 1.4 billion-pound ($2.3 billion) acquisition of Imperial Energy Plc in March.
Sunday, November 22, 2009
Intensifying competition in the Indian telecom sector, the world’s fastest growing in mobile sign ups, should kick off an industry consolidation in two years, a senior official at Reliance Communications said.
With four firms, including ventures of Norway’s Telenor and United Arab Emirates’ Etisalat, set to start operations in India this year, existing players led by Reliance and Bharti Airtel have slashed call charges to lure users.
India, which has 11 mobile operators, has this year added an average 14 million mobile users a month. Analysts say still there is huge potential as only 40 people of every 100 own mobile phones from a population of more than a billion.
A red carpet welcome awaits Prime Minister Manmohan Singh as he lands at the Andrews Air Force Base on Sunday as the first state guest of President Barack Obama for a visit that is expected to take the Indo-US strategic relationship to the next level.
The Prime Minister, his wife Gursharan Kaur, and his delegation would be welcomed by a group of children and the Indian American community, before he drives to the Willard Intercontinental Hotel, three blocks away from White House.
Bharti Airtel launched yet another new billing plan on Friday, slashing mobile roaming rates by nearly 60% and signalling a tariff war in the world’s fastest-growing wireless market was far from over.
The announcement accelerated losses in the shares of Bharti, the country’s top mobile operator. The stock fell as much as 3.3% but trimmed losses to 2.7% at Rs284.90 by 0825 GMT in a Mumbai market that was up 0.3%.
The price war, aimed at grabbing new users ahead of fresh entrants waiting in the wings, has raised concerns about telecom firms’ profitability. Four new firms, including ventures funded by Telenor and Etisalat, are set to start services this year adding to the existing 11 operators.
India’s Reliance Industries is offering about $12 billion to buy a controlling interest in bankrupt chemical company LyondellBasell Industries to create one of the largest petrochemical firm in the world, two sources with direct knowledge of the deal said.
“The offer is in the vicinity of about $10 to $12 billion,” one source said, while another said it was around the upper end of the band. The two sources declined to be named as they are not authorised to speak to the media.
The deal, if closed, will make it one of the largest overseas acquisitions by an Indian company. In 2007, Tata Steel bought Anglo-Dutch Corus steel maker for $13 billion.
On Saturday LyondellBasell said Indian energy giant Reliance Industries has made a non-binding cash offer to buy a controlling interest and the offer represented a potential alternative to its previously filed reorganisation plan to emerge from Chapter 11 bankruptcy.
Reliance said it had made a preliminary non-binding offer to acquire, for cash, a controlling interest in LyondellBasell upon its emergence from Chapter 11.
Thursday, October 22, 2009
India Inc is likely to witness a 22.8% growth in its profit after tax (PAT) in the current fiscal, an economic think-tank has said in its report. “Corporate sales growth will average at a meagre 4.1% in 2009-10. At the same time, the PAT will rise by a robust 22.8%,” the Centre for Monitoring Indian Economy (CMIE) said in its latest report.
The manufacturing sector (excluding petroleum sector) would report a 24.3% growth in PAT mainly because of low prices of raw material and soft interest rates, CMIE said, adding that the PAT of the financial and non-financial services would rise by 32.2% and 20.4%, respectively.
The Financial Express
India Inc is on a fund raising spree, garnering $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April as companies, locked out from capital markets for almost a year due to the liquidity crisis, rush to finance growth plans.
The Economic Times
India’s accommodative monetary policy may continue until the end of March, with the need for tightening once inflation picks up, a government panel that advises the prime minister said on Wednesday. Former central bank governor C. Rangarajan, who heads the panel, said growth in the fiscal year that ends in March 2011 would accelerate to 7 to 8% after growing by about 6.5% in 2009/10, with inflation at around 6 percent by the end of March 2010.
One of the most intriguing ironies of the business world is the fact that when economies are booming and asset prices skyrocket, we see companies making audacious bids to buy other companies. On the other hand, when the economy takes a tumble and asset prices are at historic lows, we see CEOs become inward-looking and go into defensive mode, even though they might be in a relatively good position.
Bleak economic scenarios like the present time should be used by strong companies to bolster their standing in their respective industries and to orchestrate "game-changing" initiatives, prime among which is mergers & acquisitions. It's a buyers' market and companies acting now are likely to emerge as winners when the upswing comes. Now is as good a time as ever for dealmaking.
India and China are together projected to treble the number of high net worth individuals (HNIs) from 4.48 lakh in 2008 in the next one decade, as per a report collated by Merrill Lynch Wealth Management and Capgemini, which pegged the number of Indian HNIs at 84,000 for the past year. After seeing a 22.7% growth in the population of HNI in 2007 to 1.23 lakh - the highest percentage jump in the world - India saw a 31.6% drop in the number of HNIs past year. India happened to witness the second-biggest drop in the population of the rich, as defined by the survey, behind Hong Kong, which recorded a 60% drop in HNIs in 2008.
The survey defined HNIs as those with investable assets of at least $1 million (Rs 5 crore), excluding their primary residence and consumables. With the Indian economy showing clear signs of revival and the stock market bouncing back, the number of HNIs in the country is expected to bounce back soon.
The Economic Times
Monday, October 05, 2009
A mega transnational deal and over USD 20 billion transaction, a new south-south alliance, the creation of the world’s third largest telecom firm, two public attempts, unprecedented government lobbying, a combined 12 months of negotiations, thousands of hours in legal fees and yet this deal came unstuck.
Bundeep Singh Rangar, Chairman of IndusView; Lauri-Lynn Pursall, Partner of Mayer Brown; and Vivek Gupta, Partner at BMR Advisors discuss what went wrong in the Bharti-MTN deal
Friday, September 25, 2009
India is likely to invest $18 billion in ports and over $4 billion in its ship building industry in the next five-to-seven years, shipping industry players said at a meet here. Shipping Corporation of India's Chairman and Managing Director, S Hajara, who spoke at the meet, said that shipping should be brought under the infrastructure ambit. He called for a relaxation in the present cabotage law to allow shipping into the infrastructure sector.
The Economic Times
As many as 13 Indian companies, including Reliance Industries, Infosys Technologies and Tata Steel, have made it to the list of Forbes' 50 best listed companies in the Asia-Pacific region.
In the Forbes list, there are four Indian entities – Reliance Industries, Bharti Airtel, Infosys Technologies and Tata Consultancy Services – among the top ten firms in terms of market value, while Reliance Industries and Tata Steel feature in the top ten league in terms of sales. Other than RIL, Infosys and Tata Steel, the other Indian firms that have made it to the prestigious list include - Adani Enterprise, Axis Bank, Bharat Heavy Electricals, Bharti Airtel, HDFC bank, Jindal Steel & Power, Larsen and Toubro, Mahindra & Mahindra, Tata Consultancy Services and Wipro.
The Economic Times
Finance minister Pranab Mukherjee said on Wednesday that the Indian government backs the proposed merger of Bharti Airtel Ltd and South Africa’s MTN Group Ltd and it was looking into legal aspects related to a dual listing.
“Our position on this is very clear. In the first week of September, I had met the South African finance minister on the sidelines of the G-20 finance ministers’ summit in London, and told him that we are in favour of the deal,” Mukherjee said in Kolkata. “As far as dual listing is concerned, that is linked with full (capital account) convertibility. This has legal aspects, which we are looking into.”
On whether India would alter legislation to allow the record $24 billion (Rs1.15 trillion) deal, the finance minister said: “We welcome the deal but in the context of the law of land. There are some legal implications, which are being looked into.”
Monday, August 31, 2009
South African mobile operator MTN wants to conclude a proposed tie-up with Indian partner Bharti Airtel quickly to end any doubt about the deal, chief executive Phuthuma Nhleko said.
“We want to do the deal sooner rather than later because we are really uncomfortable with the uncertainty,” Nhleko told Reuters on Thursday.
Last week, Bharti and MTN extended talks aimed at creating the world’s third-biggest mobile company for a second time, frustrating investors who wanted the deal finalized, and raising concerns its structure was too complex to succeed. Both firms agreed to extend talks to 30 September, after previously extending discussions by a month to 31 August, as they negotiate a $23 billion cash and share-swap deal aimed at an eventual full merger.
World’s biggest oil company ExxonMobil is in talks with India’s top technology firms and multinational vendors for outsourcing of several IT contracts worth up to $1 billion.
A day after British Petroleum (BP) formally awarded over $1.5-billion outsourcing contracts to TCS, Infosys and Wipro along with IBM and Accenture, top Indian offshore vendors including L&T Infotech and HCL Technologies - along with other MNC vendors - have locked horns with each other for almost $1-billion outsourcing deal being fleshed out by ExxonMobil.
The Economic Times
Spurred by a worldwide consolidation wave, Indian carmakers are rushing to global automotive designers in a bid to give a cutting edge to their products line-up. Auto majors such as Bajaj Auto, Maruti Suzuki, Mahindra & Mahindra and Tata Motors are understood to be meeting several top auto designers in a bid to scale up their in-house design functions.
Senior officials of these companies have conducted several rounds of interviews at a recent Society of Automotive Engineers event with designers from Chrysler, BMW and others based out of Europe and the US.
The Economic Times
Indian stocks rose more in the first 100 days of Prime Minister Manmohan Singh’s leadership than under any new government since 1991. Investors predict more gains as he opens up the world’s second-fastest growing economy.
The Bombay Stock Exchange’s Sensitive Index climbed 16 percent since Singh started a second term on May 22 as international investors bought $4.9 billion more shares than they sold, data compiled by the bourse show. The advance is the biggest since the 40 percent rally after Prime Minister P.V. Narasimha Rao came to power, and compares with the 8.4 percent increase for the Standard & Poor’s 500 in the first 100 days of U.S. President Barack Obama’s administration.
Thursday, August 13, 2009
The acquisition is expected to strengthen its domain-based solutions in key BFSI vertical
IT and BPO services company MphasiS today said it will acquire AIG Systems Solutions (AIGSS), the IT arm of the US-based insurance giant AIG (American International Group), for an undisclosed sum.
The acquisition, which comes with guaranteed business from AIG, is expected to strengthen MphasiS’ domain-based solutions in its key banking, financial services and insurance (BFSI) industry vertical, MphasiS CEO Ganesh Ayyar said. The BFSI segment brings in 40 per cent of the company’s revenues.
MphasiS, a majority of which is owned by Hewlett-Packard subsidiary EDS, did not disclose the financial details of the deal. With cash and bank balances of $74 million in its second quarter ended April 30 this year, the company is likely to fund the acquisition through internal accruals, according to analysts.
The MphasiS buy of AIGSS signals renewed activity in the tech merger and acquisitions space, which has been sluggish since January this year. TCS had bought the back-office unit of Citigroup Inc for $505 million in October last year, while Wipro acquired in December another captive unit of Citigroup for $127 million.
“Indian IT companies are positive on cash flows and are looking at rebounding from the recession through inorganic growth. We expect action to pick up on the M&A scene,” said Neeraj Atri of IndusView Advisors, a strategic consulting firm.
AIG, once the world’s largest insurance company, was part of an $800-billion fiscal stimulus package from the US government and has been looking at hiving off assets which fall outside its core insurance business.
AIGSS has around 800-850 people on its rolls, with offices in Chennai and Kolkata, and provides IT services to AIG companies worldwide, according to an MphasiS filing with the Bombay Stock Exchange. MphasiS currently employs 33,810 people, of which the applications services business has a total of around 15,000 employees. The acquisition is expected to help MphasiS gain market share in the insurance domain and enhance its portfolio of domain-specific solutions.
“This acquisition gives MphasiS the depth and breadth for us to be the preferred partner of choice in their (AIG’s) IT transformation,” MphasiS President (Applications Services Business Unit) Gopinathan Padmanabhan said in a statement.
Post-acquisition, AIGSS is expected to become part of the key application services business unit of MphasiS. This unit showed a quarter-on-quarter growth of 5.2 per cent for the period ended April 30 this year, and brought in 63.8 per cent of MphasiS’ total revenues. While the company has seen pressures in terms of pricing and solutioning, it has been winning new deals in the marketplace, CEO Ganesh Ayyar had said in a internal mail to employees in May this year.
For the second quarter ended April 30, MphasiS showed 219.1 per cent growth in PAT to Rs 224.5 crore from Rs 70.3 crore earlier. Total revenues for the quarter crossed Rs 1,000 crore, with consolidated topline at Rs 1,048.5 crore increasing 52.3 per cent from Rs 688.4 crore in the same period of 2008. The company hired 3,822 people to support growth during the quarter, of which 117 were freshers.
* A Spurt In Overseas Fund-Raising By Indian Companies
* Indian Companies Preferring GDR More In Comparison To ADS Route
* Institutional Fund Raising Through Qualified Institutional Placement Also On Rise
* Foreign Institutional Investors Turned Net Buyers In The Indian Markets
The appetite of global investors for Indian equity is increasing again, as reflected by a spurt in overseas fund raising by Indian companies in recent times. The fact that India still continues to grow at 6% - 7% while the global economy is facing one of its most severe economic crises, has made the global investors less risk-averse to India. They are realising and appreciating that as soon as the global economic conditions improve, India’s growth rate would move closer to double digit.
As a result, overseas public offerings of Indian blue-chip companies, which provide the global investors an attractive option to participate in the India growth story, are on the rise. Also, the Qualified Institutional Placements (QIPs) in which mostly the Foreign Institutional Investors (FIIs) participate, have become a preferred route for fund raising by Indian companies. Apart from that, the recent outperformance of the Indian stock markets when compared with other prominent markets is largely due to the renewed buying interest among the FIIs, who want to ride the next wave of India’s growth.
In the first four months of fiscal year 2009-10, Indian firms raised about $3 billion (Rs.14,686 crore) through QIP route and about $2.5 billion (Rs.11,990 crore) through GDR (Global Depository Receipt) and ADR (American Depository Receipts) issues, according to an estimate of Delhi-based research firm PRIME Database. The trend of tapping GDR/ADR route actually revived in July 2009 only, during which the Indian firms moped up more than $2 billion through these instruments. After touching the peak levels of $5.32 billion QIP offerings and $6.39 billion GDRs/ADRs during 2007-08, the global meltdown of equity markets had turned the year 2008-09 in to a drought year.
No. of Issues
GDRs / ADRs
No. of Issues
Indian Companies Become One Of The Biggest Fund Raisers In Overseas Markets
The $1.5 billion (Rs.7,305 crore) ADS issue of Sterlite Industries, a subsidiary of London-listed Vedanta Resources Plc. and India’s largest copper producer, closed in just six hours on 16th July 2009. It was the largest U.S. share sale by an Indian company in the last two years. Earlier, India’s largest private sector bank ICICI Bank had raised $2.46 billion through ADS offering in June 2007.
The other big fund raisers through ADR/GDR route in the recent weeks are, by the world’s sixth largest steel maker Tata Steel Ltd($500 million), India's largest private power producing company Tata Power ($335 million) and the world's fifth-largest wind-turbine maker Suzlon Energy Ltd($110 million).
Tata Steel’s $500 million GDR issue is not only the largest ever Indian Global Depository Receipt (GDR) offering in London, but also one of the biggest new equity issues to be conducted by a company outside its home market on any global exchange in the last 12 months.
"As a globally ambitious Indian company, with significant operations in Europe, Tata Steel is a high profile addition to our markets. Tata Steel's listing demonstrates that London remains the market of choice for companies from across the globe seeking to access a truly global pool of international investment capital and benefit from trading on the International Order Book, the world's most liquid trading platform for GDRs." London Stock Exchange Group’s Xavier Rolet, Chief Executive appreciating Tata Steel’s offering said.
Prithvi Haldea, CMD of PRIME Database, however warns that it should not be viewed as hype. “Investors are still very selective in what they are buying. They are willing to look at investment opportunities from credible companies with a substantial track record and where the pricing is attractive,” he says.
Indian Markets Outperform The U.S. And Asia On The Back Of FII Buying
The outperformance of the Indian equity markets in the recent months can directly be attributed to the renewed buying interest of the foreign institutional investors (FIIs). July 2009 is set to become the fifth consecutive month in which the FIIs have made net purchases on the Indian bourses. March 2009 proved to be the turning point when FIIs turned buyers again after almost a year. From May 2008 to February 2009, they had been on a selling spree (barring December 2008) in India due to global worries. The selling in India during this period was also due to the fact that India was one of the few markets where they could have sold their old stock investments in profit even after a significant decline from the peak.
Since March 2009, the net FII purchases in this year have now reached almost $8 billion including $4.15 billion in May 2009 – the month in which the United Progressive Alliance (UPA), India’s ruling coalition gained a clear majority in the elections for the lower house of the Indian parliament setting aside the political uncertainties. In line with the FII buying, India’s benchmark index Sensex has moved up from 8,110 on March 09, 2009 (the lowest of the year 2009 so far) to 15,379 on July 24, 2009 scoring a 90% gain in just about four and half months. Earlier, in contrast, FIIs had made net selling on the Indian bourses to the tune of $11.97 billion during the year 2008. Accordingly, Sensex had fallen from 20,287 on December 31, 2007 to 9,647 on December 31, 2008 registering a decline of 52.4%.
India continues to attract venture capital firms seeking extra-ordinary returns. The country’s attractiveness is highlighted by the fact that about 60 foreign investment firms have expressed eagerness to invest in India, as per data as on May 31, according to the country’s stock market regulator Securities and Exchange Board of India (SEBI).
Currently, there are 129 foreign venture funds and 132 domestic funds operating in India. These funds collectively invested about $8 billion in FY 2008-09, with almost equal amount of investments.
Real Estate sector emerged favourite, attracting $1.4 billion of investments followed by telecommunication and services sectors sharing the second slot at about $630 million each and information technology $550 million, respectively.
India Inc.’s appetite for overseas investments at about $37 billion in the financial year 2008-09 is underscored by its corresponding increase in capital expenditure and inorganic expansion strategy to accelerate growth.
The surge in capital expenditure of $47.5 billion at more than 21% in the financial year 2008-09 has a very visible contribution of the infrastructure sector that accounted for a large chunk of the increase at $18 billion, with a share of more than a third.
As a clear signal of revival, the increased capital expenditure in the sector coupled with the Indian government’s well timed stimulus packages, amounting to 3.5% of the country’s GDP, resulted in a healthy growth of 6.5% in the six core infrastructure sectors in June 2009. The sector had grown by 5.1% in corresponding month the previous year, while the figure for May 2009 stood at 2.8%. Cement topped the chart with a growth of 12.8%, while steel rose 5.3%, both crucial inputs for construction activity.
Of significance is the fact that a part of the expense finds its way in to mergers and acquisitions (M&As), as in the case of the largest acquisition of the sector by state-run Oil and Natural Gas Corporation Ltd’s (ONGC) of then London Stock Exchange listed-Imperial Energy Corporation for $2.8 billion in August 2008. The other large overseas acquisition by an Indian company was that of the U.K.-based automobile marquee brands Jaguar and Land Rover by Tata Motors Ltd for $2.3 billion.
The potential merger of India’s largest GSM mobile telecom service provider Bharti Airtel Ltd and South Africa's largest telecom company MTN Group Ltd for about $23 billion will substantially add to the share of the telecom sector in the capital expenditure this year. The deal will result in about $4 billion of net cash outflow from Bharti. (See Vol4 | Issue 7; Bharti-MTN: A Billion Subscribers in Sight).
Steven Spielberg, Hollywood’s iconic film director’s cash strapped DreamWorks Studios will receive a lifeline of $825 million in financing for film production as part of a 50:50 joint-venture with India’s Anil Ambani founded Reliance Big Entertainment (RBE).
Of the $825 million, RBE’s parent company Reliance-Anil Dhirubhai Ambani Group (R-ADAG) will provide $325 million as equity infusion while The Walt Disney Company will table $175 million in distribution advance. Rest of the funding will come from the global financial services firm JP Morgan Chase & Co as debt.
The Indian Film industry popularly called ‘Bollywood’ that churns out the largest number of movies in the world, has welcomed global film production companies in to its fold including the U.S.-based Twentieth Century Fox Film Corporation, Warner Brother Entertainment, Inc., Viacom Inc., Sony Pictures Entertainment, Inc., among others in partnership deals with Indian counterparts for film production and distribution.
Renowned Indian actor Shahrukh Khan's Red Chilies Entertainment and director Karan Johar's Dharma Production's have recently entered in to a marketing and distribution deal worth more than $20 million with Oscar winning film Slumdog Millionaire’s fame Fox Star Studios, a joint venture between Twentieth Century Fox and the U.S.-based News Corporation’s Indian subsidiary Star India.
DreamWorks has required funds since it parted ways with the U.S.-based media conglomerate Viacom Inc’s Paramount Motion Pictures Group in September 2008. The financing deal will enable Spielberg to resume movie production, with the target to make five to six films per year. The first production is scheduled to start this year for release in 2010.
The Ambani-Spielberg joint-venture potentially elevates the fledgling $2 billion Indian movie entertainment sector growing at 9% compound annual growth rate (CAGR) to global scale with projects in the pipeline involving Hollywood stars George Clooney, Julia Roberts and Brad Pitt, among others.
RBE’s Holywood ambitions are not limited to DreamWorks only. BIG Pictures, owned by RBE, has plans to produce films with Nicolas Cage’s Saturn Productions, Jim Carrey’s JC 23 Entertainment, George Clooney’s Smokehouse Productions, Chris Columbus’ 1492 Pictures, Tom Hank’s Playtone Productions, Brad Pitt’s Plan B Entertainment, Jay Roach’s Everyman Pictures, Brett Ratner’s Rat Entertainment and Julia Roberts’ Red Om Films.
Monday, July 20, 2009
Its the biggest and the most high-profile deal in Indian entertainment. Anil Ambani-promoted Reliance Big Entertainment (RBE) has finally sealed the funding for its much-hyped 50:50 joint venture with Hollywood’s iconic director Steven Spielberg’s DreamWorks.
DreamWorks Studios will get an initial funding of $825 million, which includes equity from Reliance ADAG to make films for a global audience. The company would make five to six films per year, and the first production would start this year for release in 2010. Of the $825 million, $325 million will be equity infused by Anil Ambani as his personal investment, $150 million will come from The Walt Disney Company as a distribution advance, and the rest will be funded by JP Morgan via debt.
India's top-10 firms added Rs 1,42,000 crore to their market capitalisation last week with country's most valued firm, Reliance Industries crossing Rs 3 trillion mark after two weeks.
The country's most-valued firm, Reliance Industries Ltd, added Rs 24,395 crore to its market valuation taking its total market cap to Rs 3,04,292 crore. Shares of RIL surged nearly 9 per cent on the Bombay Stock Exchange (BSE) to end the trade at Rs 1,933.40 on Friday...
The Financial Express
A palpable improvement in economic conditions and low inflation have helped the retail sector stage a recovery in the recent past. After two bad quarters, same store sales (SSS) have again turned positive. While discretionary spending remained low, value retail has been the show stealer during this recovery.
This trend is expected to continue into the coming quarter, as monsoon sales would start soon. This will boost revenue growth for lifestyle retailers. However, despite growing sales, profit margins will continue to be under stress on account of increasing share of value retailing.
The Economic Times
Wednesday, July 08, 2009
The website of Tata Nano, the world’s cheapest car, recorded more than 20 million hits in merely 15 days since its launch on March 23, 2009. Between April 9, 2009 and April 25, 2009 Tata Motors Ltd, the manufacturer of Nano and India’s largest commercial vehicle company, received 203,000 orders for its much-awaited car.
The strength of India’s automobile sector is not just limited to the success of a single wonder-car. Contrary to the global automobile sector, Indian automobile companies have continued their growth even in the current situation of economic slowdown. Indian automakers sold 929,596 vehicles in May 2009, up 8.86% compared to the corresponding month of year 2008, according to the Society of Indian Automobile Manufacturers Association (SIAM), the apex Industry association representing 44 leading vehicle and vehicular engine manufacturers in India. This is in sharp contrast to the U.S. automobile market, which recorded 33.7% decline in May 2009, when compared to the corresponding month a year ago with sales sliding to 925,824 vehicles. There are certain sections in this sector, which are feeling the pinch of economic slowdown. But the Indian auto companies are seeking only some tax cuts from the government to run their business smoothly, not bailout packages.
India: An Attractive Market For Global Companies
Toyota Motor Corporation, the largest automaker of the world that has relatively smaller presence in the Indian market so far, has recently brought its Sports Utility Vehicle (SUV) model Toyota Land Cruiser in the car market of India with a price tag of about $170,000 (Rs.80 lakh). The success of SUVs such as BMW X5, Audi Q7, Porsche Cayenne etc. offered by other global competitors signaled Toyota that it can no longer afford to avoid this segment of the Indian market. So it decided to face the challenge with no other model but its flagship SUV brand Land Cruiser.
Toyota has a joint venture in India named Toyota Kirloskar Motors Private Limited, in which 89% stake is owned by Toyota and Kirloskar Group, one of India's largest Engineering and Construction Conglomerate, holds the rest. With the demand getting better, Toyota Kirloskar has decided to raise its production. During 2008, it sold 51,800 units that include the models such as Innova, Corolla Altis, Camry and SUV Prado.
Global automotive companies are also using India as a manufacturing hub for their exports market. Toyota Kirloskar is identifying export markets for the small cars produced by it in India. The company is setting up its second plant at Bidadi near Bangalore, the capital of the south Indian state of Karnataka, with an investment of about $680 million (Rs.3,200-crore), which is expected to produce about 100,000 units per year. Toyota might export these small cars to Russia, Brazil and China in the initial stage.
Another Japanese company Suzuki Motor Corp, which specialises in small cars, holds more than 54% stake in India’s largest carmaker Maruti Suzuki India Ltd. Suzuki had identified the opportunity in India as early as in 1981 when it partnered with the Government of India and formed the joint venture company in the following year as Maruti Udyog Ltd. In 1983, it brought Maruti 800, a 796 cc model that was dubbed as India’s first affordable car. The model became so successful that even after 26 years; it is one of the best-selling cars in India, although the company plans to gradually phase it out now. Suzuki got the majority control of this company in 2002 with 54.2% stake, when the Government of India sold its stake to Suzuki as part of its disinvestment strategy.
Relying on the Indian market is now paying off to Suzuki a handsome reward. Today, Suzuki not only controls 62% market share in India’s domestic car market (and about 50% share in the total car production of India), but also getting a much needed cushion for its global operations contributing almost half of the Suzuki’s global consolidated profits. Maruti Suzuki’s share in Suzuki’s profit moved up to 46% in 2008-09 from 30% in 2007-08. At a time when Suzuki is facing a downturn in all of its key markets such as Japan, the U.S. and Europe and a 14% fall in its net sales in 2008-09, Maruti Suzuki posted 14% increase in its net sales. Now, in order to save costs and ease its burden, the Japanese parent is considering shifting a major portion of its small car manufacturing activities to India.
The dominance of Suzuki in the small car segment in India has forced Japan’s second-largest carmaker Honda Motor Co. to introduce its first small car named ‘Jazz’ in India on June 11, 2009. It aims to sell 20,000 units of its first small car in India, in the first year. Honda has invested about $345 million (Rs.1,620 crore rupees) in the country and has plans to invest another $210 million (Rs.10 billion) for its second plant, which will increase its production capacity in India to 160,000 vehicles annually by 2010.
Renault-Nissan Automotive India, a 50:50 JV between Nissan Motor Company, Ltd of Japan and Renault S.A. the French automaker, has targeted to gain 5.7% of the total market share in the passenger cars segment of India by 2012. Nissan has allocated 350 billion yen for its global investment plans in 2009 and India will likely receive the largest share of the amount. It has set up a car manufacturing plant in Chennai, the capital city of the Indian state of Tamil Nadu, that will cater to the exports market also. It plans to export 110,000 units by 2011. Nissan Motor India will begin its exports to Europe from the second half of 2010. Nissan’s light commercial vehicle project with the Hinduja Group’s, the London headquartered diversified conglomerate, flagship company Ashok Leyland is also expected to take off in 2011.
General Motors Corporation, the world's second-largest automaker, which filed for Chapter 11 bankruptcy protection in the U.S., has its Indian operations that continue to grow at healthy pace, hence are not being included in the U.S. filing for Chapter 11. Expansion plans of GM India are intact. The company is going ahead with its plans to introduce three new cars this year. GM India has invested more than $1 billion in India over the past 14 years. Its manufacturing facility in Gujarat, the western state of India has an annual capacity of 85,000 vehicles, while its facility in the state of Maharashtra produces 140,000 vehicles per year. To compete with Tata’s Nano, GM India plans to introduce a new mini car by the end of 2009. One can expect that if General Motors emerges from bankruptcy in the next 2-3 months, its India operations would have a more effective role in the reshaped GM.
Indian Automobile Market: Going Strong Even In Tough Environment
Indian automobile sector’s growth is primarily driven by the two-wheeler segment, which continued its fast pace in May 2009 with sales reaching at 727,937 units, 12.5% higher than the sales in May 2008. In the two-wheeler market, the motorcycle segment grew by 12.34% at 576,000 units compared with 513,000 units in May 2008. Passenger car sales grew a bit slow, but remained positive, with 2.47% growth at 113,490 units. The one segment, which is not having good performance, is the commercial vehicle segment comprising of trucks and buses. This segment reported a drop of 13% in sales to 60,642 units last month.
Maruti Suzuki, the largest car manufacturer of India, registered a 10% growth with its sales reaching at 62,878 units during May 2009 when compared to the corresponding month in the previous year. Earlier, in April 2009, the company had sold 64,857 cars with a growth of 9% over April 2008. Hero Honda Motors Ltd, the largest two-wheeler manufacturer of the world, sold 359,000 motorcycles with year-on-year growth of 21%. It is noteworthy that Hero Honda, a joint venture of India’s Hero Group and Japan’s Honda Motor Co. Ltd., is the world’s largest two-wheeler company for the past seven years primarily on the strength of domestic consumption, because it exports only to those countries where Honda is not present due to non-compete arrangement with Honda Motor.
Trends In The Recent Years:
If we look at the production figures of Indian automobile sector in the recent years, it’s quite visible that the growth continued to be very strong till 2006-07 with annual growth in the range of about 14%-17%. For the last two fiscal years, production has stagnated, particularly due to pressure on commercial vehicle segments. This segment has suffered due to two reasons, a) very high interest rates, and b) slowdown in the economy. Now, with the banks easing the interest rates again and an improvement in the economic outlook, it is expected that sales of the commercial vehicle segment would start picking up in the next few months.
India Emerging As A Prominent Force In Global Auto Market
Indian auto companies have started increasing their presence in the global auto market. For this purpose, these companies are not only focusing on increasing their exports, but also acquiring companies, brands and assets overseas. The most prominent example of a foreign acquisition by an Indian company was the acquisition of the U.K. based Jaguar and Land Rover, two iconic British brands by India’s largest commercial vehicle manufacturer Tata Motors Ltd in March 2008. Tata Motors had acquired these two brands from Ford Motor Company for a net consideration of $2.3 billion.
The company has just introduced the Jaguar and Land Rover (JLR) brands in the Indian market giving the discerning Indian customer direct access to these prestigious brands. The launch of JLR by Tata Motors in India mirrors the growing aspirational value among consumers in the Indian market - not only to own a car, but also associate with a brand and upgrade to a luxury car, a segment that is growing at more than 25% annually. Such aspirations have seen more than 7,500 luxury cars added to the Indian roads in 2008, up from 5,000 in 2006, according to estimates.
In fact, Tata Motors had started looking beyond Indian markets quite early, when it set up its first assembly operation in Malaysia in 1974. Currently it has franchisee/joint venture assembly operations in Kenya, Bangladesh, Ukraine, Russia and Senegal. In 2004, Tata Motors acquired Daewoo Commercial Vehicle Company, South Korea’s second largest truck maker, which has got rechristened as Tata Daewoo Commercial Vehicles Company now. Thanks to this acquisition, two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo. In 2005, Tata Motors had acquired a 21% stake in Spanish bus and coach manufacturer Hispano Carrocera with an option to acquire the remaining stake as well. Tata is using Hispano’s presence to expand its reach in other markets. In 2006, the company formed a joint venture with Marcopolo, a Brazil-based company specialising in body-building for buses and coaches. In the same year, Tata Motors entered into another joint venture with Thailand-based Thonburi Automotive Assembly Plant Company to manufacture and market the company’s pickup vehicles in Thailand.
Bajaj Auto, the second largest two-wheeler manufacturer of India, registered 25% increase in its exports during 2008-09. It has set up a manufacturing facility in China to cater to the exports market.
Overall, India exported 1.53 million vehicles in 2008-09, up 23.6% from the previous fiscal year. A segment-wise break-up of India’s exports suggests that passenger vehicles segment registered the highest 53.7% growth in 2008-09, followed by 22.5% growth in two-wheeler segment.
Better Times Ahead For The Indian Auto Sector
The coming months are set to be exciting for the Indian auto sector with a series of new models being introduced, both by domestic and foreign companies. With the inflation touching almost zero, the Indian banks are expected to cut their lending rates sooner or later. India’s finance minister Mr. Pranab Mukherjee, in an attempt to spur the growth rate again, has already urged the banks to reduce interest rates. Indian auto industry is set to benefit from the lower rates, as it will increase the demand for vehicles.
Rural initiatives of the new government will have a positive impact on the rural demand. The benefit of rural demand getting stronger will spread across segments including tractors, commercial vehicles, two-wheelers, multiple-purpose vehicles and small cars. With the low penetration level of two-wheelers in the country, the companies still have a sizable potential upside left. Once the industrial production starts improving, which is expected by July or August 2009 according to economists, the commercial vehicle demand will also pick up.
The Indian automotive sector aptly showcases the country’s prowess in manufacturing, indicative of a marked shift from the earlier perception of outsourcing and services based economy, such that some of the leading global automotive companies plan to make India their manufacturing and exports hub.
The country’s automotive sector that has grown at about 15% over the past five years is projected to grow to $145 billion by 2016 from $35 billion, according to the Automotive Mission Plan (AMP) 2006–2016. India will emerge as the destination of choice for design and manufacture of automobiles and auto components during the period involving investments worth more than $40 billion.
While the Indian auto sector has witnessed steady growth as domestic and global companies launch new models and increasing capacities, global automobile manufacturers in their home countries are seeking bailout packages and reporting bankruptcies. For instance, the Indian unit of the U.S.-based General Motors Corporation, which filed for Chapter 11 bankruptcy protection in the U.S., continues to grow at a healthy pace and is not being included in the U.S. filing for Chapter 11.
And Tata Motors, part of India’s largest diversified Tata Group, launched models of its U.K.-based marquee brands Jaguar and Land Rover that it bought from U.S.-based Ford Motor Co., into the Indian market on June 28. See our Special Report that outlines the current state of India’s automobile sector and how it is emerging as a manufacturing hub for the global companies.
India is the preferred destination for Doing Business among the emerging BRIC countries, comprising of Brazil, Russia, India and China based on key factors that include, protecting investors’ interest; getting credit; employing workers; starting a business; and trading across borders, according to the rankings in the global report on ‘Doing Business 2009’ by the World Bank and its affiliate the International Financial Corporation.
India occupied the top slot in three of the parameters – protecting investors, getting credit and employing workers; while emerging second in trading across borders and starting a business. India’s improving business environment is a reflection of the regulatory reforms by the Government to bring uniformity in urbanisation across its regions to bridge the urban-rural divide, representing what it calls an “inclusive approach” to development.
This approach is reinforced in the Financial Budget 2009-10 announced by the Indian Finance Minister on July 6, committing increased investments in the infrastructure sector to more than 9% of the Gross Domestic Product (GDP) by 2014 from 5% currently, apart from other rural development and welfare programs. This opens scope for investment opportunities, in the form of Public Private Partnership (PPP) developments that the government has championed.
Regional variations remain, however, due to internal pressure groups and anti-reforms voices within certain state governments. Cities such as Ludhiana in the north Indian state of Punjab; Bhubaneshwar, capital of the eastern coastal state of Orissa; Ahmedabad in the western state of Gujarat and Hyderabad, capital of the south Indian state of Andhra Pradesh rank high in ease of doing business. In contrast, Kolkata, the capital of the East Indian state of West Bengal ranks lowest.
India Inc.’s distinct preference for the U.K. was highlighted as Indian companies emerged as the second largest investor in the U.K. in the financial year 2008-09, replacing Japan as the largest Asian supplier of Foreign Direct Investment (FDI) projects and ahead of China by about twice the number.
Indian companies set up 108 new Foreign Direct Investment (FDI) projects during the period, moving up five places when compared to the previous year, creating and safeguarding about 8,000 jobs according to the U.K.’s Department of Trade and Industry.
India’s affinity for the U.K. is marked by its historic ties, similar legal, accounting, finance and judicial systems. The English language and Parliamentary democracy are as Indian as they are English.
The U.K., however, needs to keep its competitive edge vis-à-vis other European countries that are moving aggressively to capitalize on Indian companies’ growth ambitions. Indian FDI in the European Union (E.U.) soared to $3.4 billion (€2.4 billion) in 2008 from zero in 2004, according to Luxembourg-based Eurostat, the EU statistical office.