Thursday, 31 March 2016

Tata Steel outbid Brazil’s CSN by just 5 pence/share for Corus

MUMBAI: The difference between Tatas' winning bid and Brazilian steelmaker Companhia Siderurgica Nacional's (CSN) offer was a mere five pence.

 It turned out to be the most costly five pence for the storied Indian business conglomerate. Corus Group Plc, code-named 'Project Colour' by Tatas, was won by the Indian group in 2007 after a gripping seven-and-half-hour final bidding.

CSN, codenamed 'Cardiff' during the bidding process, outbid the Tatas by 10 pence a share at every round, while the Tatas, code-named 'Truro', pursued the target by increasing its offer by five pence. To be fair to the Tatas, expanding operations in India was difficult during that time, forcing the group to look abroad for diversifying its business.

 About a decade later, in hindsight, the five pence difference between the two bidders has cost the Tatas dearly, as the commodity cycle went for a toss.

- Abhi Patel
email: abhi(at)suncapital(dot)co(dot)in

'Working population will drive India's consumption'

It is in contrast to the US where 60-plus age segment is the biggest spender

As much as 70 per cent of the consumption growth in India in the next 15 years will come from the working population(people aged 15-59 years), according to a new McKinsey & Company study. The study also finds consumption by the 60-plus age segment will grow at less than 10 per cent per annum.

This is in contrast to the US, where the firm has found the elderly to be the biggest spenders. People in this age group bought nearly two-thirds of new cars sold in 2011, cites the report 'Urban World: The Global Consumers to Watch'.

"Emerging demographics are the new emerging markets: The question is no longer where to search the globe for growth, but which demographic groups have the most spending power," it says.
  • 70% growth to come from population aged between 15 and 59
  • 79% growth through rise in per capita consumption
  • Growth to be centred in Mumbai, Delhi, Ahmedabad, Hyderabad and Bengaluru
  • Urban population growth will be moderate at 2.2%

It further predicts 79 per cent of growth in the next 15 years in India will come from increased per-capita consumption. The study says urban population growth in the country will be moderate at 2.2 per cent and consumption growth will be concentrated in Mumbai, Delhi, Ahmedabad, Hyderabad and Bengaluru.

"The demographic profile of Indian cities is diverse and aging will affect specific cities more than others: All cities in India are aging, particularly those in Kerala," said the report.

While all age segments are increasing in population, older age segments are growing faster. Sixty-plus populations are expanding at four per cent compounded annual growth rate (CAGR) and under-30 population at 1.5 per cent CAGR.

This means, companies will need to factor in shifting urban demographics while evolving their footprint. "Knowing which cities, and even which neighbourhoods within cities are home to key consumers will matter," said the report. It says companies will also have to tailor products and services for an increasingly diverse consumer market.

It also emphasises the growing importance of services. In Mexico and India where incomes are relatively low, the average share of household income devoted to services-dominant categories is only 19 per cent and 13 percent, respectively.

Talking about the global trend, it says nine groups of urban consumers are projected to generate three-quarters of global urban consumption growth of about $23 trillion in the next 15 years. And, only three groups are expected to contribute about half of this urban consumption by 2030. These include developed retiring and elderly (60-plus years in developed regions); China's working-age consumers; and North America's working-age consumers.

The study notes that demographic variations among cities - and therefore their growth and consumption prospects - are already large. In its sample of cities, the average age ranged from 22 years in India's Shillong to 48 years in Punta Gorda in the US state of Florida.

This has clear relation to services such as healthcare spending, which accounts for 10 per cent of GDP in Organisation for Economic Co-operation and Development countries, and an average of six per cent of GDP in Brazil, China, India, and Russia.

Indian media industry likely to touch Rs2.26 trillion by 2020 In 2015

The media and entertainment sector grew at 12.8% over 2014, while advertising grew at 14.7%

The Indian media and entertainment (M&E) industry is expected to grow at a compounded annual growth rate (CAGR) of 14.3% to touch Rs.2.26 trillion by 2020 with advertising revenues expected to grow at 15.9% to reach Rs.99,400 crore. In 2015, the M&E sector grew at 12.8%, while overall advertising grew at 14.7% over 2014.
Growth for television advertising is projected at a CAGR of 15% between 2015 and 2020, while print media is expected to grow at 8.6%, according to a report by consulting firm KPMG and lobby group Ficci (Federation of Indian Chambers of Commerce and Industry). Titled ‘The Future: now streaming’, the report was unveiled at the annual media and entertainment industry event Ficci Frames in Mumbai on Wednesday.
Among traditional media, radio will see a growth of 16.9%, while new media or digital advertising is slated for a 33.5% growth during the period between 2015 and 2020, the report said.
“With an advertising growth rate of 17%, 2015 was a phenomenal year for television,” said Jehil Thakkar, head, media and entertainment at KPMG, India. “Some Hindi general entertainment channels may even have outperformed the industry with a growth rate of more than 20%,” he said. Although TV saw a spike in advertising, subscription revenue for the medium remained muted. According to the report, phase 3 digitisation of cable TV failed to meet its deadline. “…. benefits of phase 1 and phase 2, particularly on ARPU (average revenue per user) have failed to materialise due to a number of on-ground challenges across the distribution chain. This resulted in a slowdown in subscription revenue growth in 2015. Our expectations over the next five years have also been toned down to reflect this delay,” the report noted.
In five years between 2015 and 2020, the overall print industry size will grow at a CAGR of 7.8%. However, its advertising revenue will see a better CAGR at 8.6%.
In 2015 over 2014, print advertising grew at the rate of 7.3%. “Print saw a softer performance in 2015 while 2014 was better as it was the year of general elections,” said Thakkar.
Growth for vernacular and Hindi newspapers was also subdued. The Indian hinterland was soft in terms of rural demand for fast moving consumer goods as well as other products, leading to lower advertising growth rate.
However, Thakkar expects regional print media to bounce back since rural demand is expected to grow on the back of good monsoon. Rural markets are expected to revive owing to the government initiatives announced in this budget. These include increased expenditure on the rural jobs programmes, investment in irrigation projects, building roads and electrifying villages.
“Besides, the print media industry is also fixing its problem with the Indian Readership Survey. Availability of a measurement system will also boost the medium,” Thakkar said.
As companies increase their focus on tier II and tier III cities, and rural areas, hyperlocalisation is emerging as an effective theme among print players and advertisers, the report said. The newspaper companies were going hyperlocal particularly in markets with lower internet penetration, it added. In 2015, the Dainik Bhaskar group launched the editions of its Hindi daily in Bhagalpur, Muzaffarpur and Gaya in Bihar, having launched a Patna edition in 2014. “The motive of national players entering new markets with more local editions is to provide targeted reach to advertisers,” the report said.
Agreed Vivek Khanna, chief executive of Hindustan Media Ventures Ltd (HMVL), the publisher of the Hindi dailyHindustan: “Hindustan has 140 editions and sub-editions. Kanpur district alone has 12 editions. These are hyperlocal editions catering to very small advertisers.”
He said that the Hindi markets have been growing faster than the English language newspaper market for some years. Readership of newspapers is growing as there is lower digital penetration in Hindi speaking markets, the broadband connectivity is poor and the cost of data is high. Availability, affordability and credibility are helping the Hindi newspaper market to expand, Khanna added. HMVL is a subsidiary of HT Media Ltd which publishes Mint.
As far as radio is concerned, it continued its strong run with 15.3% growth in 2015. Following the new stations licensed in phase 3 and consolidation in the industry, radio is transforming from a “coverage” medium to a “reach” platform. Major radio stations have been operating at high ad inventory utilization levels and this, coupled with growing advertiser interest, has helped push up ad rates.
According to the KPMG-Ficci report, digital advertising will continue to grow at a high CAGR of 33.5% with a shift towards video and mobile advertising on the back of increase in mobile users and improved digital infrastructure. By 2020, it is expected that digital advertising will be Rs.25,500 crore and contribute 25.7% to the total advertising revenue.
Rajiv Dingra, chief executive and founder of WATConsult, the digital and social media agency of Dentsu Aegis Network, however, expects digital to grow at a higher rate of 40-45% in the next five years. He attributes such growth to several factors, including the mobile screen becoming the primary screen for the user. Video consumption plus time spent on digital will beat TV consumption, he said. “Although ad expenditure on TV will still remain higher for some more time,” Dingra added.
However, challenges to the expansion of digital media will remain. “Government taxes may put pressure in the shorter term, internet penetration and quality in rural areas may be a challenge and internet speeds as the country scales on bandwidth may be an issue,” he said.
Similar challenges may affect the growth of OTT or over-the-top platforms in the country, too, said the report. “While there is significant level of interest in building out OTT platforms, viability in the short term remains a concern given bandwidth constraints, high cost of customer acquisition, dependence on advertisement led models and high cost of data access,” the report said.
But this could change with the roll out of 4G. The 4G market is expected to be highly competitive and will likely result in lowering of data costs. “Coupled with increased penetration of smartphones, we expect that consumers will become used to viewing content beyond the television screen, paving the way for digital dedicated content and innovative monetization models,” the report said.
According to Thakkar, 2015 was a flat year for the Hindi film industry. However, Hollywood films did well in India. Their contribution to box office collection jumped from 4-5% in 2014 to 8-9% in 2015. What worked for Hollywood were the action and superhero films.
In sports, cricket continues to be the primary driver of viewership, with marquee properties such as the Indian Premier League and the World Cup witnessing growth in both ad rates and sponsorships. However, the last couple of years have seen the launch of various sporting leagues across sports such as kabbadi, football and tennis, among others.
As ownership of cricket as a platform becomes more expensive, brands are likely to start investing in other sports, the report said. But building non-cricket sporting leagues requires long-term vision and investing strategy, it added.
The report concluded that although there is continued robust domestic demand and strong advertiser interest in the media and entertainment sector, matters that need to be addressed include completion of cable digitization and FM radio batch 2 auctions under phase 3, among others.

Sun Capital

E-commerce needs burning of cash and I'm not at ease with it: Renuka Ramnath

As technology continues to penetrate Indian enterprises, investors are on the lookout for companies that are disrupting classical industries.

This is one of the biggest opportunities for private equity (PE) investors, Renuka Ramnath, founder of Multiples Alternate Asset Management, a firm that manages close to $1.1 billion in PE funds, tells Alnoor Peermohamed in an interview. Edited excerpts:

Your portfolio is made up of offline companies (those that are not accessible on the internet) rather than new-age technology firms. Is it a conscious strategy?

For Multiples, it was the first fund and I had to get that right. The risk parameters were very well-defined and its performance was pretty much the foundation for Multiples. I did say I would invest in emerging opportunities.

If you look at India Energy Exchange, a very large investment in my portfolio, it’s an emerging opportunity. A power exchange is not commonplace; I was taking a view that a greater amount of power will be bought and sold on an exchange rather than through bilateral trade. Those were a permissible investment thesis for me, but front-end e-commerce required that you would participate in subsequent rounds of funding. You would burn cash with the confidence that you are deepening your brand and increasing your customer connect. That is a much higher level of risk-taking than what I was comfortable with in the first fund.

I don’t see Multiples as a fund that will do more venture capital-type of funding. It will be more of later-stage classical private equity, which is investments in traditional sectors like steel, cement and agriculture, and distress turnaround. The Vikram (Hospital) kind of situation (Multiples bought ICICI Venture Funds Management’s 64 per cent stake in the Mysuru-based hospital, besides infusing direct capital) is a very big opportunity for us, as we can bring capital, management capability, good governance, other investors, and can raise debt in the company. All these are natural for me to do, rather than betting on the next technology breakthrough or something like that.

Are there enough opportunities in the classical PE space?

Plenty. I am predicting the biggest change waiting to happen, and already happening, is change of ownership. Many companies are held by families. In many situations the beneficiaries of these family-owned companies run into hundreds. Families are also under pressure to monetise their businesses and give it to the second generation, third generation, and fifth generation, whatever it is, because those kids are not interested in being a part of the family enterprise. Their passion is something else. They want to do something more new age, and capital is what they want, not a small piece of some traditional family enterprise. I see that as a very big opportunity for PE.

Can you put a number on this market?

It is difficult to put a number, but I would say that by way of market cap if we move to 2025, I am expecting that $20-25 billion of market cap will be private equity-owned. If you add up the money that has come in through PE in the past 10-12 years, the cumulative would be $80-85 billion, of which $35 billion has been returned through divestments. So, we still have $50-55 billion with us in private equity. Currently, we’re adding at about $15 billion per year. I expect this number to go up because the confidence in India is coming back.

Big PE players have pumped money into e-commerce firms and that has hurt them. Do you foresee a similar trend in the more classical PE space as India becomes a more favourable investment destination?

Not really. People talk about too much money coming in, chasing too few deals. The kind of money we raise, we have to invest it over four years. We are monitored by our investors as to what disciplines we’ve put it in. I’ve raised about $700 million and I commit 50 per cent of the fund in the first year. My investors will really turn the heat on me and, god forbid, if those investments go bad, they will not  again give me money.

What’s the general economic outlook for India?

Investor confidence has risen a lot from what I experienced three or four years ago. The years 2012 and 2013 were really the worst years for India, where nobody even wanted to hear about us. Investor appetite for India has gone up quite phenomenally but I don’t see a lot of fresh investments happening. It only about some set of shareholders exiting and a new set coming in, but there’s no fresh capital expenditure. I think that is still two years away — all this ‘Make in India’ and existing companies coming up with new capital expenditure plans and infrastructure kicking off in a big way. I still see some distance, as people are still dealing with their legacy issues — fixing balance sheets, utilising unutilised capacities.

The first Indian e-commerce company (Infibeam) recently came out with an initial public offering. Are retail and private investors ready for it?

I don’t think it will be detrimental to e-commerce companies in any way. When you say private investors, there are speculative investors, there are informed investors and then there are investors through mutual funds. Generally, governance levels have gone up because of the amendments to the Companies Act, responsibility on the boards, listing guidelines requiring huge reporting and transparency that is required by both Sebi and stock exchanges. Individual investors are on a far better wicket, figuratively speaking, compared with 10 or even 20 years ago.

Sun Capital

RBI eases ECB norms for infra space

The individual limit of borrowing under the automatic route is $750 million.

The Reserve Bank of India (RBI) on Wednesday allowed all companies engaged in the infrastructure sector to raiseexternal commercial borrowings with a minimum maturity of five years, including those non-banking finance companies (NBFC) regulated by the central bank.

The borrowings have to be fully hedged, the central bank clarified in a notification on its website.

The individual limit of borrowing under the automatic route is $750 million.

NBFCs engaged in the infrastructure space were earlier allowed to raise ECB funding, but there were certain limitations. For example, NBFC-AFCs (asset finance companies) had to ask permission from RBI if they had to raise money beyond 75 per cent of their net owned funds.

Also, the total limit was capped at $200 million annually. By putting the NBFCs directly in the category of infrastructure, RBI has made it easier for these firms to raise additional resources of up to $750 million, provided they use the proceeds only for financing infrastructure, and not for their own use.

This will likely help companies like Srei and Shriram Finance that are engaged in lending to various infrastructure related sectors such as transport and equipment financing.

The central bank expanded the scope of ECB in view of prevailing external funding sources, “particularly for long-term lending and the critical needs of infrastructure sector of the country.”

Expanding the scope of the definition of infrastructure, the apex bank said exploration, mining and refinery sectors would also be considered as part of the infrastructure sector.

While companies in the infrastructure space can utilise the proceeds for their own needs, NBFCs engaged in financing the sector should use the proceeds only for financing infrastructure.

Additionally, holding companies and core investment companies can use ECB proceeds only for on-lending to infrastructure special purpose vehicles.

Wednesday, 30 March 2016

Piramal Enterprises, APG Asset Management commit $132 million to Essel Green Energy

Essel Green Energy currently owns 160 MW of solar assets in four states of India, of which, 110 MW is operational and 50 MW is under construction

Mumbai: Ajay Piramal-controlled Piramal Enterprises Ltd and Dutch pension fund asset manager APG Asset Management will jointly invest $132 million (Rs.900 crore) in Essel Infrastructure Ltd’s solar platform across India, the companies said in a joint statement on Tuesday.
The solar platform, Essel Green Energy Pvt. Ltd, currently owns 160 megawatt (MW) of solar assets in four states of India, of which, 110 MW is operational and 50 MW is under construction. The company plans to raise capacity to 1,000 MW over the next two to three years.
The new investment from Piramal Enterprises and APG Asset Management will be used to grow the solar business, the statement said. Ernst and Young India acted as the financial advisor to Essel Group in the transaction.
In 2014, Piramal Enterprises and APG Asset Management, Netherland’s largest pension fund, said they would invest $1 billion in India’s high-growth infrastructure sector over the next three to four years.
Essel Infraprojects, a part of Subash Chandra-led Essel Group, has projects across roads, power transmission and distribution, urban infrastructure, and renewable energy.
“We view India as an attractive renewable energy market with favourable growth dynamics. APG is a strong supporter of increased investments in sustainable energy generation,” said Hans-Martin Aerts, head of infrastructure investments Asia Pacific at APG.
APG Asset Management was managing pension assets of more than €400 billion as at the end of January.
India has a target of installing 100 gigawatts (GW) of solar power capacity and 60 GW of wind power capacity by 2022 as part of the Narendra Modi-led National Democratic Alliance (NDA) government’s efforts to lower dependence on coal-fuelled electricity.
Global companies including the US-based SunEdison Inc., Japanese telecommunications company SoftBank Corp., Italy’s Enel Green Power, French utility EDF, and Indian companies including Welspun Renewables Ltd, Goldman Sachs-backed ReNew Power Ventures Pvt. Ltd, Morgan Stanley-owned Continuum Wind Energy Ltd, JP Morgan-backed Leap Green Energy Pvt. Ltd and NuPower Renewables Pvt. Ltd are already expanding in the Indian clean energy market.
Piramal Enterprises is a diversified company with consolidated revenue of over $830 million in fiscal 2015. The company provides financing to real estate companies through its Piramal Fund Management Division and provides long-term capital to capital intensive businesses through its Structured Investment Group fund. The total funds under management under these businesses stand at about $2.7 billion.

Sun Capital

Centre allows 100% FDI in marketplace-based e-tailing

FDI Gates are opened for E-Retail with few (*) Terms & Condition
·         No Vendor can do more than 25% of Sale on any platform
·         Platform owners must stay away from selling products

·         Guarantee & Warranty of products to be sellers responsibility

The Centre has issued fresh guidelines for foreign domestic investments (FDI) in e-commerce allowing 100 per cent FDI in the marketplace-based model — an arrangement where e-commerce companies provide an online platform to other vendors to sell their products.

This ends the policy ambiguity that had led to litigation and uncertainty for foreign investors as well as domestic e-retailers.

Global e-commerce majors such as Amazon and eBay as well as domestic players with foreign investments such as Flipkart and Snapdeal, which have been operating through the marketplace model, can breathe easy as their activities have been legitimised.

“100 per cent FDI is allowed in marketplace model of e-commerce. FDI is not allowed in inventory-based model of e-commerce,” a press note from the Department of Industrial Policy and Promotion (DIPP) stated.

The clarification, however, comes with conditions: an e-commerce entity will not permit more than 25 per cent of the sales undertaken through its marketplace from one vendor or their group companies.
Also, e-commerce companies will not directly or indirectly influence the sale price of goods or services and shall maintain a level playing field; the warrantee or guarantee of goods and services will be the seller’s responsibility.

An e-commerce marketplace may, however, provide support services to sellers in respect of warehousing, logistics, payment collection and other services.

The guidelines clarify that e-commerce entities providing a marketplace will not exercise ownership over the goods sold. “Such an ownership… will render the business into inventory-based model,” it said.
FDI is not allowed in the inventory-based model — where e-commerce companies sell their own products online — as FDI policy in India does not allow foreign investment in business-to-consumer operations.
However, in the marketplace model, despite the lack of clarity, it was assumed that FDI was allowed; foreign companies used this route to set up e-shops. Domestic companies, such as Flipkart, which accepted foreign investments, too switched to the marketplace model.

Last year, the Retailers Association of India and the All India Footwear Manufacturers & Retailers Association filed petitions in the Delhi High Court alleging that e-commerce companies were circumventing FDI rules using the marketplace model.

In January, the DIPP told the Delhi High Court that the marketplace model is “not recognised” in the FDI policy. It also said that it was up to the Enforcement Directorate to investigate whether FDI rules had been violated by online retailers.

The Centre’s latest clarification, which clears the air, has been criticised by the Confederation of All India Traders.

RBI on Tuesday decided that from 1 April, fixed rate loans upto three years

RBI on Tuesday decided that from 1 April, fixed rate loans upto three years shall be priced with reference to MCLR (Marginal Cost of Funds based Lending Rate), whereas Fixed rate loans of tenor above three years will continue to be exempted from MCLR system.

Rating agency Moody’s said on 20 Dec’15 that the measures will reduce pressure on net interest margins (NIMs) of banks. However, ahead of RBI policy meet on 5 April, such measures in addition to expected Repo rate reduction would be positive for the industry as their cost of funding would go down.

Sun Capital

Tuesday, 29 March 2016

Just Dial shares swing wildly as investors reassess e-commerce prospects

While markets have been volatile this year, Just Dial’s swings are out of the ordinary and investing in its shares is clearly not a great idea for the faint-hearted.

One of the reasons for the high volatility in the shares of Just Dial is the large variance in valuations ascribed to the Search Plus business and its attempt at capturing the growth of e-commerce in the Indian market.

Shares of Just Dial Ltd have had a roller coaster ride this year. First, they halved from around Rs.840 at the beginning of the year to Rs.415 in mid-February. Since then, they have rallied back to around Rs.740. While the markets have been volatile this year, Just Dial’s swings are clearly out of the ordinary. Investing in its shares is clearly not a great idea for the faint-hearted.
One of the reasons for the high volatility is the large variance in valuations ascribed to the Search Plus business and its attempt at capturing the growth of e-commerce in the Indian market. Earlier this month, analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd changed its valuation methodology for this business.
Instead of valuing it separately as a multiple of estimates gross merchandise value (GMV), the broker now values the entire Just Dial business using the traditional forward price-earnings multiple. This is, in part, “to better capture the pushback in the Search Plus business”. The full launch of this business has been delayed for about a year now.
Even so, Nomura remains sanguine about Search Plus, and believes it will improve the prospects of the core business as well. Jefferies India Pvt. Ltd’s analyst, on the other hand, has been underwhelmed after using services that are already available on the platform. “We expect limited traction from Search Plus which could lead to continued disappointment on revenue growth and margins,” the broker said in a note to clients.
But this isn’t the only reason for the volatility in Just Dial shares. Just Dial’s core business has been under pressure lately, with growth dropping to 11% in the December quarter, compared with the company’s own guidance that growth will be between 25-30% this fiscal year. Some analysts believe the company’s problems in the core search business are owing to execution issues, which can be corrected, while some others have taken the view that the problems are structural and will be difficult to reverse.
The company faces tough competition from some sector specialists such as in the healthcare space and in the restaurants space. Customers are likely to prefer these venues for searches in those domains, which can continue to eat into Just Dial’s growth. The company, however, has told analysts at Nomura that “its exposure to any particular category is not more than 2-3% and it has not seen an impact on categories like doctors or on-demand services, which remain healthy for the company”.
Besides, Just Dial’s customer churn rate is as high as 40%, which means new customer additions need to be rather high to compensate for the churn. The company’s version is that it mistimed hiring for its sales force, and this has impacted growth.
The bounce-back in Just Dial’s shares suggests that some investors are buying into the company’s reasoning. However, the proof of the pudding, as it’s said, is in the eating. Just Dial should now demonstrate a bounce back in its growth rates as well.

The Chinese slowdown and its impact on India

Full immunity from China’s economic slowdown is not something that India can boast about.

China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.
China’s slowing economy is a worry for countries that have strong linkages to it. India is fortunate in that it is less vulnerable to economic shocks emanating from China, but it is not entirely ring-fenced either. Much has been written on the moderation in China’s growth, but latest research from the International Monetary Fund (IMF) and the Asian Development Bank (ADB) gauge its impact on the world economy.
The IMF’s working paper China’s Slowdown and Global Financial Market Volatility: Is World Growth Losing Out?finds that a 1% permanent negative Chinese gross domestic product (GDP) shock reduces global growth by 0.23% in the short run. Its slowing economy has a negative effect on the Asean economies (except for the Philippines) and those in the Asia-Pacific (except for India). India is protected most likely due to its weak trade links with China.
The ADB brief based on its report Moderating Growth and Structural Change in the People’s Republic of China: Implications for Developing Asia and Beyond says China’s growth has reduced from 7.3% in 2014 to 6.9% in 2015, and the latest consensus forecasts expect it to decline further to 6.8% in 2016 and 6.6% in 2017. But downward revisions to previous forecasts raise a risk that these may be revised, too.
The ADB brief says the decline in China’s growth is expected to reduce GDP in the rest of developing Asia by one-third of a percentage point in the next two years. It also maps the effect of China’s slowing economy on commodity prices, finding that a 1% reduction in China’s growth lowers the price of coal, metals and oil and gas (see chart).
This decline in prices has become an indirect risk for India as falling commodity prices pose a risk to significant investments made by firms in metals, mining and oil exploration sectors.
But there is a silver lining. China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.
India may appear to be doing fine, relative to some other Asian economies that have been winged by China’s woes. On one factor, however, it remains vulnerable. The IMF paper also assesses how global financial market volatility could arise due to China’s problems. Here, it finds that even commodity importers such as India may find real output falling by an average 0.19% in the first year following the shock. Full immunity from China’s economic slowdown is not something that India can boast about.

Friday, 25 March 2016

IPO fund-raising at 5-year high

21 companies have raised Rs 13,330 crore through IPOs between April 2015 and February 2016, data suggests

Fund raising through initial public offers (IPOs) in a financial year has touched a five-year high with 21 companies having raised a total of Rs 13,330 crore through IPOs between April 2015 and February 2016, data sourced from PRIME Database suggests.
In addition, cancer care specialist HealthCare Global Enterprises raised Rs 650 crore during March 2016, while Infibeam Incorporation - the first Indian e-commerce firm to launch an IPO - proposes to raise Rs 450 crore (issue closed on Wednesday) during the current month.

By comparison, 52 companies had collectively raised Rs 33,098 crore via the IPO route during financial year 2010-11 (FY11).
"Over the past few years, there has been lack of participation from the retail investors in the primary market in the backdrop of lacklustre secondary market. However, the last financial year was different since investors exhibited some confidence and thematic plays like logistics and healthcare doing well," said G. Chokkalingam, founder & managing director, Equinomics Research & Advisory.
Meanwhile, of the 21 companies that debuted on exchanges during the current fiscal, stocks of over half, or 11, are currently trading 4 per cent - 82 per cent higher the issue price. The remaining have slipped 4 per cent - 38 per cent below their issue price. By comparison, the S&P BSE Sensex has lost 9.3 per cent thus far in the current fiscal.
IPO fund-raising at 5-year high
"Investors have been selective last year and have an appetite for good issues. However, the post listing performance has been diverse. This also suggests that investors are ready to put in money in case the company's fundamentals are good. We have seen such issues get oversubscribed. Another important factor is the pricing of the issue. If the investors feel that there is an upside available and the company is on a strong fundamental footing, such issues have seen a huge appetite and a good upside post listing," points out Kamlesh Rao, chief executive officer, Kotak Securities.
IPO pipeline
There are about 24 companies that have already got the market regulator, the Securities and Exchange Board of India (Sebi), approval to raise nearly Rs 12,000 crore through the primary market. The list includes Larsen & Toubro Infotech, Mahanagar Gas, Ujjivan Financial Services, AGS Transact Technologies and Equitas Holdings.

IPO fund-raising at 5-year high
"With the government doing all the right things in the Budget and even dropping interest rates on small savings schemes, if interest rates come down, the cost of borrowing for companies will also improve. Given the developments, the next year promises to be a good year - both for the secondary and the primary markets," Rao of Kotak says.

Reports also suggest government's intent to sell 10 per cent stake in at least one insurance company in 2016-17, beginning with the listing of New India Assurance. The listing of other general insurance companies such as United India Insurance, National Insurance and The Oriental Insurance through initial public offerings (IPOs) is also being considered, reports say. The move is in-line with the Union Budget proposal to list government - owned general insurance companies.

Chokkalingam, however, suggests that the offering from the PSU general insurers may not find many takers.
"I doubt these issues will find many takers. One needs to look at the business model and the valuation enjoyed by the PSU banks and other PSU manufacturing companies. Many a times, Life Insurance Corporation (LIC) has to bail out issues. The PSU tag, in my opinion, at times kills the valuation premium. The valuation that we are seeing of PSU banks and other manufacturing companies would continue for insurance companies also," he says.

Micro finance companies get funds from banks

KOLKATA: Microfinance institutions have never had it so good in the past six years, at least in terms of receiving funds. Banks have opened their purse strings to MFIs more than ever, with the sector showing steady traction backed by a strong regulatory framework. 

More importantly, banks are liberally lending to the small and medium sized micro lenders after the transformation of Bandhan into a bank. Earlier, Bandhan used to grab a sizeable chunk of the of banks' priority sector loans received by the MFI sector. 

"With Bandhan leaving the MFI space, Rs 10,000 crore worth of priority sector loans was freed up and this amount is now channeled to other MFIs," said Ratna Vishwanathan, chief executive at Microfinance Institutions Network (MFIN), an industry association for the sector.

MFIs' outstanding borrowings now stand at Rs 36,439 crore, representing an 86% growth, according to MFIN. In the third quarter itself, micro lenders received a total of Rs 9,121 crore debt funding from banks as well as other financial institutions which was 12% more than the year-ago period. Share non-bank funding has been increasing too and now accounts for almost 40% of the total debt funding. Securitisation of MFIs' portfolio grew by 41% than what it was in the third quarter of 2014-15. 

"As Bandhan converted itself into a bank with eight others being on the verge of becoming small finance banks, existing banks are looking for the next level big players for lending," said MFIN president Manoj Kumar Nambiar. 

Nambiar, who is also the managing director of Arohan Financial Services, said the MFI is carrying forward enough sanctioned loan limits to fund business for the first half next fiscal. 

"Banks have turned receptive to the needs of the medium and small MFIs. The strong regulatory framework has made them more confident about lending to the sector," said Kuldip Maity, chief executive of Village Financial Services, which doubled its business to over 200 crore in the past one year. 

The Kolkata-based MFI received about 94 crore bank loans this year, compared with 56 crore last year. Its outstanding debt stands at 200 crore. Uttrayan Financial Services managing director Kartick Biswas corroborated a similar view. Average cost of funds for large MFIs is 14.5% while that of for small and medium sized entities has been about 15.5%. 

Aggregate gross loan portfolio of MFIs stood at Rs 42,331 crore at the end of December (excluding non-performing portfolio in Andhra Pradesh). 

The number of beneficiaries of MFIs grew by a third to 2.88 crore. Average loan size for each beneficiary has also grown to Rs 17,917 compared with Rs 14,409 last year.

Sun Capital

Ramky nears sale of project to Essel

Hyderabad-based Ramky Infrastructure is understood to be in advanced stages of discussions with the Essel Group’s infrastructure arm, Essel Infrastructure, for selling Ramky Elsamex Hyderabad Ring Road project for an enterprise value of around Rs 260 crore, according to sources aware of the developments, reports Shubhra Tandon in Mumbai.

REL is promoted by Ramky Infrastructure, which holds a majority 74% stake in the project, and the remaining 26% is held by Elsamex, a Spanish engineering and construction company.
Hyderabad-based Ramky Infrastructure is understood to be in advanced stages of discussions with the Essel Group’s infrastructure arm, Essel Infrastructure, for selling Ramky Elsamex Hyderabad Ring Road project for an enterprise value of around Rs 260 crore, according to sources aware of the developments, reports Shubhra Tandon in Mumbai.
This build-operate-transfer asset was bagged by Ramky in 2007 on an annuity basis under the annuity scheme of the Hyderabad Metropolitan Development Authority. The project under a special purpose vehicle, Ramky Elsamex Hyderabad Ring Road (REL), was incorporated to design, construct, develop, finance, operate and maintain an eight-lane, access-controlled, 12.63 km expressway under Phase II -A programme in Hyderabad from Tukkuguda to Shamshabad.
REL is promoted by Ramky Infrastructure, which holds a majority 74% stake in the project, and the remaining 26% is held by Elsamex, a Spanish engineering and construction company.
According to sources, IDFC Alternatives has also had discussions with Ramky for buying out the project.
In a response to an email query, Essel Infrastructure said, “We would not like to comment on market speculation.” Repeated calls and messages sent to Ramky’s top management officials remained unanswered till the time of going to press.
The project has a concession period of 15 years, and included a 30-month implementation period. According to an Icra report, the total project cost was R390.47 crore. HMDA partly funded the project through a 20% grant that amounted to R66.50 crore. The balance project cost of R323.97 crore was funded through senior debt of R253.97 crore, subordinate debt of R25 crore and the remaining R45 crore through promoters’ contribution, which included R25 crore redeemable cumulative preference shares.
A June 2015 report from CARE Ratings noted that the project was completed and awarded provisional completion certificate (PCC) on March 31, 2010. The PCC was with retrospective effect from November 26, 2009, as a result of which it was eligible for a bonus for early completion. However, the final completion certificate came from September 16, 2010, following which the company invoked arbitration against HMDA. FE could not ascertain the latest status of the the arbitration.
REL registered annuity income of Rs 63 crore and a net profit of Rs 1.19 crore during FY15. In FY14, the company recorded an annuity income of Rs 63 crore and a net profit of Rs 0.73 crore. At last count, REL’s term loans and long-term bank facilities were downgraded to ‘D’ or default rating due to ongoing delays in debt servicing owing to the company’s tight liquidity position on account of delayed receipt of annuities and absence of support from the promoters.
The debt-laden Ramky has been trying to divest its road assets for over a year now. However, the exercise has remained very slow. In 2014, the company had signed a term sheet with the Ajay Piramal Group for the sale of three road assets, but the deal fell through.
In March last year, the company’s debt was restructured under joint lenders’ forum. Ramky’s debt restructuring package is R2,700 crore. Six lenders comprising State Bank of India, State Bank of Hyderabad, Punjab National Bank, IDBI Bank, ICICI Bank and Axis Bank participated in the restructuring.

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