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Indian Economic Review

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Weekly newsletter

  1. 1. Top Headlines Nalanda Capital Ups Stake In Ahluwalia Contracts To 11.25% Providence, Macquarie Buy Star Indias Stake in Hathway for $72M. Everstone Capital In Talks To Buy Majority Stake In Salon Chain YLG Varroc Group Acquires Visteon’s Auto Lighting Biz For $92M Rail Budget 2012: Govt Bucks Populist Trend To Raise Fares Reliance Equity Advisors To Invest $20M In Appliance Maker Butterfly GIC Expands Healthcare Portfolio With $100M In Vasan Healthcare Budget Review The Budget happens once a year but sets the direction for the year ahead. While it is clearly an important event, it does not take away the fact that finally the shape is determined by how various elements of economy perform through the year. While the government can provide certain exogenous support, it has to operate within the overall constraints. People often tend to overestimate the bounds within which finance ministers have to operate. As the recent financial crisis demonstrated, India’s growth is ultimately going to be a function of growth in the world. With global growth still remaining uncertain, India’s growth rates in the next few years will likely remain lower than those between 2003 and 2008.The trade and current account deficits, global commodity prices and financial flows are the three main channels through which impact is exerted. Secondly, India’s growth in the recent past has been driven mainly by reforms, 1
  2. 2. While it was supported by external stimulus through various socialinclusion schemes, pay-commission, etc.However, with the shortages in fuel, growing import dependence forenergy and rising prices of energy, India’s growth is vulnerable toexternal shocks. This introduces uncertainties in forecasts and reducescontrol over key variables. This has impacted investment sentimentwith several power projects now expected to make lower returns. Landand labor have also impacted growth through delays in implementationof several infrastructure projects affecting profitability and investmentclimate.Lastly, government’s programmes have had an influence on labourincomes affecting food prices as productivity stagnated.Considering theconstraints, it was clear that deficits would remain at elevated levels,unless there is political will to take tough actions of price increases,which, in turn, would stoke inflation in the short term, but would still bemore advisable in the longer term.While the 5.1% target for FY13 seemsaggressive (due to lower provisions for subsidies and probably higherassumptions for growth), we think that a bigger concern would simplybe economic growth and the required reforms to enable the same. IfIndia manages 7.6% forecast growth, we think there is some space forsocial programmes to co-exist with private sector growth.However, without a second wave of reforms and lingering issues ofsubsidies/insufficient pass through of cost increases, we think there is arisk to these forecasts.While several measures have been announced(Rajiv Gandhi equity saving scheme, simplifying IPO process, allowingQFIs to access Indian bond market, bank recapitalisations, introductionof bills on pension, banking, insurance in this session, further thrust oninvestment in infrastructure), the key challenge is implementation.While the government has also set out a plan to reduce deficits to 3.9%by FY15, the risks emerge from factors beyond our control.These external challenges can still be overcome by ensuring strongfocus on implementation of reforms and debottlenecking growthconstraints. A higher growth can easily support policy objectiveswithout stifling private sector. 2
  3. 3. Inside The StoryNalanda Capital Ups Stake in Ahluwalia Contracts To11.25%Singapore-based Nalanda Capital has increased its holding inconstruction firm Ahluwalia Contracts (India) Ltd to 11.25 per cent,bringing down the average cost of its purchase. Over the past threeweeks, Nalanda acquired more than 2.2 per cent stake in the firm for Rs10-12 crore. It also picked up over 2 per cent stake during the October-December period in 2011, according to BSE data. Nalanda Capital,headed by former Warburg Pincus India MD Pulak Prasad, currentlymanages over $875 million across two public market-focused funds forIndia. In the recent months, it has been increasing its holding in anumber of existing portfolio companies like IT consultancy services firmMindTree Ltd, battery maker Exide Industries, precision castings makerRatnamani Metals and Tubes and plastic products manufacturerSupreme Industries.Providence, Macquarie Buy Star Indias Stake in HathwayFor $72M.A News Corp arm has sold its 17.3 per cent stake in cable operatorHathway Cable & Datacom Ltd. to two financial investors for Rs 358crore or $71.36 million. Private-equity firm Providence Equity AdvisorsMauritius Ltd and Macquarie Bank Ltd., a unit of Australias MacquarieGroup Ltd,. Have acquired Star Indias 24.72 million shares held viaMauritius-based Asian Cable Systems Pvt. Ltd. for Rs 145 a share. This isa discount of about 18.5% to Hathways closing share price of Rs 177.90on Friday on the National Stock Exchange. The deal would giveProvidence 9.9 per cent stake in Hathway for Rs 205 crore, while theremaining 7.4 per cent was acquired by Macquarie for Rs 153 crore.Providence bought over 14.14 million shares and Macquarie 10.55million shares on the National Stock Exchange. 3
  4. 4. Everstone Capital In Talks To Buy Majority Stake In SalonChain YLGPrivate equity fund Everstone Capital is in talks with Bangalore-basedbeauty and spa salon chain You Look Great (YLG) including its existingfinancial investor Helion Venture Partners, to pick up a majority stake inthe company, a person with direct knowledge of the matter said.HelionVenture is expected to stay put as an investor even if Everstone is ableto strike the deal to pick majority stake in YLG.Majority stake buys byPE firms in consumer companies are gaining currency. Earlier, IndiaEquity Partners picked up a majority stake in Delhi-based restaurantchain Sagar Ratna.Varroc Group Acquires Visteon’s Auto Lighting Biz For$92MAurangabad-based privately held auto component maker Varroc Groupis acquiring automotive lighting business of NYSE-listed VisteonCorporation for $92 million in cash. The transaction, which is subject toRegulatory reviews and other conditions, is expected to be completed inthe third quarter of 2012, according to a company statement. TheBusiness being acquired includes a range of exterior lighting productssupplied to global vehicle manufacturers, including front and rearlighting systems, auxiliary lamps and key subcomponents such asprojectors and electronic modules. The unit had revenues of $531million in 2011 with operations in Europe, North America and Asia.Rail Budget 2012: Govt Bucks Populist Trend To RaiseFaresIndia will raise railway passenger fares for the first time in eight years,snapping a populist trend to help mend the finances of a creakingnetwork that is a bottleneck for growth in Asias third-largest economy.The railway budget, released on Wednesday, precedes the union budget,to be presented in parliament by Finance Minister Pranab Mukherjee onFriday, which is expected to push fiscal deficit reduction amid slowingeconomic growth and high inflation. Passenger fares were last raised 4
  5. 5. before the Congress party won its first term in office in 2004. Therefusal by successive ministers to raise fares has strained the ministrysfinances, which in turn has sapped the amount of money available to laynew track and modernize services.Reliance Equity Advisors To Invest $20M In ApplianceMaker ButterflyA fund managed by Reliance Equity Advisors Ltd, the private equity armof Anil Ambanis Reliance Capital, is picking up a stake in kitchenappliances maker Butterfly Gandhimathi Appliances Ltd for Rs 100crore ($20 million).The deal will mark a milestone in the turnaround forthe Chennai-based firm which came out of debt restructuring in 2008 isNow seeing over 100 per cent growth in topline year-on-year. ButterflyGandhimathi Appliances, which is listed on the Bombay Stock Exchange,Said it is raising the funding from Reliance Alternative InvestmentsFund - Private Equity Scheme-I. Butterfly Gandhimathi will sell a 13.7per cent stake (post issue), implying a valuation of Rs 730 crore for thefirm. The shares are being issued to Reliance Equity fund at Rs 408 apiece. The share price of Butterfly Gandhimathi closed at Rs 406.6, up 3per cent on Wednesday in a strong Mumbai market. The firm iscurrently trading near its 52-week high of Rs 420 per share.GIC Expands Healthcare Portfolio with $100M In VasanHealthcareIn one of the largest private equity deals in healthcare sector in India,Government of Singapore Investment Corporation (GIC), the sovereignwealth fund of Singapore, has invested $100 million for a minority stakein Tamil Nadu headquartered eye care chain Vasan Healthcare. GIC willget a board seat in the company.GIC had earlier invested $100 millionthrough FCCBs in Fortis, Indias second-largest hospital company.These were converted into a 6.24 per cent stake last year. It was alsoplanning to invest $84 million through a preferential share allotmentwhich got dropped. 5
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