Indian Economic Review

1. Top Headlines
 Nalanda Capital Ups Stake In Ahluwalia Contracts To
11.25%
 Providence, Macquarie Buy Star India's 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,
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2. While it was supported by external stimulus through various social
inclusion schemes, pay-commission, etc.
However, with the shortages in fuel, growing import dependence for
energy and rising prices of energy, India’s growth is vulnerable to
external shocks. This introduces uncertainties in forecasts and reduces
control over key variables. This has impacted investment sentiment
with several power projects now expected to make lower returns. Land
and labor have also impacted growth through delays in implementation
of several infrastructure projects affecting profitability and investment
climate.
Lastly, government’s programmes have had an influence on labour
incomes affecting food prices as productivity stagnated.Considering the
constraints, 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 be
more advisable in the longer term.While the 5.1% target for FY13 seems
aggressive (due to lower provisions for subsidies and probably higher
assumptions for growth), we think that a bigger concern would simply
be economic growth and the required reforms to enable the same. If
India manages 7.6% forecast growth, we think there is some space for
social programmes to co-exist with private sector growth.
However, without a second wave of reforms and lingering issues of
subsidies/insufficient pass through of cost increases, we think there is a
risk to these forecasts.While several measures have been announced
(Rajiv Gandhi equity saving scheme, simplifying IPO process, allowing
QFIs to access Indian bond market, bank recapitalisations, introduction
of bills on pension, banking, insurance in this session, further thrust on
investment 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 strong
focus on implementation of reforms and debottlenecking growth
constraints. A higher growth can easily support policy objectives
without stifling private sector.
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3. Inside The Story
Nalanda Capital Ups Stake in Ahluwalia Contracts To
11.25%
Singapore-based Nalanda Capital has increased its holding in
construction firm Ahluwalia Contracts (India) Ltd to 11.25 per cent,
bringing down the average cost of its purchase. Over the past three
weeks, Nalanda acquired more than 2.2 per cent stake in the firm for Rs
10-12 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, currently
manages over $875 million across two public market-focused funds for
India. In the recent months, it has been increasing its holding in a
number of existing portfolio companies like IT consultancy services firm
MindTree Ltd, battery maker Exide Industries, precision castings maker
Ratnamani Metals and Tubes and plastic products manufacturer
Supreme Industries.
Providence, Macquarie Buy Star India's Stake in Hathway
For $72M.
A News Corp arm has sold its 17.3 per cent stake in cable operator
Hathway Cable & Datacom Ltd. to two financial investors for Rs 358
crore or $71.36 million. Private-equity firm Providence Equity Advisors
Mauritius Ltd and Macquarie Bank Ltd., a unit of Australia's Macquarie
Group Ltd,. Have acquired Star India's 24.72 million shares held via
Mauritius-based Asian Cable Systems Pvt. Ltd. for Rs 145 a share. This is
a discount of about 18.5% to Hathway's closing share price of Rs 177.90
on Friday on the National Stock Exchange. The deal would give
Providence 9.9 per cent stake in Hathway for Rs 205 crore, while the
remaining 7.4 per cent was acquired by Macquarie for Rs 153 crore.
Providence bought over 14.14 million shares and Macquarie 10.55
million shares on the National Stock Exchange.
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4. Everstone Capital In Talks To Buy Majority Stake In Salon
Chain YLG
Private equity fund Everstone Capital is in talks with Bangalore-based
beauty and spa salon chain You Look Great (YLG) including its existing
financial investor Helion Venture Partners, to pick up a majority stake in
the company, a person with direct knowledge of the matter said.Helion
Venture is expected to stay put as an investor even if Everstone is able
to strike the deal to pick majority stake in YLG.Majority stake buys by
PE firms in consumer companies are gaining currency. Earlier, India
Equity Partners picked up a majority stake in Delhi-based restaurant
chain Sagar Ratna.
Varroc Group Acquires Visteon’s Auto Lighting Biz For
$92M
Aurangabad-based privately held auto component maker Varroc Group
is acquiring automotive lighting business of NYSE-listed Visteon
Corporation for $92 million in cash. The transaction, which is subject to
Regulatory reviews and other conditions, is expected to be completed in
the third quarter of 2012, according to a company statement. The
Business being acquired includes a range of exterior lighting products
supplied to global vehicle manufacturers, including front and rear
lighting systems, auxiliary lamps and key subcomponents such as
projectors and electronic modules. The unit had revenues of $531
million in 2011 with operations in Europe, North America and Asia.
Rail Budget 2012: Govt Bucks Populist Trend To Raise
Fares
India will raise railway passenger fares for the first time in eight years,
snapping a populist trend to help mend the finances of a creaking
network that is a bottleneck for growth in Asia's third-largest economy.
The railway budget, released on Wednesday, precedes the union budget,
to be presented in parliament by Finance Minister Pranab Mukherjee on
Friday, which is expected to push fiscal deficit reduction amid slowing
economic growth and high inflation. Passenger fares were last raised
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5. before the Congress party won its first term in office in 2004. The
refusal by successive ministers to raise fares has strained the ministry's
finances, which in turn has sapped the amount of money available to lay
new track and modernize services.
Reliance Equity Advisors To Invest $20M In Appliance
Maker Butterfly
A fund managed by Reliance Equity Advisors Ltd, the private equity arm
of Anil Ambani's Reliance Capital, is picking up a stake in kitchen
appliances maker Butterfly Gandhimathi Appliances Ltd for Rs 100
crore ($20 million).The deal will mark a milestone in the turnaround for
the Chennai-based firm which came out of debt restructuring in 2008 is
Now seeing over 100 per cent growth in topline year-on-year. Butterfly
Gandhimathi Appliances, which is listed on the Bombay Stock Exchange,
Said it is raising the funding from Reliance Alternative Investments
Fund - Private Equity Scheme-I. Butterfly Gandhimathi will sell a 13.7
per cent stake (post issue), implying a valuation of Rs 730 crore for the
firm. The shares are being issued to Reliance Equity fund at Rs 408 a
piece. The share price of Butterfly Gandhimathi closed at Rs 406.6, up 3
per cent on Wednesday in a strong Mumbai market. The firm is
currently trading near its 52-week high of Rs 420 per share.
GIC Expands Healthcare Portfolio with $100M In Vasan
Healthcare
In one of the largest private equity deals in healthcare sector in India,
Government of Singapore Investment Corporation (GIC), the sovereign
wealth fund of Singapore, has invested $100 million for a minority stake
in Tamil Nadu headquartered eye care chain Vasan Healthcare. GIC will
get a board seat in the company.GIC had earlier invested $100 million
through FCCBs in Fortis, India's second-largest hospital company.
These were converted into a 6.24 per cent stake last year. It was also
planning to invest $84 million through a preferential share allotment
which got dropped.
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