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Indian Weekly Economic review

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Weekly newsletter

  1. 1. Top Headlines Piramal Buys Additional 5.5% In Vodafone; Essar Exits Completely VC-backed India Homes Raises $4M; Eyes another $6M Funding. SBI waives service fee on SME loans. Halcyon Buys Delhi Hospital Management Rights for $77M Saban Capital Opens Asia Office. AMR Infrastructure to invest Rs 1,200 crore on township at Greater Noida. Song Investment Appoints Kartik Srivatsa As New Advisor For India Temasek Sells 1.4% Of ICICI Bank For $300M Batelco Sells Entire 42.7% In STel For $174.5M To Local Partner Thomas Cook Puts Indian Arm On Block, Stake Currently Valued At $178M Flipkart Acquires Letsbuy; Common Investors Get Consolidated Play Deutsche Bank Exits Lodha Project For $508M Kotak Private Equity Backs Minda Corporation. Future Group partners Disney to launch cookies 1
  2. 2. Weekly Economic ReviewThe government has thrown a lifeline to India’s struggling aviationindustry. And two carriers, Kingfisher and Air India, are expected to bethe biggest beneficiaries. On Tuesday a group of ministers has decidedto allow airlines to import jet fuel directly. The move could help themcut fuel costs by up to 20%. Fuel usually accounts for about half of acarrier’s operating costs. Kingfisher Airlines, which is both loss-makingand ridden with debt, has long been pleading for direct imports.And in another key decision the same day, the group of ministersapproved Air India’s debt recast plan. That will entail converting Rs11,000 crore worth of short-term debt into long-term loans. And anotherRs7, 500 crore worth of debt will be converted into government-guaranteed bonds. Of course, the Union cabinet still has to approve thedecisions of fuel imports and Air India, but both are expected to passthrough with little trouble.Moving to the economy, government figures released on Tuesdayconfirm growth is expected to slow down to its lowest levels in threeyears. The latest advance estimate says India’s economy will grow atjust 6.9% this fiscal. That would mean India will have grown at just six-and-a-half percent between October and March. Government officialshad been predicting growth of 7-7.5%.And the gloom surrounding the economy only continued. Numbersreleased on Thursday showed India’s industrial output had drasticallyslowed down in December. The index of industrial production increasedjust 1.8% during the month. Of course, the new figure completelycontradicts the HSBC Purchasing Managers’ Index, which showed astrong gain in production in December. But Finance Minister PranabMukherjee admitted the numbers were disappointing and said he hopedfor a pick-up in a couple of months 2
  3. 3. Moving to earnings, the country’s biggest telecom firm, Bharti Airtel, hasdisappointed investors by reporting a fall in profits for an eighthstraight quarter. Consolidated net profit tumbled 22% to Rs1, 011 crore.That was on a 17% rise in revenues to Rs18, 477 crore. In India, BhartiAirtel reported a 6% drop to Rs187. And in Africa it fell 3% to $7.1.Meanwhile, another giant firm has done even worse. India’s largeststeelmaker, Tata Steel, posted losses for the first time in more than twoyears. The company reported a loss of Rs687 crore in the third quarter,compared to a profit of Rs949 crore in the same period the previousyear. That was despite a 15% rise in net sales to Rs32, 964 crore. Steeland other metal companies are already suffering from a high input costsand low demand from Europe. Steel firms have also had to write downtheir inventories because market prices have fallen.And finally, there’s a shake-up in India’s young e-commerce industry,with Flipkart Online Services acquiring online electronics retailerLetsbuy.com. The deal is estimated to be worth $25-30 million. 3
  4. 4. Inside The StoryPiramal Buys Additional 5.5% in Vodafone; Essar ExitsCompletelyPiramal Healthcare Ltd said on Saturday it would buy a 5.5 percentstake in Vodafones India unit from Essar for 30 billion rupees, taking itstotal stake in the mobile company to about 11 percent. The sale willMark the exit of Essar as Vodafones joint venture partner in India afterthe London-listed company last year sealed a long awaited deal to buyout Essar in July. Vodafone last year bought 22 percent of Essar andPiramal bought 5.5 percent. The worlds biggest cellular carrier byRevenue, Vodafone is the largest overseas corporate investor in India.The transaction contemplates various exit options for Piramal, includingboth participation in a potential IPO of the unit and a sale of its stakeback to Vodafone, the Indian firm said in a statement.VC-backed India Homes Raises $4M; Eyes another $6MFundingDelhi-based India Homes (formerly Agni Property Services Pvt Ltd), aproperty services company, has raised $4 million from existing backersHelion Venture Capital and Foundation Capital. The firm is seeking toRaise another $6 million in the coming fiscal.IndiaHomes will utilize thecapital to make foray into the e-commerce space and fund its GoldmineProject – an online pricing system which features real estate productson the basis of comfort, luxury, market demand and availability. Thecompany also aims to achieve a growth rate of 300-400 per cent andenvisages a gross transaction value of Rs 1000 crore in 2012 and Rs3500 crore in 2013.SBI waives service fee on SME loansCountrys largest lender State Bank of India has decided to waiveguarantees and annual service fees on loans given to small and medium 4
  5. 5. Businesses, guaranteed under the Credit Guarantee Fund Trust scheme.To improve credit flow to the SME sector, the government- appointedCredit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)acts as a guarantor for loans up to Rs 1 crore. CGTMSE charges theabove-mentioned twin fees to borrowers. The Trust, which came intobeing four years ago, charges a guarantee fee ranging from 1 to 1.5 percent of the loan amount, while the annual service fee ranges from 0.50-0.75 per cent.Halcyon Buys Delhi Hospital Management Rights for $77MAbhay Soi-led alternative asset management firm Halcyon Finance &Capital Advisors Pvt Ltd has acquired the management anddevelopment rights of a South Delhi-based super specialty hospital fromthe Sikh Gurdwara Management Committee for Rs 375 crore ($77million). The deal has been carried out through its healthcare armRadiant Life Care Pvt Ltd, which has purchased the rights to manageGuru Harkishan hospital for a period of 30 years, according to acompany statement. Spread over 11.43 acres of land, the hospital will bedeveloped in phases. Halcyon plans one million sq. ft. of development,including a 700-bed super-specialty healthcare facility and suitable.Infrastructure like research centers and a medical college for alliedhealthcare activities, the statement adds. With this acquisition, we planto have the largest inventory of beds in the national capital region(NCR). The whole point of having this hospital in the NCR region is totarget patients from states like Haryana, Punjab, Madhya Pradesh,Rajasthan and the North East, up to Nepal.Saban Capital Opens Asia OfficeSaban Capital Group, a private investment firm founded by media mogulHaim Saban, has opened an Asia office in Hong Kong. Set up by itswholly owned subsidiary Saban Capital Group (Asia), the office is led bySumeet Jaisinghani, who has re-located to Hong Kong from Saban 5
  6. 6. Capital Group’s Los Angeles office and serves to expand the firm’sinvestment activities in Asia, including India.Saban formed SabanEntertainment, an international television, production, distribution andmerchandising company that produced The X-Men and other showsaround Marvel Comics characters. In 1995, he merged his company withRupert Murdoch’s Fox Kids Network, which was acquired by The WaltDisney Company for $5.3 billion in 2001. He has an estimated currentnet worth of $3.5 billion and is ranked by Forbes as the 104th richestperson in the USA.AMR Infrastructure to invest Rs 1,200 crore on townshipat Greater Noida.Realty firm AMR Infrastructure today said it is developing an integratedtownship at Greater Noida with an investment of Rs 1,200 crore. "The25-acre project includes IT office space, residential units and a shoppingmall. The shopping area will be a kind of adventure sports mall, whereOver 45 kinds of activities will be offered," AMR InfrastructureManaging Director Kapil Aggarwal told reporters here. Asked aboutinvestment, he said, "The total cost of the project is Rs 1,200 crore. Wehave already put in Rs 600 crore". The company would fund theseinvestments through internal accruals and sales to customers, he added.Song Investment Appoints Kartik Srivatsa as New Advisorfor IndiaHyderabad-based Song Investment Advisors has announced aleadership change with departure of founder and managing directorVishal Vasishth. Aspada Capital Advisors LLP, led by Songscurrent investment manager Kartik Srivatsa, will manage Song’sexisting portfolio of investments. Song Investment manages a $17million fund whose investors include search giant Google Inc., SorosEconomic Development Fund and Omidyar Network. The firm recently 6
  7. 7. Invested in two companies - secondary care hospital chain Be WellHospitals and potato supply chain management company SV AgroProcessing.Temasek Sells 1.4% of ICICI Bank for $300MSingapore’s sovereign wealth fund Temasek sold close to half of itsstake in India’s second largest lender by the size of balance sheet (andsecond largest private bank by market value) for Rs 1,472 crore($300million) through open market transactions on the stock exchange onWednesday. A large chunk of the shares were acquired by aninvestment arm of Goldman Sachs.Batelco Sells Entire 42.7% in STel for $174.5M to LocalPartnerBahrain Telecommunications Co (Batelco) has struck a deal to sell itsentire 42.7 per cent holding in STel Private Limited (STel), an Indianmobile operator, to its local joint venture partner Sky City FoundationLimited for $174.5 million, the company said on Wednesday. This makesit the first foreign investor to announce an exit from India after thecountry’s apex judiciary in a landmark judgment last week scrapped122 telecoms licenses as part of a corruption problem.Thomas Cook Puts Indian Arm on Block, Stake CurrentlyValued At $178MTravel services firm Thomas Cook Group plc said on Wednesday it hasformally launched a sale process for its 77.1 per cent stake in the publiclisted India unit, Thomas Cook (India) Limited. At current market pricethe sale could fetch the British firm Rs 880 crore or $178 million,helping reduce debt on the balance sheet of the parent firm. ThomasCook India says it is the largest integrated foreign exchange and travel 7
  8. 8. Services Company in the country. Its services include foreign exchange,outbound and inbound leisure travel, corporate travel and insurance.Flipkart Acquires Letsbuy; Common Investors GetConsolidated PlayFlipkart.com, the largest online retailer in India, is buying outLetsbuy.com, a specialised e-commerce site run by the two-and-a-half-year-old start-up eTree Marketing Pvt Ltd. The deal marks yet anotherconsolidation move in a bustling e-commerce industry in India that hasseen a string of sites folding up recently, even as many others areattracting hyper interest from venture capital and private equityinvestors. The acquisition is a combination of cash and equity, and thefounders of Letsbuy, along with their 350-plus team, will continue tofunction independently with the added advantage of being able toaccess Flipkart’s superior technology platform and supply chaincapabilities,” the company said.Speaking about the acquisition, Flipkartco-founder and CEO Sachin Bansal said, “This acquisition fits into ourstrategy of building dominant shares in all categories where we operateDeutsche Bank Exits Lodha Project for $508MDeutsche Bank has exited its investment into one of the projects ofMumbai-based property firm Lodha Developers for Rs 2,542 crore($508 million), pocketing returns of 55 per cent or Rs 902 crore ($180million) for its over four-year-old investment.This comes as yet anotherexit in the Indian realty space, which has been abuzz with private equityfunds selling their investments made during the heyday of Indian realtyin 2007.In September 2007, Deutsche Bank invested Rs 1,640 crore bysubscribing to optionally convertible debentures (OCDs) of Lodha’ssubsidiary Cowtown Land Development Ltd. It has now fully exited theinvestment it had made in the company by selling the stake to theproperty developer.The Lodha Group funded the buyback throughinternal accruals worth Rs 1,720 crore and fresh fundraising of Rs 825crore. 8
  9. 9. Kotak Private Equity Backs Minda CorporationKotak Private Equity Group has invested in automotive component firmMinda Corporation Ltd, the flagship of the $555 million Spark Minda orthe Ashok Minda Group. The deal has seen the arm of the private sectorlender Kotak Mahindra Bank acquire a minority stake in the companyfor around Rs 125 crore,“From our perspective, auto componentshappen to be a growing opportunity, especially as the two-wheelersegment continues to do well. We continue see good number in autosales, especially in rural areas, and in terms of aspirations of moving toluxury cars,” said Nitin Deshmukh, CEO of Kotak PrivateEquity.Although Deshmukh did not disclose the size of the investment,We learnt that the transaction was done in two tranches where KotakPrivate Equity had initially picked up stake in 2011 for Rs 80 crore,followed by a second tranche of Rs 45 crore ago.Future Group partners Disney to launch cookiesIndia’s largest retailer Future group has partnered Disney to launch thecountrys first cookies for kids under its own brand - Brand Tasty Treat.The retailer feels that while the cookie sub-segment is growing threetimes faster than the overall biscuits market, the kids segment isvirtually untapped. With the launch, Future group is targeting 20% ofthe cookie category in over 200 Big Bazaar stores. The launch alsostrengthens the fact that children are fast becoming decision makers formany categories such as instant noodles and shampoos that marketersare now tapping to launch products specially designed for the youngertarget audience. 9
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