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Asian Voice - Saturday 2nd June 2012
Vodafone delays IPO plan on Trai’s proposals
Dear Financial Voice Reader, I write from India, having sponsored in the UK a private equity and venture capital investment conference focussed on India. Below is an amalgam of notes from interviews with business persons and analysts in India. Who will be the next PM? Probably Modi but he has enemies in his party and the Americans and Brits and local population keep the cloud of Ghodra where dozens on Hindus died going. This is a tired government now just biding time and preserving what its officials have accumulated and avoiding charges by remaining in power. What of inflation? The problem is not prices but supply. Availability is often lacking. What is going for India? Growth brings hope and rising prices are therefore not such an issue. What of the plunging rupee? We wonder how much is to do with the anticipated tax amnesty which will see repatriation of rupees for a flat tax rate and thereafter see a return to more normal times. How about sectors? Daimler’s new truck will make it difficult for Ashok Leyland and Tata as it is a specific truck for India based on a lot of research and total cost of ownership not just initial price. We would not invest in property developments. There is an oversupply and so prices cannot hold. In Mumbai sure where government officials will hold on the prices sustain themselves. Indian property boom was not debt ladened like in West due to RBI and conservative policies and do will not be like Spain. But we would not go near construction companies. Their accounts are very murky whenever we’ve examined them. Steel we like due to domestic demand. Domestic demand businesses we like too because they are not negatively impacted by the exchange rate. Insurance we certainly would not want opened up because we believe the likes of AIG are undercapitalized. We do like Indian banks for their relative conservatism. European problems confirm why India should open slowly. Is consumption fueled by credit? No. The lessons from Europe and savings culture plus growth has protected against debt. Just look at pay day loan Apr in US and pawn agents in India. Ie a factor of 10 difference reflecting lack of demand in India and reflecting Indian savings culture and conservatism in budgeting. What of corruption? Anna Hazare makes no difference at all to daily corruption. Politicians have become greedier than ever. Now they want to be fully fledged business owning partners. From where is growth coming? Productivity gains from Western management practices will help growth and this is often underestimated. Would you invest in UK? Yes in fact we are looking for innovations and technologies. These things take so long in India that we can accelerate through investing abroad. But reporting of capital requirements to Indian banks and central authorities means we would rather have a local investor into the subsidiary in UK if it's a startup as there would be no profits to repatriate for several years and we need to explain why to our Indian authorities. What of Vodafone? We were surprised by SC decision but welcomed it for it standing up to the Government, but believe Hutch should have paid the tax as it was an avoidance scheme. Investment into India is shown to be a frontier market but it will not stop funds coming from retailers but private equity funds may well think twice and slow down. Prices are unrealistic for many assets and so projected returns unrealistic too. What of Europe? We like the UK because it is closer than US and not in Euro and English speaking. But have US investments of course. Peer to peer consumer business models are especially interesting due to India's savings rate and population. Outside of India's borders what concerns you the most? Iran as oil price shocks would not be good. Will Kingfisher go under? No. The Government is under writing its payments and will not permit it to fail as routes are vital to growth. Tata Motors? It did well from JLR but the history of profitability from the car industry is not a happy one. What of energy needs? Nuclear power through Japanese alliances and French is essential and on going. Power remains a massive problem and barrier to growth. And hotels? Growth and overseas visitors definitely slowed. It's all ROI now not like 2007.
Alpesh Patel (alpesh.patel@tradermind.com)
Vodafone’s plans to have an initial public offering (IPO) for its India unit may be delayed as the British telco battles a slew of regulatory pressures in a key growth market. The company’s shareholders would not see this as the appropriate time to give a nod with uncertainties surrounding the sale of spectrum, said Vodafone India MD & CEO Marten Pieters. “We would need certainty around the business. The proposal is not off the table but it is about getting the timing right,” he said at a press conference to announce the financial results of the local arm.
Vodafone India, the s e c o n d largest telecom operator in India by both revenue and subscriber base, said its annual revenue jumped 19.5% to Rs 321.84 billion, as it cornered 20.6% revenue share of the Indian telecom market. Vodafone’s adjusted operating profit from the India business stood at 60 million pounds, compared to 15 million pounds in the previous year. Vodafone said its
Indian subscriber base crossed 150 million as average revenue per user reached Rs 180 in the fourth quarter of the last fiscal. The telco had 35.4 million data users, reporting 81.5% growth over the previous year. The global giant’s big concern remains servicing the Rs 300 billion
JLR planning to set up manufacturing facility in India
Just months after finalising its joint venture with Chinese auto major Chery Automobile, Tata Motorsowned Jaguar Land Rover has begun a feasibility study to manufacture its vehicles in India. It is learnt that JLR is considering setting up a plant either in Pune (Maharashtra) or Sanand (Gujarat) to produce the next generation Defender. The factory is also likely to house an engine plant. This site will be a separate facility from the existing assembly plant that JLR has at Chikhale near Pune, where it currently assembles Freelander SUV. It is same premises that were earlier used by Mercedes Benz. The outcome of the feasibility study is expected by the second half of 2012. People close to the company say, the study is "at a very initial stage".
However, if the result is positive, the plant is likely to come up by the middle of 2015. According to sources, the plant is likely to have a capacity of 30,000 to 40,000 units per annum. "JLR is very keen to set up a base. Different teams of the project L660 (the next generation Defender) have visited India several times. They are keen to use this as an export hub with almost 60-80 per cent (of the output) to be shipped to overseas market," said the source. A spokesperson replied: "We are now in a 'closed' period ahead of the Tata Motors earnings
announcement on the May 29. I, therefore, cannot comment on your points." The next generation Defender is likely to be powered by I4D (inline turbocharged 4 cylinders) 2-litre diesel engine codenamed AJ200 that is likely to deliver 170-250 of horse power. This engine is also likely to be manufactured at the proposed engine plant, which JLR has announced in the past. The thought process within the company is to have an engine plant that will have a capacity to manufacture 50,000 units per annum, with a bulk of the vehicles manufactured in India being earmarked for exports. India, being home to its owners, could well be JLR's third manufacturing base after the UK and China. The company is also exploring South America (Brazil) for a base.
debt with an IPO unlikely to happen this year, which could seriously impact the profitability of Indian operations. The declining stock market would be another factor, besides regulatory uncertainties, delaying the listing plans. Trai’s recommendations for re-auctioning of 2G spectrum include a fresh base price that’s almost 10 times more than what telecom operators paid in 2008. This, along with a proposed refarming of airwaves, has been opposed by all operators. Pieters said that these recommendations were “economically unattractive.”
Facebook IPO faces US regulatory probe American authorities have reportedly launched an investigation into Facebook's multi-billion initial public offering, as the social networking giant rounded off the worst start for a major US flotation in five years. Facebook shares slumped 8.9 per cent in the wake of reports that two of the banks that helped advice Facebook on the IPO cut their sales forecast for the company over the last fortnight. According to a Wall Street Journal report, the reductions from Morgan Stanley and Goldman Sachs may not have reached all investors before they bought shares in the 104 billion-dollar float. Rick Ketchum, the head of the Financial Industry Regulatory Authority, said that “the allegations, if true, are a matter of regulatory concern.”
Record FDI outflows ring alarm bells in India Domestic uncertainties like policy flip-flops, combined with global risk aversion, is prompting foreign companies to increasingly repatriate their investments, categorized as foreign direct investment (FDI), out of India during the last three years ended December 2011. Compared to FDI repatriation (also termed as FDI debit) of a few million dollars between 2000 and 2008, this figure jumped to $3.1 billion in 2009 and further to $10.7 billion in 2011, a report by global financial powerhouse Nomura said. This is alarming because FDI flows, which comes under a country's capital account, are more stable compared to portfolio flows. An outflow from this side of the overall balance of payment (BoP) is perceived as a serious issue for policy makers. Although total FDI flows are still in the positive territory, estimated at about
nearly $20 billion for the year 2011-12, increasing FDI debit could turn out to be, among other issues, another drag on the strength of the rupee. "FDI into India has risen exponentially since the 2000s. However, over the last three years some of this money is being repatriated," noted the research report by Nomura analysts Sonal Varma and Aman Mohunta. "Global deleveraging may have forced companies to sell their Indian assets and repatriate funds to their home country. At the same time, domestic push factors such as slowing potential growth, the high cost of doing business (in India) and regulatory uncertainty have weakened the investment climate, likely causing this erosion. This is not a good sign," the analysts said. "FDIs are seen to be stable money, which (among a host of positives) also leads to more
innovations and better technology transfer into the country which combines to lead to productivity gains," Varma said. More than its impact on the trajectory of rupee, "this ( FDI outflows) is a bigger issue since it affects growth," Varma said. Since touching a high of 9.8% during the quarter ended September 2009, India's GDP growth has slowed to 6.1% in the quarter ended December 2011. The country's current account has been is in the negative territory for the last few years, while during the quarter ended December 2011, its balance of payments also
entered the negative zone with a deficit of $12.8 billion, government data showed. During the year ended March 2011 India's current account was at $52.2 billion which is now estimated to top $73 billion when the final data for the year ended March 2012 are published, a report by Barclays Capital showed. Global risk-related issues and the recent government decisions that hindered flow of foreign money into India are likely to have affected FDI and also foreign institutional investments into India. "However, foreign selling of equities and bonds has been muted, particularly compared with other EM (emerging market) Asia economies," the Barclays Capital report noted. "In the case of equities this has been partly due to the "sticky" nature of M&Arelated inflows and limited foreign ownership of Indian equities," it said.